<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY --
HARTFORD PATHMAKER VARIABLE ANNUITY
SEPARATE ACCOUNT SIX
P.O. Box 5085
Hartford, Connecticut 06102-5085
Telephone: 1-800-862-6668 (Contract Owners)
1-800-862-7155 (Registered Representatives)
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This prospectus describes information you should know before you purchase
Hartford Pathmaker variable annuity. Please read it carefully.
The Hartford Pathmaker variable annuity is a contract between you and Hartford
Life and Annuity Insurance Company where you agree to make at least one Premium
Payment to us and we agree to make a series of Annuity Payouts at a later date.
This Annuity is a flexible premium, tax-deferred, variable annuity offered to
both individuals and groups. It is:
x Flexible, because you may add Premium Payments at any time.
x Tax-deferred, which means you don't pay taxes until you take money out or
until we start to make Annuity Payouts.
x Variable, because the value of your Annuity will fluctuate with the
performance of the underlying funds.
At the time you purchase your Annuity, you allocate your Premium Payment to
"Sub-Accounts." These are subdivisions of our Separate Account, an account that
keeps your Annuity assets separate from our company assets. The Sub-Accounts
then purchase shares of mutual funds set up exclusively for variable annuity or
variable life insurance products. These funds are not the same mutual funds that
you buy through your stockbroker or through a retail mutual fund. They may have
similar investment strategies and the same portfolio managers as retail mutual
funds. This Annuity offers you Funds with investment strategies ranging from
conservative to aggressive and you may pick those Funds that meet your
investment goals and risk tolerance. The Sub-Accounts and the Funds are listed
below:
- - One Group Investment Trust-Registered Trademark- Bond Sub-Account which
purchases shares of the One Group Investment Trust Bond Portfolio
- - One Group Investment Trust Diversified Equity Sub-Account which purchases
shares of the One Group Investment Trust Diversified Equity Portfolio
- - One Group Investment Trust Diversified Mid Cap Sub-Account which purchases
shares of the One Group Investment Trust Mid Cap Portfolio
- - One Group Investment Trust Large Cap Growth Sub-Account which purchases shares
of the One Group Investment Trust Large Cap Growth Portfolio
- - One Group Investment Trust Mid Cap Value Sub-Account which purchases shares of
the One Group Investment Trust Mid Cap Value Portfolio
- - Putnam Diversified Income Sub-Account which purchases Class IA shares of
Putnam VT Diversified Income Fund of Putnam Variable Trust
- - Putnam Global Asset Allocation Sub-Account which purchases Class IA shares of
of Putnam VT Global Asset Allocation Fund of Putnam Variable Trust
- - Putnam Global Growth Sub-Account which purchases Class IA shares of Putnam VT
Global Growth Fund of Putnam Variable Trust
- - Putnam Growth and Income Sub-Account which purchases Class IA shares of Putnam
VT Growth and Income Fund of Putnam Variable Trust
- - Putnam Income Sub-Account (formerly Putnam U.S. Government and High Quality
Bond Sub-Account) which purchases Class IA shares of Putnam VT Income Fund
(formerly Putnam VT U.S. Government and High Quality Bond Fund) of Putnam
Variable Trust
- - Putnam International Growth Sub-Account which purchases Class IA shares of
Putnam VT International Growth Fund of Putnam Variable Trust
- - Putnam Money Market Sub-Account which purchases Class IA shares of Putnam VT
Money Market Fund of Putnam Variable Trust
- - Putnam New Opportunities Sub-Account which purchases Class IA shares of Putnam
VT New Opportunities Fund of Putnam Variable Trust
<PAGE>
You may also allocate some or all of your Premium Payment to the "Fixed
Accumulation Feature," which pays an interest rate guaranteed for a certain time
period from the time the Premium Payment is made. Premium Payments allocated to
the Fixed Accumulation Feature are not segregated from our company assets like
the assets of the Separate Account.
If you decide to buy this Annuity, you should keep this prospectus for your
records. You can also call us at 1-800-862-6668 to get a Statement of Additional
Information, free of charge. The Statement of Additional Information contains
more information about this Annuity and, like this prospectus, is filed with the
Securities and Exchange Commission ("SEC"). We have included the Table of
Contents for the Statement of Additional Information at the end of this
prospectus.
Although we file the prospectus and the Statement of Additional Information with
the SEC, the SEC doesn't approve or disapprove these securities or determine if
the Information is truthful or complete. Anyone who represents that the SEC does
these things may be guilty of a criminal offense. This Prospectus and the
Statement of Additional Information can also be obtained from the SEC's website
(HTTP://WWW.SEC.GOV).
This Annuity IS NOT:
- A bank deposit or obligation
- Federally insured
- Endorsed by any bank or governmental agency
This Annuity may not be available for sale in all states.
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Prospectus Dated: May 3, 1999
Statement of Additional Information Dated: May 3, 1999
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Definitions................................................................................................. 4
Fee Table................................................................................................... 6
Annual Fund Operating Expenses.............................................................................. 7
Accumulation Unit Values.................................................................................... 9
Highlights.................................................................................................. 11
General Contract Information................................................................................ 12
Hartford Life and Annuity Insurance Company............................................................... 12
The Separate Account...................................................................................... 13
The Funds................................................................................................. 13
The Investment Advisers................................................................................... 14
Performance Related Information............................................................................. 16
The Fixed Accumulation Feature.............................................................................. 17
The Contract................................................................................................ 18
Purchases and Contract Value.............................................................................. 18
Charges and Fees.......................................................................................... 20
Death Benefit............................................................................................. 23
Surrenders................................................................................................ 25
Annuity Payouts............................................................................................. 26
Other Programs Available.................................................................................... 29
Other Information........................................................................................... 29
Year 2000................................................................................................. 30
Legal Matters and Experts................................................................................. 31
More Information.......................................................................................... 32
Federal Tax Considerations.................................................................................. 32
Appendix I -- Information Regarding Tax-Qualified Retirement Plans.......................................... 37
Table of Contents to Statement of Additional Information.................................................... 41
</TABLE>
3
<PAGE>
DEFINITIONS
These terms are capitalized when used throughout this prospectus. Please
refer to these defined terms if you have any questions as you read your
prospectus.
Account: Any of the Sub-Accounts or Fixed Accumulation Feature.
Accumulation Units: If you allocate your Premium Payment to any of the
Sub-Accounts, we will convert those payments into Accumulation Units in the
selected Sub-Accounts. Accumulation Units are valued at the end of each
Valuation Day and are used to calculate the value of your Contract prior to
Annuitization.
Accumulation Unit Value: The daily price of Accumulation Units on any Valuation
Day.
Administrative Office of the Company: Our location and overnight mailing address
is: 200 Hopmeadow Street, Simsbury, Connecticut 06089. Our standard mailing
address is: Investment Product Services, P.O. Box 5085, Hartford, CT 06102-5085.
Anniversary Value: The value equal to the Contract Value as of a Contract
Anniversary, increased by the dollar amount of any Premium Payments made since
that anniversary and reduced by the dollar amount of any partial Surrenders
since that anniversary.
Annual Maintenance Fee: An annual $30 charge deducted on a Contract Anniversary
or upon full Surrender if the Contract Value at either of those times is less
than $50,000. The charge is deducted proportionately from each Account in which
you are invested.
Annual Withdrawal Amount: This is the amount you can Surrender per Contract Year
without paying a Contingent Deferred Sales Charge. This amount is
non-cumulative, meaning that it cannot be carried over from one year to the
next.
Annuitant: The person on whose life the Contract is based. The Annuitant may not
be changed after your Contract is issued.
Annuity Commencement Date: The date we start to make Annuity Payouts.
Annuity Payout: The money we pay out after the Annuity Commencement Date for the
duration and frequency you select.
Annuity Payout Option: Any of the options available for payout after the Annuity
Commencement Date or death of the Contract Owner or Annuitant.
Annuity Unit: The unit of measure we use to calculate the value of your Annuity
Payouts under a variable dollar amount Annuity Payout Option.
Annuity Unit Value: The daily price of Annuity Units on any Valuation Day.
Beneficiary: The person(s) entitled to receive a Death Benefit upon the death of
the Contract Owner or Annuitant.
Charitable Remainder Trust: An irrevocable trust, where an individual donor
makes a gift to the trust, and in return receives an income tax deduction. In
addition, the individual donor has the right to receive a percentage of the
trust earnings for a specified period of time.
Code: The Internal Revenue Code of 1986, as amended.
Commuted Value: The present value of any remaining guaranteed Annuity Payouts.
Contingent Annuitant: The person you may designate to become the Annuitant if
the original Annuitant dies before the Annuity Commencement Date. You must name
a Contingent Annuitant before the original Annuitant's death.
Contingent Deferred Sales Charge: The deferred sales charge that may apply when
you make a full or partial Surrender.
Contract: The individual Annuity contract and any endorsements or riders. Group
participants and some individuals will receive a certificate rather than a
contract.
4
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Contract Anniversary: The anniversary of the date we issued your Contract. If
the Contract Anniversary falls on a Non-Valuation Day, then the Contract
Anniversary will be the next Valuation Day.
Contract Value: The total value of the Accounts on any Valuation Day.
Contract Year: Any 12 month period between Contract Anniversaries, beginning
with the date the Contract was issued.
Death Benefit: The amount payable after the Contract Owner or the Annuitant
dies.
Dollar Cost Averaging: A program that allows you to systematically make
transfers between Accounts available in your Contract.
Fixed Accumulation Feature: Part of our General Account, where you may allocate
all or a portion of your Contract Value. In your Contract, this is defined as
the "Fixed Account."
General Account: The General Account includes our company assets and any money
you have invested in the Fixed Accumulation Feature.
Hartford, we or our: Hartford Life and Annuity Insurance Company. Only Hartford
is a capitalized term in the prospectus.
Joint Annuitant: The person on whose life Annuity Payouts are based if the
Annuitant dies after Annuitization. You may name a Joint Annuitant only if your
Annuity Payout Option provides for a survivor. The Joint Annuitant may not be
changed.
Maximum Anniversary Value: This is the highest Anniversary Value prior to the
deceased's 81st birthday or the date of death, if earlier.
Net Investment Factor: This is used to measure the investment performance of a
Sub-Account from one Valuation Day to the next, and is also used to calculate
your Annuity Payout amount.
Non-Valuation Day: Any day the New York Stock Exchange is not open for trading.
Payee: The person or party you designate to receive Annuity Payouts.
Premium Payment: Money sent to us to be invested in your Annuity.
Premium Tax: A tax charged by a state or municipality on Premium Payments.
Required Minimum Distribution: A federal requirement that individuals age 70 1/2
and older must take a distribution from their tax-qualified retirement account
by December 31, each year. For employer sponsored Qualified Contracts, the
individual must begin taking distributions at the age of 70 1/2 or upon
retirement, whichever comes later.
Sub-Account Value: The value on or before the Annuity Calculation Date, which is
determined on any day by multiplying the number of Accumulation Units by the
Accumulation Unit Value for that Sub-Account.
Surrender: A complete or partial withdrawal from your Contract.
Surrender Value: The amount we pay you if you terminate your Contract before the
Annuity Commencement Date. The Surrender Value is equal to the Contract Value
minus any applicable charges.
Valuation Day: Every day the New York Stock Exchange is open for trading. Values
of the Separate Account are determined as of the close of the New York Stock
Exchange, generally 4:00 p.m. Eastern Time.
Valuation Period: The time span between the close of trading on the New York
Stock Exchange from one Valuation Day to the next.
5
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FEE TABLE
Contract Owner Transaction Expenses
<TABLE>
<S> <C>
Sales Load Imposed on Purchases (as a percentage of Premium Payments).............. None
Deferred Sales Charge (as a percentage of amounts Surrendered).....................
First Year (1)............................................................... 6%
Second Year.................................................................. 6%
Third Year................................................................... 5%
Fourth Year.................................................................. 5%
Fifth Year................................................................... 4%
Sixth Year................................................................... 3%
Seventh Year................................................................. 2%
Eighth Year.................................................................. 0%
Annual Maintenance Fee (2)......................................................... $30
Separate Account Annual Expenses...................................................
Mortality and Expense Risk Charge (as a percentage of average Sub-Account
Value)....................................................................... 1.25%
Administrative Fees (as a percentage of Contract Value)...................... 0.15%
-----
Total...................................................................... 1.40%
</TABLE>
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(1) Length of time from Premium Payment.
(2) An annual $30 charge deducted on a Contract Anniversary or upon full
Surrender if the Contract Value at either of those times is less than
$50,000. The charge is deducted proportionately from each Account in which
you are invested.
The purpose of this table is to assist you in understanding various fees and
charges you will pay directly or indirectly. The table reflects expenses of the
Separate Account and underlying Funds. Premium Taxes, if any, have been taken
into account. This EXAMPLE should not be considered a representation of past or
future expenses and actual expenses may be greater or less than those shown. The
Annual Maintenance Fee has been reflected in the Example by a method intended to
show the "average" impact of the Annual Maintenance Fee on an investment in the
Separate Account. We do this by approximating an "average" 0.06% annual charge.
6
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Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Total Fund
Management Operating
Fees Expenses
including Other including
Waivers Expenses waivers
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<S> <C> <C> <C>
One Group Investment Trust Bond Portfolio (1)(2)(3)........................... 0.470% 0.280% 0.750%
One Group Investment Trust Diversified Equity Portfolio (1)(2)(3)............. 0.700% 0.250% 0.950%
One Group Investment Trust Diversified Mid Cap Portfolio (1)(2)(3)............ 0.730% 0.220% 0.950%
One Group Investment Trust Large Cap Growth Portfolio (2)(3).................. 0.650% 0.240% 0.890%
One Group Investment Trust Mid Cap Value Portfolio (1)(2)(3).................. 0.710% 0.240% 0.950%
Putnam Diversified Income Fund................................................ 0.670% 0.110% 0.780%
Putnam Global Growth Fund..................................................... 0.600% 0.120% 0.720%
Putnam Global Asset Allocation Fund........................................... 0.650% 0.130% 0.780%
Putnam Growth and Income Fund................................................. 0.460% 0.040% 0.500%
Putnam Income Fund............................................................ 0.600% 0.070% 0.670%
Putnam International Growth Fund.............................................. 0.800% 0.270% 1.070%
Putnam Money Market Fund...................................................... 0.450% 0.080% 0.530%
Putnam New Opportunities...................................................... 0.560% 0.050% 0.610%
</TABLE>
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(1) The fees and expenses described above include certain management fee waivers
made by Banc One Investment Advisors Corporation. Total Fund Operating
Expenses are based on annualized estimates of such expenses to be incurred
in the current fiscal year. Without those waivers the following would be
applicable:
<TABLE>
<CAPTION>
Total Fund
Operating
Management Fees Other Expenses
before waivers Expenses before waivers
----------------- ------------ ---------------
<S> <C> <C> <C>
One Group Investment Trust Bond Portfolio......................... 0.600% 0.280% 0.880%
One Group Investment Trust Diversified Equity Portfolio........... 0.740% 0.250% 0.990%
One Group Investment Trust Diversified Mid Cap Portfolio.......... 0.740% 0.220% 0.960%
One Group Investment Trust Mid Cap Value Portfolio................ 0.740% 0.240% 0.980%
</TABLE>
(2) On March 31, 1999, the following portfolios of the Trust were substituted
for the following Pegasus Variable funds in the Contract.
<TABLE>
<S> <C>
One Group Investment Trust Portfolio Pegasus Variable Fund
1. Bond Portfolio 1. Bond Fund
2. Large Cap Growth Portfolio 2. Growth Fund
3. Diversified Mid Cap Portfolio 3. Mid-Cap Opportunity Fund
4. Mid Cap Value Portfolio 4. Intrinsic Value Fund
5. Diversified Equity Portfolio 5. Growth and Value Fund
</TABLE>
With the exception of the Large Cap Growth Portfolio, the Pegasus Variable
Funds are the surviving funds for accounting purposes.
(3) These figures are estimates of Management Fees and Other Expenses for the
current year based on Management Agreements and voluntary expense limit
undertakings in effect as of the date of this prospectus.
7
<PAGE>
Example
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
If you Surrender your Contract If you annuitize your Contract If you do not Surrender your
at the end of the applicable at the end of the applicable Contract, you would pay the
time period you would pay the time period you would pay the following expenses on a $1,000
following expenses on a $1,000 following expenses on a $1,000 investment, assuming a 5%
investment, assuming a 5% investment, assuming a 5% annual return on assets:
annual return on assets: annual return on assets:
<CAPTION>
Sub-Account 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One Group Investment Trust
Bond Portfolio $ 77 $ 115 $ 156 $ 257 $ 22 $ 69 $ 119 $ 256 $ 23 $ 70 $ 120 $ 257
One Group Investment Trust
Diversified Equity Portfolio 79 121 166 277 24 75 129 276 25 76 130 277
One Group Investment Trust
Diversified Mid Cap Portfolio 79 121 166 277 24 75 129 276 25 76 130 277
One Group Investment Trust
Large Cap Growth Portfolio 78 119 163 271 23 74 126 270 24 74 127 271
One Group Investment Trust
Mid Cap Value Portfolio 79 121 166 277 24 75 129 276 25 76 130 277
Putnam New Opportunities 75 111 148 242 21 65 112 241 21 66 112 242
Putnam International Growth 80 125 172 289 25 79 135 289 26 80 136 289
Putnam Global Growth 76 114 154 253 22 68 117 253 22 69 118 253
Putnam Global Asset
Allocation 77 116 157 260 22 70 120 259 23 71 121 260
Putnam Growth and Income 74 107 143 230 19 61 106 229 20 62 107 230
Putnam Diversified Income 83 121 161 260 22 70 120 259 23 71 121 260
Putnam Income 76 112 151 248 21 67 115 247 22 67 115 248
Putnam Money Market 74 108 144 233 20 62 108 233 20 63 108 233
</TABLE>
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ACCUMULATION UNIT VALUES
(For an Accumulation Unit outstanding throughout the period)
The following information has been derived from the audited financial
statements of the Separate Account, which have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and should be read in conjunction with those statements which are
included in the Statement of Additional Information, which is incorporated by
reference in this Prospectus. There is no information for One Group Large Cap
Growth Sub-Account because as of December 31, 1998, this Sub-Account had not
commenced operation.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1998 1997 1996 1995
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<S> <C> <C> <C> <C>
One Group Investment Trust Bond Sub-Account
(INCEPTION DATE MAY 1, 1997)
Accumulation Unit Value at beginning of period................................ $ 10.725 $ 10.000
Accumulation Unit Value at end of period...................................... $ 11.490 $ 10.725
Number Accumulation Units outstanding at end of period (in thousands)......... 5,095 2,990
One Group Investment Trust Diversified Equity Sub-Account
(INCEPTION DATE FEBRUARY 15, 1995)
Accumulation Unit Value at beginning of period................................ $ 17.128 $ 13.702 $ 11.700 $ 10.000
Accumulation Unit Value at end of period...................................... $ 19.107 $ 17.128 $ 13.702 $ 11.700
Number Accumulation Units outstanding at end of period (in thousands)......... 3,063 2,207 577 270,551
One Group Investment Trust Diversified Mid Cap Sub-Account
(INCEPTION DATE FEBRUARY 15, 1995)
Accumulation Unit Value at beginning of period................................ $ 16.841 $ 13.485 $ 10.983 $ 10.000
Accumulation Unit Value at end of period...................................... $ 17.421 $ 16.841 $ 13.485 $ 10.983
Number Accumulation Units outstanding at end of period (in thousands)......... 989 641 632 402,309
One Group Mid Cap Value Sub-Account
(INCEPTION DATE MAY 1, 1997)
Accumulation Unit Value at beginning of period................................ $ 11.588 $ 10.000
Accumulation Unit Value at end of period...................................... $ 11.048 $ 11.588
Number Accumulation Units outstanding at end of period (in thousands)......... 1,984 1,151
Putnam New Opportunities Sub-Account
(INCEPTION DATE MAY 1, 1997)
Accumulation Unit Value at beginning of period................................ $ 12.739 $ 10.000
Accumulation Unit Value at end of period...................................... $ 15.625 $ 12.739
Number Accumulation Units outstanding at end of period (in thousands)......... 531 373
Putnam International Growth Sub-Account
(INCEPTION DATE MAY 1, 1997)
Accumulation Unit Value at beginning of period................................ $ 10.988 $ 10.000
Accumulation Unit Value at end of period...................................... $ 12.861 $ 10.988
Number Accumulation Units outstanding at end of period (in thousands)......... 1,638 1,191
Putnam Global Growth Sub-Account
(INCEPTION DATE FEBRUARY 15, 1995)
Accumulation Unit Value at beginning of period................................ $ 15.341 $ 13.607 $ 11.773 $ 10.000
Accumulation Unit Value at end of period...................................... $ 19.623 $ 15.341 $ 13.607 $ 11.733
Number Accumulation Units outstanding at end of period (in thousands)......... 55 49 37 21,336
Putnam Global Asset Allocation Sub-Account
(INCEPTION DATE FEBRUARY 15, 1995)
Accumulation Unit Value at end of period...................................... $ 15.731 $ 13.330 $ 11.692 $ 10.000
Accumulation Unit Value at end of period...................................... $ 17.611 $ 15.731 $ 13.330 $ 11.692
Number Accumulation Units outstanding at end of period (in thousands)......... 116 115 554 332,770
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Putnam Growth and Income Sub-Account
(INCEPTION DATE MAY 1, 1997)
Accumulation Unit Value at beginning of period................................ $ 11.632 $ 10.000
Accumulation Unit Value at end of period...................................... $ 13.239 $ 11.632
Number Accumulation Units outstanding at end of period (in thousands)......... 202 109
Putnam Diversified Sub-Account
(INCEPTION DATE FEBRUARY 15, 1995)
Accumulation Unit Value at beginning of period................................ $ 12.706 $ 12.000 $ 11.184 $ 10.000
Accumulation Unit Value at end of period...................................... $ 12.358 $ 12.706 $ 12.000 $ 11.184
Number Accumulation Units outstanding at end of period (in thousands)......... 74 64 255 91,387
Putnam Income Sub-Account
(INCEPTION DATE FEBRUARY 15, 1995)
Accumulation Unit Value at beginning of period................................ $ 12.270 $ 11.453 $ 11.341 $ 10.000
Accumulation Unit Value at end of period...................................... $ 13.097 $ 12.270 $ 11.453 $ 11.341
Number Accumulation Units outstanding at end of period (in thousands)......... 93 57 215 115,951
Putnam Money Market Sub-Account
(INCEPTION DATE MAY 1, 1997)
Accumulation Unit Value at beginning of period................................ $ 1.025 $ 10.000
Accumulation Unit Value at end of period...................................... $ 1.064 $ 1.025
Number Accumulation Units outstanding at end of period (in thousands)......... 1,570 752
</TABLE>
10
<PAGE>
HIGHLIGHTS
How do I purchase this annuity?
You must complete our application or order request and submit it to us for
approval with your first Premium Payment. Your first Premium Payment must be at
least $1,000 and subsequent Premium Payments must be at least $500, unless you
take advantage of our InvestEase-Registered Trademark- Program or are part of
certain retirement plans.
- For a limited time, usually within ten days after you receive your Contract,
you may cancel your Annuity without paying a Contingent Deferred Sales
Charge. You may bear the investment risk for your Premium Payment prior to
our receipt of your request for cancellation.
What type of sales charge will I pay?
You don't pay a sales charge when you purchase your Annuity. We may charge
you a Contingent Deferred Sales Charge when you partially or fully Surrender
your Annuity. The Contingent Deferred Sales Charge will depend on the length of
time the Premium Payment you made has been in your Annuity. If the amount you
paid has been in your Annuity:
- - For less than two years, the charge is 6%.
- - For more than two years and less than four years, the charge is 5%.
- - For more than four years and less than five years, the charge is 4%.
- - For more than five years and less than six years, the charge is 3%.
- - For more than six years and less than seven years, the charge is 2%.
You won't be charged a Contingent Deferred Sales Charge on:
- - The Annual Withdrawal Amount
- - Premium Payments or earnings that have been in your Annuity for more than
seven years
- - Distributions made due to death
- - Most payments we make to you as part of your Annuity Payout
Is there an Annual Maintenance Fee?
We deduct this $30.00 fee each year on your Contract Anniversary or when you
fully Surrender your Annuity, if, on either of those dates, the value of your
Annuity is less than $50,000.
What charges will I pay on an annual basis?
In addition to the Annual Maintenance Fee, you pay three other types of
charges each year. The first type of charge is the fee you pay for insurance.
This charge is:
A mortality and expense risk charge that is subtracted daily and is equal to
an annual charge of 1.25% of your Contract Value invested in the Funds.
The second type of charge is the fee you pay for administration. This charge
is:
An administration fee of .15% of the Contract Values held in the Separate
Account.
The third type of charge is the fee you pay for the Funds.
Currently, Fund charges range from 0.500% to 1.070% annually of the average
daily value of the amount you have invested in the Funds. See the Annual Fund
Operating Expenses table for more complete information and the Funds'
prospectuses accompanying this prospectus.
Can I take out any of my money?
You may Surrender all or part of the amounts you have invested at any time
before we start making Annuity Payouts, or after Annuity Payouts begin under the
Payment for a Designated Period Annuity Payout Option.
11
<PAGE>
- - You may have to pay income tax on the money you take out and, if you Surrender
before you are age 59 1/2, you may have to pay an income tax penalty.
- - You may have to pay a Contingent Deferred Sales Charge on the money you
Surrender.
Will Hartford pay a Death Benefit?
There is a Death Benefit if the Contract Owner, joint owner or the Annuitant
die before we begin to make Annuity Payouts. The Death Benefit will be
calculated as of the date we receive a certified death certificate or other
legal document acceptable to us and will be the greater of:
- - The total Premium Payments you have made to us minus any amounts you have
Surrendered, or
- - The Contract Value of your Annuity, or
- - Your Maximum Anniversary Value, which is described below.
The Maximum Anniversary Value is based on a series of calculations on
Contract Anniversaries of Contract Values, Premium Payments and partial
Surrenders. We will calculate an Anniversary Value for each Contract Anniversary
prior to the deceased's 81st birthday or date of death, whichever is earlier.
The Anniversary Value is equal to the Contract Value as of a Contract
Anniversary, increased by the dollar amount of any Premium Payments made since
that anniversary and reduced by the dollar amount of any partial Surrenders
since that anniversary. The Maximum Anniversary Value is equal to the greatest
Anniversary Value attained from this series of calculations.
This Death Benefit amount will remain invested in the Sub-Accounts according
to your last instructions and will fluctuate with the performance of the
underlying Funds.
What Annuity Payout Options are available?
When it comes time for us to make payouts, you may choose one of the
following Annuity Payout Options: Option 1 -- Life Annuity, Option 2 -- Life
Annuity with 120, 180 or 240 Monthly Payments Certain, Option 3 -- Joint and
Last Survivor Life Annuity and Option 4 -- Payments For a Designated Period. We
may make other Annuity Payout Options available at any time.
You must begin to take payouts by the Annuitant's 90th birthday. If you do
not tell us what Annuity Payout Option you want before that time, we will make
payments under Option 2 -- Life Annuity with 120 Monthly Payments Certain.
GENERAL CONTRACT INFORMATION
Hartford Life and Annuity Insurance Company
Hartford Life and Annuity Insurance Company is a stock life insurance
company engaged in the business of writing life insurance and annuities, both
individual and group, in all states of the United States, the District of
Columbia and Puerto Rico, except New York. On January 1, 1998, Hartford's name
changed from ITT Hartford Life and Annuity Insurance Company to Hartford Life
and Annuity Insurance Company. We were originally incorporated under the laws of
Wisconsin on January 9, 1956, and subsequently redomiciled to Connecticut. Our
offices are located in Simsbury, Connecticut; however, our mailing address is
P.O. Box 2999, Hartford, CT 06104-2999. We are ultimately controlled by The
Hartford Financial Services Group, Inc., one of the largest financial service
providers in the United States.
Hartford's Ratings
<TABLE>
<CAPTION>
Effective Date
Rating Agency of Rating Rating Basis of Rating
<S> <C> <C> <C>
A.M. Best and Company, Inc. 1/1/99 A+ Financial performance
Standard & Poor's 6/1/98 AA Insurer financial strength
Duff & Phelps 12/21/98 AA+ Claims paying ability
</TABLE>
12
<PAGE>
The Separate Account
The Separate Account is where we set aside and invest the assets of some of
our annuity contracts, including this Contract. The Separate Account was
established on October 28, 1994 and is registered as a unit investment trust
under the Investment Company Act of 1940. This registration does not involve
supervision by the Commission of the management or the investment practices of
the Separate Account or Hartford. The Separate Account meets the definition of
"Separate Account" under federal securities law. This Separate Account holds
only assets for variable annuity contracts. The Separate Account:
- - Holds assets for the benefit of you and other Contract Owners, and the persons
entitled to the payments described in the Contract.
- - Is not subject to the liabilities arising out of any other business Hartford
may conduct.
- - Is not affected by the rate of return of Hartford's General Account or by the
investment performance of any of Hartford's other Separate Accounts.
- - May be subject to liabilities from a Sub-Account of the Separate Account which
holds assets of other variable annuity contracts offered by the Separate
Account which are not described in this Prospectus.
- - Is credited with income and gains, and takes losses, whether or not realized,
from the assets it holds.
We do not guarantee the investment results of the Separate Account. There is
no assurance that the value of your Annuity will equal the total of the payments
you make to us.
The Funds
The Funds may be managed in styles similar to the funds of other open-end
investment companies which are managed by the same investment advisers and whose
shares are generally offered to the public. These other funds may, however,
employ different investment practices and may invest in securities different
from those in which the Funds invest, are not the same funds as the Funds and
have different performance fees and expenses than the Funds.
We do not guarantee the investment results of any of the underlying Funds.
Since each underlying Fund has different investment objectives, each is subject
to different risks. These risks and the Funds' expenses, policies and procedures
are more fully described in the accompanying Funds' prospectus and Statement of
Additional Information, which you may order from us. The Funds' prospectus
should be read in conjunction with this prospectus before investing.
The Funds may not be available in all states.
The investment goals of each of the Funds are as follows:
One Group Investment Trust Bond Portfolio
Seeks to maximize total return by investing primarily in a diversified
portfolio of intermediate and long term debt securities.
One Group Investment Trust Diversified Equity Portfolio
Seeks long term capital growth and growth of income with a secondary
objective of providing a moderate level of current income.
One Group Investment Trust Diversified Mid Cap Portfolio
Seeks long term capital growth by investing primarily in equity securities
of companies with intermediate capitalizations.
One Group Investment Trust Large Cap Growth Portfolio
Seeks long-term capital appreciation and growth of income by investing
primarily in equity securities.
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<PAGE>
One Group Investment Trust Mid Cap Value Portfolio
Seeks capital appreciation with the secondary goal of achieving current
income by investing primarily in equity securities.
Putnam VT Diversified Income Fund
Seeks high current income consistent with capital preservation by investing
in the following three sectors of the fixed income securities markets: a U.S.
Government and Investment Grade Sector, a High Yield Sector (which invests
primarily in securities commonly known as "junk bonds"), and an International
Sector. See the special considerations for investments in high yield securities
described in the Fund prospectus.
Putnam VT Global Asset Allocation Fund
Seeks a high level of long-term total return consistent with preservation of
capital by investing in U.S. equities, international equities, U.S. fixed income
securities, and international fixed income securities.
Putnam VT Global Growth Fund
Seeks capital appreciation through a globally diversified portfolio of
common stocks.
Putnam VT Growth and Income Fund
Seeks capital growth and current income by investing primarily in common
stocks that offer potential for capital growth, current income, or both.
Putnam VT Income Fund (formerly Putnam VT U.S. Government and High Quality Bond
Fund)
Seeks high current income consistent with what Putnam Management believes to
be prudent risk. The Fund will normally invest mostly in bonds and other debt
securities, and, to a lesser degree, in preferred stocks.
Putnam VT International Growth Fund
Seeks capital appreciation by investing primarily in equity securities of
companies located in a country other than the United States.
Putnam VT Money Market Fund
Seeks as high a rate of current income as Putnam Management believes is
consistent with preservation of capital and maintenance of liquidity by
investing in high-quality money market instruments.
Putnam VT New Opportunities Fund
Seeks long-term capital appreciation by investing principally in common
stocks of companies in sectors of the economy which Putnam Management believes
possess above-average long-term growth potential.
The Funds are available to serve as the underlying investment for variable
annuity or variable life contracts. A full description of the Funds, their
investment objectives, policies and restrictions, risks, charges and expenses
and other aspects of their operation is contained in the accompanying
prospectuses, which should be read in conjunction with this Prospectus before
investing. Not all funds described in the Funds' prospectuses are available in
this Contract.
The Investment Advisers
Investment advisory services to One Group Investment Trust Bond Portfolio,
One Group Investment Trust Diversified Equity Portfolio, One Group Investment
Trust Diversified Mid Cap Portfolio, One Group Investment Trust Large Cap Growth
Portfolio and One Group Investment Trust Mid Cap Value Portfolio are provided by
Banc One Investment Advisors Corporation ("Banc One Investment Advisors"). Banc
One Investment Advisors makes the investment decisions for the assets of the
Portfolios and continuously reviews, supervises and administers the Portfolios'
investment program, subject to the supervision of, and policies established by,
the Board of Trustees.
14
<PAGE>
Banc One Investment Advisors is an indirect wholly-owned subsidiary of BANK ONE
CORPORATION. The Portfolios' shares are not sponsored, endorsed or guaranteed
by, and do not constitute obligations or deposits of any bank affiliate of BANC
ONE CORPORATION and are not insured by the FDIC or issued or guaranteed by the
U.S. Government or any of its agencies.
As of December 31, 1998 Banc One Investment Advisors managed over $54
billion in assets.
Prior to March 31, 1999, First Chicago NBD Investment Management Company
("FCNIMCO") provided investment management services to the Predecessor Funds of
the Bond Fund, the Diversified Mid Cap Portfolio, the Mid Cap Value Portfolio,
and the Diversified Equity Portfolio. FCNIMCO is an indirect subsidiary of Bank
One Corporation and an affiliate of Banc One Investment Advisors.
The Putnam Diversified Income, Putnam Global Asset, Putnam Global Growth,
Putnam Growth and Income, Putnam Income, Putnam International Growth, Putnam
Money Market and Putnam New Opportunities Sub-Accounts purchase shares of Putnam
Variable Trust, an open-end series investment company with multiple portfolios
("Funds"). Putnam Investment Management, Inc. ("Putnam Management") serves as
the investment manager for the Funds. Putnam Management is ultimately controlled
by Marsh & McLennan Companies, Inc., a publicly owned holding company whose
principal businesses are international insurance brokerage and employee benefit
consulting.
Subject to the general oversight of the Trustees of Putnam Variable Trust,
Putnam Management manages the Funds' portfolios in accordance with their stated
investment objectives and policies, makes investment decisions for the Funds,
places orders to purchase and sell securities on behalf of the Funds, and
administers the affairs of the Funds. For its services, the Funds pay Putnam
Management a quarterly fee. See the accompanying Funds prospectus for a more
complete description of Putnam Management and the respective fees of the Funds.
Mixed and Shared Funding -- Shares of the Funds may be sold to our other
separate accounts and our insurance company affiliates or other unaffiliated
insurance companies to serve as the underlying investment for both variable
annuity contracts and variable life insurance policies, a practice known as
"mixed and shared funding." As a result, there is a possibility that a material
conflict may arise between the interests of Contract Owners, and of owners of
other contracts whose contract values are allocated to one or more of these
other separate accounts investing in any one of the Funds. In the event of any
such material conflicts, we will consider what action may be appropriate,
including removing the Fund from the Separate Account or replacing the Fund with
another underlying fund. There are certain risks associated with mixed and
shared funding, as disclosed in the Funds' prospectus.
Voting Rights -- We are the legal owners of all Fund shares held in the
Separate Account and we have the right to vote at the Fund's shareholder
meetings. To the extent required by federal securities laws or regulations, we
will:
- - Notify you of any Fund shareholders' meeting if the shares held for your
Contract may be voted.
- - Send proxy materials and a form of instructions that you can use to tell us
how to vote the Fund shares held for your Contract.
- - Arrange for the handling and tallying of proxies received from Contract
Owners.
- - Vote all Fund shares attributable to your Contract according to instructions
received from you, and
- - Vote all Fund shares for which no voting instructions are received in the same
proportion as shares for which instructions have been received.
If any federal securities laws or regulations, or their present
interpretation, change to permit us to vote Fund shares on our own, we may
decide to do so. You may attend any Shareholder Meeting at which shares held for
your Contract may be voted. After we begin to make Annuity Payouts to you, the
number of votes you have will decrease.
Substitutions, Additions, or Deletions of Funds -- We reserve the right,
subject to any applicable law, to make certain changes to the Funds offered
under Your Contract. We may, in our sole discretion, establish new Funds. New
Funds will be made available to existing Contract Owners as we determine
appropriate. We may also close one or more Funds to additional Payments or
transfers from existing Sub-Accounts.
15
<PAGE>
We reserve the right to eliminate the shares of any of the Funds for any
reason and to substitute shares of another registered investment company for the
shares of any Fund already purchased or to be purchased in the future by the
Separate Account. To the extent required by the Investment Company Act of 1940
(the "1940 Act"), substitutions of shares attributable to your interest in a
Fund will not be made until we have the approval of the Commission and we have
notified you of the change.
In the event of any substitution or change, we may, by appropriate
endorsement, make any changes in the Contract necessary or appropriate to
reflect the substitution or change. If we decide that it is in the best interest
of the Contracts Owners, the Separate Account may be operated as a management
company under the 1940 Act or any other form permitted by law, may be
de-registered under the 1940 Act in the event such registration is no longer
required, or may be combined with one or more other Separate Accounts.
PERFORMANCE RELATED INFORMATION
The Separate Account may advertise certain performance-related information
concerning the Sub-Accounts. Performance information about a Sub-Account is
based on the Sub-Account's past performance only and is no indication of future
performance.
When a Sub-Account advertises its standardized total return, it will usually
be calculated for one year, five years, and ten years or some other relevant
periods if the Sub-Account has not been in existence for at least ten years.
Total return is measured by comparing the value of an investment in the
Sub-Account at the beginning of the relevant period to the value of the
investment at the end of the period.
The Separate Account may also advertise non-standard total returns that
pre-date the inception date of the separate account. These non-standardized
total returns are calculated by assuming that the Sub-Accounts have been in
existence for the same periods as the underlying Funds and by taking deductions
for charges equal to those currently assessed against the Sub-Accounts. These
non-standardized returns must be accompanied by standardized total returns.
If applicable, the Sub-Accounts may advertise yield in addition to total
return. The yield will be computed in the following manner: The net investment
income per unit earned during a recent one month period is divided by the unit
value on the last day of the period. This figure includes the recurring charges
at the Separate Account level including the Annual Maintenance Fee.
The Money Market Fund Sub-Account may advertise yield and effective yield.
The yield of a Sub-Account is based upon the income earned by the Sub-Account
over a seven-day period and then annualized, i.e. the income earned in the
period is assumed to be earned every seven days over a 52-week period and stated
as a percentage of the investment. Effective yield is calculated similarly but
when annualized, the income earned by the investment is assumed to be reinvested
in Sub-Account units and thus compounded in the course of a 52-week period.
Yield and effective yield include the recurring charges at the Separate Account
level including the Annual Maintenance Fee.
The Separate Account may also disclose yield for periods prior to the date
the Separate Account commenced operations. For these periods, performance
information for the Sub-Accounts will be calculated based on the performance of
the underlying Funds and the assumption that the Sub-Accounts were in existence
for the same periods as those of the underlying Funds, with a level of charges
equal to those currently assessed against the Sub-Accounts. No yield disclosure
for periods prior to the date of the Separate Account will be used without the
yield disclosure for periods as of the inception of the Separate Account.
We may provide information on various topics to Contract Owners and
prospective Contract Owners in advertising, sales literature or other materials.
These topics may include the relationship between sectors of the economy and the
economy as a whole and its effect on various securities markets, investment
strategies and techniques (such as systematic investing, Dollar Cost Averaging
and asset allocation), the advantages and disadvantages of investing in
tax-deferred and taxable instruments, customer profiles and hypothetical
purchase scenarios, financial management and tax and retirement planning, and
other investment alternatives, including comparisons between the Contract and
the characteristics of and market for such alternatives.
16
<PAGE>
THE FIXED ACCUMULATION FEATURE
Important information you should know: This portion of the Prospectus
relating to the Fixed Accumulation Feature is not registered under the
Securities Act of 1933 ("1933 Act") and the Fixed Accumulation Feature is not
registered as an Investment Company under the 1940 Act. The Fixed Accumulation
Feature or any of its interests are not subject to the provisions or
restrictions of the 1933 Act or the 1940 Act, and the staff of the Securities
and Exchange Commission has not reviewed the disclosure regarding the Fixed
Accumulation Feature. The following disclosure about the Fixed Accumulation
Feature may be subject to certain generally applicable provisions of the federal
securities laws regarding the accuracy and completeness of disclosure.
Premium Payments and Contract Values allocated to the Fixed Accumulation
Feature become a part of our General Account assets. We invest the assets of the
General Account according to the laws governing the investments of insurance
company General Accounts.
Currently, we guarantee that we will credit interest at a rate of not less
than 3% per year, compounded annually, to amounts you allocate to the Fixed
Accumulation Feature. We reserve the right to change the rate subject only to
applicable state insurance law. We may credit interest at a rate in excess of 3%
per year. We will periodically publish the Fixed Accumulation Feature interest
rates currently in effect. There is no specific formula for determining interest
rates. Some of the factors that we may consider in determining whether to credit
excess interest are; general economic trends, rates of return currently
available and anticipated on our investments, regulatory and tax requirements
and competitive factors. We will account for any deductions, Surrenders or
transfers from the Fixed Accumulation Feature on a "first-in first-out" basis.
Important: Any interest credited to amounts you allocate to the Fixed
Accumulation Feature in excess of 3% per year will be determined at our sole
discretion. You assume the risk that interest credited to the Fixed Accumulation
Feature may not exceed the minimum guarantee of 3% for any given year.
From time to time, we may credit increased interest rates under certain
programs established in our sole discretion.
Dollar Cost Averaging Plus ("DCA Plus") Programs -- Currently, you may
enroll in a special pre-authorized transfer program known as our DCA Plus
Program (the "Program"). Under this Program, Contract Owners who enroll may
allocate a minimum of $5,000 of their Premium Payment into the Program (we may
allow a lower minimum Premium Payment for qualified plan transfers or rollovers,
including IRAs) and pre-authorize transfers to any of the Sub-Accounts under
either the 6-Month Transfer Program or 12-Month Transfer Program. The 6-Month
Transfer Program and the 12-Month Transfer Program will generally have different
credited interest rates. Under the 6-Month Transfer Program, the interest rate
can accrue up to 6 months and all Premium Payments and accrued interest must be
transferred from the Program to the selected Sub-Accounts in 3 to 6 months.
Under the 12-Month Transfer Program, the interest rate can accrue up to 12
months and all Premium Payments and accrued interest must be transferred to the
selected Sub-Accounts in 7 to 12 months. This will be accomplished by monthly
transfers for the period selected and a final transfer of the entire amount
remaining in the Program.
The pre-authorized transfers will begin within 15 days of receipt of the
Program payment provided we receive complete enrollment instructions. If we do
not receive complete Program enrollment instructions within 15 days of receipt
of the initial Program payment, the Program will be voided and the entire
balance in the Program will be transferred to the Accounts designated by you. If
you do not designate an Account, you will receive the Fixed Accumulation
Feature's current effective interest rate. Any subsequent payments we receive
within the Program period selected will be allocated to the Sub-Accounts over
the remainder of that Program transfer period.
You may elect to terminate the pre-authorized transfers by calling or
writing us of your intent to cancel enrollment in the Program. Upon
cancellation, you will no longer receive the Program interest rate and unless we
receive instructions to the contrary, the amounts remaining in the Program may
accrue the interest rate currently in effect for the Fixed Accumulation Feature.
We reserve the right to discontinue, modify or amend the Program or any
other interest rate program we establish. Any change to the Program will not
affect Contract Owners currently enrolled in the Program. This Program may not
be available in all states; please contact us to determine if it is available in
your state.
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<PAGE>
You may only have one DCA program in place at one time. The Fixed
Accumulation Feature and Dollar Cost Averaging Plus Program are not available in
Oregon.
THE CONTRACT
Purchases and Contract Value
What types of Contracts are available?
The Contract is an individual or group tax-deferred variable annuity
contract. It is designed for retirement planning purposes and may be purchased
by any individual, group or trust, including:
- - Any trustee or custodian for a retirement plan qualified under Sections 401(a)
or 403(a) of the Code;
- - Annuity purchase plans adopted by public school systems and certain tax-exempt
organizations according to Section 403(b) of the Code;
- - Individual Retirement Annuities adopted according to Section 408 of the Code;
- - Employee pension plans established for employees by a state, a political
subdivision of a state, or an agency of either a state or a political
subdivision of a state, and
- - Certain eligible deferred compensation plans as defined in Section 457 of the
Code.
The examples above represent Qualified Contracts, as defined by the Code. In
addition, individuals and trusts can also purchase Contracts that are not part
of a tax qualified retirement plan. These are known as Non-Qualified Contracts.
How do I purchase a Contract?
You may purchase a Contract by completing and submitting an application or
an order request along with an initial Premium Payment. For most Contracts, the
minimum Premium Payment is $1,000. For additional Premium Payments, the minimum
Premium Payment is $500. Under certain situations, we may allow smaller Premium
Payments, for example, if you enroll in our InvestEase Program or are part of
certain tax qualified retirement plans. Prior approval is required for Premium
Payments of $1,000,000 or more.
You and your Annuitant must not be older than age 85 on the date that your
Contract is issued.
You must be of legal age in the state where the Contract is being purchased
or a guardian must act on your behalf.
How are Premium Payments applied to my Contract?
Your initial Premium Payment will be invested within two Valuation Days of
our receipt of a properly completed application or an order request and the
Premium Payment. If we receive your subsequent Premium Payment before the close
of the New York Stock Exchange, it will be priced on the same Valuation Day. If
we receive your Premium Payment after the close of the New York Stock Exchange,
it will be processed on the next Valuation Day. If we receive your Premium
Payment on a Non-Valuation Day, the amount will be invested on the next
Valuation Day. Unless we receive new instructions, we will invest the Premium
Payment based on your last allocation instructions. We will send you a
confirmation when we invest your Premium Payment.
If the request or other information accompanying the Premium Payment is
incomplete when received, we will hold the money in a non-interest bearing
account for up to five Valuation Days while we try to obtain complete
information. If we cannot obtain the information within five Valuation Days, we
will either return the Premium Payment and explain why the Premium Payment could
not be processed or keep the Premium Payment if you authorize us to keep it
until your provide the necessary information.
Can I cancel my Contract after I purchase it?
We want you to be satisfied with the Contract you have purchased. We urge
you to closely examine its provisions. If for any reason you are not satisfied
with your Contract, simply return it within ten days after you receive it with a
written request for cancellation that indicates your tax-withholding
instructions. In some states,
18
<PAGE>
you may be allowed more time to cancel your Contract. We will not deduct any
Contingent Deferred Sales Charges during this time. We may require additional
information, including a signature guarantee, before we can cancel your
Contract.
You bear the investment risk from the time the Contract is issued until we
receive your complete cancellation request.
The amount we pay you upon cancellation depends on the requirements of the
state where you purchased your Contract, the method of purchase, the type of
Contract you purchased and your age.
How is the value of my Contract calculated before the Annuity Commencement Date?
The Contract Value is the sum of all Accounts. There are two things that
affect your Sub-Account value: (1) the number of Accumulation Units and (2) the
Accumulation Unit Value. The Sub-Account value is determined by multiplying the
number of Accumulation Units by the Accumulation Unit Value. Therefore, on any
Valuation Day your Contract Value reflects the investment performance of the
Sub-Accounts and will fluctuate with the performance of the underlying Funds.
When Premium Payments are credited to your Sub-Accounts, they are converted
into Accumulation Units by dividing the amount of your Premium Payments, minus
any Premium Taxes, by the Accumulation Unit Value for that day. The more Premium
Payments you put into your Contract, the more Accumulation Units you will own.
You decrease the number of Accumulation Units you have by requesting Surrenders,
transferring money out of an Account, settling a Death Benefit claim or by
annuitizing your Contract.
To determine the current Accumulation Unit Value, we take the prior
Valuation Day's Accumulation Unit Value and multiply it by the Net Investment
Factor for the current Valuation Day.
The Net Investment Factor is used to measure the investment performance of a
Sub-Account from one Valuation Day to the next. The Net Investment Factor for
each Sub-Account equals:
- - The net asset value per share of each Fund held in the Sub-Account at the end
of the current Valuation Day divided by
- - The net asset value per share of each Fund held in the Sub-Account at the end
of the prior Valuation Day; minus
- - The daily mortality and expense risk charge adjusted for the number of days in
the period, and any other applicable charge.
We will send you a statement in each calendar quarter, which tells you how
many Accumulation Units you have, their value and your total Contract Value.
Can I transfer from one Sub-Account to another?
Transfers between Sub-Accounts -- You may transfer from one Sub-Account to
another before and after the Annuity Commencement Date at no extra charge. Your
transfer request will be processed on the day that it is received as long as it
is received on a Valuation Day before the close of the New York Stock Exchange.
Otherwise, your request will be processed on the following Valuation Day. We
will send you a confirmation when we process your transfer. You are responsible
for verifying transfer confirmations and promptly advising us of any errors
within 30 days of receiving the confirmation.
Sub-Account Transfer Restrictions -- We reserve the right to limit the
number of transfers to 12 per Contract Year, with no transfers occurring on
consecutive Valuation Days. We also have the right to restrict transfers if we
believe that the transfers could have an adverse effect on other Contract
Owners. In all states except Florida, Maryland and Oregon, we may:
- - Require a minimum time period between each transfer,
- - Limit the dollar amount that may be transferred on any one Valuation Day, and
- - Not accept transfer requests from an agent acting under a power of attorney
for more than one Contract Owner.
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<PAGE>
We also have a restriction in place that involves individuals who act under
a power of attorney for multiple Contract Owners. If the value of the Contract
Owners' Accounts add up to more than $2 million, we will not accept transfer
instructions from the power of attorney unless the power of attorney has entered
into a Third Party Transfer Services Agreement with us.
Some states may have different restrictions.
Fixed Accumulation Feature Transfers -- During each Contract Year, you may
make transfers out of the Fixed Accumulation Feature to Sub-Accounts. All
transfer allocations must be in whole numbers (e.g., 1%). You may transfer
either:
- - 30% of your total amount in the Fixed Accumulation Feature, or
- - An amount equal to the largest previous transfer.
These transfer limits do not include transfers done through Dollar Cost
Averaging or the DCA Plus Program.
If your interest rate renews at a rate at least 1% lower than your prior
interest rate, you may transfer an amount equal to up to 100% of the amount to
be invested at the renewal rate. You must make this transfer request within 60
days of being notified of the renewal rate.
Fixed Accumulation Feature Transfer Restrictions -- We reserve the right to
defer transfers from the Fixed Accumulation Feature for up to 6 months from the
date of your request. After any transfer, you must wait six months before moving
Sub-Account Values back to the Fixed Accumulation Feature.
Telephone Transfers -- In most states, you can make transfers by calling us
at (800) 862-6668. Hartford, our agents or our affiliates are NOT responsible
for losses resulting from telephone requests that we believe are genuine. We
will use reasonable procedures to confirm that telephone instructions are
genuine, including requiring that callers provide certain identification
information and recording all telephone transfer instructions.
Power of Attorney -- You may authorize another person to make transfers on
your behalf by submitting a completed Power of Attorney form. Once we have the
completed form on file, we will accept transfer instructions, subject to our
transfer restrictions, from your designated third party until we receive new
instructions in writing from you. You will not be able to make transfers or
other changes to your Contract if you have authorized someone else to act under
a Power of Attorney.
Charges and Fees
There are 6 charges and fees associated with the Contract:
1. The Contingent Deferred Sales Charge
The Contingent Deferred Sales Charge covers some of the expenses relating to
the sale and distribution of the Contract, including commissions paid to
registered representatives and the cost of preparing sales literature and other
promotional activities.
We assess a Contingent Deferred Sales Charge when you request a full or
partial Surrender. The percentage of the Contingent Deferred Sales Charge is
based on how long your Premium Payments have been in the Contract. The
Contingent Deferred Sales Charge will not exceed the total amount of the Premium
Payments made. Each Premium Payment has its own Contingent Deferred Sales Charge
schedule. Premium Payments are Surrendered in the order in which they were
received. The longer you leave your Premium Payments in the Contract, the lower
the Contingent Deferred Sales Charge will be when you Surrender.
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The Contingent Deferred Sales Charge is a percentage of the amount
Surrendered and is equal to:
<TABLE>
<CAPTION>
Contingent
Number of years from Deferred Sales
Premium Payment Charge
- -------------------- ------------------
<S> <C>
1 6%
2 6%
3 5%
4 5%
5 4%
6 3%
7 2%
8 or more 0%
</TABLE>
The following Surrenders are not subject to a Contingent Deferred Sales Charge:
- - Annual Withdrawal Amount. During the first seven years from each Premium
Payment, you may, each Contract Year, take partial Surrenders up to 10% of the
total Premium Payments. If you do not take 10% one year, you may not take more
than 10% the next year. These amounts are different for group unallocated
Contracts and Contracts issued to a Charitable Remainder Trust.
- - Surrenders made from Premium Payments invested for more than seven years.
After the seventh Contract Year, you may take the total of: (a) all of your
earnings, and (b) all Premium Payments held in your Contract for more than
seven years, and (c) 10% of Premium Payments made during the last seven years.
Under the following situations, the Contingent Deferred Sales Charge is Waived:
- - Upon eligible confinement as described in the Waiver of Sales Charge Rider.
For Contracts purchased on or after September 29, 1997, we will waive any
Contingent Deferred Sales Charge applicable to a partial or full Surrender if
you, the joint owner or the Annuitant, is confined for at least 180 calendar
days to a: (a) facility recognized as a general hospital by the proper
authority of the state in which it is located; or (b) facility recognized as a
general hospital by the Joint Commission on the Accreditation of Hospitals; or
(c) facility certified as a hospital or long-term care facility; or (d)
nursing home licensed by the state in which it is located and offers the
services of a registered nurse 24 hours a day. If you, the joint owner or the
Annuitant is confined when you purchase the Contract, this waiver is not
available. For it to apply, you must: (a) have owned the Contract continuously
since it was issued, (b) provide written proof of confinement satisfactory to
us, and (c) request the Surrender within 90 calendar days of the last day of
confinement. This waiver may not be available in all states. Please contact
your Registered Representative or us to determine if it is available for you.
- - For Required Minimum Distributions. This allows Annuitants who are age 70 1/2
or older, with a Contract held under an Individual Retirement Account or
403(b) plan, to Surrender an amount equal to the Required Minimum Distribution
for the Contract without a Contingent Deferred Sales Charge. All requests for
Required Minimum Distributions must be in writing.
- - On or after the Annuitant's 90th birthday.
- - For disabled participants enrolled in a group unallocated, tax qualified
retirement plan. With our approval and under certain conditions, participants
who become disabled can receive Surrenders free of Contingent Deferred Sales
Charge.
The following situations are not subject to a Contingent Deferred Sales Charge:
- - Upon death of the Annuitant or Contract Owner. No Contingent Deferred Sales
Charge will be deducted if the Annuitant or Contract Owner dies, unless the
Contract Owner is not a natural person (e.g. a trust).
- - Upon Annuitization. The Contingent Deferred Sales Charge is not deducted when
you annuitize the Contract. We will charge a Contingent Deferred Sales Charge
if the Contract is fully Surrendered during the Contingent Deferred Sales
Charge period under an Annuity Payout Option which allows Surrenders.
- - Upon cancellation during the Right to Cancel Period.
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2. Mortality and Expense Risk Charge
For assuming mortality and expense risks under the Contract, we deduct a
daily charge at the rate of 1.25% per year of Sub-Account Value (estimated at
.90% for mortality and .35% for expenses). The mortality and expense risk charge
is broken into charges for mortality risks and for an expense risk:
- - Mortality Risk -- There are two types of mortality risks that we assume, those
made while your Premium Payments are accumulating and those made once Annuity
Payouts have begun.
During the period your Premium Payments are accumulating, we are required to
cover any difference between the Death Benefit paid and the Surrender Value.
These differences may occur during periods of declining value or in periods
where the Contingent Deferred Sales Charges would have been applicable. The
risk that we bear during this period is that actual mortality rates, in
aggregate, may exceed expected mortality rates.
Once Annuity Payouts have begun, we may be required to make Annuity Payouts
as long as the Annuitant is living, regardless of how long the Annuitant
lives. We would be required to make these payments if the Payout Option
chosen is the Life Annuity, Life Annuity With Payments for a Period Certain
or Joint and Last Survivor Life Annuity Payout Option. The risk that we bear
during this period is that the actual mortality rates, in aggregate, may be
lower than the expected mortality rates.
- - Expense Risk -- We also bear an expense risk that the Contingent Deferred
Sales Charges and the Annual Maintenance Fee collected before the Annuity
Commencement Date may not be enough to cover the actual cost of selling,
distributing and administering the Contract.
Although variable Annuity Payouts will fluctuate with the performance of the
underlying Fund selected, your Annuity Payouts will not be affected by (a) the
actual mortality experience of our Annuitants, or (b) our actual expenses if
they are greater than the deductions stated in the Contract. Because we cannot
be certain how long our Annuitants will live, we charge this percentage fee
based on the mortality tables currently in use. The mortality and expense risk
charge enables us to keep our commitments and to pay you as planned.
3. Annual Maintenance Fee
The Annual Maintenance Fee is a flat fee that is deducted from your Contract
Value to reimburse us for expenses relating to the administrative maintenance of
the Contract and the Accounts. The annual $30 charge is deducted on a Contract
Anniversary or when the Contract is fully Surrendered if the Contract Value at
either of those times is less than $50,000. The charge is deducted
proportionately from each Account in which you are invested.
When is the Annual Maintenance Fee waived?
We will waive the Annual Maintenance Fee if your Contract Value is $50,000
or more on your Contract Anniversary or when you fully Surrender your Contract.
In addition, we will waive one Annual Maintenance Fee for Contract Owners who
own more than one Contract with a combined Contract Value between $50,000 and
$100,000. If you have multiple Contracts with a combined Contract Value of
$100,000 or greater, we will waive the Annual Maintenance Fee on all Contracts.
However, we reserve the right to limit the number of waivers to a total of six
Contracts. We also reserve the right to waive the Annual Maintenance Fee under
certain other conditions.
4. Administrative Charge
For administration, we apply a daily charge at the rate of .15% per year
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.
5. Premium Taxes
We deduct Premium Taxes, if required, by a state or other government agency.
Some states collect the taxes when Premium Payments are made; others collect at
Annuitization. Since we pay Premium Taxes when they are
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required by applicable law, we may deduct them from your Contract when we pay
the taxes, upon Surrender, or on the Annuity Commencement Date. The Premium Tax
rate varies by state or municipality. Currently, the maximum rate charged by any
state is 3.5% and 4% in Puerto Rico.
6. Charges Against the Funds
The Separate Account purchases shares of the Funds at net asset value. The
net asset value of the Fund reflects investment advisory fees and administrative
expenses already deducted from the assets of the Funds. These charges are
described in the Funds' prospectuses accompanying this prospectus.
We may offer, in our discretion, reduced fees and charges including, but not
limited to Contingent Deferred Sales Charges, the Mortality and Expense Risk
Charge, and the Annual Maintenance Fee, for certain contracts (including
employer sponsored savings plans) which may result in decreased costs and
expenses. Reductions in these fees and charges will not be unfairly
discriminatory against any Contract Owner.
Death Benefit
What is the Death Benefit and how is it calculated?
The Death Benefit is the amount we will pay upon the death of the Contract
Owner or the Annuitant. The Death Benefit is calculated when we receive a
certified death certificate or other legal document acceptable to us.
The calculated Death Benefit will remain invested in the same Accounts,
according to the Contract Owner's last instructions until we receive complete
written settlement instructions from the Beneficiary. Therefore, the Death
Benefit amount will fluctuate with the performance of the underlying Funds. When
there is more than one Beneficiary, we will calculate the Accumulation Units for
each Sub-account and the dollar amount for the Fixed Accumulation Feature for
each Beneficiary's portion of the proceeds.
If death occurs before the Annuity Commencement Date, the Death Benefit is
the greatest of:
- - The Contract Value on the date the death certificate or other legal document
acceptable to us is received; or
- - 100% of all Premium Payments paid into the Contract minus any partial
Surrenders; or
- - The Maximum Anniversary Value, which is described below.
The Maximum Anniversary Value is based on a series of calculations on
Contract Anniversaries of Contract Values, Premium Payments and partial
Surrenders. We will calculate an Anniversary Value for each Contract Anniversary
prior to the deceased's 81st birthday or date of death, whichever is earlier.
The Anniversary Value is equal to the Contract Value as of a Contract
Anniversary, increased by the dollar amount of any Premium Payments made since
that anniversary and reduced by the dollar amount of any partial Surrenders
since that anniversary. The Maximum Anniversary Value is equal to the greatest
Anniversary Value attained from this series of calculations.
The Maximum Anniversary Value is only calculated until the earlier of the
Contract Owner or Annuitant's 81st birthday or death.
How is the Death Benefit paid?
The Death Benefit may be taken in one lump sum or under any of the Annuity
Payout Options then being offered by us. On the date we receive complete
instructions from the Beneficiary, we will compute the Death Benefit amount to
be paid out or applied to a selected Annuity Payout Option. When there is more
than one Beneficiary, we will calculate the Death Benefit amount for each
Beneficiary's portion of the proceeds and then pay it out or apply it to a
selected Annuity Payout Option according to each Beneficiary's instructions. If
we receive the complete instructions on a Non-Valuation Day, computations will
take place on the next Valuation Day.
The Beneficiary may elect under the Annuity Proceeds Settlement Option
"Death Benefit Remaining with the Company" to leave proceeds from the Death
Benefit with us for up to five years from the date of the Contract Owner's death
if the Contract Owner died before the Annuity Commencement Date. Once we receive
a certified death certificate or other legal documents acceptable to us, the
Beneficiary can: (a) make Sub-Account transfers and (b) take Surrenders without
paying Contingent Deferred Sales Charges.
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Required Distributions -- If the Contract Owner dies before the Annuity
Commencement Date, the Death Benefit must be distributed within five years after
death. The Beneficiary can choose any Annuity Payout Option that results in
complete Annuity Payout within five years.
If the Contract Owner dies on or after the Annuity Commencement Date under
an Annuity Payout Option with a Death Benefit, any remaining value must be
distributed at least as rapidly as under the payment method being used as of the
Contract Owner's death.
If the Contract Owner is not an individual (e.g. a trust), then the original
Annuitant will be treated as the Contract Owner in the situations described
above and any change in the original Annuitant will be treated as the death of
the Contract Owner.
Who will receive the Death Benefit?
The distribution of the Death Benefit is based on whether death is before,
on or after the Annuity Commencement Date.
If death occurs before the Annuity Commencement Date:
<TABLE>
<CAPTION>
If the deceased
is the... and... and... then the...
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contract Owner There is a surviving The Annuitant is living Joint Contract Owner
joint Contract Owner or deceased receives the Death
Benefit.
- -------------------------------------------------------------------------------------------
Contract Owner There is no surviving The Annuitant is living Designated Beneficiary
joint Contract Owner or deceased receives the Death
Benefit.
- -------------------------------------------------------------------------------------------
Contract Owner There is no surviving The Annuitant is living Contract Owner's estate
joint Contract Owner or deceased receives the Death
and the Beneficiary Benefit.
predeceases the
Contract Owner
- -------------------------------------------------------------------------------------------
Annuitant The Contract Owner is There is no named Death Benefit is paid
living Contingent Annuitant to the Contract Owner
and not the designated
Beneficiary.
- -------------------------------------------------------------------------------------------
Annuitant The Contract Owner is The Contingent Contingent Annuitant
living Annuitant is living becomes the Annuitant,
and the Contract
continues.
</TABLE>
If death occurs on or after the Annuity Commencement Date:
<TABLE>
<CAPTION>
If the deceased
is the... and... then the...
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Contract Owner The Annuitant is living Designated Beneficiary becomes the
Contract Owner.
- --------------------------------------------------------------------------------------------
Annuitant The Contract Owner is living Contract Owner receives the Death
Benefit.
- --------------------------------------------------------------------------------------------
Annuitant The Annuitant is also the Contract Designated Beneficiary receives the
Owner Death Benefit.
</TABLE>
These are the most common Death Benefit scenarios, however, there are
others. Some of the Annuity Payout Options may not result in a Death Benefit
payout. If you have questions about these and any other scenarios, please
contact your registered representative or us.
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What should the Beneficiary consider?
Alternatives to the Required Distributions -- The selection of an Annuity
Payout Option and the timing of the selection will have an impact on the tax
treatment of the Death Benefit. To receive favorable tax treatment, the Annuity
Payout Option selected: (a) cannot extend beyond the Beneficiary's life or life
expectancy, and (b) must begin within one year of the date of death.
If these conditions are not met, the Death Benefit will be treated as a lump
sum payment for tax purposes. This sum will be taxable in the year in which it
is considered received.
Spousal Contract Continuation -- If the Beneficiary is the Contract Owner's
spouse, the Beneficiary may elect to continue the Contract as the contract
owner, receive the death benefit in one lump sum payment or elect an Annuity
Payout Option. This is available only once for each Contract.
Surrenders
What kinds of Surrenders are available?
Full Surrenders before the Annuity Commencement Date -- When you Surrender
your Contract before the Annuity Commencement Date, the Surrender Value of the
Contract will be made in a lump sum payment. The Surrender Value is the Contract
Value minus any applicable Premium Taxes, Contingent Deferred Sales Charges and
the Annual Maintenance Fee. The Surrender Value may be more or less than the
amount of the Premium Payments made to a Contract.
Partial Surrenders before the Annuity Commencement Date -- You may request a
partial Surrender of Contract Values at any time before the Annuity Commencement
Date. There are two restrictions:
- - The partial Surrender amount must be at least equal to $100, our current
minimum for partial Surrenders, and
- - The Contract must have a minimum Contract Value of $500 after the Surrender.
We reserve the right to close your Contract and pay the full Surrender Value
if the Contract Value is under the minimum after the Surrender. If your
Contract was issued in Texas, a remaining value of $500 is not required to
continue the Contract if Premium Payments were made in the last two Contract
Years.
Full Surrenders after the Annuity Commencement Date -- You may Surrender
your Contract on or after the Annuity Commencement Date only if you selected the
Payment For a Period Certain Annuity Payout Option. Under this option, we pay
you the Commuted Value of your Contract minus any applicable Contingent Deferred
Sales Charges. The Commuted Value is determined on the day we receive your
written request for Surrender.
Partial Surrenders are permitted after the Annuity Commencement Date if you
elect the Payments for Period Certain Annuity Payout Option, but check with your
tax advisor because there may be adverse tax consequences.
How do I request a Surrender?
Requests for full Surrenders must be in writing. Requests for partial
Surrenders can be made in writing or by telephone. We will send your money
within seven days of receiving complete instructions. However, we may postpone
payment of Surrenders whenever: (a) the New York Stock Exchange is closed, (b)
trading on the New York Stock Exchange is restricted by the SEC, (b) the SEC
permits and orders postponement or (c) the SEC determines that an emergency
exists to restrict valuation.
Written Requests -- To request a full or partial Surrender, complete a
Surrender Form or send us a letter, signed by you, stating:
- - the dollar amount that you want to receive, either before or after we withhold
taxes and deduct for any applicable charges,
- - your tax withholding amount or percentage, if any, and
- - your mailing address.
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If there are joint Contract Owners, both must authorize all Surrenders. For
a partial Surrender, specify the Accounts that you want your Surrender to come
from, otherwise, the Surrender will be taken in proportion to the value in each
Account.
Telephone Requests -- To request a partial Surrender by telephone, we must
have received your completed Telephone Redemption Program Enrollment Form. If
there are joint Contract Owners, both must sign this form. By signing the form,
you authorize us to accept telephone instructions for partial Surrenders from
either Contract Owner. Telephone authorization will remain in effect until we
receive a written cancellation notice from you or your joint Contract Owner, we
discontinue the program; or you are no longer the owner of the Contract. There
are some restrictions on telephone surrenders, please call us with any
questions.
We may record telephone calls and use other procedures to verify information
and confirm that instructions are genuine. We will not be liable for losses or
expenses arising from telephone instructions reasonably believed to be genuine.
We may modify the requirements for telephone redemptions at any time.
Telephone Surrender instructions received before the close of the New York
Stock Exchange will be processed on that Valuation Day. Otherwise, your request
will be processed on the next Valuation Day.
Completing a Power of Attorney form for another person to act on your behalf
may prevent you from making Surrenders via telephone.
What should be considered about taxes?
There are certain tax consequences associated with Surrenders:
Prior to age 59 1/2 -- If you make a Surrender prior to age 59 1/2, there
may be adverse tax consequences including a10% federal income tax penalty on the
taxable portion of the Surrender payment. Surrendering before age 59 1/2 may
also affect the continuing tax-qualified status of some Contracts.
We do not monitor Surrender requests. To determine whether a Surrender is
permissible, with or without federal income tax penalty, please consult your
personal tax advisor.
More than one Contract issued in the same calender year:
If you own more than one contract issued by us or our affiliates in the same
calendar year, then these contracts may be treated as one contract for the
purpose of determining the taxation of distributions prior to the Annuity
Commencement Date. Please consult your tax adviser for additional information.
Internal Revenue Code Section 403(b) Annuities -- As of December 31, 1988,
all section 403(b) annuities have limits on full and partial Surrenders.
Contributions to your Contract made after December 31, 1988 and any increases in
cash value after December 31, 1988 may not be distributed unless you are: (a)
age 59 1/2, (b) no longer employed, (c) deceased, (d) disabled, or (e)
experiencing a financial hardship (cash value increases may not be distributed
for hardships prior to age 59 1/2). Distributions prior to age 59 1/2 due to
financial hardship; unemployment or retirement may still be subject to a penalty
tax of 10%.
We encourage you to consult with your tax adviser before making any
Surrenders. Please see the "Federal Tax Considerations" section for more
information.
ANNUITY PAYOUTS
This section describes what happens when we begin to make regular Annuity
Payouts from your Contract. You, as the Contract Owner, should answer five
questions:
1. When do you want Annuity Payouts to begin?
2. Which Annuity Payout Option do you want to use?
3. How often do you want to receive Annuity Payouts?
4. What is the Assumed Investment Rate?
5. Do you want fixed dollar amount or variable dollar amount Annuity Payouts?
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<PAGE>
Please check with your financial advisor to select the Annuity Payout Option
that best meets your income needs.
1. When do you want Annuity Payouts to begin?
You select an Annuity Commencement Date when you purchase your Contract or
at any time before you begin receiving Annuity Payouts. You may change the
Annuity Commencement Date by notifying us within thirty days prior to the date.
The Annuity Commencement Date cannot be deferred beyond the 15th day of the
month of the Annuitant's 90th birthday. If this Contract is issued to the
trustee of a Charitable Remainder Trust, the Annuity Commencement Date may be
deferred to the Annuitant's 100th birthday.
The Annuity Calculation Date is when the amount of your Annuity Payout is
determined. This occurs within five Valuation Days before your selected Annuity
Commencement Date.
All Annuity Payouts, regardless of frequency, will occur on the same day of
the month as the Annuity Commencement Date. After the initial payout, if an
Annuity Payout date falls on a Non-Valuation Day, the Annuity Payout is computed
on the prior Valuation Day. If the Annuity Payout date does not occur in a given
month due to a leap year or months with only 28 days (i.e. the 31st), the
Annuity Payout will be computed on the last Valuation Day of the month.
2. Which Annuity Payout Option do you want to use?
Your Contract contains the Annuity Payout Options described below. The
Annuity Proceeds Settlement Option is an option that can be elected by the
Beneficiary after the death of the Contract Owner and is described in the "Death
Benefit" section. We may at times offer other Annuity Payout Options.
Option 1 -- Life Annuity -- We make Annuity Payouts as long as the Annuitant
is living. When the Annuitant dies, we stop making Annuity Payouts. A Payee
would receive only one Annuity Payout if the Annuitant dies after the first
payout, two Annuity Payouts if the Annuitant dies after the second payout, and
so forth.
Option 2 -- Life Annuity with 120, 180 or 240 Monthly Payments Certain -- We
make monthly Annuity Payouts during the lifetime of the Annuitant but Annuity
Payouts are at least guaranteed for a minimum of 120, 180 or 240 months, as you
elect. If, at the death of the Annuitant, Annuity Payouts have been made for
less than the minimum elected number of months, then the Commuted Value as of
the date of the Annuitant's death will be paid in one sum to the Beneficiary.
Option 3 -- Joint and Last Survivor Life Annuity -- We will make Annuity
Payouts as long as the Annuitant and Joint Annuitant are living. When one
Annuitant dies, we continue to make Annuity Payouts to the other Annuitant until
that second Annuitant dies. When choosing this option, you must decide what will
happen to the Annuity Payouts; either fixed or variable, after the first
Annuitant dies. You must select Annuity Payouts that:
- - Remain the same at 100%, or
- - Decrease to 66.67%, or
- - Decrease to 50%.
For variable Annuity Payouts, these percentages represent Annuity Units; for
fixed Annuity Payouts, they represent actual dollar amounts. The percentage will
also impact the Annuity Payout amount we pay while both Annuitants are living.
If you pick a lower percentage, your original Annuity Payouts will be higher
while both Annuitants are alive.
Option 4 -- Payments for a Designated Period -- We will make Annuity Payouts
for the number of years that you select. You can select between 5 years and 30
years.
Important Information:
- - You cannot Surrender your Contract once Annuity Payouts begin, unless you have
selected the Payments For a Designated Period Annuity Payout Option. A
Contingent Deferred Sales Charge may be deducted.
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<PAGE>
- - For Non-Qualified Contracts, if you do not elect an Annuity Payout Option,
fixed Annuity Payouts will automatically begin on the Annuity Commencement
Date under the Life Annuity with 120 Monthly Payments Certain.
- - For Qualified Contracts and Contracts issued in Texas, if you do not elect an
Annuity Payout Option, fixed Annuity Payouts will begin automatically on the
Annuity Commencement Date, under the Annuity Payout Option 1 -- Life Annuity.
3. How often do you want the Payee to receive Annuity Payouts?
In addition to selecting an Annuity Commencement Date and an Annuity Payout
Option, you must also decide how often you want the Payee to receive Annuity
Payouts. You may choose to receive Annuity Payouts:
- - monthly,
- - quarterly,
- - semi-annually, or
- - annually.
Once you select a frequency, it cannot be changed. If you do not make a
selection, the Payee will receive monthly Annuity Payouts. You must select a
frequency that results in an Annuity Payout of at least $50. If the amount falls
below $50, we have the right to change the frequency to bring the Annuity Payout
up to at least $50.
4. What is the Assumed Investment Rate?
The Assumed Investment Return is the investment return used to calculate
variable Annuity Payouts. The Assumed Investment Return for your Annuity is 5%.
The first Annuity Payout will be based upon a 5% Assumed Investment Return. The
remaining Annuity Payouts will fluctuate based on the actual investment results
of the Sub-Accounts.
5. Do you want Annuity Payouts to be Fixed-Dollar Amount or Variable-Dollar
Amount?
You may choose an Annuity Payout Option with fixed-dollar amounts or
variable-dollar amounts, depending on your income needs.
Fixed-Dollar Amount Annuity Payouts -- Once a fixed-dollar amount Annuity
Payout begins, you cannot change your selection to receive variable-dollar
amount Annuity Payout. You will receive equal fixed-dollar amount Annuity
Payouts throughout the Annuity Payout period. Fixed-dollar amount Annuity Payout
amounts are determined by multiplying the Contract Value, minus any applicable
Premium Taxes, by an Annuity rate. The annuity rate is set by us and is not less
than the rate specified in the Fixed Payment Annuity tables in your Contract.
Variable-Dollar Amount Annuity Payouts -- A variable-dollar amount Annuity
Payout is based on the investment performance of the Sub-Accounts. The
variable-dollar amount Annuity Payouts may fluctuate with the performance of the
underlying Funds. To begin making variable-dollar amount Annuity Payouts, we
convert the first Annuity Payout amount to a set number of Annuity Units and
then price those units to determine the Annuity Payout amount. The number of
Annuity Units that determines the Annuity Payout amount remains fixed unless you
transfer units between Sub-Accounts.
The dollar amount of the first variable Annuity Payout depends on:
- - the Annuity Payout Option chosen,
- - the Annuitant's attained age and gender (if applicable), and,
- - the applicable annuity purchase rates based on the 1983a Individual Annuity
Mortality table
- - the Assumed Investment Return.
The total amount of the first variable-dollar amount Annuity Payout is
determined by dividing the Contract Value minus any applicable Premium Taxes, by
$1,000 and multiplying the result by the payment factor defined in the Contract
for the selected Annuity Payout Option.
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<PAGE>
The dollar amount of each subsequent variable-dollar amount Annuity Payout
is equal to the total of:
Annuity Units for each Sub-Account multiplied by Annuity Unit Value of each
Sub-Account.
The Annuity Unit Value of each Sub-Account for any Valuation Period is equal
to the Accumulation Unit Value Net Investment Factor for the current Valuation
Period multiplied by the Annuity Unit factor, multiplied by the Annuity Unit
Value for the preceding Valuation Period.
Transfer of Annuity Units -- After the Annuity Calculation Date, you may
transfer dollar amounts of Annuity Units from one Sub-Account to another. On the
day you make a transfer, the dollar amounts are equal for both Sub-Accounts and
the number of Annuity Units will be different. We will transfer the dollar
amount of your Annuity Units the day we receive your written request if received
before the close of the New York Stock Exchange. Otherwise, the transfer will be
made on the next Valuation Day.
OTHER PROGRAMS AVAILABLE
InvestEase-Registered Trademark- Program -- InvestEase-Registered Trademark-
is an electronic transfer program that allows you to have money automatically
transferred from your checking or savings account, and invested in your
Contract. It is available for Premium Payments made after your initial Premium
Payment. The minimum amount for each transfer is $50. You can elect to have
transfers occur either monthly or quarterly, and they can be made into any
Account available in your Contract.
Automatic Income Program -- The Automatic Income Program allows you to
Surrender up to 10% of your total Premium Payments each Contract Year. We can
Surrender from the Accounts you select systematically on a monthly, quarterly,
semiannual, or annual basis. The Automatic Income Program may change based on
your instructions after your seventh Contract Year.
Asset Allocation Program -- Asset Allocation is a program that allows you to
choose an allocation for your Sub-Accounts to help you reach your investment
goals. Some Contracts offer model allocations with pre-selected Sub-Accounts and
percentages that have been established for each type of investor -- ranging from
conservative to aggressive. Over time, Sub-Account performance may cause your
Contract's allocation percentages to change, but under the Asset Allocation
Program, your Sub-Account allocations are rebalanced to the percentages in the
current model you have chosen. You can transfer freely between allocation models
up to twelve times per year. You can also allocate a portion of your investment
to Sub-Accounts that may not be part of the model. You can only participate in
one asset allocation model at a time.
Asset Rebalancing -- Asset Rebalancing is another type of asset allocation
program in which you customize your Sub-Accounts to meet your investment needs.
You select the Sub-Accounts and the percentages you want allocated to each
Sub-Account. Based on the frequency you select, your model will automatically
rebalance to the original percentages chosen. You can transfer freely between
models up to twelve times per year. You can also allocate a portion of your
investment to Sub-Accounts that are not part of the model. You can only
participate in one asset rebalancing model at a time.
OTHER INFORMATION
Assignment -- Ownership of this Contract is generally assignable. However,
if the Contract is issued to a tax qualified retirement plan, it is possible
that the ownership of the Contract may not be transferred or assigned. An
assignment of a Non-Qualified Contract may subject the Contract Values or
Surrender Value to income taxes and certain penalty taxes.
Contract Modification -- The Annuitant may not be changed. However, if the
Annuitant is still living, the Contingent Annuitant may be changed at any time
prior to the Annuity Commencement Date by sending us written notice. We may
modify the Contract, but no modification will effect the amount or term of any
Contract unless a modification is required to conform the Contract to applicable
Federal or State law. No modification will effect the method by which Contract
Values are determined.
How Contracts Are Sold -- Hartford Securities Distribution Company, Inc.
("HSD") serves as Principal Underwriter for the securities issued with respect
to the Separate Account. HSD is registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934 as a Broker-Dealer and is a
member of the
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National Association of Securities Dealers, Inc. HSD is an affiliate of ours.
Both HSD and Hartford are ultimately controlled by The Hartford Financial
Services Group, Inc. The principal business address of HSD is the same as ours.
The securities will be sold by individuals who represent us as insurance agents
and who are registered representatives of Broker-Dealers that have entered into
distribution agreements with HSD.
Commissions will be paid by Hartford and will not be more than 6% of Premium
Payments. From time to time, Hartford may pay or permit other promotional
incentives, in cash or credit or other compensation.
Broker-dealers or financial institutions are compensated according to a
schedule set forth by HSD and any applicable rules or regulations for variable
insurance compensation. Compensation is generally based on Premium Payments made
by policyholders or Contract Owners. This compensation is usually paid from the
sales charges described in this Prospectus.
In addition, a broker-dealer or financial institution may also receive
additional compensation for, among other things, training, marketing or other
services provided. HSD, its affiliates or Hartford may also make compensation
arrangements with certain broker-dealers or financial institutions based on
total sales by the broker-dealer or financial institution of insurance products.
These payments, which may be different for different broker-dealers or financial
institutions, will be made by HSD, its affiliates or Hartford out of their own
assets and will not effect the amounts paid by the policyholders or Contract
Owners to purchase, hold or Surrender variable insurance products.
Year 2000
In General -- The Year 2000 issue relates to the ability or inability of
computer hardware, software and other information technology (IT) systems, as
well as non-IT systems, such as equipment and machinery with imbedded chips and
microprocessors, to properly process information and data containing or related
to dates beginning with the year 2000 and beyond. The Year 2000 issue exists
because, historically, many IT and non-IT systems that are in use today were
developed years ago when a year was identified using a two-digit date field
rather than a four-digit date field. As information and data containing or
related to the century date are introduced to date sensitive systems, these
systems may recognize the year 2000 as "1900", or not at all, which may result
in systems processing information incorrectly. This, in turn, may significantly
and adversely affect the integrity and reliability of information databases of
IT systems, may cause the malfunctioning of certain non-IT systems, and may
result in a wide variety of adverse consequences to a company. In addition, Year
2000 problems that occur with third parties with which a company does business,
such as suppliers, computer vendors, distributors and others, may also adversely
affect any given company.
The integrity and reliability of Hartford's IT systems, as well as the
reliability of its non-IT systems, are integral aspects of Hartford's business.
Hartford issues insurance policies, annuities, mutual funds and other financial
products to individual and business customers, nearly all of which contain date
sensitive data, such as policy expiration dates, birth dates and premium payment
dates. In addition, various IT systems support communications and other systems
that integrate Hartford's various business segments and field offices. Hartford
also has business relationships with numerous third parties that affect
virtually all aspects of Hartford's business, including, without limitation,
suppliers, computer hardware and software vendors, insurance agents and brokers,
securities broker-dealers and other distributors of financial products, many of
which provide date sensitive data to Hartford, and whose operations are
important to Hartford's business.
Internal Year 2000 Efforts and Timetable -- Beginning in 1990, Hartford
began working on making its IT systems Year 2000 ready, either through
installing new programs or replacing systems. Since January 1998, Hartford's
Year 2000 efforts have focused on the remaining Year 2000 issues related to IT
and non-IT systems in all of Hartford's business segments. These Year 2000
efforts include the following five main initiatives: (1) identifying and
assessing Year 2000 issues; (2) taking actions to remediate IT and non-IT
systems so that they are Year 2000 ready; (3) testing IT and non-IT systems for
Year 2000 readiness; (4) deploying such remediated and tested systems back into
their respective production environments; and (5) conducting internal and
external integrated testing of such systems. As of December 31, 1998, Hartford
substantially completed initiatives (1) through (4) of its internal Year 2000
efforts. Hartford has begun initiative (5) and management currently anticipates
that such activity will continue into the fourth quarter of 1999.
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Third Party Year 2000 Efforts and Timetable -- Hartford's Year 2000 efforts
include assessing the potential impact on Hartford of third parties' Year 2000
readiness. Hartford's third party Year 2000 efforts include the following three
main initiatives: (1) identifying third parties which have significant business
relationships with Hartford, including, without limitation, insurance agents,
brokers, third party administrators, banks and other distributors and servicers
of financial products, and inquiring of such third parties regarding their Year
2000 readiness; (2) evaluating such third parties' responses to Hartford's
inquiries; and (3) based on the evaluation of third party responses (or a third
party's failure to respond) and the significance of the business relationship,
conducting additional activities with respect to third parties as determined to
be necessary in each case. These activities may include conducting additional
inquiries, more in-depth evaluations of Year 2000 readiness and plans, and
integrated IT systems testing. Hartford has completed the first third party
initiative and, as of early 1999, had substantially completed evaluating third
party responses received. Hartford has begun conducting the additional
activities described in initiative (3) and management currently anticipates that
it will continue to do so through the end of 1999. However, notwithstanding
these third party Year 2000 efforts, Hartford does not have control over these
third parties and, as a result, Hartford cannot currently determine to what
extent future operating results may be adversely affected by the failure of
these third parties to adequately address their Year 2000 issues.
Year 2000 Costs -- The costs of Hartford's Year 2000 program that were
incurred through the year ended December 31, 1997 were not material to
Hartford's financial condition or results of operations. The after-tax costs of
Hartford's Year 2000 efforts for the year ended December 31, 1998 were
approximately $3 million. Management currently estimates that after-tax costs
related to the Year 2000 program to be incurred in 1999 will be less than $10
million. These costs are being expensed as incurred.
Risks and Contingency Plans -- If significant Year 2000 problems arise,
including problems arising with third parties, failures of IT and non-IT systems
could occur, which in turn could result in substantial interruptions in
Hartford's business. In addition, Hartford's investing activities are an
important aspect of its business and Hartford may be exposed to the risk that
issuers of investments held by it will be adversely impacted by Year 2000
issues. Given the uncertain nature of Year 2000 problems that may arise,
especially those related to the readiness of third parties discussed above,
management cannot determine at this time whether the consequences of Year 2000
related problems that could arise will have a material impact on Hartford's
financial condition or results of operations.
Hartford is in the process of developing certain contingency plans so that
if, despite its Year 2000 efforts, Year 2000 problems ultimately arise, the
impact of such problems may be avoided or minimized. These contingency plans are
being developed based on, among other things, known or reasonably anticipated
circumstances and potential vulnerabilities. The contingency planning also
includes assessing the dependency of Hartford's business on third parties and
their Year 2000 readiness. Hartford currently anticipates that internal and
external contingency plans will be substantially complete by the end of the
second quarter of 1999. However, in many contexts, Year 2000 issues are dynamic,
and ongoing assessments of business functions, vulnerabilities and risks must be
made. As such, new contingency plans may be needed in the future and/or existing
plans may need to be modified as circumstances warrant.
Legal Matters and Experts
There are no material legal proceedings pending to which the Separate
Account is a party.
Counsel with respect to federal laws and regulations applicable to the issue
and sale of the Contracts and with respect to Connecticut law is Lynda Godkin,
Senior Vice President, General Counsel and Corporate Secretary, Hartford Life
and Annuity Insurance Company, P.O. Box 2999, Hartford, Connecticut 06104-2999.
The audited financial statements included in this registration statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
Reference is made to the report on the statutory financial statements of
Hartford Life and Annuity Insurance Company which states the statutory financial
statements are presented in accordance with statutory accounting practices
prescribed or permitted by the National Association of Insurance Commissioners
and the State of Connecticut Insurance Department, and are not presented in
accordance with generally accepted accounting principles. The principal business
address of Arthur Andersen LLP is One Financial Plaza, Hartford, Connecticut
06103.
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More Information
You may call your Representative if you have any questions or write or call
us at the address below:
Hartford Life and Annuity Insurance Company
Attn: IPS
P.O. Box 5085
Hartford, Connecticut 06102-5085
Telephone: (800) 862-6668 (Contract Owners)
(800) 862-7155 (Registered Representatives)
FEDERAL TAX CONSIDERATIONS
What are some of the federal tax consequences which affect these Contracts?
A. General
Since federal tax law is complex, the tax consequences of purchasing this
contract will vary depending on your situation. You may need tax or legal advice
to help you determine whether purchasing this contract is right for you.
Our general discussion of the tax treatment of this contract is based on our
understanding of federal income tax laws as they are currently interpreted. A
detailed description of all federal income tax consequences regarding the
purchase of this contract cannot be made in the prospectus. We also do not
discuss state, municipal or other tax laws that may apply to this contract. For
detailed information, you should consult with a qualified tax adviser familiar
with your situation.
B. Taxation of Hartford and the Separate Account
The Separate Account is taxed as part of Hartford which is taxed as a life
insurance company in accordance with the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, the Separate Account will not be taxed as a
"regulated investment company" under subchapter M of Chapter 1 of the Code.
Investment income and any realized capital gains on the assets of the Separate
Account are reinvested and are taken into account in determining the value of
the Accumulation and Annuity Units (See "Value of Accumulation Units"). As a
result, such investment income and realized capital gains are automatically
applied to increase reserves under the Contract.
No taxes are due on interest, dividends and short-term or long-term capital
gains earned by the Separate Account with respect to Qualified or Non-Qualified
Contracts.
C. Taxation of Annuities -- General Provisions Affecting Purchasers Other Than
Qualified
Retirement Plans
Section 72 of the Code governs the taxation of annuities in general.
1. NON-NATURAL PERSONS, CORPORATIONS, ETC. Code Section 72 contains
provisions for contract owners which are not natural persons. Non-natural
persons include corporations, trusts, limited liability companies,
partnerships and other types of legal entities. The tax rules for
contracts owned by non-natural persons are different from the rules for
contracts owned by individuals. For example, the annual net increase in
the value of the contract is currently includible in the gross income of
a non-natural person, unless the non-natural person holds the contract as
an agent for a natural person. There are additional exceptions from
current inclusion for:
- certain annuities held by structured settlement companies,
- certain annuities held by an employer with respect to a terminated
qualified retirement plan and
- certain immediate annuities.
A non-natural person which is a tax-exempt entity for federal tax purposes
will not be subject to income tax as a result of this provision.
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If the contract owner is a non-natural person, the primary annuitant is
treated as the contract owner in applying mandatory distribution rules.
These rules require that certain distributions be made upon the death of the
contract owner. A change in the primary annuitant is also treated as the
death of the contract owner.
2. OTHER CONTRACT OWNERS (NATURAL PERSONS). A Contract Owner is not taxed
on increases in the value of the Contract until an amount is received or
deemed received, e.g., in the form of a lump sum payment (full or partial
value of a Contract) or as Annuity payments under the settlement option
elected.
The provisions of Section 72 of the Code concerning distributions are
summarized briefly below. Also summarized are special rules affecting
distributions from Contracts obtained in a tax-free exchange for other
annuity contracts or life insurance contracts which were purchased prior to
August 14, 1982.
a. DISTRIBUTIONS PRIOR TO THE ANNUITY COMMENCEMENT DATE.
i. Total premium payments less amounts received which were not
includable in gross income equal the "investment in the contract"
under Section 72 of the Code.
ii. To the extent that the value of the Contract (ignoring any
surrender charges except on a full surrender) exceeds the
"investment in the contract," such excess constitutes the "income
on the contract."
iii. Any amount received or deemed received prior to the Annuity
Commencement Date (e.g., upon a partial surrender) is deemed to
come first from any such "income on the contract" and then from
"investment in the contract," and for these purposes such "income
on the contract" shall be computed by reference to any aggregation
rule in subparagraph 2.c. below. As a result, any such amount
received or deemed received (1) shall be includable in gross income
to the extent that such amount does not exceed any such "income on
the contract," and (2) shall not be includable in gross income to
the extent that such amount does exceed any such "income on the
contract." If at the time that any amount is received or deemed
received there is no "income on the contract" (e.g., because the
gross value of the Contract does not exceed the "investment in the
contract" and no aggregation rule applies), then such amount
received or deemed received will not be includable in gross income,
and will simply reduce the "investment in the contract."
iv. The receipt of any amount as a loan under the Contract or the
assignment or pledge of any portion of the value of the Contract
shall be treated as an amount received for purposes of this
subparagraph a. and the next subparagraph b.
v. In general, the transfer of the Contract, without full and adequate
consideration, will be treated as an amount received for purposes of
this subparagraph a. and the next subparagraph b. This transfer rule
does not apply, however, to certain transfers of property between
spouses or incident to divorce.
b. DISTRIBUTIONS AFTER ANNUITY COMMENCEMENT DATE. Annuity payments made
periodically after the Annuity Commencement Date are includable in gross
income to the extent the payments exceed the amount determined by the
application of the ratio of the "investment in the contract" to the total
amount of the payments to be made after the Annuity Commencement Date
(the "exclusion ratio").
i. When the total of amounts excluded from income by application of the
exclusion ratio is equal to the investment in the contract as of the
Annuity Commencement Date, any additional payments (including
surrenders) will be entirely includable in gross income.
ii. If the annuity payments cease by reason of the death of the
Annuitant and, as of the date of death, the amount of annuity
payments excluded from gross income by the exclusion ratio does not
exceed the investment in the contract as of the Annuity
Commencement Date, then the remaining portion of unrecovered
investment shall be allowed as a deduction for the last taxable
year of the Annuitant.
iii. Generally, 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).
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c. AGGREGATION OF TWO OR MORE ANNUITY CONTRACTS. Contracts issued after
October 21, 1988 by the same insurer (or affiliated insurer) to the same
Contract Owner within the same calendar year (other than certain
contracts held in connection with a tax-qualified retirement arrangement)
will be treated as one annuity Contract for the purpose of determining
the taxation of distributions prior to the Annuity Commencement Date. An
annuity contract received in a tax-free exchange for another annuity
contract or life insurance contract may be treated as a new Contract for
this purpose. Hartford believes that for any annuity subject to such
aggregation, the values under the Contracts and the investment in the
contracts will be added together to determine the taxation under
subparagraph 2.a., above, of amounts received or deemed received prior to
the Annuity Commencement Date. Withdrawals will first be treated as
withdrawals of income until all of the income from all such Contracts is
withdrawn. As of the date of this Prospectus, there are no regulations
interpreting this provision.
d. 10% PENALTY TAX -- APPLICABLE TO CERTAIN WITHDRAWALS AND ANNUITY
PAYMENTS.
i. If any amount is received or deemed received on the Contract (before
or after the Annuity Commencement Date), the Code applies a penalty
tax equal to ten percent of the portion of the amount includable in
gross income, unless an exception applies.
ii. The 10% penalty tax will not apply to the following distributions
(exceptions vary based upon the precise plan involved):
1. Distributions made on or after the date the recipient has
attained the age of 59 1/2.
2. Distributions made on or after the death of the holder or where
the holder is not an individual, the death of the primary
annuitant.
3. Distributions attributable to a recipient's becoming disabled.
4. A distribution that is part of a scheduled series of
substantially equal periodic payments (not less frequently than
annually) for the life (or life expectancy) of the recipient (or
the joint lives or life expectancies of the recipient and the
recipient's designated Beneficiary).
5. Distributions of amounts which are allocable to the "investment
in the contract" prior to August 14, 1982 (see next subparagraph
e.).
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;
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2. If any Contract Owner dies before the Annuity Commencement Date,
the entire interest in the Contract will be distributed within 5
years after such death; and
3. If the Contract Owner is not an individual, then for purposes of
1. or 2. above, the primary annuitant under the Contract shall be
treated as the Contract Owner, and any change in the primary
annuitant shall be treated as the death of the Contract Owner.
The primary annuitant is the individual, the events in the life
of whom are of primary importance in affecting the timing or
amount of the payout under the Contract.
ii. Alternative Election to Satisfy Distribution Requirements
If any portion of the interest of a Contract Owner described in i.
above is payable to or for the benefit of a designated beneficiary, such
beneficiary may elect to have the portion distributed over a period
that does not extend beyond the life or life expectancy of the
beneficiary. The election must be made and payments must begin within
a year of the death.
iii. Spouse Beneficiary
If any portion of the interest of a Contract Owner is payable to or
for the benefit of his or her spouse, and the Annuitant or Contingent Annuitant
is living, such spouse shall be treated as the Contract Owner of such
portion for purposes of section i. above.
This spousal continuation shall apply only once for this contract.
3. DIVERSIFICATION REQUIREMENTS. The Code requires that investments supporting
your contract be adequately diversified. Code Section 817 provides that a
variable annuity contract will not be treated as an annuity contract for any
period during which the investments made by the separate account or
underlying fund are not adequately diversified. If a contract is not treated
as an annuity contract, the contract owner will be subject to income tax on
annual increases in cash value.
The Treasury Department's diversification regulations require, among other
things, that:
- no more than 55% of the value of the total assets of the segregated asset
account underlying a variable contract is represented by any one
investment,
- no more than 70% is represented by any two investments,
- no more than 80% is represented by any three investments and
- no more than 90% is represented by any four investments.
In determining whether the diversification standards are met, all securities
of the same issuer, all interests in the same real property project, and all
interests in the same commodity are each treated as a single investment. In
the case of government securities, each government agency or instrumentality
is treated as a separate issuer.
A separate account must be in compliance with the diversification standards
on the last day of each calendar quarter or within 30 days after the quarter
ends. If an insurance company inadvertently fails to meet the
diversification requirements, the company may still comply within a
reasonable period and avoid the taxation of contract income on an ongoing
basis. However, either the company or the contract owner must agree to pay
the tax due for the period during which the diversification requirements
were not met.
We monitor the diversification of investments in the separate accounts and
test for diversification as required by the Code. We intend to administer
all contracts subject to the diversification requirements in a manner that
will maintain adequate diversification.
4. Ownership of the Assets in the Separate Account. In order for a variable
annuity contract to qualify for tax deferral, assets in the separate
accounts supporting the contract must be considered to be owned by the
insurance company and not by the contract owner. It is unclear under what
circumstances an investor is considered to have enough control over the
assets in the separate account to be considered the owner of the assets for
tax purposes.
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The IRS has issued several rulings discussing investor control. These
rulings say that certain incidents of ownership by the contract owner, such
as the ability to select and control investments in a separate account, will
cause the contract owner to be treated as the owner of the assets for tax
purposes.
In its explanation of the diversification regulations, the Treasury
Department recognized that the temporary regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor, rather
than the insurance company, to be treated as the owner of the assets in the
account." The explanation further indicates that "the temporary regulations
provide that in appropriate cases a segregated asset account may include
multiple sub-accounts, but do not specify the extent to which policyholders
may direct their investments to particular sub-accounts without being
treated as the owners of the underlying assets. Guidance on this and other
issues will be provided in regulations or revenue rulings under Section
817(d), relating to the definition of variable contract."
The final regulations issued under Section 817 did not provide guidance
regarding investor control, and as of the date of this prospectus, guidance
has yet to be issued. We do not know if additional guidance will be issued.
If guidance is issued, we do not know if it will have a retroactive effect.
Due to the lack of specific guidance on investor control, there is some
uncertainty about when a contract owner is considered the owner of the
assets for tax purposes. We reserve the right to modify the contract, as
necessary, to prevent you from being considered the owner of assets in the
separate account.
D. Federal Income Tax Withholding
The portion of a distribution which is taxable income to the recipient will
be subject to federal income tax withholding, pursuant to Section 3405 of
the Code. The application of this provision is summarized below:
1. NON-PERIODIC DISTRIBUTIONS. The portion of a non-periodic distribution
which constitutes taxable income will be subject to federal income tax
withholding unless the recipient elects not to have taxes withheld. If
there is no election to waive withholding, 10% of the taxable
distribution will be withheld as federal income tax. Election forms will
be provided at the time distributions are requested. If the necessary
election forms are not submitted to Hartford, Hartford will automatically
withhold 10% of the taxable distribution.
2. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN
ONE YEAR). The portion of a periodic distribution which constitutes
taxable income will be subject to federal income tax withholding as if
the recipient were married claiming three exemptions. A recipient may
elect not to have income taxes withheld or have income taxes withheld at
a different rate by providing a completed election form. Election forms
will be provided at the time distributions are requested.
E. General Provisions Affecting Qualified Retirement Plans
The Contract may be used for a number of qualified retirement plans. If the
Contract is being purchased with respect to some form of qualified retirement
plan, please refer to Appendix I for information relative to the types of plans
for which it may be used and the general explanation of the tax features of such
plans.
F. Annuity Purchases By Nonresident Aliens and Foreign Corporations
The discussion above provides general information regarding U.S. federal
income tax consequences to annuity purchasers that are U.S. citizens or
residents. Purchasers that are not U.S. citizens or residents will generally be
subject to U.S. federal income tax and withholding on annuity distributions at a
30% rate, unless a lower treaty rate applies. In addition, purchasers may be
subject to state premium tax, other state and/or municipal taxes, and taxes that
may be imposed by the purchaser's country of citizenship or residence.
Prospective purchasers are advised to consult with a qualified tax adviser
regarding U.S., state, and foreign taxation with respect to an annuity purchase.
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APPENDIX I
INFORMATION REGARDING TAX-QUALIFIED RETIREMENT PLANS
This summary does not attempt to provide more than general information about
the federal income tax rules associated with use of a Contract by a
tax-qualified retirement plan. Because of the complexity of the federal tax
rules, owners, participants and beneficiaries are encouraged to consult their
own tax advisors as to specific tax consequences.
The federal tax rules applicable to owners of Contracts under tax-qualified
retirement plans vary according to the type of plan as well as the terms and
conditions of the plan itself. Contract owners, plan participants and
beneficiaries are cautioned that the rights and benefits of any person may be
controlled by the terms and conditions of the tax-qualified retirement plan
itself, regardless of the terms and conditions of a Contract. We are not bound
by the terms and conditions of such plans to the extent such terms conflict with
a Contract, unless we specifically consent to be bound.
Some tax-qualified retirement plans are subject to distribution and other
requirements that are not incorporated into our administrative procedures.
Contract owners, participants and beneficiaries are responsible for determining
that contributions, distributions and other transactions comply with applicable
law. Tax penalties may apply to transactions with respect to tax-qualified
retirement plans if applicable federal income tax rules and restrictions are not
carefully observed.
We do not currently offer the Contracts in connection with all of the types
of tax-qualified retirement plans discussed below and may not offer the
Contracts for all types of tax-qualified retirement plans in the future.
1. Tax-Qualified Pension or Profit-Sharing Plans
Eligible employers can establish certain tax-qualified pension and
profit-sharing plans under section 401 of the Code. Rules under section
401(k) of the Code govern certain "cash or deferred arrangements" under such
plans. Rules under section 408(k) govern "simplified employee pensions."
Tax-qualified pension and profit-sharing plans are subject to limitations on
the amount that may be contributed, the persons who may be eligible to
participate and the time when distributions must commence. Employers
intending to use the Contracts in connection with tax-qualified pension or
profit-sharing plans should seek competent tax and other legal advice.
2. Tax Sheltered Annuities Under Section 403(b)
Public schools and certain types of charitable, educational and scientific
organizations, as specified in section 501(c)(3) of the Code, can purchase
tax-sheltered annuity contracts for their employees. Tax-deferred
contributions can be made to tax-sheltered annuity contracts under section
403(b) of the Code, subject to certain limitations. Generally, such
contributions may not exceed the lesser of $10,000 (indexed) or 20% of the
employee's "includable compensation" for such employee's most recent full
year of employment, subject to other adjustments. Special provisions under
the Code may allow some employees to elect a different overall limitation.
Tax-sheltered annuity programs under section 403(b) are subject to a
PROHIBITION AGAINST DISTRIBUTIONS FROM THE CONTRACT ATTRIBUTABLE TO
CONTRIBUTIONS MADE PURSUANT TO A SALARY REDUCTION AGREEMENT, unless such
distribution is made:
- after the participating employee attains age 59 1/2;
- upon separation from service;
- upon death or disability; or
- in the case of hardship (and in the case of hardship, any income
attributable to such contributions may not be distributed).
Generally, the above restrictions do not apply to distributions attributable
to cash values or other amounts held under a section 403(b) contract as of
December 31, 1988.
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3. Deferred Compensation Plans Under Section 457
A governmental employer or a tax-exempt employer other than a governmental
unit can establish a Deferred Compensation Plan under section 457 of the
Code. For these purposes, a "governmental employer" is a State, a political
subdivision of a State, or an agency or an instrumentality of a State or
political subdivision of a State. Employees and independent contractors
performing services for a governmental or tax-exempt employer can elect to
have contributions made to a Deferred Compensation Plan of their employer in
accordance with the employer's plan and section 457 of the Code.
Deferred Compensation Plans that meet the requirements of section 457(b) of
the Code are called "eligible" Deferred Compensation Plans. Section 457(b)
limits the amount of contributions that can be made to an eligible Deferred
Compensation Plan on behalf of a participant. Generally, the limitation on
contributions is 33 1/3% of a participant's includable compensation
(typically 25% of gross compensation) or, for 1999, $8,000 (indexed),
whichever is less. The plan may provide for additional "catch-up"
contributions during the three taxable years ending before the year in which
the participant attains normal retirement age.
All of the assets and income of an eligible Deferred Compensation Plan
established by a governmental employer after August 20, 1996, must be held
in trust for the exclusive benefit of participants and their beneficiaries.
For this purpose, custodial accounts and certain annuity contracts are
treated as trusts. Eligible Deferred Compensation Plans that were in
existence on August 20, 1996 may be amended to satisfy the trust and
exclusive benefit requirements any time prior to January 1, 1999, and must
be amended not later than that date to continue to receive favorable tax
treatment. The requirement of a trust does not apply to amounts under a
Deferred Compensation Plan of a tax-exempt (non-governmental) employer. In
addition, the requirement of a trust does not apply to amounts under a
Deferred Compensation Plan of a governmental employer if the Deferred
Compensation Plan is not an eligible plan within the meaning of section
457(b) of the Code. In the absence of such a trust, amounts under the plan
will be subject to the claims of the employer's general creditors.
In general, distributions from an eligible Deferred Compensation Plan are
prohibited under section 457 of the Code unless made after the participating
employee:
- attains age 70 1/2,
- separates from service,
- dies, or
- suffers an unforeseeable financial emergency as defined in the Code.
Under present federal tax law, amounts accumulated in a Deferred
Compensation Plan under section 457 of the Code cannot be transferred or
rolled over on a tax-deferred basis except for certain transfers to other
Deferred Compensation Plans under section 457 in limited cases.
4. Individual Retirement Annuities ("IRAS") Under Section 408
Traditional IRAS -- Eligible individuals can establish individual
retirement programs under section 408 of the Code through the purchase of an
IRA. Section 408 imposes limits with respect to IRAs, including limits on
the amount that may be contributed to an IRA, the amount of such
contributions that may be deducted from taxable income, the persons who may
be eligible to contribute to an IRA, and the time when distributions
commence from an IRA. Distributions from certain tax-qualified retirement
plans may be "rolled-over" to an IRA on a tax-deferred basis.
SIMPLE IRAS -- Eligible employees may establish SIMPLE IRAs in connection
with a SIMPLE IRA plan of an employer under section 408(p) of the Code.
Special rollover rules apply to SIMPLE IRAs. Amounts can be rolled over from
one SIMPLE IRA to another SIMPLE IRA. However, amounts can be rolled over
from a SIMPLE IRA to a Traditional IRA only after two years have expired
since the employee first commenced participation in the employer's SIMPLE
IRA plan. Amounts cannot be rolled over to a SIMPLE IRA from a qualified
plan or a Traditional IRA. Hartford is a non-designated financial
institution for purposes of the SIMPLE IRA rules.
38
<PAGE>
Roth IRAS -- Eligible individuals may establish Roth IRAs under section 408A
of the Code. Contributions to a Roth IRA are not deductible. Subject to
special limitations, a Traditional IRA may be converted into a Roth IRA or a
distribution from a Traditional IRA may be rolled over to a Roth IRA.
However, a conversion or a rollover from a Traditional IRA to a Roth IRA is
not excludable from gross income. If certain conditions are met, qualified
distributions from a Roth IRA are tax-free.
5. Federal Tax Penalties and Withholding
Distributions from tax-qualified retirement plans are generally taxed as
ordinary income under section 72 of the Code. Under these rules, a portion
of each distribution may be excludable from income. The excludable amount is
the portion of the distribution that bears the same ratio as the after-tax
contributions bear to the expected return.
(a) PENALTY TAX ON EARLY DISTRIBUTIONS
Section 72(t) of the Code imposes an additional penalty tax equal to 10%
of the taxable portion of a distribution from certain tax-qualified
retirement plans. However, the 10% penalty tax does not apply to a
distributions that is:
- Made on or after the date on which the employee reaches age 59 1/2;
- Made to a beneficiary (or to the estate of the employee) on or after
the death of the employee;
- Attributable to the employee's becoming disabled (as defined in the
Code);
- Part of a series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) of
the employee or the joint lives (or joint life expectancies) of the
employee and his or her designated beneficiary;
- Except in the case of an IRA, made to an employee after separation
from service after reaching age 55; or
- Not greater than the amount allowable as a deduction to the employee
for eligible medical expenses during the taxable year.
In addition, the 10% penalty tax does not apply to a distribution from an
IRA that is:
- Made after separation from employment to an unemployed IRA owner for
health insurance premiums, if certain conditions are met;
- Not in excess of the amount of certain qualifying higher education
expenses, as defined by section 72(t)(7) of the Code; or
- A qualified first-time homebuyer distribution meeting the requirements
specified at section 72(t)(8) of the Code.
If you are a participant in a SIMPLE IRA plan, you should be aware that
the 10% penalty tax is increased to 25% with respect to non-exempt early
distributions made from your SIMPLE IRA during the first two years
following the date you first commenced participation in any SIMPLE IRA
plan of your employer.
(b) MINIMUM DISTRIBUTION PENALTY TAX
If the amount distributed is less than the minimum required distribution for
the year, the Participant is subject to a 50% penalty tax on the amount that
was not properly distributed.
An individual's interest in a tax-qualified retirement plan generally must
be distributed, or begin to be distributed, not later than the Required
Beginning Date. Generally, the Required Beginning Date is April 1 of the
calendar year following the later of:
- the calendar year in which the individual attains age 70 1/2; or
- the calendar year in which the individual retires from service with the
employer sponsoring the plan.
39
<PAGE>
The Required Beginning Date for an individual who is a five (5) percent
owner (as defined in the Code), or who is the owner of an IRA, is April 1 of
the calendar year following the calendar year in which the individual
attains age 70 1/2.
The entire interest of the Participant must be distributed beginning no
later than the Required Beginning Date over:
- the life of the Participant or the lives of the Participant and the
Participant's designated beneficiary, or
- over a period not extending beyond the life expectancy of the Participant
or the joint life expectancy of the Participant and the Participant's
designated beneficiary.
Each annual distribution must equal or exceed a "minimum distribution
amount" which is determined by dividing the account balance by the
applicable life expectancy. This account balance is generally based upon the
account value as of the close of business on the last day of the previous
calendar year. In addition, minimum distribution incidental benefit rules
may require a larger annual distribution.
If an individual dies before reaching his or her Required Beginning Date,
the individual's entire interest must generally be distributed within five
years of the individual's death. However, this rule will be deemed
satisfied, if distributions begin before the close of the calendar year
following the individual's death to a designated beneficiary and
distribution is over the life of such designated beneficiary (or over a
period not extending beyond the life expectancy of the beneficiary). If the
beneficiary is the individual's surviving spouse, distributions may be
delayed until the individual would have attained age 70 1/2.
If an individual dies after reaching his or her Required Beginning Date or
after distributions have commenced, the individual's interest must generally
be distributed at least as rapidly as under the method of distribution in
effect at the time of the individual's death.
(c) WITHHOLDING
In general, regular wage withholding rules apply to distributions from IRAs
and plans described in section 457 of the Code. Periodic distributions from
other tax-qualified retirement plans that are made for a specified period of
10 or more years or for the life or life expectancy of the participant (or
the joint lives or life expectancies of the participant and beneficiary) are
generally subject to federal income tax withholding as if the recipient were
married claiming three exemptions. The recipient of periodic distributions
may generally elect not to have withholding apply or to have income taxes
withheld at a different rate by providing a completed election form.
Mandatory federal income tax withholding at a flat rate of 20% will
generally apply to other distributions from such other tax-qualified
retirement plans unless such distributions are:
- the non-taxable portion of the distribution;
- required minimum distributions; or
- direct transfer distributions.
Direct transfer distributions are direct payments to an IRA or to another
eligible retirement plan under Code section 401(a)(31).
Certain states require withholding of state taxes when federal income tax is
withheld.
40
<PAGE>
TABLE OF CONTENTS TO
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Section Page
- ----------------------------------------------------------------------------------------------------------- ---------
<S> <C>
DESCRIPTION OF HARTFORD LIFE AND ANNUITY INSURANCE COMPANY.................................................
SAFEKEEPING OF ASSETS......................................................................................
INDEPENDENT PUBLIC ACCOUNTANTS.............................................................................
DISTRIBUTION OF CONTRACTS..................................................................................
CALCULATION OF YIELD AND RETURN............................................................................
PERFORMANCE COMPARISONS....................................................................................
FINANCIAL STATEMENTS.......................................................................................
</TABLE>
41
<PAGE>
This form must be completed for all tax-sheltered annuities.
SECTION 403(b)(11) ACKNOWLEDGMENT FORM
The Hartford Variable Annuity Contract that you have recently purchased is
subject to certain restrictions imposed by the Tax Reform Act of 1986.
Contributions to the Contract after December 31, 1988 and any increases in cash
value after December 31, 1988 may not be distributed to you unless you have:
a. Attained age 59 1/2,
b. Separated from service,
c. Died, or
d. Become disabled.
Distributions of post December 31, 1988 contributions (excluding any income
thereon) may also be made if you have experienced a financial hardship.
Also, there may be a 10% penalty tax for distributions made prior to age
59 1/2 because of financial hardship or separation from service.
Also, please be aware that your 403(b) Plan may also offer other financial
alternatives other than the Hartford Pathmaker Variable Annuity. Please refer to
your Plan.
Please complete the following and return to:
Hartford Life and Annuity Insurance Company
Individual Annuity Services
P.O. Box 5085
Hartford, CT 06102-5085
- --------------------------------------------------------------------------------
- ------------------------------------------------
Name of Contract Owner/Participant
- ------------------------------------------------
Address
- ------------------------------------------------
City or Plan/School District
- ------------------------------------------------
Date:
<PAGE>
To obtain a Statement of Additional Information, please complete the form below
and mail to:
Hartford Life and Annuity Insurance Company
Attn: Individual Annuity Services
P.O. Box 5085
Hartford, CT 06102-5085
Please send a Statement of Additional Information to me at the following
address:
- -------------------------------------------------------
Name
- -------------------------------------------------------
Address
- -------------------------------------------------------
City/State Zip Code
<PAGE>
PART B
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
SEPARATE ACCOUNT SIX
HARTFORD PATHMAKER VARIABLE ANNUITY
This Statement of Additional Information is not a prospectus. The information
contained herein should be read in conjunction with the prospectus.
To obtain a prospectus, send a written request to Hartford Life and Annuity
Insurance Company, Attn: Annuity Marketing Services, P.O. Box 5085, Hartford,
CT 06104-5085.
Date of Prospectus: May 3, 1999
Date of Statement of Additional Information: May 3, 1999
33-86330
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
DESCRIPTION OF HARTFORD LIFE AND ANNUITY
INSURANCE COMPANY......................................................
SAFEKEEPING OF ASSETS....................................................
INDEPENDENT PUBLIC ACCOUNTANTS...........................................
DISTRIBUTION OF CONTRACTS................................................
CALCULATION OF YIELD AND RETURN..........................................
PERFORMANCE COMPARISONS..................................................
FINANCIAL STATEMENTS.....................................................
</TABLE>
2
<PAGE>
DESCRIPTION OF HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
Hartford Life and Annuity Insurance Company is a stock life insurance company
engaged in the business of writing life insurance and annuities, both
individual and group, in all states of the United States, the District of
Columbia and Puerto Rico, except New York. On January 1, 1998, Hartford's
name changed from ITT Hartford Life and Annuity Insurance Company to Hartford
Life and Annuity Insurance Company. We were originally incorporated under the
laws of Wisconsin on January 9, 1956, and subsequently redomiciled to
Connecticut. Our offices are located in Simsbury, Connecticut; however, our
mailing address is P.O. Box 2999, Hartford, CT 06104-2999. We are ultimately
controlled by The Hartford Financial Services Group, Inc., one of the largest
financial service providers in the United States.
HARTFORD'S RATINGS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Rating Agency Effective Rating Basis of Rating
Date of Rating
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A.M. Best and Company, Inc. 1/1/99 A+ Financial performance
- -------------------------------------------------------------------------------------------------
Standard & Poor's 6/1/98 AA Insurer financial strength
- -------------------------------------------------------------------------------------------------
Duff & Phelps 12/21/98 AA+ Claims paying ability
- -------------------------------------------------------------------------------------------------
</TABLE>
SAFEKEEPING OF ASSETS
Title to the assets of the Separate Account is held by Hartford. These assets
are kept physically segregated and are held separate and apart from
Hartford's general corporate assets. Records are maintained of all purchases
and redemptions of Fund shares held in each of the Sub-Accounts.
INDEPENDENT PUBLIC ACCOUNTANTS
The audited financial statements included in this registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
Reference is made to the report on the statutory financial statements of
Hartford Life and Annuity Insurance Company which states the statutory
financial statements are presented in accordance with statutory accounting
practices prescribed or permitted by the National Association of Insurance
Commissioners and the State of Connecticut Insurance Department, and are not
presented in accordance with generally accepted accounting principles. The
principal business address of Arthur Andersen LLP is One Financial Plaza,
Hartford, Connecticut 06103.
3
<PAGE>
DISTRIBUTION OF CONTRACTS
Hartford Securities Distribution Company, Inc. ("HSD") serves as Principal
Underwriter for the securities issued with respect to the Separate Account.
HSD is registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 as a Broker-Dealer and is a member of the
National Association of Securities Dealers, Inc. HSD is an affiliate of ours.
Both HSD and Hartford are ultimately controlled by The Hartford Financial
Services Group, Inc. The principal business address of HSD is the same as
ours. The securities will be sold by individuals who represent us as
insurance agents and who are registered representatives of Broker-Dealers
that have entered into distribution agreements with HSD.
Commissions will be paid by Hartford and will not be more than 6% of Premium
Payments. From time to time, Hartford may pay or permit other promotional
incentives, in cash or credit or other compensation.
Broker-dealers or financial institutions are compensated according to a
schedule set forth by HSD and any applicable rules or regulations for
variable insurance compensation. Compensation is generally based on Premium
Payments made by policyholders or Contract Owners. This compensation is
usually paid from the sales charges described in the prospectus.
In addition, a broker-dealer or financial institution may also receive
additional compensation for, among other things, training, marketing or other
services provided. HSD, its affiliates or Hartford may also make compensation
arrangements with certain broker-dealers or financial institutions based on
total sales by the broker-dealer or financial institution of insurance
products. These payments, which may be different for different broker-dealers
or financial institutions, will be made by HSD, its affiliates or Hartford
out of their own assets and will not effect the amounts paid by the
policyholders or Contract Owners to purchase, hold or Surrender variable
insurance products.
The Contract may be sold directly to certain individuals under certain
circumstances that do not involve payment of any sales compensation to a
registered representative. In such case, Hartford will credit the Contract
with an additional 5.0% of the Premium Payment. This additional percentage of
Premium Payment in no way affects present or future charges, rights, benefits
or current values of other Contract Owners. The following class of
individuals are eligible for this feature: (1) current or retired officers,
directors, trustees and employees (and their families) of the ultimate parent
and affiliates of Hartford; and (2) employees and registered representatives
(and their families) of registered broker-dealers (or their financial
institutions) that have a sales agreement with Hartford and its principal
underwriter to sell the Contracts.
4
<PAGE>
Hartford currently pays HSD underwriting commissions for its role as
Principal Underwriter of all variable annuities associated with this Separate
Account. For the past three years, the aggregate dollar amount of
underwriting commissions paid to and retained by HSD in its role as Principal
Underwriter has been: 1998: $1,976,242;1997: $2,492,803; and 1996:
$1,311,897. HSD has retained none of these commissions.
CALCULATION OF YIELD AND RETURN
YIELD OF THE PUTNAM MONEY MARKET FUND SUB-ACCOUNT. As summarized in the
prospectus under the heading "Performance Related Information," the yield of
the 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 PUTNAM MONEY MARKET FUND SUB-ACCOUNT'S YIELD AND EFFECTIVE YIELD WILL
VARY IN RESPONSE TO FLUCTUATIONS IN INTEREST RATES AND IN THE EXPENSES OF THE
SUB-ACCOUNT. THE CURRENT YIELD AND EFFECTIVE YIELD REFLECT RECURRING CHARGES
ON THE SEPARATE ACCOUNT LEVEL, INCLUDING THE MAXIMUM ANNUAL MAINTENANCE FEE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SUB-ACCOUNT YIELD EFFECTIVE YIELD
- -------------------------------------------------------------------------------
<S> <C> <C>
Putnam Money Market * 3.50% 3.56%
- -------------------------------------------------------------------------------
</TABLE>
* Yield and effective yield for the seven day period ending December 31, 1998.
YIELDS OF PEGASUS BOND, PUTNAM GROWTH AND INCOME, PUTNAM GLOBAL ASSET
ALLOCATION, PUTNAM INCOME, AND PUTNAM DIVERSIFIED INCOME SUB-ACCOUNTS. As
summarized in the prospectus under the heading "Performance Related
Information," yields of the above Sub-Accounts will be computed by
annualizing a recent month's net investment income, divided by a Fund share's
net asset value on the last trading day of that month. Net changes in the
value of a hypothetical account will assume the change in the underlying
mutual fund's "net asset value per share" for the same period in
5
<PAGE>
addition to the daily expense charge assessed, at the sub-account level for
the respective period. The Sub-Accounts' yields will vary from time to time
depending upon market conditions and, the composition of the underlying
funds' portfolios. Yield should also be considered relative to changes in the
value of the Sub-Accounts' shares and to the relative risks associated with
the investment objectives and policies of the underlying Fund.
THE YIELD REFLECTS RECURRING CHARGES ON THE SEPARATE ACCOUNT LEVEL, INCLUDING
THE ANNUAL MAINTENANCE FEE.
Yield calculations of the Sub-Accounts used for illustration purposes reflect
the interest earned by the Sub-Accounts, less applicable asset charges
assessed against a Contract Owner's account over the base period. Yield
quotations based on a 30-day period were computed by dividing the dividends
and interest earned during the period by the maximum offering price per unit
on the last day of the period, according to the following formula:
Example:
6
Current Yield Formula for the Sub-Account 2[((A-B)/(CD) + 1) - 1]
Where A = Dividends and interest earned during the period.
B = Expenses accrued for the period (net of reimbursements).
C = The average daily number of units outstanding during the
period that were entitled to receive dividends.
D = The maximum offering price per unit on the last day of
the period.
At any time in the future, yields and total return may be higher or lower
than past yields and there can be no assurance that any historical results
will continue.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SUB-ACCOUNT YIELD
- -------------------------------------------------------------------------------
<S> <C>
Putnam Growth and Income ** 0.16%
- -------------------------------------------------------------------------------
Putnam Global Asset Allocation ** 0.72%
- -------------------------------------------------------------------------------
Putnam Income ** 4.53%
- -------------------------------------------------------------------------------
Putnam Diversified Income ** 6.03%
- -------------------------------------------------------------------------------
</TABLE>
** Yield quotation based on a 30-day period ended December 31, 1998.
CALCULATION OF TOTAL RETURN. As summarized in the prospectus under the
heading "Performance Related Information", total return is a measure of the
change in value of an investment in a Sub-Account over the period covered.
The formula for total return used herein includes three steps: (1) calculating
the value of the hypothetical initial investment of $1,000 as of the end of the
period by multiplying the total number of units
6
<PAGE>
owned at the end of the period by the unit value per unit on the last trading
day of the period; (2) assuming redemption at the end of the period and
deducting any applicable contingent deferred sales charge and (3) dividing
this account value for the hypothetical investor by the initial $1,000
investment and annualizing the result for periods of less than one year.
Total return will be calculated for one year, five years, and ten years or
some other relevant periods if a Sub-Account has not been in existence for at
least ten years.
For the fiscal year ended December 31, 1998, the standardized average annual
total return quotations for the Sub-Accounts listed below were as follows:
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FOR YEAR ENDED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT INCEPTION 1 YEAR 5 YEAR 10 YEAR SINCE INCEPTION
DATE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One Group Investment Trust
Diversified Mid-Cap 2/15/95 -5.56% N/A N/A 12.39%
- -----------------------------------------------------------------------------------------------------------------
One Group Investment Trust
Large Cap 2/15/95 29.06% N/A N/A 20.91%
- -----------------------------------------------------------------------------------------------------------------
One Group Investment Trust
Diversified Equity 2/15/95 2.56% N/A N/A 15.42%
- -----------------------------------------------------------------------------------------------------------------
One Group Investment Trust
Mid-Cap Value 5/1/97 -13.66% N/A N/A -.69%
- -----------------------------------------------------------------------------------------------------------------
One Group Investment Trust Bond 5/1/97 -1.87% N/A N/A 1.63%
- -----------------------------------------------------------------------------------------------------------------
Putnam Diversified Income 4/3/95 -11.58% N/A N/A 1.63%
- -----------------------------------------------------------------------------------------------------------------
Putnam Global Asset Allocation 4/3/95 2.95% N/A N/A 12.74%
- -----------------------------------------------------------------------------------------------------------------
Putnam Global Growth 4/3/95 18.91% N/A N/A 16.26%
- -----------------------------------------------------------------------------------------------------------------
Putnam Growth & Income 5/1/97 4.81% N/A N/A 11.71%
- -----------------------------------------------------------------------------------------------------------------
Putnam International Growth 5/1/97 8.04% N/A N/A 9.67%
- -----------------------------------------------------------------------------------------------------------------
Putnam Money Market 5/1/97 -5.26% N/A N/A -3.45%
- -----------------------------------------------------------------------------------------------------------------
Putnam New Opportunities 5/1/97 13.65% N/A N/A 24.46%
- -----------------------------------------------------------------------------------------------------------------
Putnam Income 4/3/95 -2.25% N/A N/A 3.25%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
In addition to the standardized total return, the Sub-Account may advertise a
non-standardized total return. This figure will usually be calculated for one
year, five years, and ten years or other periods. Non-standardized total
return is measured in the same manner as the standardized total return
described above, except that the contingent deferred sales charge and the
Annual Maintenance Fee are not deducted and the time periods used to
calculate return are based on the inception date of the underlying Funds.
Therefore, non-standardized total return for a Sub-Account is higher than
standardized total return for a Sub-Account.
For the fiscal year ended December 31, 1998, the non-standardized annualized
total return quotations for the Sub-Accounts listed below were as follows:
NON-STANDARDIZED ANNUALIZED TOTAL RETURN THAT PRE-DATE THE
INCEPTION DATE OF THE SEPARATE ACCOUNT FOR YEAR ENDED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT INCEPTION 1 YEAR 5 YEAR 10 YEAR SINCE INCEPTION
DATE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One Group Investment Trust
Diversified Mid-Cap 2/15/95 3.44% N/A N/A 15.95%
- -----------------------------------------------------------------------------------------------------------------
One Group Investment Trust
Large Cap 2/15/95 38.06% N/A N/A 24.31%
- -----------------------------------------------------------------------------------------------------------------
One Group Investment Trust
Diversified Equity 2/15/95 11.56% N/A N/A 18.85%
- -----------------------------------------------------------------------------------------------------------------
One Group Investment Trust
Mid-Cap Value 5/1/97 -4.66% N/A N/A 6.16%
- -----------------------------------------------------------------------------------------------------------------
One Group Investment Trust Bond 5/1/97 7.13% N/A N/A 8.68%
- -----------------------------------------------------------------------------------------------------------------
Putnam Diversified Income 4/3/95 -2.74% N/A N/A 5.81%
- -----------------------------------------------------------------------------------------------------------------
7
<PAGE>
- -----------------------------------------------------------------------------------------------------------------
Putnam Global Asset Allocation 4/3/95 11.95% N/A N/A 16.30%
- -----------------------------------------------------------------------------------------------------------------
Putnam Global Growth 4/3/95 27.91% N/A N/A 19.70%
- -----------------------------------------------------------------------------------------------------------------
Putnam Growth & Income 5/1/97 13.81% N/A N/A 18.31%
- -----------------------------------------------------------------------------------------------------------------
Putnam International Growth 5/1/97 17.04% N/A N/A 16.28%
- -----------------------------------------------------------------------------------------------------------------
Putnam Money Market 5/1/97 3.74% N/A N/A 3.78%
- -----------------------------------------------------------------------------------------------------------------
Putnam New Opportunities 5/1/97 22.65% N/A N/A 30.67%
- -----------------------------------------------------------------------------------------------------------------
Putnam Income 4/3/95 6.75% N/A N/A 7.46%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
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.
8
<PAGE>
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, 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 a Fund may 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") is a
market value-weighted and unmanaged index showing changes in the aggregate
9
<PAGE>
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.
10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO HARTFORD LIFE & ANNUITY INSURANCE COMPANY
SEPARATE ACCOUNT SIX AND TO THE
OWNERS OF UNITS OF INTEREST THEREIN:
We have audited the accompanying statements of assets and liabilities of
Hartford Life & Annuity Insurance Company Separate Account Six (Putnam Global
Growth Fund, Putnam Growth and Income Fund, Putnam Global Asset Allocation Fund,
Putnam U.S. Government & High Quality Bond Fund, Putnam New Opportunities Fund,
Putnam Money Market Fund, Putnam Diversified Income Fund, Putnam International
Growth Fund, Pegasus Growth and Value Fund, Pegasus Mid-Cap Opportunity Fund,
Pegasus Growth Fund, Pegasus Intrinsic Value Fund, and Pegasus Bond Fund),
collectively, the Account as of December 31, 1998, and the related statements of
operations and the statements of changes in net assets for the periods
presented. These financial statements are the responsibility of the Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Account as of December 31,
1998, and the results of their operations and the changes in their net assets
for the periods presented in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 16, 1999
<PAGE>
SEPARATE ACCOUNT SIX
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<CAPTION>
Putnam
Putnam U.S.
Putnam Putnam Global Government Putnam
Global Growth and Asset and New
Growth Income Allocation High Quality Opportunities
Fund Fund Fund Bond Fund Fund
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
<S> <C> <C> <C> <C> <C>
Assets:
Investments:
Putnam VT Global Growth Fund
Shares 53,098
Cost $ 855,718
Market Value $ 1,076,820 -- -- -- --
Putnam VT Growth and Income Fund
Shares 93,145
Cost $ 2,543,075
Market Value -- $2,679,793 -- -- --
Putnam VT Global Asset Allocation Fund
Shares 108,086
Cost $ 1,606,053
Market Value -- -- $2,048,222 -- --
Putnam VT U. S. Government & High Quality Bond Fund
Shares 88,391
Cost $ 1,148,959
Market Value -- -- -- $1,213,611 --
Putnam VT New Opportunities Fund
Shares 318,933
Cost $ 6,454,038
Market Value -- -- -- -- $8,311,402
Putnam VT Money Market Fund
Shares 1,669,914
Cost $ 1,669,914
Market Value -- -- -- -- --
Putnam VT Diversified Income Fund
Shares 87,230
Cost $ 919,438
Market Value -- -- -- -- --
Putnam VT International Growth Fund
Shares 1,559,376
Cost $18,517,047
Market Value -- -- -- -- --
Due from Hartford Life and Annuity Insurance Company 3,238 6,156 -- -- 6,997
Receivable from fund shares sold -- -- 78 47 --
Total Assets 1,080,058 2,685,949 2,048,300 1,213,658 8,318,399
Liabilities:
Due to Hartford Life and Annuity Insurance Company -- -- 78 47 --
Payable for fund shares purchased 3,238 6,156 -- -- 6,999
Total Liabilities $ 3,238 $ 6,156 $ 78 $ 47 $ 6,999
Net Assets (variable annuity contract liabilities) $ 1,076,820 $2,679,793 $2,048,222 $1,213,611 $8,311,400
<CAPTION>
Putnam Putnam Putnam
Money Diversified International
Market Income Growth
Fund Fund Fund
Sub-Account Sub-Account Sub-Account
<S> <C> <C> <C>
Assets:
Investments:
Putnam VT Global Growth Fund
Shares 53,098
Cost $ 855,718
Market Value -- -- --
Putnam VT Growth and Income Fund
Shares 93,145
Cost $ 2,543,075
Market Value -- -- --
Putnam VT Global Asset Allocation Fund
Shares 108,086
Cost $ 1,606,053
Market Value -- -- --
Putnam VT U. S. Government & High Quality Bond Fund
Shares 88,391
Cost $ 1,148,959
Market Value -- -- --
Putnam VT New Opportunities Fund
Shares 318,933
Cost $ 6,454,038
Market Value -- -- --
Putnam VT Money Market Fund
Shares 1,669,914
Cost $ 1,669,914
Market Value $ 1,669,914 -- --
Putnam VT Diversified Income Fund
Shares 87,230
Cost $ 919,438
Market Value -- $915,046 --
Putnam VT International Growth Fund
Shares 1,559,376
Cost $18,517,047
Market Value -- -- $21,082,761
Due from Hartford Life and Annuity Insurance Company -- -- 14,523
Receivable from fund shares sold 64 35 --
Total Assets 1,669,978 915,081 21,097,284
Liabilities:
Due to Hartford Life and Annuity Insurance Company 65 35 --
Payable for fund shares purchased -- -- 14,524
Total Liabilities $ 65 $ 35 $ 14,524
Net Assets (variable annuity contract liabilities) $ 1,669,913 $915,046 $21,082,760
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SEPARATE ACCOUNT SIX
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF ASSETS AND LIABILITIES -- (Continued)
December 31, 1998
<TABLE>
<CAPTION>
Pegasus Pegasus Pegasus
Growth Mid-Cap Pegasus Intrinsic Pegasus
and Value Opportunity Growth Value Bond
Fund Fund Fund Fund Fund
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
<S> <C> <C> <C> <C> <C>
Assets:
Investments:
Pegasus Growth and Value Fund
Shares 3,289,879
Cost $49,713,788
Market Value $58,559,845 -- -- -- --
Pegasus Mid-Cap Opportunity Fund
Shares 1,168,401
Cost $15,269,704
Market Value -- $17,245,600 -- -- --
Pegasus Growth Fund
Shares 1,115,928
Cost $14,594,476
Market Value -- -- $23,992,453 -- --
Pegasus Intrinsic Value Fund
Shares 2,050,722
Cost $22,461,628
Market Value -- -- -- $21,942,725 --
Pegasus Bond Fund
Shares 5,459,605
Cost $56,530,578
Market Value -- -- -- -- $58,581,557
Due from Hartford Life and Annuity Insurance Company 39,357 9,482 15,394 14,470 31,181
Receivable from fund shares sold -- -- -- -- --
Total Assets 58,599,202 17,255,082 24,007,847 21,957,195 58,612,738
Liabilities:
Due to Hartford Life and Annuity Insurance Company -- -- -- -- --
Payable for fund shares purchased 29,615 9,498 12,150 14,471 31,730
Total Liabilities 29,615 9,498 12,150 14,471 31,730
Net Assets (variable annuity contract liabilities) $58,569,587 $17,245,584 $23,995,697 $21,942,724 $58,581,008
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SEPARATE ACCOUNT SIX
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF ASSETS AND LIABILITIES -- (Continued)
December 31, 1998
<TABLE>
<CAPTION>
Units
Owned by Unit Contract
Participants Price Liability
<S> <C> <C> <C>
GROUP Deferred annuity contracts in the accumulation period:
Putnam Global Growth Fund........................................... 54,877 $ 19.622520 $ 1,076,820
Putnam Growth and Income Fund....................................... 202,213 13.238990 2,677,090
Putnam Global Asset Allocation Fund................................. 116,307 17.610500 2,048,222
Putnam U.S. Government and High Quality Bond Fund................... 92,661 13.097365 1,213,611
Putnam New Opportunities Fund....................................... 531,614 15.625160 8,306,550
Putnam Money Market Fund............................................ 1,569,739 1.063816 1,669,913
Putnam Diversified Income Fund...................................... 74,045 12.357920 915,046
Putnam International Growth Fund.................................... 1,637,732 12.860680 21,062,349
Pegasus Growth and Value Fund....................................... 3,062,656 19.107450 58,519,551
Pegasus Mid-Cap Opportunity Fund.................................... 989,272 17.420610 17,233,714
Pegasus Growth Fund................................................. 1,059,919 22.615710 23,970,810
Pegasus Intrinsic Value Fund........................................ 1,984,567 11.048350 21,926,192
Pegasus Bond Fund................................................... 5,094,803 11.490440 58,541,550
Sub-total............................................................. $219,161,418
GROUP Annuity contracts in the annuity period:
Putnam Growth and Income Fund....................................... 204 13.238990 $ 2,703
Putnam New Opportunities Fund....................................... 310 15.625160 4,850
Putnam International Growth Fund.................................... 1,587 12.860680 20,411
Pegasus Growth and Value Fund....................................... 2,619 19.107450 50,036
Pegasus Mid-Cap Opportunity Fund.................................... 681 17.420610 11,870
Pegasus Growth Fund................................................. 110 22.615710 24,887
Pegasus Intrinsic Value Fund........................................ 1,496 11.048350 16,532
Pegasus Bond Fund................................................... 3,434 11.490440 39,458
Sub-total............................................................. 170,747
Grand Total:.......................................................... $219,332,165
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SEPARATE ACCOUNT SIX
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Putnam Putnam Putnam
Putnam Growth Global Asset U.S. Government
Global Growth and Income Allocation & High Quality
Fund Fund Fund Bond Fund
Sub-Account Sub-Account Sub-Account Sub-Account
<S> <C> <C> <C> <C>
Investment income:
Dividends $ 22,340 $ 28,411 $ 41,279 $ 39,895
Expenses:
Mortality and expense undertakings (12,803) (28,193) (26,701) (12,000)
Net investment income (loss) 9,537 218 14,578 27,895
Capital gains income 111,701 185,466 177,309 1,038
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) on security transactions 291 (452) (2,963) 698
Net unrealized appreciation (depreciation) of
investments during the period 102,969 66,310 24,984 25,250
Net gain (loss) on investments 103,260 65,858 22,021 25,948
Net increase (decrease) in net assets resulting
from operations $ 224,498 $ 251,542 $ 213,908 $ 54,881
<CAPTION>
Putnam Putnam Putnam Putnam
New Money Diversified International
Opportunities Market Income Growth
Fund Fund Fund Fund
Sub-Account Sub-Account Sub-Account Sub-Account
<S> <C> <C> <C> <C>
Investment income:
Dividends $ -- $ 52,074 $ 39,335 $ 74,675
Expenses:
Mortality and expense undertakings (89,174) (14,451) (13,372) (246,605)
Net investment income (loss) (89,174) 37,623 25,963 (171,930)
Capital gains income 75,909 -- 16,707 --
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) on security transactions 110,479 -- (3,176) 265,348
Net unrealized appreciation (depreciation) of
investments during the period 1,399,894 -- (70,486) 2,795,996
Net gain (loss) on investments 1,510,373 -- (73,662) 3,061,344
Net increase (decrease) in net assets resulting
from operations $ 1,497,108 $ 37,623 $(30,992) $ 2,889,414
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SEPARATE ACCOUNT SIX
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF OPERATIONS -- (Continued)
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Pegasus Pegasus Pegasus
Growth Mid-Cap Pegasus Intrinsic Pegasus
and Value Opportunity Growth Value Bond
Fund Fund Fund Fund Fund
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 349,157 $ -- $ -- $ 335,603 $ 2,483,029
Expenses:
Mortality and expense undertakings (678,447) (193,150) (273,885) (244,584) (638,418)
Net investment income (loss) (329,290) (193,150) (273,885) 91,019 1,844,611
Capital gains income 1,305,090 336,801 42,400 433,762 54,563
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) on security transactions 13,890 5,967 476,908 (822) 75,140
Net unrealized appreciation (depreciation) of investments
during the period 4,446,694 464,536 6,521,570 (1,469,803) 1,274,499
Net gain (loss) on investments 4,460,584 470,503 6,998,478 (1,470,625) 1,349,639
Net increase (decrease) in net assets resulting
from operations $ 5,436,384 $ 614,154 $ 6,766,993 $ (945,844) $ 3,248,813
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SEPARATE ACCOUNT SIX
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Putnam Putnam Putnam
Putnam Growth Global Asset U.S. Government
Global Growth and Income Allocation & High Quality
Fund Fund Fund Bond Fund
Sub-Account Sub-Account Sub-Account Sub-Account
<S> <C> <C> <C> <C>
For the Year Ended December 31, 1998
Operations:
Net investment income (loss) $ 9,537 $ 218 $ 14,578 $ 27,895
Capital gains income 111,701 185,466 177,309 1,038
Net realized gain (loss) on security transactions 291 (452) (2,963) 698
Net unrealized appreciation (depreciation) of
investments during the period 102,969 66,310 24,984 25,250
Net increase (decrease) in net assets resulting
from operations 224,498 251,542 213,908 54,881
Unit transactions:
Purchases 46,437 793,410 32,458 190,099
Net transfers 78,461 442,997 67,284 375,196
Surrenders for benefits payment and fees (31,351) (83,110) (69,394) (109,112)
Net annuity transactions -- 2,449 -- --
Net increase (decrease) in net assets resulting
from unit transactions 93,547 1,155,746 30,348 456,183
Total increase (decrease) in net assets 318,045 1,407,288 244,256 511,064
Net assets:
Beginning of Year 758,775 1,272,505 1,803,966 702,547
End of Year $ 1,076,820 $ 2,679,793 $ 2,048,222 $ 1,213,611
For the Year Ended December 31, 1997
Operations:
Net investment income (loss) $ 4,124 $ (7,292) $ 202,829 $ 156,146
Capital gains income 14,810 -- 463,905 --
Net realized gain (loss) on security transactions 13,653 116 769,450 (52,503)
Net unrealized appreciation (depreciation) of
investments during the period 52,462 70,409 (348,873) (4,804)
Net increase (decrease) in net assets resulting
from operations 85,049 63,233 1,087,311 98,839
Unit transactions:
Purchases 285,116 884,913 1,097,790 652,973
Net transfers (90,194) 348,182 (7,521,042) (2,366,168)
Surrenders for benefits payment and fees (29,493) (23,823) (245,162) (141,774)
Net increase (decrease) in net assets resulting
from unit transactions 165,429 1,209,272 (6,668,414) (1,854,969)
Total increase (decrease) in net assets 250,478 1,272,505 (5,581,103) (1,756,130)
Net assets:
Beginning of Year 508,297 -- 7,385,069 2,458,677
End of Year $ 758,775 $ 1,272,505 $ 1,803,966 $ 702,547
<CAPTION>
Putnam Putnam Putnam Putnam
New Money Diversified International
Opportunities Market Income Growth
Fund Fund Fund Sub- Fund
Sub-Account Sub-Account Account Sub-Account
<S> <C> <C> <C> <C>
For the Year Ended December 31, 1998
Operations:
Net investment income (loss) $ (89,174) $ 37,623 $ 25,963 $ (171,930)
Capital gains income 75,909 -- 16,707 --
Net realized gain (loss) on security transactions 110,479 -- (3,176) 265,348
Net unrealized appreciation (depreciation) of
investments during the period 1,399,894 -- (70,486) 2,795,996
Net increase (decrease) in net assets resulting
from operations 1,497,108 37,623 (30,992) 2,889,414
Unit transactions:
Purchases 2,065,296 31,059 104,583 4,248,398
Net transfers 294,750 1,049,744 80,334 1,667,912
Surrenders for benefits payment and fees (301,272) (219,528) (55,847) (829,696)
Net annuity transactions 4,138 -- -- 17,813
Net increase (decrease) in net assets resulting
from unit transactions 2,062,912 861,275 129,070 5,104,427
Total increase (decrease) in net assets 3,560,020 898,898 98,078 7,993,841
Net assets:
Beginning of Year 4,751,380 771,015 816,968 13,088,919
End of Year $ 8,311,400 $ 1,669,913 $ 915,046 $ 21,082,760
For the Year Ended December 31, 1997
Operations:
Net investment income (loss) $ (29,035) $ 13,768 $ 181,200 $ 108,854
Capital gains income -- -- 33,403 --
Net realized gain (loss) on security transactions 2,226 -- (6,775) (658)
Net unrealized appreciation (depreciation) of
investments during the period 457,470 -- (85,983) (230,282)
Net increase (decrease) in net assets resulting
from operations 430,661 13,768 121,845 (122,086)
Unit transactions:
Purchases 1,636,610 217,499 1,212,370 4,400,400
Net transfers 2,761,489 616,768 (3,477,675) 9,006,077
Surrenders for benefits payment and fees (77,380) (77,020) (105,409) (195,472)
Net increase (decrease) in net assets resulting
from unit transactions 4,320,719 757,247 (2,370,714) 13,211,005
Total increase (decrease) in net assets 4,751,380 771,015 (2,248,869) 13,088,919
Net assets:
Beginning of Year -- -- 3,065,837 --
End of Year $ 4,751,380 $ 771,015 $ 816,968 $ 13,088,919
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SEPARATE ACCOUNT SIX
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS -- (Continued)
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Pegasus Pegasus Pegasus
Growth Mid-Cap Pegasus Intrinsic
and Value Opportunity Growth Value
Fund Fund Fund Fund
Sub-Account Sub-Account Sub-Account Sub-Account
<S> <C> <C> <C> <C>
For the Year Ended December 31, 1998
Operations:
Net investment income (loss) $ (329,290) $ (193,150) $ (273,885) $ 91,019
Capital gains income 1,305,090 336,801 42,400 433,762
Net realized gain (loss) on security transactions 13,890 5,967 476,908 (822)
Net unrealized appreciation (depreciation) of
investments during the period 4,446,694 464,536 6,521,570 (1,469,803)
Net increase (decrease) in net assets resulting
from operations 5,436,384 614,154 6,766,993 (945,844)
Unit transactions:
Purchases 11,774,494 3,563,145 4,753,176 4,542,105
Net transfers 5,997,435 2,904,407 (1,623,013) 5,818,595
Surrenders for benefit payments and fees (2,489,809) (644,796) (918,207) (832,038)
Net annuity transactions 46,105 12,144 19,094 17,963
Net increase (decrease) in net assets resulting
from unit transactions 15,328,225 5,834,900 2,231,050 9,546,625
Total increase (decrease) in net assets 20,764,609 6,449,054 8,998,043 8,600,781
Net assets:
Beginning of Year 37,804,978 10,796,530 14,997,654 13,341,943
End of Year $58,569,587 $17,245,584 $23,995,697 $21,942,724
For the Year Ended December 31, 1997
Operations:
Net investment income (loss) $ (114,063) $ (122,241) $ (152,233) $ 22,796
Capital gains income 766,624 1,590,529 1,076,636 45,262
Net realized gain (loss) on security transactions (3,216) 501,302 623,125 (1,872)
Net unrealized appreciation (depreciation) of
investments during the period 3,560,218 189,167 1,161,170 950,900
Net increase (decrease) in net assets resulting
from operations 4,209,563 2,158,757 2,708,698 1,017,086
Unit transactions:
Purchases 13,843,170 4,429,654 6,126,101 4,633,265
Net transfers 12,589,078 (3,940,241) (4,245,608) 7,904,486
Surrenders for benefit payments and fees (736,816) (378,113) (464,118) (212,894)
Net increase (decrease) in net assets resulting
from unit transactions 25,695,432 111,300 1,416,375 12,324,857
Total increase (decrease) in net assets 29,904,995 2,270,057 4,125,073 13,341,943
Net assets:
Beginning of Year 7,899,983 8,526,473 10,872,581 --
End of Year $37,804,978 $10,796,530 $14,997,654 $13,341,943
<CAPTION>
Pegasus
Pegasus Money Pegasus
Bond Market Managed Assets
Fund Fund Balanced Fund
Sub-Account Sub-Account Sub-Account
<S> <C> <C> <C>
For the Year Ended December 31, 1998
Operations:
Net investment income (loss) $ 1,844,611 -- --
Capital gains income 54,563 -- --
Net realized gain (loss) on security transactions 75,140 -- --
Net unrealized appreciation (depreciation) of
investments during the period 1,274,499 -- --
Net increase (decrease) in net assets resulting
from operations 3,248,813 -- --
Unit transactions:
Purchases 13,411,848 -- --
Net transfers 12,556,284 -- --
Surrenders for benefit payments and fees (2,742,073) -- --
Net annuity transactions 37,197 -- --
Net increase (decrease) in net assets resulting
from unit transactions 23,263,256 -- --
Total increase (decrease) in net assets 26,512,069 -- --
Net assets:
Beginning of Year 32,068,939 -- --
End of Year $58,581,008 $ 0 $ 0
For the Year Ended December 31, 1997
Operations:
Net investment income (loss) $ 642,777 $ 23,014 $ 7,548
Capital gains income 19,484 -- 180,913
Net realized gain (loss) on security transactions (2,027) -- 2,663,920
Net unrealized appreciation (depreciation) of
investments during the period 776,480 -- (1,086,285)
Net increase (decrease) in net assets resulting
from operations 1,436,714 23,014 1,766,096
Unit transactions:
Purchases 12,346,781 126,745 4,616,463
Net transfers 18,871,440 (1,462,029) (24,292,348)
Surrenders for benefit payments and fees (585,996) (31,103) (486,478)
Net increase (decrease) in net assets resulting
from unit transactions 30,632,225 (1,366,387) (20,162,363)
Total increase (decrease) in net assets 32,068,939 (1,343,373) (18,396,267)
Net assets:
Beginning of Year -- 1,343,373 18,396,267
End of Year $32,068,939 $ 0 $ 0
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SEPARATE ACCOUNT SIX
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. Organization:
Separate Account Six (the Account) is a separate investment account within
Hartford Life & Annuity Insurance Company (the Company) and is registered
with the Securities and Exchange Commission (SEC) as a unit investment trust
under the Investment Company Act of 1940, as amended. Both the Company and
the Account are subject to supervision and regulation by the Department of
Insurance of the State of Connecticut and the SEC. The Account invests
deposits by variable annuity contractholders of the Company in various
mutual funds (The Funds) as directed by the contractholders.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies of the
Account, which are in accordance with generally accepted accounting
principles in the investment company industry:
a) Security Transactions--
Security transactions are recorded on the trade date (date the order to
buy or sell is executed). Cost of investments sold is determined on the
basis of identified cost. Dividend and capital gains income are accrued
as of the ex-dividend date. Capital gains income represents those
dividends from the Funds which is characterized as capital gains under
tax regulations.
b) Security Valuation--
The investments in shares of the Putnam Variable Trust Funds (Putnam VT
Global Growth Fund, Putnam VT Global Asset Allocation Fund, Putnam VT
U.S. Government and High Quality Bond Fund, Putnam VT Diversified Income
Fund, Putnam VT Growth and Income Fund, Putnam VT New Opportunities
Fund, Putnam VT Money Market Fund and Putnam VT International Growth
Fund) or the Pegasus Variable Annuity Funds (Intrinsic Value Fund,
Growth and Value Fund, Mid-Cap Opportunity Fund, Growth Fund and Bond
Fund) are valued at the closing net asset value per share as determined
by the appropriate Fund as of December 31, 1998.
c) Federal Income Taxes--
The operations of the Account form a part of, and are taxed with, the
total operations of the Company, which is taxed as an insurance company
under the Internal Revenue Code. Under current law, no federal income
taxes are payable with respect to the operations of the Account.
d) Use of Estimates--
<PAGE>
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
as of the date of the financial statements and the reported amounts of
income and expenses during the period. Operating results in the future
could vary from the amounts derived from management's estimates.
3. Administration of the Account and Related Charges:
a) Mortality and Expense Undertakings--
The Company, as issuer of variable annuity contracts, provides the
mortality and expense undertakings and, with respect to the Account,
receives a maximum annual fee of up to 1.25% 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.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY F-1
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Hartford Life and Annuity Insurance Company:
We have audited the accompanying statutory balance sheets of Hartford Life and
Annuity Insurance Company (a Connecticut Corporation and wholly owned subsidiary
of Hartford Life Insurance Company) (the Company) as of December 31, 1998 and
1997, and the related statutory statements of operations, changes in capital and
surplus, and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these statutory
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The Company presents its financial statements in conformity with statutory
accounting practices as described in Note 1 of notes to statutory financial
statements. When statutory financial statements are presented for purposes other
than for filing with a regulatory agency, generally accepted auditing standards
require that an auditors' report on them state whether they are presented in
conformity with generally accepted accounting principles. The accounting
practices used by the Company vary from generally accepted accounting principles
as explained and quantified in Note 1.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the statutory financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of the Company as of December 31, 1998 and 1997, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998.
However, in our opinion, the statutory financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with statutory accounting practices as described in Note 1.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
January 26, 1999
<PAGE>
F-2 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
BALANCE SHEETS
(STATUTORY BASIS)
($000)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Assets
Bonds........................................... $ 1,453,792 $ 1,501,311
Common stocks................................... 40,650 64,408
Mortgage loans.................................. 59,548 85,103
Policy loans.................................... 47,212 36,533
Cash and short-term investments................. 469,955 309,432
Other invested assets........................... 2,188 20,942
----------- -----------
Total cash and invested assets................ 2,073,345 2,017,729
Investment income due and accrued............... 20,126 15,878
Premium balances receivable..................... 333 389
Receivables from affiliates..................... -- 1,269
Other assets.................................... 45,358 22,788
Separate account assets......................... 32,876,278 23,208,728
----------- -----------
Total Assets.................................. $35,015,440 $25,266,781
----------- -----------
----------- -----------
Liabilities
Aggregate reserves for future benefits.......... $ 579,140 $ 605,183
Policy and contract claims...................... 5,667 5,672
Liability for premium and other deposit funds... 2,011,672 1,795,149
Asset valuation reserve......................... 21,782 13,670
Payable to affiliates........................... 19,271 20,972
Other liabilities............................... (974,882) (754,393)
Separate account liabilities.................... 32,876,278 23,208,728
----------- -----------
Total liabilities............................. 34,538,928 24,894,981
----------- -----------
Capital and Surplus
Common stock.................................... 2,500 2,500
Gross paid-in and contributed surplus........... 226,043 226,043
Unassigned funds................................ 247,969 143,257
----------- -----------
Total capital and surplus..................... 476,512 371,800
----------- -----------
Total liabilities, capital and surplus............ $35,015,440 $25,266,781
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of
these statutory basis financial statements.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY F-3
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
(STATUTORY BASIS)
($000)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Premiums and annuity considerations............. $ 469,343 $ 296,645 $ 250,244
Annuity and other fund deposits................. 2,051,251 1,981,246 1,897,347
Net investment income........................... 129,982 102,285 98,441
Commissions and expense allowances on
reinsurance ceded.............................. 444,241 396,921 370,637
Reserve adjustment on reinsurance ceded......... 3,185,590 3,672,076 3,864,395
Other revenues.................................. 458,190 288,632 161,906
----------- ----------- -----------
Total revenues................................ 6,738,597 6,737,805 6,642,970
----------- ----------- -----------
Benefits and expenses
Death and annuity benefits...................... 43,390 66,176 60,194
Disability and other benefit payments........... 6,114 7,316 6,555
Surrenders...................................... 739,663 454,417 270,165
Commissions and other expenses.................. 666,515 564,077 491,637
Increase (Decrease) in aggregate reserves for
future benefits................................ (26,043) 33,213 27,351
Increase in liability for premium and other
deposit funds.................................. 216,523 640,006 207,156
Net transfers to separate accounts.............. 4,956,007 4,914,980 5,492,964
----------- ----------- -----------
Total benefits and expenses................... 6,602,169 6,680,185 6,556,022
----------- ----------- -----------
Net gain from operations
Before federal income tax (benefit) expense..... 136,428 57,620 86,948
Federal income tax (benefit) expense............ 35,887 (14,878) 19,360
----------- ----------- -----------
Net gain from operations.......................... 100,541 72,498 67,588
Net realized capital gains, after tax........... 2,085 1,544 407
----------- ----------- -----------
Net income........................................ $ 102,626 $ 74,042 $ 67,995
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of
these statutory basis financial statements.
<PAGE>
F-4 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
(STATUTORY BASIS)
($000)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Common stock,
Beginning and end of year....................... $ 2,500 $ 2,500 $ 2,500
----------- ----------- -----------
Gross paid-in and contributed surplus,
Beginning and end of year....................... $ 226,043 $ 226,043 $ 226,043
----------- ----------- -----------
Unassigned funds
Balance, beginning of year...................... $ 143,257 $ 74,570 $ 9,791
Net income...................................... 102,626 74,042 67,995
Change in net unrealized capital gains (losses)
on common stocks and other invested assets..... 1,688 2,186 (5,171)
Change in asset valuation reserve............... (8,112) (6,228) 568
Change in non-admitted assets................... (1,277) (1,313) 1,387
Credit on reinsurance ceded..................... 9,787 -- --
----------- ----------- -----------
Balance, end of year............................ $ 247,969 $ 143,257 $ 74,570
----------- ----------- -----------
Capital and surplus,
End of year..................................... $ 476,512 $ 371,800 $ 303,113
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of
these statutory basis financial statements.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY F-5
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
(STATUTORY BASIS)
($000)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operations
Premiums and annuity considerations............. $ 2,520,655 $ 2,277,874 $ 2,147,627
Investment income............................... 127,425 101,991 106,178
Other income.................................... 4,092,964 4,381,718 4,396,892
----------- ----------- -----------
Total income.................................. 6,741,044 6,761,583 6,650,697
----------- ----------- -----------
Benefits paid................................... 790,051 529,733 338,998
Federal income taxes (received) paid on
operations..................................... 25,780 (14,499) 28,857
Other expenses.................................. 5,859,063 5,754,725 6,254,139
----------- ----------- -----------
Total benefits and expenses................... 6,674,894 6,269,959 6,621,994
----------- ----------- -----------
Net cash from operations...................... 66,150 491,624 28,703
----------- ----------- -----------
Proceeds from investments
Bonds........................................... 633,926 614,413 871,019
Common stocks................................... 34,010 11,481 72,100
Mortgage loans.................................. 85,275 -- --
Other........................................... 127 152 10
----------- ----------- -----------
Net investment proceeds....................... 753,338 626,046 943,129
----------- ----------- -----------
Taxes paid on capital gains..................... -- -- 936
Other cash provided............................. 1,269 -- 41,998
----------- ----------- -----------
Total proceeds................................ 820,757 1,117,670 1,012,894
----------- ----------- -----------
Cost of investments acquired
Bonds........................................... 586,913 848,267 914,523
Common stocks................................... 7,012 28,302 82,495
Mortgage loans.................................. 59,702 85,103 --
Other........................................... 1,168 18,548 130
----------- ----------- -----------
Total investments acquired.................... 654,795 980,220 997,148
----------- ----------- -----------
Other cash applied
Other........................................... 5,439 4,848 12,220
----------- ----------- -----------
Total other cash applied...................... 5,439 4,848 12,220
----------- ----------- -----------
Total applications............................ 660,234 985,068 1,009,368
----------- ----------- -----------
Net change in cash and short-term investments..... 160,523 132,602 3,526
Cash and short-term investments, beginning of
year............................................. 309,432 176,830 173,304
----------- ----------- -----------
Cash and short-term investments, end of year...... $ 469,955 $ 309,432 $ 176,830
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of
these statutory basis financial statements.
<PAGE>
F-6 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(STATUTORY BASIS)
DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
Hartford Life and Annuity Insurance Company ("ILA" or "the Company"),
formerly known as ITT Hartford Life and Annuity Insurance Company, is a wholly
owned subsidiary of Hartford Life Insurance Company ("HLIC"), which is an
indirect subsidiary of Hartford Life, Inc. ("HLI"), which is majority owned by
The Hartford Financial Services Group, Inc. ("The Hartford"), formerly a wholly
owned subsidiary of ITT Corporation ("ITT"). On February 10, 1997, HLI filed a
registration statement, as amended, with the Securities and Exchange Commission
relating to the initial public offering of HLI Class A Common Stock (the
"Offering"). Pursuant to the Offering on May 22, 1997, HLI sold to the public 26
million shares, representing 18.6% of the equity ownership of HLI. On December
19, 1995, ITT Corporation distributed all the outstanding shares of The Hartford
to ITT shareholders of record in an action known herein as the "Distribution".
As a result of the Distribution, The Hartford became an independent, publicly
traded company. During 1996, ILA re-domesticated from the State of Wisconsin to
the State of Connecticut.
ILA offers a complete line of ordinary and universal life insurance,
individual annuities and certain supplemental accident and health benefit
coverages.
BASIS OF PRESENTATION
The accompanying ILA statutory basis financial statements were prepared in
conformity with statutory accounting practices prescribed or permitted by the
National Association of Insurance Commissioners ("NAIC"), the State of
Connecticut Department of Insurance and the State of Wisconsin for the 1996
period, as applicable. Certain prior year amounts and balances have been
reclassified to conform with current year presentation.
Current prescribed statutory accounting practices include accounting
publications of the National Association of Insurance Commissioners ("NAIC"), as
well as state laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass accounting practices approved by State
Insurance Departments. The Company does not follow any permitted statutory
accounting practices that have a material effect on statutory surplus, statutory
net income or risk-based capital.
Final approval of the NAIC's proposed "Comprehensive Guide" on statutory
accounting principles was distributed in 1998. The requirements are effective
January 1, 2001, and are not expected to have a material impact on statutory
surplus of the Company.
The preparation of financial statements in conformity with statutory
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates. The most significant estimates
include those used in determining the liability for aggregate reserves for
future benefits and the liability for premium and other deposit funds. Although
some variability is inherent in these estimates, management believes the amounts
provided are adequate.
Statutory accounting practices and generally accepted accounting principles
("GAAP") differ in certain significant respects. These differences principally
involve:
(1) treatment of policy acquisition costs (commissions, underwriting and selling
expenses, premium taxes, etc.) which are charged to expense when incurred
for statutory purposes rather than on a pro-rata basis over the expected
life of the policy for GAAP purposes;
(2) recognition of premium revenues, which for statutory purposes are generally
recorded as collected or when due during the premium paying period of the
contract and which for GAAP purposes, for universal life policies and
investment products, generally, are only recorded for policy charges for the
cost of insurance, policy administration and surrender charges assessed to
policy account balances. Also, for GAAP purposes, premiums for traditional
life insurance policies are recognized as revenues when they are due from
policyholders and the retrospective deposit method is used in accounting for
universal life and other types of contracts where the payment pattern is
irregular or surrender charges are a significant source of profit. The
prospective deposit method is used for GAAP purposes where investment
margins are the primary source of profit;
(3) development of liabilities for future policy benefits, which for statutory
purposes predominantly use interest rate and mortality assumptions
prescribed by the NAIC which may vary considerably from interest and
mortality assumptions used for GAAP financial reporting;
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY F-7
- --------------------------------------------------------------------------------
(4) providing for income taxes based on current taxable income (tax return) only
for statutory purposes, rather than establishing additional assets or
liabilities for deferred Federal income taxes to recognize the tax effect
related to reporting revenues and expenses in different periods for
financial reporting and tax return purposes;
(5) excluding certain GAAP assets designated as non-admitted assets (e.g.,
negative Interest Maintenance Reserve, past due agents' balances and
furniture and equipment) from the balance sheet for statutory purposes by
directly charging surplus;
(6) establishing accruals for post-retirement and post-employment health care
benefits currently, or using a twenty year phase-in approach, whereas GAAP
liabilities are recorded upon adoption of the applicable standard;
(7) establishing a formula reserve for realized and unrealized losses due to
default and equity risk associated with certain invested assets (Asset
Valuation Reserve); as well as the deferral and amortization of realized
gains and losses, motivated by changes in interest rates during the period
the asset is held, into income over the remaining life to maturity of the
asset sold (Interest Maintenance Reserve); whereas on a GAAP basis, no such
formula reserve is required and realized gains and losses are recognized in
the period the asset is sold;
(8) the reporting of reserves and benefits net of reinsurance ceded, where risk
transfer has taken place, whereas on a GAAP basis, reserves are reported
gross of reinsurance with reserve credits presented as recoverable assets;
as well as, the accounting for retroactive reinsurance which is immediately
charged to surplus for statutory accounting purposes whereas GAAP precludes
immediate gain recognition unless the ceding enterprise's liability to its
policyholders is extinguished; as well as reinsurance ceded that fails to
meet GAAP risk transfer guidelines would result in deposit accounting for
GAAP where as for statutory, reserves ceded and assumed would be reflected
in the statutory basis statements of operations;
(9) the reporting of fixed maturities at amortized cost, whereas GAAP requires
that fixed maturities be classified as "held-to-maturity",
"available-for-sale" or "trading", based on the Company's intentions with
respect to the ultimate disposition of the security and its ability to
affect those intentions. The Company's bonds were classified on a GAAP basis
as "available-for-sale" and accordingly, those investments and common stocks
were reflected at fair value with the corresponding impact included as a
component of Stockholder's Equity designated as "Net unrealized capital
gains (losses) on securities net of tax". For statutory reporting purposes,
Change in Net Unrealized Capital Gains (Losses) on Common Stocks and Other
Invested Assets includes the change in unrealized gains (losses) on common
stock reported at fair value; and
(10) separate account liabilities are valued on the Commissioner's Annuity
Reserve Valuation Method ("CARVM"), with the surplus generated recorded as a
liability to the general account (and a contra liability on the balance
sheet of the general account), whereas GAAP liabilities are valued at
account value.
As of and for the years ended December 31, the significant differences
between Statutory and GAAP basis net income and capital and surplus for the
Company are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
GAAP Net Income.................... $ 74,525 $ 58,050 $ 41,202
Amortization and deferral of policy
acquisition costs, net............ (331,882) (345,657) (341,571)
Change in unearned revenue
reserve........................... 22,131 4,641 55,504
Deferred taxes..................... 2,476 47,092 2,090
Separate accounts.................. 259,287 282,818 306,978
Asset impairments and
write-downs....................... 17,250 -- --
Benefit reserve adjustment......... 32,759 24,666 (1,013)
Deposit accounting for Lyndon
reinsurance (Note 3).............. 24,627 -- --
Other, net......................... 1,453 2,432 4,805
------------ ------------ ------------
Statutory Net Income............... $ 102,626 $ 74,042 $ 67,995
------------ ------------ ------------
------------ ------------ ------------
GAAP Capital and Surplus........... $ 648,097 $ 570,469 $ 503,887
Deferred policy acquisition
costs............................. (1,615,653) (1,283,771) (938,114)
Unearned revenue reserve........... 156,920 134,789 130,148
Deferred taxes..................... 68,936 64,522 12,823
Separate accounts.................. 1,183,642 924,355 640,101
Asset impairments and
write-downs....................... 17,250 -- --
Unrealized gains on bonds.......... (26,119) (21,451) (7,978)
Benefit reserve adjustment......... 65,029 16,378 7,035
Asset valuation reserve............ (21,782) (13,670) (7,442)
Adjustment relating to Lyndon
contribution (Note 3)............. -- (23,671) (36,126)
Other, net......................... 192 3,850 (1,221)
------------ ------------ ------------
Statutory Capital and Surplus...... $ 476,512 $ 371,800 $ 303,113
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
As more fully described in Note 3, Lyndon Insurance Company (Lyndon) was
contributed to the Company on June 30, 1995. The GAAP net assets contributed
exceeded the statutory basis net assets by $41,277 as of December 31, 1995,
relating primarily to statutory reserves for future
<PAGE>
F-8 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
benefits, GAAP deposit accounting receivables and deferred tax liabilities. In
1998, the majority of the former Lyndon's assumed business was recaptured by the
unaffiliated direct writer.
AGGREGATE RESERVES FOR FUTURE BENEFITS AND LIABILITY FOR PREMIUM AND OTHER
DEPOSIT FUNDS
Aggregate reserves for payment of future life, health and annuity benefits
were computed in accordance with actuarial standards. Reserves for life
insurance policies are generally based on the 1958 and 1980 Commissioner's
Standard Ordinary Mortality Tables and various valuation rates ranging from 2.5%
to 6%. Accumulation and on-benefit annuity reserves are based principally on
individual annuity tables at various rates ranging from 2.5% to 8.75% and using
CARVM. Accident and health reserves are established using a two year preliminary
term method and morbidity tables based on Company experience.
ILA has established separate accounts to segregate the assets and
liabilities of certain annuity contracts that must be segregated from the
Company's general assets under the terms of the contracts. The assets consist
primarily of marketable securities reported at market value. Premiums, benefits
and expenses of these contracts are reported in the statutory basis statements
of operations.
INVESTMENTS
Investments in bonds are carried at amortized cost. Bonds that are deemed
ineligible to be held at amortized cost by the NAIC Securities Valuation Office
("SVO") are carried at the appropriate SVO published value. When a permanent
reduction in the value of publicly traded securities occurs, the decrease is
reported as a realized loss and the carrying value is adjusted accordingly.
Short-term investments consist of money market funds and are stated at cost,
which approximates fair value. Common stocks are carried at fair value with the
current year change in the difference from cost reflected in surplus. Other
invested assets are generally recorded at fair value.
The Company uses a variety of derivative financial instruments as part of an
overall risk management strategy. These instruments, including interest rate and
foreign currency swaps, caps, and floors are used as a means of hedging exposure
to price, foreign currency and/or interest rate risk on planned investment
purchases or existing assets and liabilities. The Company does not hold or issue
derivative financial instruments for trading purposes. Derivatives must be
designated at inception as a hedge measured for effectiveness both at inception
and on an ongoing basis. The Company's correlation threshold for hedge
designation is 80% to 120%. If correlation, which is assessed monthly and
measured based on a rolling three month average, falls outside the 80% to 120%
range, hedge accounting will be terminated.
Interest rate swaps involve the periodic exchange of payments without the
exchange of underlying principal or notional amounts. Net receipts or payments
are accrued and recognized over the life of the swap agreement as an adjustment
to net investment income. Should the swap be terminated the gains or losses are
adjusted into the basis of the asset or liability and amortized over the
remaining life. Should the hedged asset be sold or liability terminated without
terminating the swap position, any swap gains or losses are immediately
recognized in net investment income. Interest rate swaps purchased in
anticipation of an asset purchase ("anticipatory transaction") are recognized
consistent with the underlying asset components such that the settlement
component is recognized in the statutory basis statements of operations while
the change in market value is recognized as an unrealized gain or loss. Foreign
currency swaps are similar to interest rate swaps except there is an initial
exchange of principal in two currencies and an agreement to re-exchange the
currencies at a future date, at an agreed upon exchange rate.
Premiums paid on purchased floor or cap agreements and the premium received
on issued cap or floor agreements (used for risk management) are adjusted into
the basis of the applicable asset and amortized over the asset life. Gains or
losses on termination of such positions are adjusted into the basis of the asset
or liability and amortized over the remaining asset life. Net payments are
recognized as an adjustment to income or basis adjusted and amortized depending
on the specific hedge strategy.
Derivatives used to create a synthetic asset must meet synthetic accounting
criteria, including designation at inception and consistency of terms between
the synthetic and the instrument being replicated. Consistent with industry
practice, synthetic instruments are accounted for like the financial instrument
they are intended to replicate. Derivatives which fail to meet risk management
criteria subsequent to acquisition, are accounted for at fair market value with
the impact reflected in the statutory basis statements of operations.
Open forward commitment contracts are marked to market through surplus. Such
contracts are accounted for at settlement by recording the purchase of specified
securities at the previously committed price. Gains or losses resulting from
termination of the forward commitment contracts before the delivery of the
securities are recognized immediately in the statutory basis statements of
operations as a component of Net Realized Capital Gains, after tax.
The Asset Valuation Reserve ("AVR") is designed to provide a standardized
reserving process for realized and unrealized losses due to default and equity
risks associated with invested assets. The reserve increased $8,112 and $6,228
in 1998 and 1997, respectively and decreased $(568) in 1996. Additionally, the
Interest Maintenance Reserve ("IMR") captures net realized capital gains and
losses, net
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY F-9
- --------------------------------------------------------------------------------
of applicable income taxes, resulting from changes in interest rates and
amortizes these gains or losses into income over the life of the mortgage loan
or bond sold. The IMR balance as of December 31, 1998 and December 31, 1997 was
$452 and $(193), respectively and is reflected in Other Liabilities and as a
component of non-admitted assets in Unassigned Funds for each of the years then
ended. For the years ended December 31, 1998, 1997 and 1996, amortization of IMR
is included in Other Revenues and was $(207), $(85) and $(392), respectively.
Realized capital gains and losses, net of taxes not included in IMR are reported
in the statutory basis statements of operations. Realized investment gains and
losses are determined on a specific identification basis.
OTHER LIABILITIES
The amount reflected in other liabilities includes a receivable from the
separate accounts of $1,187 million and $923 million as of December 31, 1998 and
1997, respectively. The balances are classified in accordance with NAIC
prescribed practices.
MORTGAGE LOANS
Mortgage loans, which are carried at cost and approximate fair value,
include investments in assets backed by mortgage loan pools.
2. INVESTMENTS:
(A) COMPONENTS OF NET INVESTMENT INCOME
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Interest income from bonds and
short-term investments.......... $ 123,370 $ 100,475 $ 89,940
Interest income from policy
loans........................... 3,133 1,958 1,846
Interest and dividends from other
investments..................... 4,482 1,005 7,864
---------- ---------- ---------
Gross investment income.......... 130,985 103,438 99,650
Less: investment expenses........ 1,003 1,153 1,209
---------- ---------- ---------
Net investment income............ $ 129,982 $ 102,285 $ 98,441
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
(B) COMPONENTS OF NET UNREALIZED CAPITAL GAINS (LOSSES) ON COMMON STOCKS
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Gross unrealized capital gains.. $ 2,204 $ 537 $ 713
Gross unrealized capital
losses......................... (1,871) (1,820) (4,160)
--------- --------- ---------
Net unrealized capital
(losses)/gains................. 333 (1,283) (3,447)
Balance, beginning of year...... (1,283) (3,447) 1,724
--------- --------- ---------
Change in net unrealized capital
gains (losses) on Common
stocks......................... $ 1,616 $ 2,164 $ (5,171)
--------- --------- ---------
--------- --------- ---------
</TABLE>
(C) COMPONENTS OF NET UNREALIZED CAPITAL GAINS (LOSSES) ON BONDS AND SHORT-TERM
INVESTMENTS
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ----------
<S> <C> <C> <C>
Gross unrealized capital
gains........................ $ 10,905 $ 23,357 $ 11,821
Gross unrealized capital
losses....................... (833) (1,906) (3,842)
---------- --------- ----------
Net unrealized capital
gains........................ 10,072 21,451 7,979
Balance, beginning of year.... 21,451 7,979 20,877
---------- --------- ----------
Change in net unrealized
capital gains on bonds and
short-term investments....... $ (11,379) $ 13,472 $ (12,898)
---------- --------- ----------
---------- --------- ----------
</TABLE>
(D) COMPONENTS OF NET REALIZED CAPITAL GAINS (LOSSES)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Bonds and short-term investments.... $ 1,314 $ (120) $ 2,756
Common stocks....................... 1,624 -- --
Real estate and other............... (1) 114 --
--------- --------- ---------
Realized capital (losses) gains..... 2,937 (6) 2,756
Capital gains (benefit) tax......... -- (831) 936
--------- --------- ---------
Net realized capital gains.......... 2,937 825 1,820
Amounts transferred to IMR.......... 852 (719) 1,413
--------- --------- ---------
Net realized capital gains.......... $ 2,085 $ 1,544 $ 407
--------- --------- ---------
--------- --------- ---------
</TABLE>
(E) OFF-BALANCE SHEET INVESTMENTS
The Company had no significant financial instruments with off-balance sheet
risk as of December 31, 1998.
(F) CONCENTRATION OF CREDIT RISK
The Company has invested in securities of a single issuer, Bankers Trust
Corporation, in an amount greater than 10% of the Company's statutory capital
and surplus. The statement value of this investment was $105,221 as of December
31, 1998. The NAIC ratings on these holdings were 1z and 2. Excluding this and
U.S. government and government agency investments, the Company had no other
significant concentrations of credit risk as of December 31, 1998.
<PAGE>
F-10 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
(G) BONDS, SHORT-TERM INVESTMENTS AND COMMON STOCKS
<TABLE>
<CAPTION>
1998
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. government and government agencies and authorities:
-- Guaranteed and sponsored.................................... $ 4,982 $ 35 $ (2) $ 5,015
-- Guaranteed and sponsored -- asset-backed.................... 75,615 -- -- 75,615
States, municipalities and political subdivisions................ 10,402 415 -- 10,817
International governments........................................ 7,466 568 -- 8,034
Public utilities................................................. 94,475 1,330 (39) 95,766
All other corporate.............................................. 607,679 8,473 (792) 615,360
All other corporate -- asset-backed.............................. 505,900 -- -- 505,900
Short-term investments........................................... 343,783 -- -- 343,783
Certificates of deposit.......................................... 130,216 84 -- 130,300
Parents, subsidiaries and affiliates............................. 117,057 -- -- 117,057
---------- ---------- ---------- ----------
Total bonds and short-term investments........................... $1,897,575 $10,905 $(833) $1,907,647
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Common stock -- unaffiliated................................. $ 4,933 $ 290 $ (50) $ 5,173
Common stock -- affiliated................................... 35,384 1,914 (1,821) 35,477
--------- ---------- ---------- ----------
Total common stocks.......................................... $40,317 $2,204 $(1,871) $40,650
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
1997
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. government and government agencies and authorities:
-- Guaranteed and sponsored.................................... $ 11,114 $ 55 $ (51) $ 11,118
-- Guaranteed and sponsored -- asset-backed.................... 55,506 1,056 (269) 56,293
States, municipalities and political subdivisions................ 26,404 329 -- 26,733
International governments........................................ 7,609 500 -- 8,109
Public utilities................................................. 73,024 754 (132) 73,646
All other corporate.............................................. 517,715 14,110 (704) 531,121
All other corporate -- asset-backed.............................. 630,069 5,005 (739) 634,335
Short-term investments........................................... 277,330 33 (8) 277,355
Certificates of deposit.......................................... 93,770 1,515 (3) 95,282
Parents, subsidiaries and affiliates............................. 86,100 -- -- 86,100
---------- ---------- ---------- ----------
Total bonds and short-term investments........................... $1,778,641 $23,357 $(1,906) $1,800,092
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Common stock -- unaffiliated................................. $30,307 $537 $ -- $30,844
Common stock -- affiliated................................... 35,384 -- (1,820) 33,564
--------- ----- ---------- ----------
Total common stocks.......................................... $65,691 $537 $(1,820) $64,408
--------- ----- ---------- ----------
--------- ----- ---------- ----------
</TABLE>
The amortized cost and estimated fair value of bonds and short-term
investments as of December 31, 1998 by estimated maturity year are shown below.
Asset-backed securities, including mortgage backed securities and
collaterialized mortgage obligations, are distributed to maturity year based on
ILA's estimates of the rate of future prepayments of principal over the
remaining lives of the securities. Expected maturities differ from contractual
maturities due to call or repayment provisions.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
MATURITY COST FAIR VALUE
- ----------------------------------- ------------ ------------
<S> <C> <C>
One year or less................... $ 788,845 $ 792,826
Over one year through five years... 689,025 692,811
Over five years through ten
years............................. 308,661 310,357
Over ten years..................... 111,044 111,653
------------ ------------
Total.............................. $ 1,897,575 $ 1,907,647
------------ ------------
------------ ------------
</TABLE>
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY F-11
- --------------------------------------------------------------------------------
Proceeds from sales and maturities of investments in bonds and short-term
investments during 1998, 1997 and 1996 were $1,354,563, $1,435,820 and
$1,139,073, respectively, resulting in gross realized gains of $1,705, $964 and
$3,675, respectively, and gross realized losses of $391, $1,084 and $919,
respectively, before transfers to IMR.
(H) FAIR VALUE OF FINANCIAL INSTRUMENTS BALANCE SHEET ITEMS (IN MILLIONS):
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Bonds and short-term
investments..................... $ 1,898 $ 1,908 $ 1,779 $ 1,800
Common stocks.................... 41 41 64 64
Policy loans..................... 47 47 37 37
Mortgage loans................... 60 60 85 85
Other invested assets............ 2 2 21 21
LIABILITIES
Liabilities on investment
contracts....................... $ 2,053 $ 2,129 $ 1,911 $ 1,835
</TABLE>
The estimated fair value of bonds and short-term investments was determined
by the Company primarily using NAIC market values. The carrying amounts for
policy loans approximates fair value. The fair value of mortgage loans was
determined by discounting future expected cash flows using interest rates
currently being offered for similar loans. The fair value of liabilities on
investment contracts is determined by forecasting future cash flows and
discounting the forecasted cash flows at current market interest rates.
3. AGGREGATE RESERVES FOR FUTURE BENEFITS
The Company's existing reserves consist of life, health, annuity and
supplementary contracts. The Company cedes and assumes insurance to and from
non-affiliated insurers in order to limit its maximum loss. Such transfers do
not relieve the Company or the unaffiliated reinsured of their primary
liabilities. The Company cedes to RGA Reinsurance Company and its affiliate
Employers Reassurance Corporation, on a modified coinsurance basis, 80% of the
variable annuity business written since 1994 and 100% of the variable life and
variable universal life excess sales load refund obligation effective 1998.
There were no material reinsurance recoverables from reinsurers outstanding as
of, and for the years ended, December 31, 1998 and 1997.
A summary of reinsurance information as of and for the years ended December
31, follows:
<TABLE>
<CAPTION>
1998 DIRECT ASSUMED CEDED NET
- ----------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Premium and Annuity
Considerations.................... $ 483,328 $ 24,954 $ (38,939) $ 469,343
Death, Annuity, Disability and
Other Benefits.................... $ 64,331 $ 1,574 $ (16,401) $ 49,504
Surrenders......................... $ 739,663 $ -- $ -- $ 739,663
Aggregate Reserves for Future
Benefits.......................... $ 713,425 $ -- $ (134,285) $ 579,140
Policy and Contract Claims......... $ 5,895 $ 85 $ (313) $ 5,667
<CAPTION>
1997 DIRECT ASSUMED CEDED NET
- ----------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Premium and Annuity
Considerations.................... $ 266,427 $ 51,630 $ (21,412) $ 296,645
Death, Annuity, Disability and
Other Benefits.................... $ 79,779 $ 839 $ (7,126) $ 73,492
Surrenders......................... $ 454,417 $ -- $ -- $ 454,417
Aggregate Reserves for Future
Benefits.......................... $ 651,820 $ -- $ (46,637) $ 605,183
Policy and Contract Claims......... $ 5,861 $ 157 $ (346) $ 5,672
<CAPTION>
1996 DIRECT ASSUMED CEDED NET
- ----------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Premium and Annuity
Considerations.................... $ 226,612 $ 33,817 $ (10,185) $ 250,244
Death, Annuity, Disability and
Other Benefits.................... $ 34,950 $ 35,138 $ (3,339) $ 66,749
Surrenders......................... $ 270,165 $ -- $ -- $ 270,165
</TABLE>
In connection with the distribution described in Note 1, on June 30, 1995,
the assets of Lyndon were contributed to the Company. The statutory basis assets
in excess of statutory basis liabilities was approximately $112 million and was
reflected as an increase in Gross Paid-In and Contributed Surplus at December
31, 1995. In 1998, the majority of former Lyndon's assumed business was
recaptured by the unaffiliated direct writer. A ceding commission of $25,622 and
change in reserve of $26,404 for the year ended December 31, 1998, is reflected
in Other Revenue and Increase/(Decrease) in Aggregate Reserves for Future
Benefits in the statutory basis statements of operations, respectively.
<PAGE>
F-12 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
Analysis of Annuity Actuarial Reserves and Deposit Liabilities by Withdrawal
Characteristics as of December 31, 1998 (including general and separate account
liabilities) are as follows:
<TABLE>
<CAPTION>
% OF
SUBJECT TO DISCRETIONARY WITHDRAWAL: AMOUNT TOTAL
- --------------------------------------- ------------- ---------
<S> <C> <C>
With market value adjustment........... $ 4,563 0.0%
At book value less current surrender
charge of 5% or more.................. 1,378,056 4.1%
At market value........................ 31,087,511 93.8%
------------- ---------
Total with adjustment or at market
value................................. 32,470,130 97.9%
At book value without adjustment
(minimal or no charge or
adjustment)........................... 665,159 2.0%
Not subject to discretionary
withdrawal............................ 19,739 0.1%
------------- ---------
Reinsurance ceded...................... 33,155,028
Total, net......................... $ 33,155,028
-------------
-------------
</TABLE>
4. RELATED PARTY TRANSACTIONS:
Transactions between the Company and its affiliates within The Hartford
relate principally to tax settlements, reinsurance, rental and service fees,
capital contributions and payments of dividends. The Company has also invested
in bonds of its affiliates, Hartford Financial Services Corporation and HL
Investment Advisors, Inc., and common stock of its subsidiary, ITT Hartford
Life, LTD.
5. FEDERAL INCOME TAXES:
The Company and The Hartford have entered into a tax sharing agreement under
which each member in the consolidated U.S. Federal income tax return will make
payments between them such that, with respect to any period, the amount of taxes
to be paid by the Company, subject to certain adjustments, generally will be
determined as though the Company were filing separate Federal, state and local
income tax returns.
As long as The Hartford continues to own at least 80% of the combined voting
power and 80% of the value of the outstanding capital stock of HLI, the Company
will be included for Federal income tax purposes in the consolidated group of
which The Hartford is the common parent. It is the intention of The Hartford and
its non-life subsidiaries to file a single consolidated Federal income tax
return. The life insurance companies will file a separate consolidated Federal
income tax return. Federal income taxes (received) paid by the Company for
operations and capital gains were $25,780, $(14,499) and $29,793 in 1998, 1997
and 1996, respectively. The effective tax rate was 26%, (26)% and 22% in 1998,
1997 and 1996, respectively.
The Company is currently under audit by the Internal Revenue Service (IRS)
for the three year tax period ending 1995. The audit is not yet complete. As of
December 31, 1998, the Company does not currently expect any material
adjustments to arise from this audit.
The following schedule provides a reconciliation of the tax provision at the
U.S. Federal Statutory rate to Federal income tax (benefit) expense (in
millions):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Tax provision at U.S. Federal statutory
rate..................................... $ 48 $ 20 $ 30
Tax deferred acquisition costs............ 25 25 27
Statutory to tax reserve differences...... 8 1 --
Unrealized gain on separate accounts...... (41) (44) (21)
Investments and other..................... (4) (17) (17)
--------- --------- ---------
Federal income tax (benefit) expense...... $ 36 $ (15) $ 19
--------- --------- ---------
--------- --------- ---------
</TABLE>
6.CAPITAL AND SURPLUS AND SHAREHOLDER DIVIDEND RESTRICTIONS:
The maximum amount of dividends which can be paid, without prior approval,
by State of Connecticut insurance companies to shareholders is generally
restricted to the greater of 10% of surplus as of the preceding December 31st or
the net gain from operations for the previous year. Dividends are paid as
determined by the Board of Directors and are not cumulative. No dividends were
paid in 1998, 1997 and 1996. The amount available for dividend in 1999 is
$100,541.
7. PENSION PLANS AND OTHER POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS:
HLI's employees are included in The Hartford's non-contributory defined
benefit pension plans. These plans provide pension benefits that are based on
years of service and the employee's compensation during the last ten years of
employment. HLI's funding policy is to contribute annually an amount between the
minimum funding requirements set forth in the Employee Retirement Income
Security Act of 1974, as amended, and the maximum amount that can be deducted
for U.S. Federal income tax purposes. Generally, pension costs are funded
through the purchase of affiliated group pension contracts. The cost to HLI was
approximately $9,000 in 1998 and $7,000 in both 1997 and 1996.
HLI also provides, through The Hartford, certain health care and life
insurance benefits for eligible retired employees. A substantial portion of
HLI's employees may become eligible for these benefits upon retirement. HLI's
contribution for health care benefits will depend on the retiree's date of
retirement and years of service. In addition, the plan has a defined dollar cap
which limits average company contributions. HLI has prefunded a portion of the
health care and life insurance obligations through trust funds where such
prefunding can be accomplished on a tax effective basis. Postretirement health
care and life insurance
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY F-13
- --------------------------------------------------------------------------------
benefits expense, allocated by The Hartford, was immaterial to the results of
operations for 1998, 1997 and 1996.
The assumed rate in the per capita cost of health care (the health care
trend rate) was 7.8% for 1998, decreasing ratably to 5.0% in the year 2003.
Increasing the health care trend rates by one percent per year would have an
immaterial impact on the accumulated postretirement benefit obligation and the
annual expense. To the extent that the actual experience differs from the
inherent assumptions, the effect will be amortized over the average future
service of covered employees.
8. SEPARATE ACCOUNTS:
The Company maintains separate account assets and liabilities totaling $32.9
billion and $23.2 billion as of December 31, 1998 and 1997, respectively.
Separate account assets are reported at fair value and separate account
liabilities are determined in accordance with CARVM, which approximates the
market value less applicable surrender charges. Separate account assets are
segregated from other investments, the policyholder assumes the investment risk,
and the investment income and gains and losses accrue directly to the
policyholder. Separate account management fees, net of minimum guarantees, were
$360 million, $252 million and $144 million in 1998, 1997 and 1996,
respectively, and are recorded as a component of other revenues on the statutory
basis statements of operations.
9. COMMITMENTS AND CONTINGENCIES:
As of December 31, 1998, the Company had no material contingent liabilities,
nor had the Company committed any surplus funds for any contingent liabilities
or arrangements. The Company is involved in pending and threatened litigation in
the normal course of its business in which claims for monetary and punitive
damages have been asserted. Although there can be no assurances, at the present
time the Company does not anticipate that the ultimate liability arising from
such pending or threatened litigation, after consideration of provisions made
for potential losses and costs of defense, will have a material adverse effect
on the statutory capital and surplus of the Company.
As discussed in Note 5, issues may potentially be raised by the IRS in
future audits of open years. Management does not believe that possible audit
adjustments will have a material effect on the statutory capital and surplus of
the Company.
Under insurance guaranty fund laws in each state, insurers licensed to do
business can be assessed up to prescribed limits for policyholder losses
incurred by insolvent companies. The amount of any future assessments on ILA
under these laws cannot be reasonably estimated. Most of the laws do provide,
however, that an assessment may be excused or deferred if it would threaten an
insurer's own financial strength. Additionally, guaranty fund assessments are
used to reduce state premium taxes paid by the Company in certain states. ILA
paid guaranty fund assessments of $1,043, $1,544 and $1,262 in 1998, 1997 and
1996, respectively. ILA incurred guaranteed fund expense of $548 in 1998, 1997
and 1996.
