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STAG LAST SURVIVOR
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICIES
ITT HARTFORD LIFE AND ANNUITY INSURANCE
COMPANY
P.O. BOX 2999
HARTFORD, CONNECTICUT 06104-2999
[LOGO] TELEPHONE: 1-800-231-5453
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This Prospectus describes last survivor flexible premium variable life insurance
policies (the "Policies," and each individually a "Policy") offered by ITT
Hartford Life and Annuity Insurance Company ("Hartford") to applicants generally
between ages 20 and 80 respecting both Insureds. For a given amount of Death
Benefit chosen, the Policy Owner has considerable flexibility in selecting the
timing and amount of premium payments.
The Policies provide for a Death Benefit payable at the death of the last
surviving Insured. The Policy Owner may select one of three Death Benefit
Options: a level amount equal to the Face Amount ("Option A"), a variable amount
equal to the Face Amount plus the Account Value ("Option B"), or a variable
amount equal to the Face Amount plus a return of premiums ("Option C"). The
required minimum initial (Basic) Face Amount is generally $100,000.
Under all three options, the Policies have Account Values which increase with
the payment of each premium and which decrease to reflect fees and charges made
by Hartford. These fees and charges vary depending on such factors as the Face
Amount, the ages of the Insureds and the level of the premiums paid. The Account
Value of a Policy will also vary up or down to reflect the investment experience
of the Funds to which the Net Premium(s) has been allocated, and the Policy
Owner bears the investment risk for all amounts so allocated.
If a Policy is surrendered during the first two Policy Years, the Policy Owner
may be entitled to a refund of sales loads in addition to the Cash Surrender
Value.
There is no guaranteed minimum Account Value for a Policy. If the Death Benefit
guarantee is in effect (see "Detailed Description of Policy Benefits and
Provisions -- Death Benefit," page 13), the Policy will not lapse due to poor
investment performance.
The initial Net Premium will be allocated to Hartford Money Market Sub-Account
and after the Right to Examine Period has expired, to one or more of the
Sub-Accounts or to the Fixed Account as specified in the Policy Owner's
application. The Funds underlying the Sub-Accounts presently are: Hartford
Advisers Fund, Inc., Hartford Bond Fund, Inc., Hartford Capital Appreciation
Fund, Inc., Hartford Dividend and Growth Fund, Inc., Hartford Index Fund, Inc.,
Hartford International Opportunities Fund, Inc., Hartford Mortgage Securities
Fund, Inc., Hartford Stock Fund, Inc., and HVA Money Market Fund, Inc. (the
"Hartford Funds") of Hartford Mutual Funds, each of which is managed by HL
Investment Advisors, Inc.; Putnam VT Diversified Income Fund, Putnam VT Global
Asset Allocation Fund, Putnam VT Global Growth Fund, Putnam VT Growth and Income
Fund, Putnam VT High Yield Fund, Putnam VT Money Market Fund, Putnam VT New
Opportunities Fund, Putnam VT U.S. Government and High Quality Bond Fund, Putnam
VT Utilities Growth and Income Fund, and Putnam VT Voyager Fund (the "Putnam
Funds") of Putnam Variable Trust, each of which is managed by Putnam Investment
Management, Inc. ("Putnam Management"); and the VIP Equity-Income Portfolio and
the VIP Overseas Portfolio of the Variable Insurance Products Fund and the VIP
II Asset Manager Portfolio of the Variable Insurance Products Fund II, each of
which is managed by Fidelity Management & Research Company (the "Fidelity VIP
Funds," and collectively with the Hartford Funds and the Putnam Funds, the
"Funds").
These Policies are subject to a front-end sales load which is set forth in the
section entitled "Detailed Description of Policy Benefits and Provisions --
Deductions from the Premium -- Front-End Sales Load," page 16.
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IT MAY NOT BE ADVANTAGEOUS TO PURCHASE FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
AS A REPLACEMENT FOR YOUR CURRENT LIFE INSURANCE OR IF YOU ALREADY OWN A
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY.
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THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED BY THE CURRENT PROSPECTUSES OF THE
APPLICABLE ELIGIBLE FUNDS WHICH CONTAIN A FULL DESCRIPTION OF THOSE FUNDS. ALL
PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS MAY 1, 1997.
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2 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
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TABLE OF CONTENTS
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SPECIAL TERMS......................................................... 4
SUMMARY............................................................... 6
DETAILED DESCRIPTION OF POLICY BENEFITS AND PROVISIONS................ 9
General............................................................. 9
Premiums............................................................ 9
Premium Payment Flexibility....................................... 9
Allocation of Premium Payments.................................... 10
Accumulation Units................................................ 10
Accumulation Unit Values.......................................... 10
Premium Limitation................................................ 10
Account Values.................................................... 10
Amount Payable on Surrender of the Policy......................... 11
Load Refund....................................................... 11
Partial Withdrawals............................................... 11
Transfers of Account Value.......................................... 11
Amount and Frequency of Transfers................................. 11
Transfers to or from Sub-Accounts................................. 11
Transfers from the Fixed Account.................................. 12
Dollar Cost Averaging Option...................................... 12
Policy Loans........................................................ 12
Loan Interest..................................................... 12
Credited Interest................................................. 12
Preferred Loan.................................................... 12
Loan Repayments................................................... 12
Termination Due to Excessive Indebtedness......................... 12
Effect of Loans on Account Value.................................. 13
Death Benefit....................................................... 13
Death Benefit Options............................................. 13
Option Change..................................................... 13
Death Benefit Guarantee........................................... 13
Minimum Death Benefit............................................. 13
Supplemental Face Amount.......................................... 14
Unscheduled Increases and Decreases in Face Amount................ 14
Benefits at Maturity................................................ 14
Lapse and Reinstatement............................................. 14
Policy Lapse and Grace Period..................................... 14
Death Benefit Guarantee Default and Grace Period.................. 14
Reinstatement..................................................... 15
The Right to Examine or Exchange the Policy......................... 15
Surrender........................................................... 15
Valuation of Payments and Transfers................................. 15
Application for a Policy............................................ 15
Reduced Charges for Eligible Groups................................. 15
Deductions from the Premium......................................... 16
Premium Processing Charge......................................... 16
Premium Tax Charge and Federal Tax Charge......................... 16
Front-End Sales Load.............................................. 16
Deductions and Charges From the Account Value....................... 17
Monthly Deduction Amounts......................................... 17
Charges Against the Funds......................................... 19
Taxes............................................................. 20
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ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 3
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THE COMPANY........................................................... 20
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SEPARATE ACCOUNT VL II................................................ 20
General............................................................. 20
Funds............................................................... 20
Hartford Funds.................................................... 20
Putnam Funds...................................................... 21
Fidelity VIP Funds................................................ 21
Investment Adviser.................................................. 22
Hartford Funds.................................................... 22
Putnam Funds...................................................... 23
Fidelity VIP Funds................................................ 23
THE FIXED ACCOUNT..................................................... 23
OTHER MATTERS......................................................... 23
Voting Rights....................................................... 23
Statements to Policy Owners......................................... 24
Limit on Right to Contest........................................... 24
Misstatement as to Age.............................................. 24
Payment Options..................................................... 24
Beneficiary......................................................... 25
Assignment.......................................................... 25
Dividends........................................................... 25
SUPPLEMENTAL BENEFITS................................................. 25
Last Survivor Exchange Option Rider................................. 25
Estate Protection Rider............................................. 25
Maturity Date Extension Rider....................................... 25
Yearly Renewable Term Life Insurance Rider.......................... 25
EXECUTIVE OFFICERS AND DIRECTORS...................................... 26
DISTRIBUTION OF THE POLICIES.......................................... 27
SAFEKEEPING OF SEPARATE ACCOUNT VL II'S ASSETS........................ 27
FEDERAL TAX CONSIDERATIONS............................................ 27
General............................................................. 27
Taxation of Hartford and the Separate Account....................... 28
Income Taxation of Policy Benefits.................................. 28
Modified Endowment Contracts........................................ 28
Estate and Generation Skipping Taxes................................ 29
Diversification Requirements........................................ 29
Ownership of the Assets in the Separate Account..................... 30
Life Insurance Purchased for Use in Split Dollar Arrangements....... 30
Federal Income Tax Withholding...................................... 30
Non-Individual Ownership of Policies................................ 30
Other............................................................... 30
Life Insurance Purchases by Nonresident Aliens and Foreign
Corporations....................................................... 30
LEGAL PROCEEDINGS..................................................... 31
LEGAL MATTERS......................................................... 31
EXPERTS............................................................... 31
REGISTRATION STATEMENT................................................ 31
APPENDIX A ILLUSTRATION OF DEATH BENEFITS, ACCOUNT VALUES AND CASH
SURRENDER VALUES...................................................... 32
FINANCIAL STATEMENTS..................................................
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THE POLICIES MAY NOT BE AVAILABLE IN ALL STATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER OR OTHER PERSON IS AUTHORIZED
TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON.
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4 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
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SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
ACCOUNT VALUE: Value used to determine certain Policy benefits and charges.
ACCUMULATION UNIT: An accounting unit of measure used to calculate the value of
a Sub-Account.
ANNUAL DEATH BENEFIT GUARANTEE PREMIUM: An annual amount of premium shown in the
Policy's specifications page required to keep the Death Benefit guarantee in
effect and used to calculate the Cumulative Death Benefit Guarantee Premium.
ATTRIBUTABLE: In calculating the front-end sales load, agent commissions and
mortality and expense risk charge, premiums (in the case of the front-end sales
load or commissions) and Account Value (in the case of the mortality and expense
risk charge) are Attributable to the Basic Face Amount and Supplemental Face
Amount in the same ratio that the initial Basic Face Amount and the initial
Supplemental Face Amount, respectively, bear to the initial Face Amount. For
example, if 60% of Your initial Face Amount represented Basic Face Amount and
40% represented Supplemental Face Amount, then 60% of each premium (in the case
of the sales load or commissions) or 60% of Your Account Value (in the case of
the mortality and expense risk charge) is Attributable to Basic Face Amount and
the remaining 40% is Attributable to Supplemental Face Amount.
BASIC FACE AMOUNT: On the Policy Date, the Basic Face Amount equals the initial
Basic Face Amount. Thereafter it may change in accordance with the terms of the
Policy.
CASH SURRENDER VALUE: Account Value less all Indebtedness.
CODE: The Internal Revenue Code of 1986, as amended.
COST OF INSURANCE: An amount deducted as part of the Monthly Deduction Amount to
help cover Hartford's anticipated mortality costs and other expenses.
CUMULATIVE DEATH BENEFIT GUARANTEE PREMIUM: The sum of the number of completed
Policy Years plus the completed portion of the current Policy Year (expressed as
the number of completed months divided by 12), multiplied by the Annual Death
Benefit Guarantee Premium.
DATE OF ISSUE: The date from which the suicide and incontestability provisions
are measured.
DEATH BENEFIT: On the Policy Date, the Death Benefit equals the Face Amount.
Thereafter it may change in accordance with the terms of the Policy.
DEATH BENEFIT OPTION: The Death Benefit Option in effect determines how the
Death Benefit is calculated. The three Death Benefit Options provided are
described in the "Death Benefit" section of this Prospectus.
DEATH PROCEEDS: The amount which We will pay on the death of the last surviving
Insured. This amount equals the Death Benefit less any Indebtedness and less any
due and unpaid Monthly Deduction Amount occurring during a grace period.
FACE AMOUNT: The Basic Face Amount plus the Supplemental Face Amount.
FIXED ACCOUNT: Portion of Account Value invested in the General Account of
Hartford.
FUNDS: The registered open-end management investment companies in which assets
of the Separate Account may be invested.
GENERAL ACCOUNT: All assets of Hartford other than those allocated to its
separate accounts.
GUIDELINE ANNUAL PREMIUM: The level annual premium payment necessary to provide
the future benefits under the Policy through maturity, based on certain
assumptions specified under the federal Securities laws. These assumptions
include mortality charges based on the 1980 Commissioners' Standard Ordinary
Mortality Smoker or Nonsmoker Table, age last birthday, an assumed annual net
rate of return of 5% per year, and deduction of the guaranteed fees and charges
specified in the Policy. For purposes of the Policy, the Guideline Annual
Premium is used only in limiting front-end sales loads.
HARTFORD (ALSO "WE," "US," "OUR"): ITT Hartford Life and Annuity Insurance
Company.
IN WRITING: In a written form satisfying to Us.
INDEBTEDNESS: The outstanding loan on the Policy, including any interest due or
accrued.
INSUREDS: The two persons on whose lives the Policy is issued.
ISSUE AGE: As of the Policy Date, the age of each Insured on his/her last
birthday.
LOAN ACCOUNT: An account established for any amounts transferred from the Fixed
Account and Sub-Accounts as a result of loans. Amounts are held as collateral
and are credited with interest. Amounts are not subject to the investment
experience of the Separate Account.
MATURITY DATE: The date on which the Policy will mature.
MONTHLY ACTIVITY DATE: The Policy Date and the same date in each succeeding
month as the Policy Date, except that whenever the Monthly Activity Date falls
on a date other than a Valuation Day, the Monthly Activity Date will be deemed
the next Valuation Day.
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ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 5
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MONTHLY DEDUCTION AMOUNT: The fees and charges deducted from the Account Value
on the Monthly Activity Date.
NATIONAL SERVICE CENTER: Located in Minneapolis, Minnesota.
NET PREMIUM: The amount of premium actually credited to the Account Value.
PLANNED PREMIUMS: The amount of premiums that You intend to pay as indicated on
the application and shown on the Policy's specifications page.
POLICY: A last survivor flexible premium variable life insurance contract issued
by Hartford, as described in this Prospectus.
POLICY ANNIVERSARY: An anniversary of the Policy Date.
POLICY DATE: The date from which Policy Anniversaries and Policy Years are
determined.
POLICY OWNER (ALSO "YOU," "YOUR"): The person having rights to benefits under
the Policy during the lifetime of the two Insureds; the Policy Owner may or may
not be one of the Insureds.
POLICY YEARS: Annual periods computed from the Policy Date.
PRO RATA BASIS: An allocation method based on the proportion of the Account
Value in the Fixed Account and each Sub-Account.
SEPARATE ACCOUNT (ALSO "SEPARATE ACCOUNT VL II"): An account established by
Hartford to separate the assets funding the Policies from other assets of
Hartford; in this case, "Separate Account VL II."
SUB-ACCOUNT: The subdivisions of the Separate Account.
SUPPLEMENTAL FACE AMOUNT: On the Policy Date, the Supplemental Face Amount is
shown on the Policy's specifications page. Thereafter, the Supplemental Face
Amount may change according to the terms of the Policy.
TARGET PREMIUM: The amount of level premium required to support a whole life
insurance policy with a net interest rate of 5%, assuming that the initial Face
Amount is entirely Basic Face Amount. The Policy charges used in determining the
level premium amount are maximum guaranteed cost of insurance rates for standard
risks, actual premium tax rates, a 1.25% premium charge for processing, a 1.25%
premium charge for federal tax and other maximum policy deductions or charges,
exclusive of any additional rider charges.
VALUATION DAY: Every day the New York Stock Exchange is open for trading. The
value of the Separate Account is determined at the close of the New York Stock
Exchange (currently 4:00 p.m. Eastern Time) on such days.
VALUATION PERIOD: The period between the close of business on successive
Valuation Days.
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6 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
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SUMMARY
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The last survivor flexible premium variable life insurance Policies offered
by this Prospectus are funded by a Fixed Account and Separate Account VL II, a
separate account established by Hartford pursuant to Connecticut insurance law
and organized as a unit investment trust registered under the Investment Company
Act of 1940. Separate Account VL II is presently comprised of 22 sub-accounts
(the "Sub-Accounts" and each individually a "Sub-Account"), each of which
invests exclusively in one of the underlying Funds. If an initial premium is
submitted with an application for a Policy, it will be allocated to the Hartford
Money Market Sub-Account. At a later date, the values in the Hartford Money
Market Sub-Account will be allocated to one or more of the Sub-Accounts or the
Fixed Account, as specified in the Policy Owner's application. This later date
is the latest of 45 days after the application is signed, ten days after We mail
or personally delivery a Notice of Withdrawal Right, ten days after We receive
the premium and the date We receive the final requirement to put the Policy in
force. The Policies are credited with units ("Accumulation Units") in each
selected Sub-Account, the assets of which are invested in the applicable Fund. A
Policy Owner may transfer the funds among the Sub-Accounts and the Fixed Account
subject to a transfer charge. See "Detailed Description of Policy Benefits and
Provisions -- Transfers of Account Value," page 11.
The Policies are first and foremost life insurance policies with death
benefits, cash values, and other features traditionally associated with life
insurance. The Policies are called "last survivor" because the Death Proceeds
are paid on the death of the last surviving Insured. The Policies are called
"flexible premium" because, once the desired level and pattern of death benefits
have been determined, a Purchaser has considerable flexibility in choosing the
timing and amount of premium to be paid. The Policies are called "variable"
because, unlike the fixed benefits of an ordinary whole life insurance policy,
the Account Value will, and the Death Benefit may, increase or decrease
depending on the investment experience of the Funds to which the Net Premium(s)
has been allocated.
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POLICY DESIGN OPTIONS
The options in the Policy are structured to give a prospective purchaser and
his or her sales agent the ability to select a Policy tailor-made for the
purchaser's specific life insurance needs.
The Policy options which give the Policy Owner such flexibility fall into
three major categories:
1. Death Benefit Options -- These allow the Policy Owner to select various
levels and patterns of Death Benefits.
2. Investment Options -- Currently, the Policy Owner has the choice of
allocating the Policy's Account Value among up to nine of the Policy's 23
investment options. (Hartford reserves the right to increase the number of
allocable investment options to more than nine.) These include the 22
variable Sub-Accounts and the Fixed Account.
3. Premium Options -- The Policy Owner has the flexibility to choose, within
limits, the amount of the initial premium and the amount and frequency of
subsequent premiums.
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DEATH BENEFIT
The Policies provide for three Death Benefit Options. These can be level and
equal to the Face Amount ("Option A"), the Face Amount plus Return of Account
Value ("Option B") or the Face Amount plus Return of Premium ("Option C"). At
the death of the last surviving Insured, We will pay the Death Proceeds to the
beneficiary. The Death Proceeds equal the Death Benefit less any Indebtedness
under the Policy and less any due and unpaid Monthly Deduction Amount occurring
during a grace period. You may also select Supplemental Face Amount coverage in
the application. Scheduled and unscheduled increases in Face Amount may be
requested. See "Detailed Description of Policy Benefits and Provision -- Death
Benefit," page 13.
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PREMIUM
You have considerable flexibility as to when and in what amounts You pay
premiums.
Prior to issue, You can choose a Planned Premium, within a range determined
by Hartford based on the Face Amount and each Insured's sex (except where unisex
rates apply), Issue Age and risk classification.
The Policy will not lapse as long as the Cash Surrender Value is sufficient
to cover the Monthly Deduction Amounts or the Death Benefit guarantee is in
effect.
The minimum subsequent premium is $50. We reserve the right to refund the
excess premium payments that would cause the Policy not to meet the tax
qualification guidelines for life insurance under the Code.
There are circumstances (usually if a Policy Owner wants to prefund future
benefits in seven years or less) when the Policy may become a Modified Endowment
Contract under federal tax law. If it does, loans and other predeath
distributions are includable in gross income on an income-
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ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 7
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first basis. A 10% penalty tax may be imposed on income distributed before the
Policy Owner attains age 59 1/2. Prospective purchasers and Policy Owners are
advised to consult a qualified tax adviser before taking steps that may affect
whether the Policy becomes a Modified Endowment Contract. See "Federal Tax
Considerations -- Modified Endowment Contracts," page 28, for a discussion of
the "seven-pay test".
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SEPARATE ACCOUNT VL II
Separate Account VL II is a separate account established by Hartford
pursuant to the insurance laws of the State of Connecticut and organized as a
registered unit investment trust under the Investment Company Act of 1940.
Separate Account VL II meets the definition of "separate account" under federal
securities law. Separate Account VL II is comprised of Sub-Accounts, each of
which invests exclusively in one of the Funds. Each Hartford Fund is organized
as a corporation under the laws of the State of Maryland and is a diversified
open-end management investment company registered under the Investment Company
Act of 1940. The Putnam Funds are portfolios of Putnam Variable Trust (formerly
named Putnam Capital Manager Trust), a Massachusetts business trust organized on
September 24, 1987 that is an open-end, series investment company with multiple
portfolios or funds registered under the Investment Company Act of 1940. The
Fidelity VIP Funds are portfolios of the Variable Insurance Products Fund and
the Variable Insurance Products Fund II, two diversified open-end management
investment companies, each with multiple portfolios and organized as a
Massachusetts business trust. The VIP Equity-Income Portfolio and VIP Overseas
Portfolio are portfolios of the Variable Insurance Products Fund, organized on
November 13, 1981. The VIP II Asset Manager Portfolio is a portfolio of the
Variable Insurance Products Fund II, organized on March 21, 1988. Registration
under the Investment Company Act of 1940 does not involve supervision of the
management or investment practices or policies by the Securities and Exchange
Commission ("SEC"). The shares of the Funds are sold to Separate Account VL II
and to other separate accounts of Hartford or its affiliates which fund similar
annuity or life insurance products.
Currently, the Funds are Hartford Advisers Fund, Inc., Hartford Bond Fund,
Inc., Hartford Capital Appreciation Fund, Inc., Hartford Dividend and Growth
Fund, Inc., Hartford Index Fund, Inc., Hartford International Opportunities
Fund, Inc., Hartford Mortgage Securities Fund, Inc., Hartford Stock Fund, Inc.
and HVA Money Market Fund, Inc.; Putnam VT Diversified Income Fund, Putnam VT
Global Asset Allocation Fund, Putnam VT Global Growth Fund, Putnam VT Growth and
Income Fund, Putnam VT High Yield Fund, Putnam VT Money Market Fund, Putnam VT
New Opportunities Fund, Putnam VT U.S. Government and High Quality Bond Fund,
Putnam VT Utilities Growth and Income Fund and Putnam VT Voyager Fund; and the
Equity-Income Portfolio, Overseas Portfolio and Asset Manager Portfolio.
Applicants should read the prospectus for each of the Funds accompanying this
Prospectus in connection with the purchase of a Policy. The investment
objectives of each of the Funds are as set forth in "Separate Account VL II,"
page 20.
The investment adviser for the Hartford Funds is HL Investment Advisors,
Inc. ("HL Advisors"), a wholly-owned subsidiary of Hartford. HL Advisors retains
Wellington Investment Management, L.L.P. ("Wellington Management") as an
investment sub-adviser with respect to certain of the Hartford Funds. In
addition, HL Advisors has entered an investment services agreement with Hartford
Investment Management Company, Inc. ("HIMCO") for the provision of investment
services for certain of the Hartford Funds. The Putnam Funds are advised by
Putnam Management, a subsidiary of Putnam Investments, Inc. The Fidelity VIP
Funds are managed by Fidelity Management & Research Company. See "Separate
Account VL II," page 20.
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FIXED ACCOUNT
Premium payments and Account Values allocated to the Fixed Account become
part of the general assets of Hartford. Hartford invests the assets of the
General Account in accordance with applicable law governing the investments of
insurance company general accounts.
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DEDUCTIONS FROM THE PREMIUM
Before the allocation of the premium to the Account Value, a deduction as a
percentage of premium is made for the premium processing charge, premium tax and
federal tax charge and front-end sales load. The amount of each premium
allocated to the Account Value is Your Net Premium.
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PREMIUM PROCESSING CHARGE
A 1.25% charge is deducted from each premium payment for premium collection
costs and premium and Policy processing costs.
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PREMIUM TAX CHARGE AND FEDERAL TAX CHARGE
We deduct as a premium tax charge a percentage of each premium to cover
premium-based taxes assessed against Hartford by a state or other governmental
entity. This percentage will vary by locale depending on the tax rates in effect
there and is based on the actual tax imposed. The range is generally between 0%
and 4%.
We also deduct a current charge of 1.25% of each premium for federal taxes
imposed under Section 848 of the Code.
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8 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
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FRONT-END SALES LOAD
The front-end sales load is a charge deducted from each premium. The current
and maximum front-end sales load for premiums Attributable to the Basic Face
Amount up to the Target Premium is 50% in the first Policy Year, 15% in Policy
Years 2 through 5, 10% in Policy Years 6 through 10, and 2% in Policy Years 11
through 20. After Policy Year 20, the current front-end sales load is 0%, with a
maximum of 2%.
The current and maximum front-end sales load for premiums Attributable to
the Basic Face Amount in excess of the Target Premium is 9% in Policy Year 1, 4%
in Policy Years 2 through 10 and 2% in Policy Years 11 through 20. After Policy
Year 20, the current front-end sales load is 0%, with a maximum of 2%.
The current and maximum front-end sales load for all premiums Attributable
to the Supplemental Face Amount is 4% in Policy Years 1 through 10 and 2% in
Policy Years 11 through 20. After Policy Year 20, the current front-end sales
load is 0%, with a maximum of 2%.
Front-end sales loads which cover expenses relating to the sale and
distribution of the Policies may be reduced for certain sales of the Policies
under circumstances which may result in savings of such sales and distribution
expenses.
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DEDUCTIONS AND CHARGES FROM
THE ACCOUNT VALUE
We will subtract amounts from Your Account Value to provide for the Monthly
Deduction Amount. These will be taken on a Pro Rata Basis from the Fixed Account
and Sub-Accounts on each Monthly Activity Date.
The Monthly Deduction Amount equals:
(a) the Cost of Insurance; plus
(b) the charges for additional benefits provided by rider, if any; plus
(c) the charges for "special" insurance class rating, if any; plus
(d) the monthly administrative fee and issue charge; plus
(e) the mortality and expense risk charge, plus
(f) any Face Amount increase fee.
Hartford may also set up a provision for income taxes against the assets of
Separate Account VL II. See "Detailed Description of Policy Benefits and
Provisions -- Deductions and Charges from the Account Value -- Taxes," page 20,
and "Federal Tax Considerations," page 27.
Applicants should review the prospectuses for the Funds which accompany this
Prospectus for a description of the charges assessed against the assets of each
of the Funds.
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ACCOUNT VALUE
As with many other types of insurance policies, each Policy will have a cash
value ("Account Value"). The Account Value of the Policy will increase or
decrease to reflect the interest credited to the Fixed Account and Loan Account,
the investment experience of the Sub-Accounts applicable to the Policy and
deductions for the Monthly Deduction Amount. There is no minimum guaranteed
Account Value and the Policy Owner bears the risk of the investment in the
Funds. However, if the Death Benefit guarantee is in effect, the Policy will not
lapse due to poor investment performance. See "Detailed Description of Policy
Benefits and Provisions -- Premiums -- Account Values," page 10.
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POLICY LOAN
A Policy Owner may obtain a cash loan from Hartford. The loan is secured by
the Policy. At the time a loan is requested, the Indebtedness (including the
currently applied for loan) may not exceed 90% of the Account Value. See
"Detailed Description of Policy Benefits and Provisions -- Policy Loans," page
12.
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CHARGES AGAINST THE FUNDS
Separate Account VL II purchases shares of the Funds at net asset value. The
net asset value of the Fund shares reflects investment advisory fees and
administrative and other expenses already deducted from the assets of the Funds.
These charges are described herein. See "Detailed Description of Policy Benefits
and Provisions -- Deductions and Charges From the Account Value -- Charges
Against the Funds," page 19.
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The following table shows total fund operating expenses for the year ended
December 31, 1996 for the Funds:
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TOTAL FUND
MANAGEMENT OTHER OPERATING
FUND NAME FEES EXPENSES EXPENSES
- --------------------------- --------------- ------------ ------------
<S> <C> <C> <C>
Hartford Advisers Fund..... 0.615% 0.017% 0.632%
Hartford Bond Fund......... 0.490% 0.030% 0.520%
Hartford Capital
Appreciation Fund........ 0.629% 0.017% 0.646%
Hartford Dividend and
Growth Fund.............. 0.709% 0.017% 0.726%
Hartford Index Fund........ 0.374% 0.019% 0.393%
Hartford International
Opportunities Fund....... 0.691% 0.095% 0.786%
Hartford Mortgage
Securities Fund.......... 0.424% 0.029% 0.453%
Hartford Stock Fund........ 0.441% 0.016% 0.457%
HVA Money Market Fund...... 0.423% 0.021% 0.444%
Putnam VT Diversified
Income Fund.............. 0.70% 0.13% 0.83%
Putnam VT Global Asset
Allocation Fund.......... 0.68% 0.15% 0.83%
Putnam VT Global Growth
Fund..................... 0.60% 0.16% 0.76%
Putnam VT Growth and Income
Fund..................... 0.49% 0.05% 0.54%
Putnam VT High Yield Fund.. 0.68% 0.08% 0.76%
Putnam VT Money Market Fund
(1)...................... 0.45% 0.10% 0.55%
Putnam VT New Opportunities
Fund..................... 0.63% 0.09% 0.72%
Putnam VT US Government and
High Quality Bond Fund... 0.62% 0.07% 0.69%
Putnam VT Utilities Growth
and Income Fund (2)...... 0.69% 0.09% 0.78%
Putnam VT Voyager Fund..... 0.57% 0.06% 0.63%
Fidelity VIP Equity-Income
Portfolio................ 0.51% 0.07% 0.58%
Fidelity VIP Overseas
Portfolio................ 0.76% 0.17% 0.93%
Fidelity VIP II Asset
Manager Portfolio (3).... 0.64% 0.10% 0.74%
</TABLE>
- ------------------------------
(1) Other expenses for Putnam VT Money Market Fund have been restated to reflect
the cost of certain insurance purchased by such Fund. See "Putnam VT Money
Market Fund -- Insurance" in the Fund's prospectus accompanying this
Prospectus. Actual other expenses and total Fund operating expenses were
0.08% and 0.53%, respectively.
(2) On July 11, 1996, shareholders approved an increase in the fees payable to
Putnam Management under the management contract for Putnam VT Utilities
Growth and Income Fund. The management fees and total expenses shown in the
table have been restated to reflect the increase. Actual management fees and
total expenses were 0.64% and 0.73%, respectively.
(3) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest earned
on uninvested cash balances was used to reduce custodian and transfer agent
expenses. Absent these reductions, the total operating expenses presented in
the table would have been 0.56% for Fidelity VIP Equity Income Portfolio,
0.92% for Fidelity VIP Overseas Portfolio and 0.73% for Fidelity VIP II
Asset Manager Portfolio.
- ----------------------------------------------------------------
THE RIGHT TO EXAMINE OR EXCHANGE
THE POLICY
An applicant has a limited right to return his or her Policy for
cancellation. If the applicant returns the Policy within ten days after delivery
of the Policy, ten days after We mail or personally deliver a Notice of
Withdrawal Right or within 45 days after completion of the application,
whichever is latest (subject to applicable state regulation), Hartford will
return to the applicant, within seven days thereafter, the greater of the
premium paid, less any Indebtedness, or the sum of (1) the Account Value, less
any Indebtedness, on the date the returned Policy is received by Hartford or its
agent and (2) any deductions under the Policy or by the Funds for taxes, charges
or fees. In addition, once the Policy is in effect it may be exchanged during
the first 24 months after its Date of Issue for a non-variable last survivor
life insurance policy offered by Us on the life of the Insureds without
submitting proof of insurability.
- ---------------------------------------------------
SURRENDER
At any time prior to the Maturity Date, provided the Policy has a Cash
Surrender Value, You may surrender the Policy. See "Detailed Description of
Policy Benefits and Provisions -- Surrender," page 15.
- ---------------------------------------------------
TAX CONSEQUENCES
The current federal tax law generally excludes all Death Benefit payments
from the gross income of the Policy beneficiary. See "Federal Tax
Considerations," page 27.
- ---------------------------------------------------
DETAILED DESCRIPTION OF POLICY
BENEFITS AND PROVISIONS
- -------------------------------- GENERAL
This Prospectus describes a last survivor flexible premium variable life
insurance Policy where the Policy Owner has considerable flexibility in
selecting the timing and amount of premium payments.
- ---------------------------------------------------
PREMIUMS
PREMIUM PAYMENT FLEXIBILITY
You have considerable flexibility as to when and in what amounts You pay
premiums.
Prior to issue, You can choose a Planned Premium, within a range determined
by Hartford based on the Face Amount and each Insured's sex (except where unisex
rates apply), Issue Age and risk classification. We will send You
<PAGE>
10 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
premium notices for Planned Premiums. The notices may be sent on an annual,
semi-annual or quarterly basis. You may also have premiums automatically
deducted monthly from Your checking account. The Planned Premiums and payment
mode You selected are shown on the Policy's specifications page. You may change
the Planned Premiums, subject to Our minimum amount rules then in effect.
The Policy will not lapse as long as the Cash Surrender Value is sufficient
to cover the Monthly Deduction Amounts or the Death Benefit guarantee is in
effect.
See, also, "-- Lapse and Reinstatement," page 14, for more details.
ALLOCATION OF PREMIUM PAYMENTS
The initial Net Premium will be allocated to the Hartford Money Market
Sub-Account on the later of the Policy Date or the date We receive the premium.
The value in the Hartford Money Market Sub-Account will then be allocated to
the Fixed Account and Sub-Accounts according to the premium allocation specified
in the application on the latest of 45 days after the application is signed, ten
days after We receive the premium, ten days after We mail or personally deliver
a Notice of Withdrawal Right and the date We receive the final requirement to
put the Policy in force.
Any additional Net Premiums received by Us prior to such date will be
allocated to the Hartford Money Market Sub-Account.
Upon written request, You may change the premium allocation. Portions
allocated to the Fixed Account and Sub-Accounts must be whole percentages of 10%
or more. Subsequent Net Premiums will be allocated to the Fixed Account and
Sub-Accounts according to Your most recent instructions, subject to the
following: Currently, the Account Value may be allocated to no more than nine
Sub-Accounts. (Hartford reserves the right to increase the number of allocable
investment options to more than nine.) If We receive a premium and Your most
recent allocation instructions would violate this requirement, We will allocate
the Net Premium to the Fixed Account and Sub-Accounts on a Pro Rata Basis.
The Policy Owner receives several different types of notification as to what
his or her current premium allocation is. The initial allocation chosen by the
Policy Owner is shown in the Policy, and each transactional confirmation
received after a premium payment will show how that Net Premium has been
allocated. In addition, each quarterly statement summarizes the current premium
allocation in effect for that Policy.
ACCUMULATION UNITS
Net Premiums allocated to the Sub-Accounts are used to credit Accumulation
Units to those Sub-Accounts.
The number of Accumulation Units in each Sub-Account to be credited to a
Policy (including the initial allocation to Hartford Money Market Sub-Account)
and the amount credited to the Fixed Account will be determined first by
multiplying the Net Premium by the appropriate allocation percentage to
determine the portion to be invested in the Fixed Account or Sub-Account. Each
portion to be invested in a Sub-Account is then divided by the Accumulation Unit
Value of that particular Sub-Account next computed following receipt of the
payment.
ACCUMULATION UNIT VALUES
The Accumulation Unit Value for each Sub-Account will vary to reflect the
investment experience of the applicable Fund and will be determined on each
Valuation Day by multiplying the Accumulation Unit Value of the particular
Sub-Account on the preceding Valuation Day by a Net Investment Factor for that
Sub-Account for the Valuation Period then ended. The Net Investment Factor for
each of the Sub-Accounts is equal to the net asset value per share of the
corresponding Fund at the end of the Valuation Period (plus the per share amount
of any dividend or capital gain distributions paid by that Fund in the Valuation
Period then ended) divided by the net asset value per share of the corresponding
Fund at the beginning of the Valuation Period.
All valuations in connection with a Policy, e.g., with respect to
determining Account Value, in connection with Policy loans, or in calculation of
Death Benefits, or with respect to determining the number of Accumulation Units
to be credited to a Policy with each premium payment, other than the initial
premium payment, will be made on the date the request or payment is received by
Hartford at the National Service Center if such date is a Valuation Day;
otherwise such determination will be made on the next succeeding date which is a
Valuation Day.
PREMIUM LIMITATION
If premiums are received which would cause the Policy to fail to meet the
definition of a life insurance policy in accordance with the Code, We reserve
the right to refund the excess premium payments. We will refund such premium
payments and interest thereon within 60 days after the end of a Policy Year.
A premium payment that results in an increase in the Death Benefit greater
than the amount of the premium will be accepted only after We approve evidence
of insurability.
ACCOUNT VALUES
As with traditional life insurance, each Policy will have an Account Value.
There is no minimum guaranteed Account Value.
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 11
- --------------------------------------------------------------------------------
The Account Value of a Policy changes on a daily basis and will be computed
on each Valuation Day. The Account Value will vary to reflect the investment
experience of the Sub-Accounts, and the interest credited to the Fixed Account
and Loan Account as well as the Monthly Deduction Amounts.
The Account Value of a particular Policy is related to the net asset value
of the Funds associated with the Sub-Accounts, if any, to which Net Premiums on
the Policy have been allocated. The Account Value in the Sub-Accounts on any
Valuation Day is calculated by multiplying the number of Accumulation Units in
each Sub-Account as of the Valuation Day by the current Accumulation Unit Value
of that Sub-Account and then summing the result for all the Sub-Accounts. The
Account Value of a Policy equals the Account Value in the Sub-Accounts plus the
value of the Fixed and Loan Accounts. The Cash Surrender Value, which is the net
amount available upon surrender of the Policy, is the Account Value less any
Indebtedness. See "-- Premiums -- Accumulation Unit Values," page 10.
AMOUNT PAYABLE ON SURRENDER OF THE POLICY
As long as the Policy is in effect, a Policy Owner may elect, without the
consent of the beneficiary (provided the designation of beneficiary is not
irrevocable), to fully surrender the Policy. Upon surrender, the Policy Owner
will receive the Cash Surrender Value determined as of the day Hartford receives
the Policy Owner's written request or the date requested by the Policy Owner,
whichever is later. The Cash Surrender Value equals the Account Value less any
Indebtedness. The Policy will terminate on the date of receipt of the written
request, or the date the Policy Owner requests the surrender to be effective,
whichever is later.
LOAD REFUND
If a Policy is surrendered during the first two Policy Years, the Policy
Owner may be entitled to payment of a refund in addition to the Cash Surrender
Value.
The refund will be equal to the excess, if any, of the sum of the actual
front-end sales load charged to date over:
1. the sum of 30% of payments in aggregate amount less than or equal to one
Guideline Annual Premium plus 10% of payments in aggregate amount greater
than one Guideline Annual Premium but not more than two Guideline Annual
Premiums; and
2. 9% of each payment made in excess of two Guideline Annual Premiums.
PARTIAL WITHDRAWALS
One (1) partial withdrawal is allowed per month (between any successive
Monthly Activity Dates). The minimum partial withdrawal allowed is $500. The
maximum partial withdrawal is the Cash Surrender Value, less $1,000. If the
Death Benefit Option then in effect is Option A or Option C, the Face Amount is
reduced by the amount of the Partial Withdrawal. The minimum Face Amount
required after a partial withdrawal is subject to Our rules then in effect.
Unless specified otherwise, the Partial Withdrawal will be deducted on a Pro
Rata Basis from the Fixed Account and the Sub-Accounts. Currently, Hartford does
not impose a partial withdrawal charge. However, Hartford reserves the right to
impose a partial withdrawal charge of up to $50.
- ---------------------------------------------------
TRANSFERS OF ACCOUNT VALUE
AMOUNT AND FREQUENCY OF TRANSFERS
Upon request and as long as the Policy is in effect, You may transfer
amounts among the Fixed Account and Sub-Accounts. Transfers may be made by
request In Writing or by calling Our National Service Center toll free at
1-800-231-5453. Transfers by telephone may be made by the agent of record or by
the attorney-in-fact pursuant to a power of attorney. Telephone transfers may
not be permitted in some states. The policy of Hartford and its agents and
affiliates is that they will not be responsible for losses resulting from acting
upon telephone requests reasonably believed to be genuine. We will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine; otherwise, We may be liable for any losses due to unauthorized or
fraudulent instructions. The procedures We follow for transactions initiated by
telephone include requirements that callers provide certain identifying
information for themselves (if not the Policy Owner) and the Policy Owner. All
transfer instructions by telephone are tape recorded.
The amounts which may be transferred and the number of transfers will be
limited by Our rules then in effect.
Currently there are no restrictions on transfers other than those described
below. There is no charge currently for the first four (4) transfers in any
Policy Year. Each subsequent transfer is subject to a Transfer Charge of up to
$25.
We reserve the right at a future date to limit the size of transfers and
remaining balances, and to limit the number and frequency of transfers.
TRANSFERS TO OR FROM SUB-ACCOUNTS
In the event of a transfer from a Sub-Account, the number of Accumulation
Units credited to the Sub-Account from which the transfer is made will be
reduced.
The reduction will be determined by dividing:
1. the amount transferred by,
2. the Accumulation Unit Value for that Sub-Account determined as of the next
Valuation Day after We receive Your request for transfer In Writing.
<PAGE>
12 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
In the event of a transfer to a Sub-Account, We will increase the number of
Accumulation Units credited to the Sub-Account. The increase will equal:
1. the amount transferred divided by,
2. the Accumulation Unit Value for that Sub-Account determined as of the next
Valuation Day after We receive Your request for transfer In Writing.
TRANSFERS FROM THE FIXED ACCOUNT
In addition to the conditions above, transfers from the Fixed Account are
subject to the following:
(a) the transfer must occur during the 30-day period following each Policy
Anniversary; and
(b) if the accumulated value in Your Fixed Account exceeds $1,000, the amount
transferred in any Policy Year may be no larger than 25% of the accumulated
value in the Fixed Account on the date of transfer.
DOLLAR COST AVERAGING OPTION
You may elect to allocate Your Net Premiums among the Sub-Accounts and the
Fixed Account pursuant to the dollar cost averaging (DCA) option. If You choose
the DCA option, Net Premiums will be deposited into the Hartford Money Market
Sub-Account. Each month, amounts will be withdrawn from that Sub-Account and
allocated to the other investment options according to Your allocation
instructions. The transfer date will be the monthly anniversary of Your first
transfer under Your initial DCA election. The first transfer will commence
within five business days after Hartford receives Your initial election, either
In Writing or by telephone, subject to the telephone transfer procedures
described above. The dollar amount will be allocated to the investment options
that You specify, in the proportions that You specify. If, on any transfer date,
Your Cash Value allocated to the Hartford Money Market Account is less than the
amount You have elected to transfer, Your DCA program will end. You may also
cancel Your DCA election by notice In Writing to Hartford or by calling Our
National Service Center at 1-800-231-5453.
The main objective of a DCA program is to minimize the impact of short-term
price fluctuations. Since the same dollar amount is transferred to other
investment options at set intervals, DCA allows You to purchase more
Accumulation Units when prices are low and fewer Accumulation Units when prices
are high. Therefore, a lower average cost per Accumulation Unit may be achieved
over the long-term. A DCA program allows Policy Owners to take advantage of
market fluctuations. However, it is important to understand that a DCA program
does not assure a profit or protect against loss in a declining market. Policy
Owners who choose the DCA option should be individuals who have the financial
ability to continue making investments through periods of low price levels.
- ---------------------------------------------------
POLICY LOANS
As long as the Policy is in effect, a Policy Owner may obtain, without the
consent of the beneficiary (provided the designation of beneficiary is not
irrevocable), a cash loan from Hartford. The total Indebtedness at the time of
the new loan (including the accrued interest on prior loans plus the currently
applied for loan) may not exceed 90% of the Account Value.
The amount of each loan will be transferred on a Pro Rata Basis from the
Fixed Account and each of the Sub-Accounts (unless the Policy Owner specifies
otherwise) to the Loan Account. The Loan Account is a mechanism used to ensure
that any outstanding Indebtedness remains fully secured by the Account Value.
LOAN INTEREST
Interest will accrue daily on the Indebtedness at the Policy Loan Rate,
which is the interest rate as shown in the Policy. The difference between the
value of the Loan Account and the Indebtedness will be transferred on a Pro Rata
Basis from the Fixed Account and Sub-Accounts to the Loan Account on each
Monthly Activity Date.
CREDITED INTEREST
A Loan Account, other than a Loan Account established pursuant to a
Preferred Loan as described in the subsection entitled "Policy Loans - Preferred
Loan," will be credited with interest in the following manner: During the first
ten Policy Years, any amounts in the Loan Accounts will be credited with
interest at the rate of 2% (in most states). For Policy Years 11 and beyond, a
Loan Account will be credited with interest at the rate of 3% (in most states).
PREFERRED LOAN
If, at any time after the tenth Policy Anniversary, the Account Value
exceeds the total of all premiums paid since issue, a Preferred Loan is
available. The amount available for a Preferred Loan is the amount by which the
Account Value exceeds total premiums paid. The amount of the Loan Account which
equals a Preferred Loan will be credited with interest at a rate equal to 4% (in
most states). The amount of Indebtedness that qualifies as a Preferred Loan is
determined on each Monthly Activity Date.
LOAN REPAYMENTS
You can repay any part of or the entire Indebtedness at any time while Your
Policy is in force and either of the Insureds is alive. The amount of loan
repayment will be deducted from the Loan Account and will be allocated among the
Fixed Account and Sub-Accounts in the same percentage as premiums are allocated.
TERMINATION DUE TO EXCESSIVE INDEBTEDNESS
If total Indebtedness equals or exceeds the Account Value, the Policy will
terminate 61 days after We have mailed
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 13
- --------------------------------------------------------------------------------
notice to Your last known address and that of any assignees of record. If
sufficient loan repayment is not made by the end of this 61 day period, the
Policy will end without value.
EFFECT OF LOANS ON ACCOUNT VALUE
A loan, whether or not repaid, will have a permanent effect on the Account
Value because the investment results of each Sub-Account will apply only to the
amount remaining in such Sub-Accounts. In addition, the rate of interest
credited to the Fixed Account will usually be different than the rate credited
to the Loan Account. The longer a loan is outstanding, the greater the effect is
likely to be. The effect could be favorable or unfavorable. If the Fixed Account
and Sub-Accounts earn more than the annual interest rate for funds held in the
Loan Account, a Policy Owner's Account Value will not increase as rapidly as it
would have had no loan been made. If the Fixed Account and Sub-Accounts earn
less than the Loan Account, the Policy Owner's Account Value will be greater
than it would have been had no loan been made. Also, if not repaid, the
aggregate amount of the outstanding Indebtedness will reduce the Death Proceeds
and Cash Surrender Value otherwise payable.
- ---------------------------------------------------
DEATH BENEFIT
The Policies provide for the payment of the Death Proceeds to the named
beneficiary when the last surviving Insured under the Policy dies. The Death
Proceeds payable to the beneficiary equal the Death Benefit less any
Indebtedness and less any due and unpaid Monthly Deduction Amount occurring
during a grace period. The Death Benefit depends on the Death Benefit Option
selected by You, the minimum Death Benefit provision, and whether or not the
Death Benefit guarantee is in effect. All or part of the Death Proceeds may be
paid in cash or applied under a "Payment Option." See "Other Matters -- Payment
Options," page 24.
DEATH BENEFIT OPTIONS
There are three Death Benefit Options: the Level Death Benefit Option
("Option A"), the Return of Account Value Death Benefit Option ("Option B") and
the Return of Premium Death Benefit Option ("Option C"). Subject to the minimum
Death Benefit described below, the Death Benefits under each option are:
1. Under Option A, the Death Benefit is the Face Amount.
2. Under Option B, the Death Benefit is the Face Amount plus the Account Value.
3. Under Option C, the Death Benefit is the Face Amount plus the sum of the
premiums paid.
OPTION CHANGE
You may change Your Death Benefit Option to Option A or Option B without
evidence of insurability. If a change to Option A is elected, the Face Amount
will become that amount available as a Death Benefit immediately prior to the
option change. If a change to Option B is elected, the Face Amount will become
that amount available as a Death Benefit immediately prior to the option change,
reduced by the then-current Account Value. Changing your Death Benefit Option
does not result in any Policy fees or charges. However, you should consult a
competent tax adviser regarding the possible adverse tax consequences resulting
from a change in your Death Benefit Option.
Any unscheduled increase in the Face Amount will be deemed an increase in
the Supplemental Face Amount.
DEATH BENEFIT GUARANTEE
If the Death Benefit guarantee is in effect, payment of the Basic Face
Amount upon the death of the last surviving Insured will be guaranteed
regardless of the Policy's investment performance. The Death Benefit guarantee
is in effect if:
(a) the Death Benefit guarantee period has not expired;
(b) the Supplemental Face Amount has never exceeded nor is scheduled to exceed
the Basic Face Amount;
(c) on each Monthly Activity Date, the cumulative premiums paid into the Policy,
less withdrawals from the Policy, equal or exceed the Cumulative Death
Benefit Guarantee Premium.
The Death Benefit guarantee period will expire at the end of: (1) the first
ten Policy Years or (2) the life expectancy of the last surviving Insured (based
on the 1980 Commissioners' Standard Ordinary Mortality Smoker or Nonsmoker
Table, age last birthday), whichever period was chosen under the Policy.
MINIMUM DEATH BENEFIT
Notwithstanding the above, there is a minimum Death Benefit equal to the
Account Value multiplied by a percentage specified in Your Policy. This
percentage varies according to each Insured's Issue Age, the Policy Year, sex
(where unisex rates are not used) and insurance class, but may be increased by
You in the application.
EXAMPLES OF THE MINIMUM DEATH BENEFIT:
<TABLE>
<CAPTION>
A B
---------- ----------
<S> <C> <C>
Face Amount............................ $ 100,000 $ 100,000
Account Value on Date of Death......... 46,500 34,000
Specified Percentage................... 250% 250%
Death Benefit Option................... Level Level
</TABLE>
In Example A, the minimum Death Benefit equals $116,250, i.e., the greater
of $100,000 (the Face Amount) or $116,250 (the Account Value at the Date of
Death of $46,500, multiplied by the specified percentage of 250%). This amount
less any outstanding Indebtedness constitutes the Death Proceeds which We would
pay to the beneficiary.
<PAGE>
14 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
In Example B, the minimum Death Benefit is $100,000, i.e., the greater of
$100,000 (the Face Amount) or $85,000 (the Account Value of $34,000, multiplied
by the specified percentage of 250%).
SUPPLEMENTAL FACE AMOUNT
If You selected Supplemental Face Amount coverage on Your application, the
amount is shown on the Policy's specifications page, subject to any scheduled
changes You instructed in application and any unscheduled changes, as described
below. You may discontinue a scheduled increase by written request. A decrease
in Face Amount, other than as a result of a partial withdrawal, will affect Your
scheduled increases.
UNSCHEDULED INCREASES AND DECREASES IN FACE AMOUNT
At any time after the first Policy Year, You may request In Writing a change
in the Face Amount.
The minimum amount by which the Face Amount can be increased or decreased is
based on Our rules then in effect.
Any unscheduled increase in the Face Amount will be deemed an increase in
the Supplemental Face Amount. All requests to increase the Face Amount must be
applied for on a new application and accompanied by the Policy. All requests
will be subject to evidence of insurability satisfactory to Us. Any increase
approved by Us will be effective on the date shown on the new Policy
specifications page, provided that the deduction for the Cost of Insurance for
the first month is made.
Each unscheduled increase in Face Amount is subject to an increase fee of
$.05 per $1,000 of each increase per month for the first five Policy Years from
the date of each increase.
A decrease in the Face Amount will be effective on the Monthly Activity Date
following the date We receive the request. The remaining Face Amount must not be
less than Our minimum rules then in effect. Decreases will be applied first to
the Supplemental Face Amount and then to the Basic Face Amount.
We reserve the right to limit the number of increases or decreases made
under the Policy to no more than one in any 12 month period.
- ---------------------------------------------------
BENEFITS AT MATURITY
If either Insured is living on the Maturity Date, on surrender of the Policy
to Hartford, Hartford will pay to the Policy Owner the Cash Surrender Value. On
the Maturity Date, the Policy will terminate and Hartford will have no further
obligations under the Policy.
- ---------------------------------------------------
LAPSE AND REINSTATEMENT
POLICY LAPSE AND GRACE PERIOD
The Policy will be in default on any Monthly Activity Date on which the Cash
Surrender Value is not sufficient to cover the Monthly Deduction Amount. A
61-day period, called the "grace period," will begin from the date of default.
Hartford will mail the Policy Owner and any assignee written notice of the
amount of premium that will be required to continue the Policy in force at least
30 days before the end of the grace period. The premiums required will be no
greater than the amount required to pay three Monthly Deduction Amounts as of
the day the grace period began. Unless the Death Benefit Guarantee is in effect,
the Policy will terminate without value if the required premium is not paid by
the end of the grace period. If the Death Benefit guarantee is in effect and
sufficient premium has not been paid by the end of the grace period, the Death
Benefit will be reduced to the Basic Face Amount and any riders will no longer
be in force. If the last surviving Insured dies during the grace period, We will
pay the Death Proceeds.
DEATH BENEFIT GUARANTEE DEFAULT AND GRACE PERIOD
If the cumulative premiums, less withdrawals, are not sufficient to maintain
the Death Benefit guarantee in effect, the lapse and grace period provisions for
the Death Benefit guarantee will apply as follows:
On every Monthly Activity Date during the Death Benefit guarantee period, We
will compare the cumulative premiums received, less withdrawals, to the
Cumulative Death Benefit Guarantee Premium for the Death Benefit guarantee
period in effect.
If the cumulative premiums received, less withdrawals, are less than the
Cumulative Death Benefit Guarantee Premium, the Death Benefit guarantee will be
deemed to be in default as of that Monthly Activity Date. A grace period of 61
days from the date of default will begin. We will mail the Policy Owner and any
assignee written notice of the amount of premium required to continue the Death
Benefit guarantee.
At the end of the grace period under a ten-year guarantee period, the Death
Benefit guarantee will be removed from the Policy if We have not received the
amount of the required premium. You will receive a written notification of the
change.
At the end of the grace period under the last survivor life expectancy
guarantee period, the Death Benefit guarantee will be removed from the Policy if
We have not received the amount of the required premium, subject to the
following exception: If the Policy is in the first ten Policy Years and the
cumulative premiums received, less withdrawals, equal or exceed the Cumulative
Death Benefit
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 15
- --------------------------------------------------------------------------------
Guarantee Premium for the ten-year period, We will change the Death Benefit
guarantee period to ten years. In this case, We will send You notification of:
(a) the ten-year period measured from the Policy Date; and
(b) the Annual Death Benefit Guarantee Premium for that ten-year period.
REINSTATEMENT
Unless the Policy has been surrendered, the Policy may be reinstated prior
to the Maturity Date, provided:
(a) the Insureds alive at the end of the grace period are also alive on the date
of reinstatement;
(b) You make Your request within five years;
(c) satisfactory evidence of insurability is submitted;
(d) any Policy Indebtedness is repaid or reinstated; and
(e) You pay sufficient premium to (1) cover all Monthly Deduction Amounts that
are due and unpaid during the Grace Period and (2) keep the Policy in force
for three months after the date of reinstatement.
The Account Value on the reinstatement date will reflect:
(a) The Account Value at the time of termination; plus
(b) Net Premiums derived from premiums paid at the time of reinstatement.
Upon reinstatement, any Indebtedness at the time of termination must be
repaid or carried over to the reinstated Policy.
- ---------------------------------------------------
THE RIGHT TO EXAMINE OR EXCHANGE THE POLICY
An applicant has a limited right to return a Policy for cancellation. If the
Policy is returned, by mail or personal delivery to Hartford or to the agent who
sold the Policy, to be canceled within ten days after delivery of the Policy to
the Policy Owner, within ten days of Hartford's mailing or personal delivery of
a Notice of Right to Withdraw, or within 45 days of completion of the Policy
application (whichever is later, and subject to applicable state regulation),
Hartford will return to the applicant, within seven days thereafter, the greater
of the premium paid, less any Indebtedness, or the sum of (1) the Account Value,
less any Indebtedness, on the date the returned Policy is received by Hartford
or its agent and (2) any deductions under the Policy or by the Funds for taxes,
charges or fees.
Once the Policy is in effect, it may be exchanged during the first 24 months
after its issuance, for a non-variable last survivor life insurance policy
offered by Us or an affiliate on the life of the Insureds. No evidence of
insurability will be required. The new policy will have an amount at risk which
equals or is less than the amount at risk in effect on the date of exchange.
Premiums under the new policy will be based on the same risk classifications as
this Policy. An exchange of the Policy under these circumstances should be a
tax-free transaction under Section 1035 of the Code.
- ---------------------------------------------------
SURRENDER
At any time prior to the Maturity Date, provided the Policy has a Cash
Surrender Value, You may surrender the Policy to Us. We will pay You the Cash
Surrender Value. Our liability under the Policy will cease as of the date of
Your request.
- ---------------------------------------------------
VALUATION OF PAYMENTS AND TRANSFERS
We value the Policy on every Valuation Day.
We will pay Death Proceeds, Cash Surrender Values, Partial Withdrawals, and
loan amounts allocable to the Sub-Accounts within seven days after We receive
all the information needed to process the payment, unless the New York Stock
Exchange is closed for other than a regular holiday or weekend, trading is
restricted by the SEC or the SEC declares that an emergency exists.
Hartford may defer payment of any amounts not allocable to the Sub-Accounts
for up to six months from the date on which We receive the request.
- ---------------------------------------------------
APPLICATION FOR A POLICY
Individuals wishing to purchase a Policy must submit an application to
Hartford. Within limits, an applicant may choose the initial Face Amount.
Policies generally will be issued only on the lives of Insureds between the ages
of 20 and 80 who supply evidence of insurability satisfactory to Hartford.
(Hartford may extend the age 80 limit to higher ages for the older Insured, in
which case certain age and risk classification restrictions on the younger
Insured will apply.) Acceptance is subject to Hartford's underwriting rules and
Hartford reserves the right to reject an application for any reason. No change
in the terms or conditions of a Policy will be made without the consent of the
Policy Owner.
The Policy will be effective on the Policy Date only after Hartford has
received all outstanding delivery requirements and received the initial premium.
The Policy Date is the date used to determine all future cyclical transactions
on the Policy, e.g., Monthly Activity Date and Policy Years.
- ---------------------------------------------------
REDUCED CHARGES FOR ELIGIBLE GROUPS
Certain of the charges and deductions described below may be reduced for
Policies issued in connection with a
<PAGE>
16 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
specific plan in accordance with Our rules in effect as of the date an
application for a Policy is approved. To qualify for such a reduction, a plan
must satisfy certain criteria as to, for example, size of the plan, expected
number of participants and anticipated premium payment from the plan. Generally,
the sales contacts and effort, administrative costs and mortality cost per
Policy vary, based on such factors as the size of the plan, the purposes for
which Policies are purchased and certain characteristics for the plan's members.
The amount of reduction and the criteria for qualification will reflect in the
reduced sales effort and administrative costs resulting from, and the different
mortality experience expected as a result of, sales to qualifying plans. We may
modify from time to time on a uniform basis both the amounts of reductions and
the criteria for qualification. Reductions in these charges will not be unfairly
discriminatory against any person, including the affected Policy Owners invested
in Separate Account VL II.
- ---------------------------------------------------
DEDUCTIONS FROM THE PREMIUM
Before the allocation of the premium to the Account Value, a deduction as a
percentage of premium is made for the premium processing charge, premium tax and
federal tax charge and front-end sales load. The amount of each premium
allocated to the Account Value is Your Net Premium.
PREMIUM PROCESSING CHARGE
A 1.25% charge is deducted from each premium payment for premium collection
costs and premium and Policy processing costs.
PREMIUM TAX CHARGE AND FEDERAL TAX CHARGE
We deduct as a premium tax charge a percentage of each premium to cover
premium-based taxes assessed against Hartford by a state or other governmental
entity. This percentage will vary by locale, depending on the tax rates in
effect there, and is based on the actual tax imposed. The range is generally
between 0% and 4%.
We also deduct a 1.25% charge from each premium payment to cover the
estimated costs to Us of the federal income tax treatment of the Policies'
deferred acquisition costs under Section 848 of the Code. We have determined
that this charge is reasonable in relation to Our increased federal income tax
burden under the Code resulting from the receipt of premiums.
FRONT-END SALES LOAD
The front-end sales load is a charge deducted from each premium based on the
(1) amount of premium paid in relation to the Target Premium, (2) Policy Year in
which the premium is paid and (3) amount of the premium Attributable to the
Basic Face Amount and to the Supplemental Face Amount. See "Glossary of Special
Terms," page 5, for a discussion of "Target Premium."
The current and maximum front-end sales load for premiums Attributable to
the Basic Face Amount up to the Target Premium is 50% in the first Policy Year,
15% in Policy Years 2 through 5, 10% in Policy Years 6 through 10, and 2% in
Policy Years 11 through 20. After Policy Year 20, the current front-end sales
load is 0%, with a maximum of 2%.
The current and maximum front-end sales load for premiums Attributable to
the Basic Face Amount in excess of the Target Premium is 9% in Policy Year 1, 4%
in Policy Years 2 through 10 and 2% in Policy Years 11 through 20. After Policy
Year 20, the current front-end sales load is 0%, with a maximum of 2%.
The current and maximum front-end sales load for all premiums Attributable
to the Supplemental Face Amount is 4% in Policy Years 1 through 10 and 2% in
Policy Years 11 through 20. After Policy Year 20, the current front-end sales
load is 0%, with a maximum of 2%.
Front-end sales loads which cover expenses reduced for certain sales of the
Policies under circumstances which may result in savings of such sales and
distribution expenses.
EXAMPLES OF FRONT-END SALES LOADS/IMPACT OF REFUND OF LOAD
An example of the actual front-end sales loads and the impact of the load
refund, if any (see "-- Premiums -- Load Refund," page 11), for a Policy is
shown below. This example uses the same specific information (i.e., Issue Age,
Face Amount, premium level, etc.) as the illustration on page 39 of this
Prospectus.
<TABLE>
<S> <C>
Death Benefit Option: Level
Face Amount: $1,000,000 Basic Face Amount
Issue Ages/Sex/Class: 65/Male/Preferred
65/Female/Preferred
Guideline Annual Premium: $36,042.00
Annual Planned Premium: $27,000.00
</TABLE>
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 17
- --------------------------------------------------------------------------------
IMPACT OF FRONT-END SALES LOAD/REFUND OF LOADS
<TABLE>
<CAPTION>
CUMULATIVE
CUMULATIVE FRONT-END CUMULATIVE AMOUNT OF
POLICY PREMIUM SALES NON-REFUNDABLE REFUND UPON
YEAR PAID LOADS SALES LOADS SURRENDER
- ---------- ------------ ------------ --------------- -------------
<S> <C> <C> <C> <C>
1 $ 27,000.00 $ 12,771.00 $ 8,098.96 $ 4,672.04
2 54,000.00 16,602.30 12,548.31 4,053.99
</TABLE>
- ---------------------------------------------------
DEDUCTIONS AND CHARGES FROM
THE ACCOUNT VALUE
MONTHLY DEDUCTION AMOUNTS
On the Policy Date and on each subsequent Monthly Activity Date, Hartford
will deduct an amount (the "Monthly Deduction Amount") from the Account Value to
cover certain charges and expenses incurred in connection with a Policy. Each
Monthly Deduction Amount will be deducted on a Pro Rata Basis from the Fixed
Account and each of the Sub-Accounts. The Monthly Deduction Amount will vary
from month to month.
The Monthly Deduction Amount equals:
(a) the charge for the Cost of Insurance; plus
(b) the charges for additional benefits provided by rider, if any; plus
(c) the charges for "special" insurance class rating, if any; plus
(d) the monthly administrative fee and issue charge; plus
(e) the mortality and expense risk charge; plus
(f) any Face Amount increase fee.
(a)COST OF INSURANCE CHARGE
The charge for the Cost of Insurance is equal to:
(i) the Cost of Insurance rate per $1,000; multiplied by
(ii) the amount at risk; divided by
(iii) $1,000.
The amount at risk equals the Death Benefit less the Account Value on that
date, prior to assessing the Monthly Deduction Amount.
The Cost of Insurance charge is to cover Hartford's anticipated mortality
costs. For standard risks, the Cost of Insurance rate will not exceed those
based on the 1980 Commissioners' Standard Ordinary Mortality Smoker or
Nonsmoker Table, age last birthday. A table of guaranteed Cost of Insurance
rates per $1,000 will be included in each Policy; however, Hartford reserves
the right to use rates less than those shown in the table. Substandard risks
will be charged a higher Cost of Insurance rate that will not exceed rates
based on a multiple of the 1980 Commissioners' Standard Ordinary Mortality
Smoker or Nonsmoker Table, age last birthday. The multiple will be based on
the Insureds' risk classes. Hartford will determine the Cost of Insurance
rate at the start of each Policy Year. Any changes in the Cost of Insurance
rate will be made uniformly for all Insureds of the same issue ages, sexes
and risk classes and whose coverage has been in force for the same length of
time. No change in insurance class or cost will occur on account of
deterioration of the Insureds' health.
Because the Account Value and the Death Benefit under a Policy may vary
from month to month, the Cost of Insurance charge may also vary on each
Monthly Activity Date.
On each Monthly Activity Date during the last 25 Policy Years before the
Maturity Date, Hatford will apply a discount to the Cost of Insurance rate
if You qualify for this discount. The discount is 10% times the ratio of the
Basic Face Amount at issue to the Face Amount at issue as shown on the
Policy specification page. To qualify for the discount, the Policy must have
been in force at least 15 Policy Years and the ratio of the then-current
Account Value to the then-current Death Benefit must at least equal the
qualifying ratio described below. The qualifying ratio is 0% with 25 Policy
Years remaining until the Maturity Date and increases by three percentage
points thereafter. For example, with ten Policy Years remaining until the
Maturity Date the qualifying ratio is 45%, and with one Policy Year
remaining the qualifying ratio is 72%. This discount may not be available in
all states.
(b)RIDER CHARGE
If the Policy includes riders, a charge applicable to the riders is made
from the Account Value on each Monthly Activity Date.
The charge applicable to these riders is to compensate Hartford for
anticipated cost of providing these benefits and is specified on the
applicable rider.
The riders available are described under "Supplemental Benefits," page 25.
(c)SPECIAL CLASS CHARGE
A charge for a special insurance class rating of an Insured may be made
against the Account Value, if applicable. This charge is to compensate
Hartford for the additional mortality risk associated with individuals in
these classes.
(d)MONTHLY ADMINISTRATIVE FEE AND ISSUE CHARGE
<PAGE>
18 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
Hartford will assess a current monthly administrative fee to compensate
Hartford for administrative costs in connection with the Policies. The
current monthly administrative fee is the sum of $7.50 per month, plus $0.01
per month per $1000 of Face Amount at issue, paid in Policy Years 1 through
10. On a blended-rate basis, the charge is guaranteed never to exceed for
all Policy Years the sum of $10.00 per month plus $0.03 per month per $1000
of Basic Face Amount at issue and $15.00 per month plus $0.05 per month per
$1000 of Supplemental Face Amount at issue. This guaranteed charge is a
blended rate based on the ratio of the initial Basic Face Amount and the
Supplemental Face Amount to the initial Face Amount. For example, if the
initial Basic Face Amount was $200,000 and the initial Supplemental Face
Amount was $50,000, then the ratio of initial Basic Face Amount to initial
Face Amount is .80 ($200,000 divided by $250,000) and the ratio of initial
Supplemental Face Amount to initial Face Amount is .20 ($50,000 divided by
$250,000). The blended guaranteed charge would be $11.00 per month (.80
times $10.00 plus .20 times $15.00) and $.034 per thousand of Face Amount
(.80 times $.03 plus .20 times $.05).
In addition, in the first five Policy Years, there is a monthly issue
charge to compensate Hartford for the up-front costs to underwrite and issue
a Policy. The issue charge is the sum of $20.00 per month for the first five
Policy Years plus $.05 per $1000 of Face Amount at Issue Date or unscheduled
Supplemental Face Amount increase per month for the first five years from
the Issue Date or increase.
The sum of the premium processing charges, the monthly administrative fee
and the issue charge will not exceed the cost Hartford incurs in providing
administrative services under the Policies.
(e)MORTALITY AND EXPENSE RISK CHARGE
A current charge is made for mortality and expense risks assumed by
Hartford. This charge is allocated to Hartford's General Account. Hartford
may profit from this charge. See, also, " -- Premiums -- Account Values,"
page 10.
The current mortality and expense risk charge for any Monthly Activity
Date is equal to:
(i) the current mortality and expense risk rate; multiplied by
(ii) the portion of the Account Value allocated to the Sub-Account on
the Monthly Activity Date prior to assessing the Monthly Deduction Amount.
The current and guaranteed mortality and expense risk rate for the first
ten Policy Years is 0.80%. After the tenth Policy Year, the current and
maximum rate is 0.80% on the first $100,000 of Account Value as determined
just prior to the Monthly Deduction. On the remaining Account Value, the
current Rate is 0.25% and the maximum rate is 0.40% for Account Value
attributable to the Basic Face Amount and 0.50% for Account Value
attributable to the Supplemental Face Amount.
The mortality risk assumed is that the actual Cost of Insurance charges
specified in the Policy will be insufficient to meet actual claims. The
expense risk assumed is that expenses incurred in issuing and administering
the Policies will exceed the administrative charges set in the Policy.
Hartford may profit from the mortality and expense risk charge and may use
any profits for any proper purpose, including any difference between the
cost it incurs in distributing the Policies and the proceeds of the
front-end sales load.
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 19
- --------------------------------------------------------------------------------
CHARGES AGAINST THE FUNDS
The investment advisers charge the Funds an investment management fee on a
daily basis as compensation for services. The following Table shows the fee
charged for each Fund available for investment by Policy Owners.
<TABLE>
<CAPTION>
ANNUAL INVESTMENT MANAGEMENT AS A
HARTFORD FUNDS PERCENTAGE OF AVERAGE DAILY NET ASSETS
- -------------------------------------------------------------------------- --------------------------------------------------------
<S> <C>
Hartford Capital Appreciation Fund, Inc.,
Hartford Advisers Fund, Inc.,
Hartford International Opportunities Fund, Inc.,
Hartford Dividend and Growth Fund, Inc.................................. .575% of the first $250 million of average net assets
.525% of the next $250 million of average net assets
.475% of the next $250 million of average net assets
.425% of any amount over $1.0 billion
Hartford Bond Fund, Inc.,
Hartford Stock Fund, Inc................................................ .325% of the first $250 million of average net assets
.300% of the next $250 million of average net assets
.275% of the next $250 million of average net assets
.250% of any amount over 1.0 billion
Hartford Index Fund, Inc.................................................. .20%
Hartford Mortgage Securities Fund, Inc.,
HVA Money Market Fund, Inc.............................................. .25%
<CAPTION>
ANNUAL INVESTMENT MANAGEMENT AS A
PUTNAM FUNDS PERCENTAGE OF AVERAGE DAILY NET ASSETS
- -------------------------------------------------------------------------- --------------------------------------------------------
<S> <C>
Putnam VT Diversified Income Fund,
Putnam VT Global Asset Allocation Fund,
Putnam VT High Yield Fund,
Putnam VT New Opportunities Fund,
Putnam VT Utilities Growth and Income Fund,
Putnam VT Voyager Fund.................................................. .70% of the first $500 million of average net assets;
.60% of the next $500 million of average net assets;
.55% of the next $500 million of average net assets;
.50% of the next $5 billion of average net assets;
.475% of the next $5 billion of average net assets
.455% of the next $5 billion of average net assets;
.44% of the next $5 billion of average net assets;
.43% of any excess thereafter
Putnam VT Money Market Fund............................................... .45% of the first $500 million of average net assets;
.35% of the next $500 million of average net assets;
.30% of the next $500 million of average net assets;
.25% of the next $5 billion of average net assets;
.225% of the next $5 billion of average net assets;
.205% of the next $5 billion of average net assets;
.19% of the next $5 billion of average net assets;
.18% of any excess thereafter
Putnam VT Growth and Income Fund and
Putnam VT U.S. Government and High
Quality Bond Fund....................................................... .65% of the first $500 million of average net assets;
.55% of the next $500 million of average net assets;
.50% of the next $500 million of average net assets;
.45% of the next $5 billion of average net assets;
.425% of the next $5 billion of average net assets;
.405% of the next $5 billion of average net assets;
.39% of the next $5 billion of average net assets;
.38% of any excess thereafter
Putnam VT Global Growth Fund.............................................. .60% of average net assets
<CAPTION>
ANNUAL INVESTMENT MANAGEMENT AS A
FIDELITY FUNDS PERCENTAGE OF AVERAGE DAILY NET ASSETS
- -------------------------------------------------------------------------- --------------------------------------------------------
<S> <C>
VIP Equity-Income Portfolio............................................... .52%
VIP Overseas Portfolio.................................................... .77%
VIP II Asset Manager Portfolio............................................ .72%
</TABLE>
<PAGE>
20 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
TAXES
Currently, no charge is made to Separate Account VL II for federal, state
and local taxes that may be allocable to Separate Account VL II. A change in the
applicable federal, state or local tax laws which impose tax on Hartford and/or
Separate Account VL II may result in a charge against the Policy in the future.
Charges for other taxes, if any, allocable to Separate Account VL II may also be
made.
- ---------------------------------------------------
THE COMPANY
ITT Hartford Life and Annuity Insurance Company ("Hartford") 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 and the
District of Columbia, except New York. On January 1, 1998, Hartford's name will
change to Hartford Life and Annuity Insurance Company. Hartford was originally
incorporated under the laws of Wisconsin on January 9, 1956, and was
subsequently redomiciled to Connecticut. Its offices are located in Simsbury,
Connecticut; however, its mailing address is P.O. Box 2999, Hartford, CT
06104-2999. Hartford is a subsidiary of Hartford Fire Insurance Company, one of
the largest multiple lines insurance carriers in the United States. Hartford is
ultimately owned by ITT Hartford Group, Inc., a Delaware corporation. Subject to
shareholder approval on May 2, 1997, the name of ITT Hartford Group, Inc. will
change to The Hartford Financial Services Group, Inc.
Hartford is rated A+ (superior) by A.M. Best and Company, Inc., on the basis
of its financial soundness and operating performance. Hartford is rated AA by
Standard & Poor's and AA+ by Duff and Phelps on the basis of its claims paying
ability. These ratings do not apply to the investment performance of the
Sub-Accounts of the Separate Account. The ratings apply to Hartford's ability to
meet its insurance obligations, including those described in this Prospectus.
- ---------------------------------------------------
SEPARATE ACCOUNT VL II
- -------------------------------- GENERAL
Separate Account VL II is a separate account of Hartford established on
September 30, 1994 pursuant to the insurance laws of the State of Connecticut
and organized as a unit investment trust registered with the SEC under the
Investment Company Act of 1940. Separate Account VL II meets the definition of
"separate account" under federal securities law. Under Connecticut law, the
assets of Separate Account VL II are held exclusively for the benefit of Policy
Owners and persons entitled to payments under the Policies. The assets for
Separate Account VL II are not chargeable with liabilities arising out of any
other business which Hartford may conduct.
- ---------------------------------------------------
FUNDS
The assets of each Sub-Account of Separate Account VL II are invested
exclusively in one of the Funds. A Policy Owner may allocate premium payments
among the Sub-Accounts. Policy Owners should review the following brief
descriptions of the investment objectives of each of the Funds in connection
with that allocation. There is no assurance that any of the Funds will achieve
its stated objectives. Policy Owners are also advised to read the prospectus for
each of the Funds accompanying this Prospectus for more detailed information.
HARTFORD FUNDS
HARTFORD ADVISERS FUND, INC.
Seeks maximum long-term total rate of return consistent with prudent
investment risk by investing in common stock and other equity securities, bonds
and other debt securities and money market instruments.
HARTFORD BOND FUND, INC.
Seeks maximum current income consistent with preservation of capital by
investing primarily in fixed-income securities. Up to 20% of the total assets of
this Fund may be invested in debt securities rated in the highest category below
investment grade ("Ba" by Moody's Investor Services, Inc. or "BB" by Standard &
Poor's) or, if unrated, are determined to be of comparable quality by the Fund's
investment adviser. Securities rated below investment grade are commonly
referred to as "high yield-high risk securities" or "junk bonds." For more
information concerning the risks associated with investing in such securities,
please refer to the section entitled "Hartford Bond Fund, Inc. -- Investment
Policies" in the prospectuses for the Hartford Funds accompanying this
Prospectus.
HARTFORD CAPITAL APPRECIATION FUND, INC.
Seeks growth of capital by investing in securities selected solely on the
basis of potential for capital appreciation; income, if any, is an incidental
consideration.
HARTFORD DIVIDEND AND GROWTH FUND, INC.
Seeks a high level of current income consistent with growth of capital and
reasonable investment risk.
HARTFORD INDEX FUND, INC.
Seeks to provide investment results which approximate the price and yield
performance of publicly-traded common stocks in the aggregate, as represented by
the Standard & Poor's 500 Composite Stock Price Index.*
* "STANDARD & POOR'S-REGISTERED TRADEMARK-," "S&P-REGISTERED TRADEMARK-," "S&P
500-REGISTERED TRADEMARK-," "STANDARD & POOR'S 500," AND "500" ARE TRADEMARKS
OF THE MCGRAW-HILL COMPANIES, INC. AND HAVE BEEN LICENSED FOR USE BY ITT
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY. THE HARTFORD INDEX FUND, INC.
("INDEX FUND") IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD &
POOR'S AND STANDARD & POOR'S MAKES NO REPRESENTATION REGARDING THE
ADVISABILITY OF INVESTING IN THE INDEX FUND.
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 21
- --------------------------------------------------------------------------------
HARTFORD INTERNATIONAL OPPORTUNITIES FUND, INC.
Seeks long-term total rate of return consistent with prudent investment risk
through investment primarily in equity securities issued by non-U.S. companies.
HARTFORD MORTGAGE SECURITIES FUND, INC.
Seeks maximum current income consistent with safety of principal and
maintenance of liquidity by investing primarily in mortgage-related securities,
including securities issued by the Government National Mortgage Association.
HARTFORD STOCK FUND, INC.
Seeks long-term capital growth primarily through capital appreciation, with
income a secondary consideration, by investing primarily in equity securities.
HVA MONEY MARKET FUND, INC.
Seeks maximum current income consistent with liquidity and preservation of
capital.
PUTNAM FUNDS
PUTNAM VT DIVERSIFIED INCOME FUND
Seeks high current income consistent with capital preservation by investing
in the following three sections of the fixed income securities markets: a U.S.
Government 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 HIGH YIELD FUND
Seeks high current income and, when consistent with this objective, a
secondary objective of capital growth, by investing primarily in high-yielding,
lower-rated fixed income securities, constituting a portfolio which Putnam
Management believes does not involve undue risk to income or principal. See the
special considerations for investments in high-yield securities described in the
Fund prospectus.
PUTNAM VT MONEY MARKET FUND
Seeks as high a rate of current income as Putnam Management believes is
consistent with preservation of capital and maintenance of liquidity by
investing in high-quality money market instruments.
PUTNAM VT NEW OPPORTUNITIES FUND
Seeks long-term capital appreciation by investing principally in common
stocks of companies in sectors of the economy which Putnam Management believes
possess above-average long-term growth potential.
PUTNAM VT U.S. GOVERNMENT AND HIGH QUALITY BOND FUND
Seeks current income consistent with preservation of capital by investing
primarily in securities issued or guaranteed as to principal and interest by the
U.S. Government or by its agencies or instrumentalities and in other debt
obligations rated at least A by a nationally recognized securities rating agency
such as Standard & Poor's or Moody's Investor Services, Inc. or, if not rated,
determined by Putnam Management to be of comparable quality.
PUTNAM VT UTILITIES GROWTH AND INCOME FUND
Seeks capital growth and current income by concentrating its investments in
debt and equity securities issued by companies in the public utilities
industries.
PUTNAM VT VOYAGER FUND
Seeks capital appreciation by investing primarily in common stocks of
companies that Putnam Management believes have potential for capital
appreciation that is significantly greater than that of market averages.
FIDELITY VIP FUNDS
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Seeks reasonable income by investing primarily in income-producing equity
securities. In choosing these securities, the Portfolio will also consider the
potential for capital appreciation. The Portfolio's goal is to achieve a yield
which exceeds the composite yield on the securities comprising the Standard &
Poor's Daily Stock Price Index of 500 Common Stocks.
In addition, the Portfolio may invest in high-yield, lower-rated securities
(commonly referred to as "junk bonds") which are subject to greater risk than
investments in higher-rated securities. For a further discussion of lower-rated
securities, see "Risks of Lower-Rated Debt Securities" in the Fidelity
prospectus for this Portfolio.
FIDELITY VIP OVERSEAS PORTFOLIO
Seeks long-term growth of capital primarily through investments in foreign
securities and provides a means for aggressive investors to diversify their own
portfolios by participating in companies and economies outside of the United
States.
In addition, the Portfolio may invest in high-yield, lower-rated securities
(commonly referred to as "junk bonds") which are subject to greater risk than
investments in higher-rated securities. For a further discussion of lower-
<PAGE>
22 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
rated securities, see "Risks of Lower-Rated Debt Securities" in the Fidelity
prospectus for this Portfolio.
FIDELITY VIP II ASSET MANAGER PORTFOLIO
Seeks high total return with reduced risk over the long-term by allocating
its assets among stocks, bonds and short-term fixed-income instruments.
In addition, the Portfolio may invest in high-yield, lower-rated securities
(commonly referred to as "junk bonds") which are subject to greater risk than
investments in higher-rated securities. For a further discussion of lower-rated
securities, see "Risks of Lower-Rated Debt Securities" in the Fidelity
prospectus for this Portfolio.
The Hartford Funds are organized as corporations under the laws of the State
of Maryland and are registered as diversified open-end management companies
under the Investment Company Act of 1940. The Putnam Funds are portfolios of the
Putnam Variable Trust, which is organized as a business trust under the laws of
Massachusetts and is an open-end series investment company under the Investment
Company Act of 1940. The Fidelity VIP Funds are a series of two diversified
open-end management investment companies, each with multiple portfolios and
organized as a Massachusetts business trust. The VIP Equity-Income Portfolio and
VIP Overseas Portfolio are portfolios of the Variable Insurance Products Fund.
The VIP II Asset Manager Portfolio is a portfolio of the Variable Insurance
Products Fund II.
Each Fund continually issues an unlimited number of full and fractional
shares of beneficial interest in the Fund. Such shares are offered to separate
accounts, including Separate Account VL II, established by Hartford or one of
its affiliated companies specifically to fund the Policies and other policies
issued by Hartford or its affiliates, as permitted by the Investment Company Act
of 1940.
It is conceivable that in the future it may be disadvantageous for variable
life insurance separate accounts and variable annuity separate accounts to
invest in the Funds simultaneously. Although neither Hartford nor the Funds
currently foresee any such disadvantages either to variable life insurance
Policy Owners or to variable annuity Policy Owners, the Board of Directors for
the Hartford Funds, the Board of Trustees for the Putnam Funds and the Board of
Trustees for Fidelity VIP Funds (collectively, the "Boards") intend to monitor
events in order to identify any material conflicts between such Policy Owners
and to determine what action, if any, should be taken in response thereto. If
the Boards were to conclude that separate funds should be established for
variable life and variable life insurance separate accounts, Hartford will bear
the attendant expenses.
All investment income of and other distributions to each Sub-Account of
Separate Account VL II arising from the applicable Fund are reinvested in shares
of that Fund at net asset value. The income and both realized gains or losses on
the assets of each Sub-Account of Separate Account VL II are therefore separate
and are credited to or charged against the Sub-Account without regard to income,
gains or losses from any other Sub-Account or from any other business of
Hartford. Hartford will purchase shares in the Funds in connection with premium
payments allocated to the applicable Sub-Account in accordance with Policy
Owners' directions and will redeem shares in the Funds to meet Policy
obligations or make adjustments in reserves, if any. The Funds are required to
redeem Fund shares at net asset value and generally to make payment within seven
days.
Hartford reserves the right, subject to compliance with the law as then in
effect, to make additions to, deletions from or substitutions for Separate
Account VL II and its Sub-Accounts which fund the Policies. If shares of any of
the Funds should no longer be available for investment, or if, in the judgment
of Hartford's management, further investment in shares of any Fund should become
inappropriate in view of the purposes of the Policies, Hartford may substitute
shares of another Fund for shares already purchased, or to be purchased in the
future, under the Policies. No substitution of securities will take place
without notice to and consent of Policy Owners and without prior approval of the
SEC to the extent required by the Investment Company Act of 1940. Subject to
Policy Owner approval, if required, Hartford also reserves the right to end the
registration under the Investment Company Act of 1940 of Separate Account VL II
or any other separate accounts of which it is the depositor and which may fund
the Policies.
Each Fund is subject to certain investment restrictions which may not be
changed without the approval of a majority of the shareholders of the Fund. See
the prospectus for each of the Funds accompanying this Prospectus.
- ---------------------------------------------------
INVESTMENT ADVISER
HARTFORD FUNDS
The investment adviser for each of the Hartford Funds is HL Investment
Advisors, Inc. ("HL Advisors"), Hartford Plaza, Hartford, CT 06115. HL Advisors
provides investment advice and, in general, supervises the management and
investment program of the Hartford Funds pursuant to an Investment Advisory
Agreement entered into with each of these Funds, for which HL Advisors receives
a fee.
HL Advisors has entered into an investment services agreement with HIMCO, an
affiliate of Hartford organized under Connecticut law, pursuant to which HIMCO
provides certain investment services to Hartford Bond Fund, Hartford Index Fund,
Hartford Mortgage Securities Fund and HVA Money Market Fund.
Wellington Management serves as the investment sub-adviser to Hartford
Advisers Fund, Hartford Capital Appreciation Fund, Hartford Dividend and Growth
Fund, Hartford International Opportunities Fund and Hartford Stock Fund.
Wellington Management is a professional investment counseling firm which
provides investment services to investment companies, other institutions and
individuals. Wellington Management is organized as a
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 23
- --------------------------------------------------------------------------------
private Massachusetts partnership and its predecessor organizations have
provided investment advisory services to investment companies since 1933 and to
investment counseling clients since 1960. See the prospectus for each of the
Hartford Funds accompanying this Prospectus for a more complete description of
HL Advisors, HIMCO and Wellington Management and their respective fees.
PUTNAM FUNDS
Putnam Management, One Post Office Square, Boston, MA 02109, serves as the
investment manager for the Putnam Funds. An affiliate, Putnam Advisory Company,
Inc., manages domestic and foreign institutional accounts and mutual funds.
Another affiliate, Putnam Fiduciary Trust Company, provides investment advice to
institutional clients under its banking and fiduciary policies. Putnam
Management and its affiliates are wholly-owned subsidiaries of Marsh & McLennan
Companies, Inc., a publicly owned holding company whose principal businesses are
international insurance brokerage and employee benefit consulting.
FIDELITY VIP FUNDS
The Fidelity VIP Funds are managed by Fidelity Management & Research Company
("Fidelity Management"), whose principal business address is 82 Devonshire
Street, Boston, Massachusetts. Fidelity Management is one of America's largest
investment management organizations. It is composed of a number of different
companies, which provide a variety of financial services and products. Fidelity
Management is the original Fidelity company, founded in 1946. It provides a
number of mutual funds and other clients with investment research and portfolio
management services. Various Fidelity companies perform certain activities
required to operate Variable Insurance Products Fund and Variable Insurance
Products Fund II.
- ---------------------------------------------------
THE FIXED ACCOUNT
THAT PORTION OF THE POLICY RELATING TO THE FIXED ACCOUNT IS NOT REGISTERED
UNDER THE SECURITIES ACT OF 1933 ("1933 ACT") AND THE FIXED ACCOUNT IS NOT
REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940
("1940 ACT"). ACCORDINGLY, NEITHER THE FIXED ACCOUNT NOR ANY INTERESTS THEREIN
ARE SUBJECT TO THE PROVISIONS OR RESTRICTIONS OF THE 1933 ACT OR THE 1940 ACT,
AND THE DISCLOSURE REGARDING THE FIXED ACCOUNT HAS NOT BEEN REVIEWED BY THE
STAFF OF THE SECURITIES AND EXCHANGE COMMISSION. THE FOLLOWING DISCLOSURE ABOUT
THE FIXED ACCOUNT MAY BE SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF
THE FEDERAL SECURITIES LAWS REGARDING THE ACCURACY AND COMPLETENESS OF
DISCLOSURE.
Premium Payments and Account Values allocated to the Fixed Account become a
part of the general assets of Hartford. Hartford invests the assets of the
General Account in accordance with applicable law governing the investments of
insurance company general accounts.
The Fixed Account minimum credited rate is shown in the Contract. Currently,
Hartford guarantees that it will credit interest at a rate of not less than 4%
per year, compounded annually, to amounts allocated under the Policies to the
Fixed Account. Hartford may credit interest at a rate in excess of the Fixed
Account minimum credited rate; however, Hartford is not obligated to credit any
interest in excess of the Fixed Account minimum credited rate. There is no
specific formula for the determination of excess interest credits. Some of the
factors that Hartford may consider in determining whether to credit excess
interest to amounts allocated to the Fixed Account and the amount thereof, are
general economic trends, rates of return currently available and anticipated on
Hartford's investments, regulatory and tax requirements and competitive factors.
ANY INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF THE
FIXED ACCOUNT MINIMUM CREDITED RATE WILL BE DETERMINED IN THE SOLE DISCRETION OF
HARTFORD. THE POLICY OWNER ASSUMES THE RISK THAT INTEREST CREDITED TO FIXED
ACCOUNT ALLOCATIONS MAY NOT EXCEED THE FIXED ACCOUNT MINIMUM CREDITED RATE.
- ---------------------------------------------------
OTHER MATTERS
- -------------------------------- VOTING RIGHTS
In accordance with its view of presently applicable law, Hartford will vote
the shares of the Funds at regular and special meetings of the shareholders of
the Funds in accordance with instructions from Policy Owners (or the assignee of
the Policy, as the case may be) having a voting interest in Separate Account VL
II. The number of shares held in the Separate Account which are allocable to
each Policy Owner is determined by dividing the Policy Owner's interest in each
Sub-Account by the net asset value of the applicable shares of the Funds.
Hartford will vote shares for which no instructions have been given and shares
which are not allocable to Policy Owners (i.e., shares owned by Hartford) in the
same proportion as it votes shares for which it has received instructions. If
the Investment Company Act of 1940 or any rule promulgated thereunder should be
amended, however, or if Hartford's present interpretation should change and, as
a result, Hartford determines it is permitted to vote the shares of the Funds in
its own right, it may elect to do so.
The voting interests of the Policy Owner (or the assignee) in the Funds will
be determined as follows: Policy Owners may cast one vote for each full or
fractional Accumulation Unit owned under the Policy and allocated to a
Sub-Account the assets of which are invested in the particular Fund on the
record date for the shareholder meeting for that Fund. If, however, a Policy
Owner has taken a loan
<PAGE>
24 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
secured by the Policy, amounts transferred from the Sub-Account(s) to the Loan
Account(s) in connection with the loan (see "Detailed Description of Policy
Benefits and Rights -- Policy Loans," page 12) will not be considered in
determining the voting interests of the Policy Owner. Policy Owners should
review the prospectuses for the Funds which accompany this Prospectus to
determine matters on which shareholders may vote.
Hartford may, when required by state insurance regulatory authorities,
disregard voting instructions if the instructions require that the shares be
voted so as to cause a change in the sub-classification or investment objective
of one or more of the Funds or to approve or disapprove an investment advisory
policy for the Funds. In addition, Hartford itself may disregard voting
instructions in favor of changes initiated by a Policy Owner in the investment
policy or the investment adviser of the Funds if Hartford reasonably disapproves
of such changes. A change would be disapproved only if the proposed change is
contrary to state law or prohibited by state regulatory authorities. In the
event Hartford does disregard voting instructions, a summary of that action and
the reasons for such action will be included in the next periodic report to
Policy Owners.
- ---------------------------------------------------
STATEMENTS TO POLICY OWNERS
We will send You a statement at least once each Policy Year, showing:
(a) the current Account Value, Cash Surrender Value and Face Amount;
(b) the premiums paid, Monthly Deduction Amounts and loans since the last
report;
(c) the amount of any Indebtedness;
(d) notifications required by the provisions of the Policy; and
(e) any other information required by the Insurance Department of the state
where the Policy was delivered.
- ---------------------------------------------------
LIMIT ON RIGHT TO CONTEST
Hartford may not contest the validity of the Policy after it has been in
effect during the lifetime of the Insureds for two years from the Issue Date. If
the Policy is reinstated, the two year period is measured from the date of
reinstatement. Any increase in the Supplemental Face Amount for which evidence
of insurability was obtained is contestable during the lifetime of the Insureds
for two years from its effective date. In addition, if either Insured commits
suicide in the two year period, or such period as specified in state law, the
benefit payable will be limited to the premiums paid less any Indebtedness and
partial withdrawals.
- ---------------------------------------------------
MISSTATEMENT AS TO AGE
If the age of an Insured is incorrectly stated, the amount of Death Benefit
will be appropriately adjusted as specified in the Policy.
- ---------------------------------------------------
PAYMENT OPTIONS
Proceeds under the Policies may be paid in a lump sum or may be applied to
one of Hartford's payment options. The minimum amount that may be placed under a
payment option is subject to the then current rules of Hartford. Once payments
under the Second Option, the Third Option or the Fourth Option commence, no
surrender of the Policy may be made for the purpose of receiving a lump sum
settlement in lieu of the life insurance payments. The following options are
available under the Policies.
FIRST OPTION -- Interest Income
Payments of interest at the rate We declare, but not less than 3 1/2% per
year, on the amount applied under this option.
SECOND OPTION -- Income of Fixed Amount
Equal payments of the amount chosen until the amount applied under this
option, with interest of not less than 3 1/2% per year, is exhausted. The final
payment will be for the balance remaining.
THIRD OPTION -- Payments for a Fixed Period
An amount payable monthly for the number of years selected, which may be
from one to 30 years.
FOURTH OPTION -- Life Income
LIFE ANNUITY -- an annuity payable monthly during the lifetime of the
annuitant and terminating with the last monthly payment due preceding the
death of the annuitant.
LIFE ANNUITY WITH 120 MONTHLY PAYMENTS CERTAIN -- an annuity providing
monthly income to the annuitant for a fixed period of 120 months and for as
long thereafter as the annuitant shall live.
The Tables in the Policy provide for guaranteed dollar amounts of monthly
payments for each $1,000 applied under the four payment options. Under the
Fourth Option, the amount of each payment will depend upon the age of the
Annuitant at the time the first payment is due. If any periodic payment due any
payee is less than $200, Hartford may make payments less often.
The Table for the Fourth Option is based on the 1983a Individual Annuity
Mortality Table set back one year and a net investment rate of 3.5% per annum.
The Tables for the First, Second and Third Options are based on a net investment
rate of 3.5% per annum. Hartford may, however, from time to time, at Our
discretion if mortality appears more
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 25
- --------------------------------------------------------------------------------
favorable and interest rates justify, apply other tables which will result in
higher monthly payments for each $1,000 applied under one or more of the four
payment options.
Hartford will make any other arrangements for income payments as may be
agreed on.
- ---------------------------------------------------
BENEFICIARY
The applicant names the beneficiary in the application for the Policy. The
Policy Owner may change the beneficiary (unless irrevocably named) during the
lifetime of the Insureds by request In Writing to Hartford. If no beneficiary is
living when the last surviving Insured dies, the Death Proceeds will be paid to
the Policy Owner if living; otherwise to the Policy Owner's estate.
- ---------------------------------------------------
ASSIGNMENT
The Policy may be assigned as collateral for a loan or other obligation.
Hartford is not responsible for any payment made or action taken before receipt
of notice of such assignment In Writing. Proof of interest must be filed with
any claim under a collateral assignment.
- ---------------------------------------------------
DIVIDENDS
No dividends will be paid under the Policies.
- ---------------------------------------------------
SUPPLEMENTAL BENEFITS
The following supplemental benefits, which are subject to the restrictions
and limitations set forth therein, are among the options that may be included in
a Policy by rider:
- ---------------------------------------------------
LAST SURVIVOR EXCHANGE OPTION RIDER
We will exchange this Policy for two individual policies on the life of each
Insured, subject to the conditions stated in this rider.
- ---------------------------------------------------
ESTATE PROTECTION RIDER
We will pay a term insurance benefit upon receipt of due proof of the last
surviving Insured's death while this Policy and rider were in force, subject to
the conditions stated in this rider.
- ---------------------------------------------------
MATURITY DATE EXTENSION RIDER
We will extend the Maturity Date (the date on which the Policy will mature)
to the date of the death of the second Insured to die, regardless of the age of
either Insured. Certain Death Benefit and premium restrictions apply. See
"Federal Tax Considerations -- Income Taxation of Policy Benefits," page 28.
- ---------------------------------------------------
YEARLY RENEWABLE TERM LIFE INSURANCE RIDER
While this Policy and rider are in force, We will pay the term life
insurance amount upon receipt of due proof of death of the designated Insured,
subject to the conditions stated in this rider.
<PAGE>
26 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
POSITION WITH HARTFORD, OTHER BUSINESS PROFESSION, VOCATION OR EMPLOYMENT
NAME, AGE YEAR OF ELECTION FOR PAST 5 YEARS; OTHER DIRECTORSHIPS
- -------------------------------- ------------------------------------- ----------------------------------------------------------
<S> <C> <C>
Wendell J. Bossen, 63 Vice President, 1995** Vice President (1992-Present), Hartford Life Insurance
Company; Executive Vice President (1984) Mutual Benefit.
Gregory A. Boyko, 45 Vice President, 1995 Vice President & Controller (1995-Present), Hartford Life
Insurance Company; Chief Financial Officer (1994-1995),
IMG American Life; Senior Vice President (1992-1994),
Connecticut Mutual Life Insurance Company.
Peter W. Cummins, 60 Vice President, 1993 Vice President, Individual Annuity Operations
(1989-Present), Hartford.
Ann M. deRaismes, 46 Vice President, 1994 Vice President (1994-Present); Assistant Vice President
(1992-1994); Director of Human Resources (1991-1997),
Hartford Life Insurance Company.
James R. Dooley, 60 Vice President, 1973 Vice President, Director Information Services
(1973-Present), Hartford.
Timothy M. Fitch, 44 Vice President, 1995 Vice President, (1995-Present); Assistant Vice President
(1993-1995); Director (1991-1993), Hartford Life
Insurance Company.
Bruce D. Gardner, 46 Director, 1991* Vice President (1996-Present); General Counsel and
Corporate Secretary (1991-1995), Hartford Life Insurance
Company.
Joseph H. Gareau, 50 Executive Vice President & Senior Vice President & Chief Investment Officer
Chief Investment Officer, 1993 (1992-1993), Hartford; Senior Vice President & Chief
Director, 1993* Investment Officer (1992), Hartford Insurance Group.
Donald J. Gillette, 51 Vice President, 1993 Vice President, Director of Marketing (1991-Present),
Hartford.
Lynda Godkin, 43 General Counsel, 1996 Associate General Counsel and Corporate Secretary
Corporate Secretary, 1995 (1995-1996); Assistant General Counsel and Secretary
(1994-1995); Counsel (1990-1994), Hartford Life
Insurance Company.
Lois W. Grady, 52 Vice President, 1993 Assistant Vice President (1988-1993), Hartford Life
Insurance Company.
David A. Hall, 43 Senior Vice President & Senior Vice President & Actuary (1993-Present), Hartford.
Actuary, 1993
Robert A. Kerzner, 45 Vice President, 1994 Vice President (1994-Present); Regional Vice President
(1991-1994), Hartford.
William B. Malchodi, Jr., 46 Vice President, 1994 Vice President (1994-Present); Director of Taxes
Director of Taxes, 1992 (1992-Present), Hartford Insurance Group.
Thomas M. Marra, 38 Executive Vice President & Senior Vice President & Director, Individual Life and
Director, Individual Life and Annuity Division (1993-1996); Director of Individual
Annuity Division, 1996 Annuities (1991-1993), Hartford.
Director, 1994*
Steven L. Mattieson, 52 Vice President, 1984 Vice President, Director of New Business (1984-Present)
Hartford.
Joseph J. Noto, 45 Vice President, 1989 President and Director (1994-Present), American Maturity
Life Insurance Company; Vice President (1989-Present),
Hartford Life Insurance Company.
</TABLE>
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 27
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITION WITH HARTFORD, OTHER BUSINESS PROFESSION, VOCATION OR EMPLOYMENT
NAME, AGE YEAR OF ELECTION FOR PAST 5 YEARS; OTHER DIRECTORSHIPS
- -------------------------------- ------------------------------------- ----------------------------------------------------------
<S> <C> <C>
Craig D. Raymond, 36 Vice President, 1993 Assistant Vice President (1992-1993); Actuary (1989-1994),
Chief Actuary, 1994 Hartford Life Insurance Company.
David T. Schrandt, 49 Vice President, 1987 Vice President, Treasurer and Controller (1987-Present),
Treasurer, 1987 Hartford.
Lowndes A. Smith, 57 President, 1989 President & Chief Operating Officer (1989-Present),
Chief Executive Officer, 1993 Hartford Life Insurance Company.
Director, 1985*
Lizabeth H. Zlatkus, 37 Vice President, 1994 Vice President, Director, Business Operations
Director, 1994* (1994-Present), Assistant Vice President, Director,
Executive Operations (1992-1994), Hartford Life
Insurance Company.
</TABLE>
- ------------------------
* Denotes year of election to Board of Directors.
** ITT Hartford Affiliated Company
Unless otherwise indicated, the principal business address of each the above
individuals is P.O. Box 2999, Hartford, CT 06104-2999.
- ---------------------------------------------------
DISTRIBUTION OF THE POLICIES
Hartford intends to sell the Policies in all jurisdictions where it is
licensed to do business. The Policies will be sold by life insurance sales
representatives who represent Hartford and who are registered representatives of
Hartford Equity Sales Company, Inc. ("HESCO"), 200 Hopmeadow Street, Simsbury,
CT 06089, or certain other registered Broker-Dealers. Any sales representative
or employee will have been qualified to sell variable life insurance policies
under applicable federal and state laws. Each Broker-Dealer is registered with
the SEC under the Securities Exchange Act of 1934 and all are members of the
National Association of Securities Dealers, Inc. HESCO is the principal
underwriter for the Policies. During the first Policy Year, the maximum sales
commission payable to Hartford agents, independent registered insurance brokers,
and other registered Broker-Dealers is 45% of the premiums paid up to a Target
Premium and 5% of any excess. In Policy Years 2 through 10, agent commissions
will not exceed 5.5% of premiums paid. For Policy Years 11 and later, the agent
commissions will not exceed 2% of the premiums paid. Agent commissions may be
less for premiums attributable to Supplemental Face Amount. In addition, expense
allowances may be paid. The sales representative may be required to return all
or a portion of the commissions paid if the Policy terminates prior to the
second Policy Anniversary.
- ---------------------------------------------------
SAFEKEEPING OF SEPARATE
ACCOUNT VL II'S ASSETS
The assets of the Separate Account are held by Hartford. The assets of the
Separate Account are kept physically segregated and held separate and apart from
the General Account. Hartford maintains records of all purchases and redemptions
of shares of the Funds. Additional protection for the assets of the Separate
Account is afforded by Hartford's blanket fidelity bond issued by Aetna Casualty
and Surety Company, in the aggregate amount of $50 million, covering all of the
officers and employees of Hartford.
- ---------------------------------------------------
FEDERAL TAX CONSIDERATIONS
- -------------------------------- GENERAL
SINCE THE TAX LAW IS COMPLEX AND SINCE TAX CONSEQUENCES WILL VARY ACCORDING
TO THE ACTUAL STATUS OF THE POLICY OWNER INVOLVED AND THE TYPE OF PLAN UNDER
WHICH THE POLICY IS PURCHASED, LEGAL AND TAX ADVICE MAY BE NEEDED BY A PERSON,
TRUSTEE OR OTHER ENTITY CONTEMPLATING THE PURCHASE OF A POLICY DESCRIBED HEREIN.
It should be understood that any detailed description of the federal income
tax consequences regarding the purchase of these Policies cannot be made in this
Prospectus and that special tax rules may be applicable with respect to certain
purchase situations not discussed herein. In addition, no attempt is made here
to consider any applicable state or other tax laws. For detailed information, a
qualified tax adviser should always be consulted. This discussion of federal tax
considerations is based upon Hartford's understanding of existing federal income
tax laws as they are currently interpreted.
<PAGE>
28 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
- ---------------------------------------------------
TAXATION OF HARTFORD AND
THE SEPARATE ACCOUNT
The Separate Account is taxed as a part of Hartford which is taxed as a life
insurance company under Subchapter L of 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 the Code. Investment income
and realized capital gains on the assets of the Separate Account (i.e., the
underlying Funds) are reinvested and are taken into account in determining the
value of the Accumulation Units. As a result, such investment income and
realized capital gains are automatically applied to increase reserves under the
Policy. (See "Detailed Description of Policy Benefits and Provisions -- Premiums
- -- Accumulation Unit Values," page 10).
Hartford does not expect to incur any federal income tax on the earnings or
realized capital gains attributable to the Separate Account. Based upon this
expectation, no charge is currently being made to the Separate Account for
federal income taxes. If Hartford incurs income taxes attributable to the
Separate Account or determines that such taxes will be incurred, it may assess a
charge for such taxes against the Separate Account.
- ---------------------------------------------------
INCOME TAXATION OF POLICY BENEFITS
For federal income tax purposes, the Policies should be treated as life
insurance policies under Section 7702 of the Code. The death benefit under a
life insurance policy is generally excluded from the gross income of the
beneficiary. Also, a life insurance policy owner is generally not taxed on
increments in the policy value until the policy is partially or completely
surrendered. Section 7702 limits the amount of premiums that may be invested in
a policy that is treated as life insurance. Hartford intends to monitor premium
levels to assure compliance with the Section 7702 requirements.
Although Hartford believes that the Policies are in compliance with Section
7702 of the Code, the manner in which Section 7702 should be applied to certain
features of a joint survivorship life insurance contract is not directly
addressed by Section 7702. In the absence of final regulations or other guidance
issued under Section 7702, there is necessarily some uncertainty whether a last
survivor life insurance Policy will meet the Section 7702 definition of a life
insurance contract.
Hartford also believes that any loan received under a Policy will be treated
as Indebtedness of the Policy Owner, and that no part of any loan under a Policy
will constitute income to the Policy Owner. A surrender or assignment of the
Policy may have tax consequences, depending upon the circumstances. Policy
Owners should consult a qualified tax adviser concerning the effect of such
changes.
During the first 15 Policy Years, an "income first" rule generally applies
to distributions of cash required to be made under Code Section 7702 because of
a reduction in benefits under the Policy.
The Last Survivor Exchange Option Rider (see "Supplemental Benefits," page
25) permits, under limited circumstances, a Policy to be split into two
individual policies on the life of each of the Insureds. A Policy split may have
adverse tax consequences. It is not clear whether a Policy split will be treated
as a nontaxable exchange or transfer under the Code. Unless a Policy split is so
treated, among other things, the split or transfer will result in the
recognition of taxable income on the gain in the Policy. In addition, it is not
clear whether, in all circumstances, the individual policies that result from a
Policy split would be treated as life insurance policies under Section 7702 of
the Code or would be classified as modified endowment contracts. The Policy
Owner should consult a qualified tax adviser regarding the possible adverse tax
consequences of a Policy split.
The Maturity Date Extension Rider (see "Supplemental Benefits," page 25)
allows a Policy Owner to extend the Maturity Date to the date of the death of
the last surviving insured. If the Maturity Date of the Policy is extended by
rider, Hartford believes the Policy will continue to be treated as a life
insurance contract for federal income tax purposes after the scheduled Maturity
Date. However, due to the lack of specific guidance on this issue, the result is
not certain. If the Policy is not treated as a life insurance contract for
federal income tax purposes after the scheduled Maturity Date, among other
things, the Death Proceeds may be taxable to the recipient. The Policy Owner
should consult a qualified tax adviser regarding the possible adverse tax
consequences resulting from an extension of the scheduled Maturity Date.
- ---------------------------------------------------
MODIFIED ENDOWMENT CONTRACTS
Code Section 7702A applies an additional test, the "seven-pay" test, to life
insurance contracts. The seven-pay test provides that premiums cannot be paid at
a rate more rapidly than that allowed by the payment of seven annual premiums
using specified computational rules described in Section 7702A(c). A modified
endowment contract ("MEC") is a life insurance policy that either: (i) satisfies
the Section 7702 definition of life insurance, but fails the seven-pay test of
Section 7702A or (ii) is exchanged for a MEC.
If the Policy satisfies the seven-pay test at issuance, distributions and
loans made thereafter will not be subject to the MEC rules, unless the Policy is
changed materially. The seven-pay test will be applied anew at any time the
Policy undergoes a material change, which includes an
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 29
- --------------------------------------------------------------------------------
increase in the Face Amount. In addition, if there is a reduction in benefits
under the Policy within the first seven years, the seven-pay test is applied as
if the Policy had initially been issued at the reduced benefit level. Any
reduction in benefits attributable to the nonpayment of premiums will not be
taken into account for purposes of the seven-pay test if the benefits are
reinstated within 90 days after the reduction.
A policy that is classified as a MEC is eligible for certain aspects of the
beneficial tax treatment accorded to life insurance. That is, the death benefit
is excluded from income and increments in value are not subject to current
taxation. However, if the contract is classified as a MEC then withdrawals from
the contract will be considered first as withdrawals of income and then as a
recovery of premium payments. Thus, withdrawals will be includible in income to
the extent the contract value exceeds the investment in the contract. The amount
of any loan (including unpaid interest thereon) under the contract will be
treated as a withdrawal from the contract for tax purposes. In addition, if the
policy owner assigns or pledges any portion of the value of a contract (or
agrees to assign or pledge any portion), then such portion will be treated as a
withdrawal from the contract for tax purposes. Taxable withdrawals are subject
to an additional 10% tax, with certain exceptions. The policy owner's investment
in the contract is increased by the amount includible in income with respect to
such assignment, pledge, or loan, though it is not affected by any other aspect
of the assignment, pledge, or loan (including its release or repayment).
Generally, only distributions and loans made in the first year in which a
policy becomes a MEC, and in subsequent years, are taxable. However,
distributions and loans made in the two years prior to a policy's failing the
seven-pay test are deemed to be in anticipation of failure and are subject to
tax.
Before assigning, pledging, or requesting a loan under a contract that is a
MEC, a policy owner should consult a qualified tax adviser.
All MEC policies that are issued within any calendar year to the same policy
owner by one company or its affiliates are treated as one MEC policy for the
purpose of determining the taxable portion of any loan or distribution.
Hartford has instituted procedures to monitor whether a Policy may become
classified as a MEC after issue.
- ---------------------------------------------------
ESTATE AND GENERATION SKIPPING TAXES
When the last surviving Insured dies, the Death Proceeds will generally be
includible in the Policy Owner's estate for purposes of federal estate tax if
the last surviving Insured owned the Policy. If the Policy Owner was not the
last surviving Insured, the fair market value of the Policy would be included in
the Policy Owner's estate upon the Policy Owner's death. The Policy would not be
includible in the last surviving Insured's estate if he or she neither retained
incidents of ownership at death nor had given up ownership within three years
before death.
Federal estate tax is integrated with federal gift tax under a unified rate
schedule. In general, estates less than $600,000 will not incur a federal estate
tax liability. In addition, an unlimited marital deduction may be available for
federal estate and gift tax purposes. The unlimited marital deduction permits
the deferral of taxes until the death of the surviving spouse.
If the Policy Owner (whether or not he or she is an Insured) transfers
ownership of the Policy to someone two or more generations younger, the transfer
may be subject to the generation skipping transfer tax, the taxable amount being
the value of the Policy. The generation-skipping transfer tax provisions
generally apply to transfers which would be subject to the gift and estate tax
rules. Individuals are generally allowed an aggregate generation skipping
transfer exemption of $1 million. Because these rules are complex, the Policy
Owner should consult with a qualified tax adviser for specific information if
ownership is passing to younger generations.
- ---------------------------------------------------
DIVERSIFICATION REQUIREMENTS
Section 817 of the Code provides that a variable life insurance contract
(other than a pension plan policy) will not be treated as a life insurance
contract for any period during which the investments made by the separate
account or underlying fund are not adequately diversified in accordance with
regulations prescribed by the Treasury Department. If a Policy is not treated as
a life insurance contract, the Policy Owner will be subject to income tax on the
annual increases in cash value.
The Treasury Department has issued diversification regulations which
generally require, among other things, that no more than 55% of the value of the
total assets of the segregated asset account underlying a variable contract is
represented by any one investment, no more than 70% is represented by any two
investments, no more than 80% is represented by any three investments, and no
more than 90% is represented by any four investments. In determining whether the
diversification standards are met, all securities of the same issuer, all
interests in the same real property project, and all interests in the same
commodity are each treated as a single investment. In addition, in the case of
government securities, each government agency or instrumentality shall be
treated as a separate issuer.
A separate account must be in compliance with the diversification standards
on the last day of each calendar quarter or within 30 days after the quarter
ends. If an insurance company inadvertently fails to meet the diversification
requirements, the company may comply within a reasonable
<PAGE>
30 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
period and avoid the taxation of policy income on an ongoing basis. However,
either the insurance company or the policy owner must agree to pay the tax due
for the period during which the diversification requirements were not met.
Hartford monitors the diversification of investments in its separate
accounts, including Separate Account VL II, and tests for diversification as
required by the Code. Hartford intends to administer all contracts subject to
the diversification requirements in a manner that will maintain adequate
diversification.
- ---------------------------------------------------
OWNERSHIP OF THE ASSETS IN
THE SEPARATE ACCOUNT
In order for a variable life insurance contract to qualify for tax deferral,
assets in the segregated asset accounts supporting the variable contract must be
considered to be owned by the insurance company and not by the variable contract
owner. The Internal Revenue Service ("IRS") has issued several rulings which
discuss investor control. The IRS has ruled that incidents of ownership by the
contract owner, such as the ability to select and control investments in a
separate account, will cause the contract owner to be treated as the owner of
the assets for tax purposes.
Further, in the explanation to the temporary Section 817 diversification
regulations, the Treasury Department noted that the temporary regulations "do
not provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor, rather
than the insurance company, to be treated as the owner of the assets in the
account." The explanation further indicates that "the temporary regulations
provide that in appropriate cases a segregated asset account may include
multiple sub-accounts, but do not specify the extent to which policyholders may
direct their investments to particular sub-accounts without being treated as the
owners of the underlying assets. Guidance on this and other issues will be
provided in regulations or revenue rulings under section 817(d), relating to the
definition of variable contract." The final regulations issued under Section 817
did not provide guidance regarding investor control, and as of the date of this
Prospectus, no other such guidance has been issued. Further, Hartford does not
know if or in what form such guidance will be issued. In addition, although
regulations are generally issued with prospective effect, it is possible that
regulations may be issued with retroactive effect. Due to the lack of specific
guidance regarding the issue of investor control, there is necessarily some
uncertainty regarding whether a Policy Owner could be considered the owner of
the assets for tax purposes. Hartford reserves the right to modify the Policies,
as necessary, to prevent Policy Owners from being considered the owners of the
assets in the separate accounts.
- ---------------------------------------------------
LIFE INSURANCE PURCHASED FOR USE IN
SPLIT DOLLAR ARRANGEMENTS
On January 26, 1996, the IRS released a technical advice memorandum ("TAM")
on the taxability of life insurance policies used in certain split dollar
arrangements. A TAM, issued by the National Office of the IRS, provides advice
as to the internal revenue laws, regulations, and related statutes with respect
to a specific set of facts and a specific taxpayer. In the TAM, among other
things, the IRS concluded that an employee was subject to current taxation on
the excess of the cash surrender value of the policy over the premiums to be
returned to the employer. Purchasers of life insurance policies to be used in
split dollar arrangements are strongly advised to consult with a qualified tax
adviser to determine the tax treatment resulting from such an arrangement.
- ---------------------------------------------------
FEDERAL INCOME TAX WITHHOLDING
If any amounts are deemed to be current taxable income to the Policy Owner,
such amounts will be subject to federal income tax withholding and reporting,
pursuant to the Code.
- ---------------------------------------------------
NON-INDIVIDUAL OWNERSHIP OF POLICIES
Legislation has recently been proposed which would limit certain of the tax
advantages now afforded non-individual owners of life insurance contracts.
Prospective Policy Owners which are not individuals should consult a qualified
tax adviser to determine the status of this proposed legislation and its
potential impact on the purchaser.
- ---------------------------------------------------
OTHER
Federal estate tax, state and local estate, inheritance and other tax
consequences of ownership, or receipt of Policy proceeds depend on the
circumstances of each Policy Owner or beneficiary. A qualified tax adviser
should be consulted to determine the impact of these taxes.
- ---------------------------------------------------
LIFE INSURANCE PURCHASES BY NONRESIDENT
ALIENS AND FOREIGN CORPORATIONS
The discussion above provides general information regarding U.S. federal
income tax consequences to life insurance 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 taxable distributions from
life insurance policies at a 30% rate, unless a lower treaty rate applies. In
addition, purchasers may be subject to 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
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 31
- --------------------------------------------------------------------------------
and foreign taxation with respect to a life insurance policy purchase.
- ---------------------------------------------------
LEGAL PROCEEDINGS
There are no pending material legal proceedings to which the Separate
Account is a party.
- ---------------------------------------------------
LEGAL MATTERS
Legal matters in connection with the issue and sale of the last survivor
flexible premium variable life insurance Policies described in this Prospectus
and the organization of Hartford, its authority to issue the Policies under
Connecticut law and the validity of the forms of the Policies under Connecticut
law and legal matters relating to the federal securities and income tax laws
have been passed on by Lynda Godkin, General Counsel, Hartford Life Insurance
Companies.
- ---------------------------------------------------
EXPERTS
The audited financial statements included in this Prospectus and elsewhere
in the registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports. Reference is made to said report on the
statutory-basis financial statements of ITT Hartford Life and Annuity Insurance
Company which states the statutory-basis 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, not presented in accordance with generally accepted
accounting principles. Reference is made to said report on the statutory-basis
financial statements of ITT Hartford Life and Annuity Insurance Company (the
Depositor), which includes an explanatory paragraph with respect to the change
in valuation method in determining aggregate reserves for future benefits in
1994, as discussed in Note 1 of Notes to Statutory Financial Statements. The
principal business address of Arthur Andersen LLP is One Financial Plaza,
Hartford, CT 06103.
The hypothetical Policy illustrations have been approved by Ken A. McCullum,
FSA, MAAA, Director of Individual Life Product Development of Hartford, and are
included in this Prospectus in reliance upon his opinion as to their
reasonableness.
- ---------------------------------------------------
REGISTRATION STATEMENT
A registration statement has been filed with the SEC under the Securities
Act of 1933, as amended. This Prospectus does not contain all information set
forth in the registration statement, its amendments and exhibits, to all of
which reference is made for further information concerning Separate Account VL
II, Hartford, and the Policies.
<PAGE>
32 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX A
ILLUSTRATION OF DEATH BENEFITS, ACCOUNT VALUES
AND CASH SURRENDER VALUES
The tables in Appendix A illustrate the way in which a Policy operates. They
show how the Death Benefit and surrender value could vary over an extended
period of time assuming hypothetical gross rates of return equal to constant
after tax annual rates of 0%, 6% and 12%. The illustrations assume the
following: a male, preferred, age 55, and a female, preferred, age 50, with
$1,000,000 of Basic Face Amount and a premium of $15,500.00 paid in all years; a
male, preferred, age 55, and a female, preferred, age 50, with $750,000 of Basic
Face Amount and $250,000 of Supplemental Face Amount and a premium of $7,500.00
paid in all years; a male, preferred, age 65, and a female, preferred, age 65,
with $1,000,000 of Basic Face Amount and a premium of $27,000.00 paid in all
years; and a male, preferred, age 65, and a female, preferred, age 65 with
$750,000 of Basic Face Amount and $250,000 of Supplemental Face Amount and a
premium of $21,500.00 paid in all years.
The Death Benefit and surrender value for a Policy would be different from
those shown if the rates of return averaged 0%, 6% and 12% over a period of
years, but also fluctuated above or below those averages for individual Policy
Years. They would also differ if any Policy loan were made during the period of
time illustrated.
The tables reflect the deductions of current Policy charges and guaranteed
Policy charges for a single gross interest rate. The Death Benefits and
surrender values would change if the current Cost of Insurance charges change.
The amounts shown for the Death Benefit and surrender value as of the end of
each Policy Year take into account an average daily charge equal to an annual
charge of 0.70% of the average daily net assets of the Funds for investment
advisory and administrative services fees. The gross annual investment return
rates of 0%, 6% and 12% on the Fund's assets are equal to net annual investment
return rates (net of the 0.70% average daily charge) of -.70%, 5.30% and 11.30%,
respectively.
In addition, the Death Benefit and surrender value as of the end of each
Policy Year take into account the front-end sales load, premium processing
charge, federal tax charge, premium tax charge (assumed to be 2.0% in these
illustrations), Cost of Insurance charge, monthly administrative fee, issue
charge, and mortality and expense risk charge.
The hypothetical returns shown in the tables are without any tax charges
that may be allocable to the Separate Account in the future. In order to produce
after tax returns of 0%, 6%, and 12%, the Separate Account would have to earn a
sufficient amount in excess of 0% or 6% or 12% to cover any tax charges (see
"Detailed Description of Policy Benefits and Provisions -- Deductions and
Charges From the Account Value -- Taxes," page 20).
The "Premium Paid Plus Interest" column of each table shows the amount which
would accumulate if the initial premium was invested to earn interest, after
taxes of 5% per year, compounded annually.
Hartford will furnish upon request, a comparable illustration reflecting the
proposed insured's age, risk classification, Face Amount or initial premium
requested, and reflecting guaranteed Cost of Insurance rates. Hartford will also
furnish an additional similar illustration reflecting current Cost of Insurance
rates which may be less than, but never greater than, the guaranteed Cost of
Insurance rates.
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 33
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
DEATH BENEFIT OPTION: LEVEL
$1,000,000 BASIC FACE AMOUNT
ISSUE AGE: 55 MALE PREFERRED/
ISSUE AGE: 50 FEMALE PREFERRED
$15,500 SCHEDULED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 12% (11.30% NET)
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED CURRENT CHARGES* GUARANTEED CHARGES**
END OF AT 5% -------------------- --------------------
POLICY INTEREST ACCOUNT DEATH ACCOUNT DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT
- ------------- ------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1 16,275 6,640 1,000,000 6,355 1,000,000
2 33,364 19,876 1,000,000 19,276 1,000,000
3 51,307 34,386 1,000,000 33,438 1,000,000
4 70,147 50,280 1,000,000 48,948 1,000,000
5 89,930 67,680 1,000,000 65,923 1,000,000
6 110,701 88,459 1,000,000 86,232 1,000,000
7 132,511 111,199 1,000,000 108,453 1,000,000
8 155,412 136,078 1,000,000 132,757 1,000,000
9 179,457 163,290 1,000,000 159,332 1,000,000
10 204,705 193,046 1,00,0000 188,382 1,000,000
11 231,215 229,559 1,000,000 221,973 1,000,000
12 259,051 270,036 1,000,000 258,855 1,000,000
13 288,279 314,910 1,000,000 299,348 1,000,000
14 318,968 364,656 1,000,000 343,816 1,000,000
15 351,191 419,812 1,000,000 392,680 1,000,000
16 385,026 480,980 1,000,000 446,431 1,000,000
17 420,552 548,784 1,035,877 505,661 1,000,000
18 457,855 623,886 1,140,111 570,998 1,043,461
19 497,022 707,036 1,251,892 642,465 1,137,562
20 538,148 799,101 1,372,056 720,352 1,236,845
25 724,270 1,424,338 2,126,664 1,221,573 1,823,918
30 1,014,302 2,435,429 3,251,826 1,951,085 2,605,123
</TABLE>
<TABLE>
<C> <S>
* THESE VALUES REFLECT INVESTMENT RESULTS USING CURRENT COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
** THESE VALUES REFLECT INVESTMENT RESULTS USING GUARANTEED COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
*** IF YOU SURRENDER YOUR POLICY DURING THE FIRST TWO POLICY YEARS, YOU WILL
RECEIVE A REFUND IN ADDITION TO THE CASH VALUES SHOWN. THE REFUND PLUS THE
CASH VALUE WOULD BE $9,740.00 IN YEAR ONE AND $23,557.74 IN YEAR TWO FOR THE
CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT VALUES AND CASH SURRENDER VALUES WILL
DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES.
</TABLE>
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS
THAN THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGE 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM
THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE
ACCOUNTS AND THE RATES OF RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF
INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 12%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
34 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
DEATH BENEFIT OPTION: LEVEL
$1,000,000 BASIC FACE AMOUNT
ISSUE AGE: 55 MALE PREFERRED/
ISSUE AGE: 50 FEMALE PREFERRED
$15,500 SCHEDULED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 6% (5.30% NET)
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED CURRENT CHARGES* GUARANTEED CHARGES**
END OF AT 5% ----------------------- ----------------------
POLICY INTEREST ACCOUNT DEATH ACCOUNT DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT
- ------------- ------------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1 16,275 6,255*** 1,000,000 5,978 1,000,000
2 33,364 18,372*** 1,000,000 17,806 1,000,000
3 51,307 30,928 1,000,000 30,060 1,000,000
4 70,147 43,921 1,000,000 42,738 1,000,000
5 89,930 57,346 1,000,000 55,832 1,000,000
6 110,701 72,865 1,000,000 71,006 1,000,000
7 132,511 88,870 1,000,000 86,650 1,000,000
8 155,412 105,353 1,000,000 102,754 1,000,000
9 179,457 122,298 1,000,000 119,302 1,000,000
10 204,705 139,682 1,000,000 136,269 1,000,000
11 231,215 161,092 1,000,000 155,138 1,000,000
12 259,051 183,507 1,000,000 174,499 1,000,000
13 288,279 206,971 1,00,0000 194,304 1,000,000
14 318,968 231,513 1,000,000 214,486 1,000,000
15 351,191 257,177 1,000,000 234,972 1,000,000
16 385,026 284,001 1,000,000 255,679 1,000,000
17 420,552 311,968 1,000,000 276,521 1,000,000
18 457,855 341,156 1,000,000 297,403 1,000,000
19 497,022 371,651 1,000,000 318,228 1,000,000
20 538,148 403,540 1,000,000 338,875 1,000,000
25 724,270 583,303 1,000,000 433,159 1,000,000
30 1,014,302 804,440 1,074,102 486,347 1,000,000
</TABLE>
<TABLE>
<C> <S>
* THESE VALUES REFLECT INVESTMENT RESULTS USING CURRENT COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
** THESE VALUES REFLECT INVESTMENT RESULTS USING GUARANTEED COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
*** IF YOU SURRENDER YOUR POLICY DURING THE FIRST TWO POLICY YEARS, YOU WILL
RECEIVE A REFUND IN ADDITION TO THE CASH VALUES SHOWN. THE REFUND PLUS THE
CASH VALUE WOULD BE $9,355.00 IN YEAR ONE AND $22,053.74 IN YEAR TWO FOR THE
CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT VALUES AND CASH SURRENDER VALUES WILL
DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES.
</TABLE>
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS
THAN THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGE 6% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM
THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE
ACCOUNTS AND THE RATES OF RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF
INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 6%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 35
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
DEATH BENEFIT OPTION: LEVEL
$1,000,000 BASIC FACE AMOUNT
ISSUE AGE: 55 MALE PREFERRED/
ISSUE AGE: 50 FEMALE PREFERRED
$15,500 PLANNED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 0% (-0.70% NET)
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED CURRENT CHARGES* GUARANTEED CHARGES**
END OF AT 5% ----------------------- ----------------------
POLICY INTEREST ACCOUNT DEATH ACCOUNT DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT
- ------------- ------------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1 16,275 5,870*** 1,000,000 5,602 1,000,000
2 33,364 16,915*** 1,000,000 16,383 1,000,000
3 51,307 27,697 1,000,000 26,905 1,000,000
4 70,147 38,198 1,000,000 37,149 1,000,000
5 89,930 48,396 1,000,000 47,095 1,000,000
6 110,701 59,867 1,000,000 58,315 1,000,000
7 132,511 70,960 1,000,000 69,163 1,000,000
8 155,412 81,648 1,000,000 79,607 1,000,000
9 179,457 91,897 1,000,000 89,615 1,000,000
10 204,705 101,661 1,000,000 99,141 1,000,000
11 231,215 114,217 1,000,000 109,403 1,000,000
12 259,051 126,576 1,000,000 119,089 1,000,000
13 288,279 138,728 1,000,000 128,113 1,000,000
14 318,968 150,646 1,000,000 136,367 1,000,000
15 351,191 162,318 1,000,000 143,735 1,000,000
16 385,026 173,717 1,000,000 150,081 1,000,000
17 420,552 184,749 1,000,000 155,258 1,000,000
18 457,855 195,427 1,000,000 159,102 1,000,000
19 497,022 205,760 1,000,000 161,426 1,000,000
20 538,148 215,757 1,000,000 162,006 1,000,000
25 724,270 254,025 1,000,000 126,058 1,000,000
30 1,014,302 261,033 1,000,000 -- 1,000,000
</TABLE>
<TABLE>
<C> <S>
* THESE VALUES REFLECT INVESTMENT RESULTS USING CURRENT COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
** THESE VALUES REFLECT INVESTMENT RESULTS USING GUARANTEED COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
*** IF YOU SURRENDER YOUR POLICY DURING THE FIRST TWO POLICY YEARS, YOU WILL
RECEIVE A REFUND IN ADDITION TO THE CASH VALUES SHOWN. THE REFUND PLUS THE
CASH VALUE WOULD BE $8,970.00 IN YEAR ONE AND $20,596.74 IN YEAR TWO FOR THE
CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT VALUES AND CASH SURRENDER VALUES WILL
DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES.
</TABLE>
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS
THAN THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGE 0% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM
THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE
ACCOUNTS AND THE RATES OF RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF
INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
36 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
DEATH BENEFIT OPTION: LEVEL
$750,000 BASIC FACE AMOUNT
$250,000 SUPPLEMENTAL FACE AMOUNT
ISSUE AGE: 55 MALE PREFERRED/
ISSUE AGE: 50 FEMALE PREFERRED
$7,500 SCHEDULED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 12% (11.30% NET)
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED CURRENT CHARGES* GUARANTEED CHARGES**
END OF AT 5% ----------------------- ----------------------
POLICY INTEREST ACCOUNT DEATH ACCOUNT DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT
- ------------- ------------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1 7,875 3,573*** 1,000,000 3,209 1,000,000
2 16,144 9,606*** 1,000,000 8,839 1,000,000
3 24,826 16,159 1,000,000 14,948 1,000,000
4 33,942 23,263 1,000,000 21,561 1,000,000
5 43,514 30,948 1,000,000 28,703 1,000,000
6 53,565 40,441 1,000,000 37,596 1,000,000
7 64,118 50,696 1,000,000 47,187 1,000,000
8 75,199 61,757 1,000,000 57,513 1,000,000
9 86,834 73,665 1,000,000 68,608 1,000,000
10 99,051 86,455 1,000,000 80,495 1,000,000
11 111,878 102,890 1,000,000 93,739 1,000,000
12 125,347 121,037 1,000,000 107,884 1,000,000
13 139,490 141,092 1,000,000 122,975 1,000,000
14 154,339 163,237 1,000,000 139,008 1,000,000
15 169,931 187,692 1,000,000 155,974 1,000,000
16 186,303 214,688 1,000,000 173,851 1,000,000
17 203,493 244,419 1,000,000 192,620 1,000,000
18 221,543 277,214 1,000,000 212,251 1,000,000
19 240,495 313,440 1,000,000 232,717 1,000,000
20 260,394 353,506 1,000,000 253,970 1,000,000
25 350,453 623,999 1,000,000 368,547 1,000,000
30 490,791 1,068,158 1,426,222 482,460 1,000,000
</TABLE>
<TABLE>
<C> <S>
* THESE VALUES REFLECT INVESTMENT RESULTS USING CURRENT COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
** THESE VALUES REFLECT INVESTMENT RESULTS USING GUARANTEED COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
*** IF YOU SURRENDER YOUR POLICY DURING THE FIRST TWO POLICY YEARS, YOU WILL
RECEIVE A REFUND IN ADDITION TO THE CASH VALUES SHOWN. THE REFUND PLUS THE
CASH VALUE WOULD BE $4,210.50 IN YEAR ONE AND $9,606.00 IN YEAR TWO FOR THE
CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT VALUES AND CASH SURRENDER VALUES WILL
DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES.
</TABLE>
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS
THAN THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGE 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM
THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE
ACCOUNTS AND THE RATES OF RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF
INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 12%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 37
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
DEATH BENEFIT OPTION: LEVEL
$750,000 BASIC FACE AMOUNT
$250,000 SUPPLEMENTAL FACE AMOUNT
ISSUE AGE: 55 MALE PREFERRED/
ISSUE AGE: 50 FEMALE PREFERRED
$7,500 SCHEDULED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 6% (5.30% NET)
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED CURRENT CHARGES* GUARANTEED CHARGES**
END OF AT 5% ----------------------- ----------------------
POLICY INTEREST ACCOUNT DEATH ACCOUNT DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT
- ------------- ------------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1 7,875 3,353*** 1,000,000 3,000 1,000,000
2 16,144 8,828*** 1,000,000 8,105 1,000,000
3 24,826 14,443 1,000,000 13,334 1,000,000
4 33,942 20,181 1,000,000 18,669 1,000,000
5 43,514 26,019 1,000,000 24,084 1,000,000
6 53,565 33,084 1,000,000 30,709 1,000,000
7 64,118 40,242 1,000,000 37,405 1,000,000
8 75,199 47,458 1,000,000 44,137 1,000,000
9 86,834 54,690 1,000,000 50,862 1,000,000
10 99,051 61,881 1,000,000 57,520 1,000,000
11 111,878 71,654 1,000,000 64,553 1,000,000
12 125,347 81,778 1,000,000 71,387 1,000,000
13 139,490 92,254 1,000,000 77,907 1,000,000
14 154,339 103,074 1,000,000 83,972 1,000,000
15 169,931 114,290 1,000,000 89,420 1,000,000
16 186,303 125,893 1,000,000 94,061 1,000,000
17 203,493 137,796 1,000,000 97,682 1,000,000
18 221,543 150,025 1,000,000 100,045 1,000,000
19 240,495 162,605 1,000,000 100,864 1,000,000
20 260,394 175,563 1,000,000 99,788 1,000,000
25 350,453 238,152 1,000,000 46,648 1,000,000
30 490,791 283,875 1,000,000 -- --
</TABLE>
<TABLE>
<C> <S>
* THESE VALUES REFLECT INVESTMENT RESULTS USING CURRENT COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
** THESE VALUES REFLECT INVESTMENT RESULTS USING GUARANTEED COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
*** IF YOU SURRENDER YOUR POLICY DURING THE FIRST TWO POLICY YEARS, YOU WILL
RECEIVE A REFUND IN ADDITION TO THE CASH VALUES SHOWN. THE REFUND PLUS THE
CASH VALUE WOULD BE $3,990.50 IN YEAR ONE AND $8,828.00 IN YEAR TWO FOR THE
CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT VALUES AND CASH SURRENDER VALUES WILL
DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES.
</TABLE>
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS
THAN THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGE 6% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM
THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE
ACCOUNTS AND THE RATES OF RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF
INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 6%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
38 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
DEATH BENEFIT OPTION: LEVEL
$750,000 BASIC FACE AMOUNT
$250,000 SUPPLEMENTAL FACE AMOUNT
ISSUE AGE: 55 MALE PREFERRED/
ISSUE AGE: 50 FEMALE PREFERRED
$7,500 SCHEDULED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 0% (-0.70% NET)
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED CURRENT CHARGES* GUARANTEED CHARGES**
END OF AT 5% ----------------------- ----------------------
POLICY INTEREST ACCOUNT DEATH ACCOUNT DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT
- ------------- ------------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1 7,875 3,133*** 1,000,000 2,791 1,000,000
2 16,144 8,078*** 1,000,000 7,398 1,000,000
3 24,826 12,848 1,000,000 11,835 1,000,000
4 33,942 17,422 1,000,000 16,082 1,000,000
5 43,514 21,776 1,000,000 20,113 1,000,000
6 53,565 26,993 1,000,000 25,011 1,000,000
7 64,118 31,913 1,000,000 29,616 1,000,000
8 75,199 36,502 1,000,000 33,894 1,000,000
9 86,834 40,719 1,000,000 37,803 1,000,000
10 99,051 44,509 1,000,000 41,288 1,000,000
11 111,878 50,444 1,000,000 44,770 1,000,000
12 125,347 56,205 1,000,000 47,681 1,000,000
13 139,490 61,778 1,000,000 49,921 1,000,000
14 154,339 67,136 1,000,000 51,365 1,000,000
15 169,931 72,260 1,000,000 51,873 1,000,000
16 186,303 77,119 1,000,000 51,281 1,000,000
17 203,493 81,608 1,000,000 49,414 1,000,000
18 221,543 85,734 1,000,000 46,065 1,000,000
19 240,495 89,507 1,000,000 41,005 1,000,000
20 260,394 92,931 1,000,000 33,954 1,000,000
25 350,453 95,700 1,000,000 -- --
30 490,791 55,227 1,000,000 -- --
</TABLE>
<TABLE>
<C> <S>
* THESE VALUES REFLECT INVESTMENT RESULTS USING CURRENT COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
** THESE VALUES REFLECT INVESTMENT RESULTS USING GUARANTEED COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
*** IF YOU SURRENDER YOUR POLICY DURING THE FIRST TWO POLICY YEARS, YOU WILL
RECEIVE A REFUND IN ADDITION TO THE CASH VALUES SHOWN. THE REFUND PLUS THE
CASH VALUE WOULD BE $3,770.50 IN YEAR ONE AND $8,078.00 IN YEAR TWO FOR THE
CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT VALUES AND CASH SURRENDER VALUES WILL
DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES.
</TABLE>
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS
THAN THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGE 0% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM
THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE
ACCOUNTS AND THE RATES OF RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF
INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 39
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
DEATH BENEFIT OPTION: LEVEL
$1,000,000 BASIC FACE AMOUNT
ISSUE AGE: 65 MALE PREFERRED/
ISSUE AGE: 65 FEMALE PREFERRED
$27,000 SCHEDULED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 12% (11.30% NET)
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED CURRENT CHARGES* GUARANTEED CHARGES**
END OF AT 5% ----------------------- --------------------
POLICY INTEREST ACCOUNT DEATH ACCOUNT DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT
- ------------- ------------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1 28,350 12,929*** 1,000,000 12,643 1,000,000
2 58,118 36,326*** 1,000,000 35,725 1,000,000
3 89,373 61,279 1,000,000 60,329 1,000,000
4 122,192 87,821 1,000,000 86,483 1,000,000
5 156,652 115,976 1,000,000 114,207 1,000,000
6 192,834 148,056 1,000,000 145,804 1,000,000
7 230,826 181,978 1,000,000 179,186 1,000,000
8 270,717 225,670 1,000,000 214,301 1,000,000
9 312,603 273,714 1,000,000 251,078 1,000,000
10 356,583 326,531 1,000,000 289,476 1,000,000
11 402,762 388,547 1,000,000 332,772 1,000,000
12 451,251 457,159 1,000,000 378,477 1,000,000
13 502,163 533,085 1,000,000 427,000 1,000,000
14 555,621 617,128 1,000,000 478,929 1,000,000
15 611,752 710,397 1,000,000 535,056 1,000,000
16 670,690 813,544 1,094,278 596,446 1,000,000
17 732,574 926,834 1,220,014 664,590 1,000,000
18 797,553 1,051,293 1,356,091 741,634 1,000,000
19 865,781 1,188,074 1,503,895 829,591 1,050,118
20 937,420 1,338,460 1,664,945 924,255 1,149,704
25 1,261,632 2,336,059 2,710,973 1,504,229 1,745,643
30 1,766,849 3,916,137 4,291,618 2,332,386 2,556,016
</TABLE>
<TABLE>
<C> <S>
* THESE VALUES REFLECT INVESTMENT RESULTS USING CURRENT COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
** THESE VALUES REFLECT INVESTMENT RESULTS USING GUARANTEED COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
*** IF YOU SURRENDER YOUR POLICY DURING THE FIRST TWO POLICY YEARS, YOU WILL
RECEIVE A REFUND IN ADDITION TO THE CASH VALUES SHOWN. THE REFUND PLUS THE
CASH VALUE WOULD BE $17,601.04 IN YEAR ONE AND $40,379.99 IN YEAR TWO FOR
THE CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT VALUES AND CASH SURRENDER VALUES WILL
DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES.
</TABLE>
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS
THAN THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGE 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM
THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE
ACCOUNTS AND THE RATES OF RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF
INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 12%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
40 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
DEATH BENEFIT OPTION: LEVEL
$1,000,000 BASIC FACE AMOUNT
ISSUE AGE: 65 MALE PREFERRED/
ISSUE AGE: 65 FEMALE PREFERRED
$27,000 SCHEDULED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 6% (5.30% NET)
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED CURRENT CHARGES* GUARANTEED CHARGES**
END OF AT 5% ----------------------- ----------------------
POLICY INTEREST ACCOUNT DEATH ACCOUNT DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT
- ------------- ------------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1 28,350 12,197*** 1,000,000 11,920 1,000,000
2 58,118 33,549*** 1,000,000 32,983 1,000,000
3 89,373 54,992 1,000,000 54,123 1,000,000
4 122,192 76,395 1,000,000 75,206 1,000,000
5 156,652 97,597 1,000,000 96,074 1,000,000
6 192,834 120,602 1,000,000 118,723 1,000,000
7 230,826 143,053 1,000,000 140,797 1,000,000
8 270,717 172,784 1,000,000 161,952 1,000,000
9 312,603 203,617 1,000,000 181,771 1,000,000
10 356,583 235,548 1,000,000 199,788 1,000,000
11 402,762 271,759 1,000,000 218,186 1,000,000
12 451,251 309,412 1,000,000 234,026 1,000,000
13 502,163 348,475 1,000,000 246,774 1,000,000
14 555,621 388,842 1,000,000 255,798 1,000,000
15 611,752 430,594 1,000,000 260,268 1,000,000
16 670,690 473,134 1,000,000 259,047 1,000,000
17 732,574 516,297 1,000,000 250,589 1,000,000
18 797,553 560,462 1,000,000 232,792 1,000,000
19 865,781 606,045 1,000,000 202,903 1,000,000
20 937,420 653,511 1,000,000 157,330 1,000,000
25 1,261,632 930,954 1,080,363 -- --
30 1,766,849 1,273,986 1,396,136 -- --
</TABLE>
<TABLE>
<C> <S>
* THESE VALUES REFLECT INVESTMENT RESULTS USING CURRENT COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
** THESE VALUES REFLECT INVESTMENT RESULTS USING GUARANTEED COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
*** IF YOU SURRENDER YOUR POLICY DURING THE FIRST TWO POLICY YEARS, YOU WILL
RECEIVE A REFUND IN ADDITION TO THE CASH VALUES SHOWN. THE REFUND PLUS THE
CASH VALUE WOULD BE $16,869.04 IN YEAR ONE AND $37,602.99 IN YEAR TWO FOR
THE CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT VALUES AND CASH SURRENDER VALUES WILL
DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES.
</TABLE>
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS
THAN THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGE 6% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM
THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE
ACCOUNTS AND THE RATES OF RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF
INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 6%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 41
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
DEATH BENEFIT OPTION: LEVEL
$1,000,000 BASIC FACE AMOUNT
ISSUE AGE: 65 MALE PREFERRED/
ISSUE AGE: 65 FEMALE PREFERRED
$27,000 SCHEDULED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 0% (-0.70% NET)
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED CURRENT CHARGES* GUARANTEED CHARGES**
END OF AT 5% ----------------------- ----------------------
POLICY INTEREST ACCOUNT DEATH ACCOUNT DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT
- ------------- ------------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1 28,350 11,466*** 1,000,000 11,198 1,000,000
2 58,118 30,861*** 1,000,000 30,329 1,000,000
3 89,373 49,126 1,000,000 48,333 1,000,000
4 122,192 66,137 1,000,000 65,084 1,000,000
5 156,652 81,744 1,000,000 80,434 1,000,000
6 192,834 97,856 1,000,000 96,289 1,000,000
7 230,826 112,101 1,000,000 110,276 1,000,000
8 270,717 132,396 1,000,000 122,059 1,000,000
9 312,603 152,149 1,000,000 131,221 1,000,000
10 356,583 171,303 1,000,000 137,295 1,000,000
11 402,762 192,429 1,000,000 142,036 1,000,000
12 451,251 212,893 1,000,000 142,668 1,000,000
13 502,163 232,548 1,000,000 138,587 1,000,000
14 555,621 251,140 1,000,000 129,061 1,000,000
15 611,752 268,599 1,000,000 113,113 1,000,000
16 670,690 283,955 1,000,000 89,401 1,000,000
17 732,574 296,658 1,000,000 56,140 1,000,000
18 797,553 306,796 1,000,000 10,933 1,000,000
19 865,781 314,429 1,000,000 -- --
20 937,420 319,587 1,000,000 -- --
25 1,261,632 262,720 1,000,000 -- --
30 1,766,849 -- -- -- --
</TABLE>
<TABLE>
<C> <S>
* THESE VALUES REFLECT INVESTMENT RESULTS USING CURRENT COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
** THESE VALUES REFLECT INVESTMENT RESULTS USING GUARANTEED COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
*** IF YOU SURRENDER YOUR POLICY DURING THE FIRST TWO POLICY YEARS, YOU WILL
RECEIVE A REFUND IN ADDITION TO THE CASH VALUES SHOWN. THE REFUND PLUS THE
CASH VALUE WOULD BE $16,138.04 IN YEAR ONE AND $34,914.99 IN YEAR TWO FOR
THE CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT VALUES AND CASH SURRENDER VALUES WILL
DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES.
</TABLE>
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS
THAN THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGE 0% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM
THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE
ACCOUNTS AND THE RATES OF RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF
INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
42 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
DEATH BENEFIT OPTION: LEVEL
$750,000 BASIC FACE AMOUNT
$250,000 SUPPLEMENTAL FACE AMOUNT
ISSUE AGE: 65 MALE PREFERRED/
ISSUE AGE: 65 FEMALE PREFERRED
$21,500 SCHEDULED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 12% (11.30% NET)
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED CURRENT CHARGES* GUARANTEED CHARGES**
END OF AT 5% ----------------------- ----------------------
POLICY INTEREST ACCOUNT DEATH ACCOUNT DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT
- ------------- ------------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1 22,575 12,091*** 1,000,000 11,727 1,000,000
2 46,279 30,919*** 1,000,000 30,151 1,000,000
3 71,168 50,812 1,000,000 49,598 1,000,000
4 97,301 71,737 1,000,000 70,028 1,000,000
5 124,741 93,643 1,000,000 91,383 1,000,000
6 153,553 118,222 1,000,000 115,345 1,000,000
7 183,806 143,737 1,000,000 140,170 1,000,000
8 215,571 178,412 1,000,000 165,644 1,000,000
9 248,925 216,474 1,000,000 191,489 1,000,000
10 283,946 258,229 1,000,000 217,393 1,000,000
11 320,718 306,799 1,000,000 245,176 1,000,000
12 359,329 360,386 1,000,000 272,793 1,000,000
13 399,871 419,485 1,000,000 300,025 1,000,000
14 442,439 484,607 1,000,000 326,642 1,000,000
15 487,136 556,543 1,000,000 352,340 1,000,000
16 534,068 635,594 1,000,000 376,689 1,000,000
17 583,346 722,891 1,000,000 399,100 1,000,000
18 635,089 819,948 1,057,673 418,793 1,000,000
19 689,418 926,790 1,173,156 434,828 1,000,000
20 746,464 1,044,229 1,298,943 446,094 1,000,000
25 1,004,633 1,822,499 2,114,992 357,400 1,000,000
30 1,406,935 3,053,019 3,345,743 -- --
</TABLE>
<TABLE>
<C> <S>
* THESE VALUES REFLECT INVESTMENT RESULTS USING CURRENT COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
** THESE VALUES REFLECT INVESTMENT RESULTS USING GUARANTEED COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
*** IF YOU SURRENDER YOUR POLICY DURING THE FIRST TWO POLICY YEARS, YOU WILL
RECEIVE A REFUND IN ADDITION TO THE CASH VALUES SHOWN. THE REFUND PLUS THE
CASH VALUE WOULD BE $13,918.50 IN YEAR ONE AND $30,919.00 IN YEAR TWO FOR
THE CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT VALUES AND CASH SURRENDER VALUES WILL
DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES.
</TABLE>
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS
THAN THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGE 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM
THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE
ACCOUNTS AND THE RATES OF RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF
INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 12%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 43
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
DEATH BENEFIT OPTION: LEVEL
$750,000 BASIC FACE AMOUNT
$250,000 SUPPLEMENTAL FACE AMOUNT
ISSUE AGE: 65 MALE PREFERRED/
ISSUE AGE: 65 FEMALE PREFERRED
$21,500 SCHEDULED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 6% (5.30% NET)
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED CURRENT CHARGES* GUARANTEED CHARGES**
END OF AT 5% ----------------------- ----------------------
POLICY INTEREST ACCOUNT DEATH ACCOUNT DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT
- ------------- ------------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1 22,575 11,405*** 1,000,000 11,051 1,000,000
2 46,279 28,481*** 1,000,000 27,757 1,000,000
3 71,168 45,444 1,000,000 44,333 1,000,000
4 97,301 62,141 1,000,000 60,623 1,000,000
5 124,741 78,388 1,000,000 76,441 1,000,000
6 153,553 95,659 1,000,000 93,259 1,000,000
7 183,806 112,024 1,000,000 109,141 1,000,000
8 215,571 135,613 1,000,000 123,685 1,000,000
9 248,925 160,011 1,000,000 136,391 1,000,000
10 283,946 185,193 1,000,000 146,686 1,000,000
11 320,718 213,309 1,000,000 155,665 1,000,000
12 359,329 242,397 1,000,000 161,056 1,000,000
13 399,871 272,371 1,000,000 162,087 1,000,000
14 442,439 303,046 1,000,000 157,820 1,000,000
15 487,136 334,429 1,000,000 147,022 1,000,000
16 534,068 365,527 1,000,000 128,010 1,000,000
17 583,346 396,044 1,000,000 98,492 1,000,000
18 635,089 426,189 1,000,000 55,384 1,000,000
19 689,418 456,183 1,000,000 -- --
20 746,464 486,258 1,000,000 -- --
25 1,004,633 628,972 1,000,000 -- --
30 1,406,935 781,318 1,000,000 -- --
</TABLE>
<TABLE>
<C> <S>
* THESE VALUES REFLECT INVESTMENT RESULTS USING CURRENT COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
** THESE VALUES REFLECT INVESTMENT RESULTS USING GUARANTEED COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
*** IF YOU SURRENDER YOUR POLICY DURING THE FIRST TWO POLICY YEARS, YOU WILL
RECEIVE A REFUND IN ADDITION TO THE CASH VALUES SHOWN. THE REFUND PLUS THE
CASH VALUE WOULD BE $13,232.50 IN YEAR ONE AND $28,481.00 IN YEAR TWO FOR
THE CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT VALUES AND CASH SURRENDER VALUES WILL
DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES.
</TABLE>
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS
THAN THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGE 6% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM
THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE
ACCOUNTS AND THE RATES OF RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF
INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 6%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
44 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
DEATH BENEFIT OPTION: LEVEL
$750,000 BASIC FACE AMOUNT
$250,000 SUPPLEMENTAL FACE AMOUNT
ISSUE AGE: 65 MALE PREFERRED/
ISSUE AGE: 65 FEMALE PREFERRED
$21,500 SCHEDULED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 0% (-0.70% NET)
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED CURRENT CHARGES* GUARANTEED CHARGES**
END OF AT 5% ----------------------- ----------------------
POLICY INTEREST ACCOUNT DEATH ACCOUNT DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT
- ------------- ------------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1 22,575 10,719*** 1,000,000 10,377 1,000,000
2 46,279 26,126*** 1,000,000 25,446 1,000,000
3 71,168 40,451 1,000,000 39,437 1,000,000
4 97,301 53,558 1,000,000 52,213 1,000,000
5 124,741 65,286 1,000,000 63,612 1,000,000
6 153,553 77,062 1,000,000 75,059 1,000,000
7 183,806 86,959 1,000,000 84,627 1,000,000
8 215,571 103,147 1,000,000 91,949 1,000,000
9 248,925 118,841 1,000,000 96,569 1,000,000
10 283,946 133,976 1,000,000 97,966 1,000,000
11 320,718 150,242 1,000,000 97,002 1,000,000
12 359,329 165,851 1,000,000 91,627 1,000,000
13 399,871 180,638 1,000,000 81,146 1,000,000
14 442,439 194,317 1,000,000 64,731 1,000,000
15 487,136 206,797 1,000,000 41,283 1,000,000
16 534,068 216,795 1,000,000 9,279 1,000,000
17 583,346 223,785 1,000,000 -- --
18 635,089 226,911 1,000,000 -- --
19 689,418 226,650 1,000,000 -- --
20 746,464 223,137 1,000,000 -- --
25 1,004,633 113,345 1,000,000 -- --
30 1,406,935 -- -- -- --
</TABLE>
<TABLE>
<C> <S>
* THESE VALUES REFLECT INVESTMENT RESULTS USING CURRENT COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
** THESE VALUES REFLECT INVESTMENT RESULTS USING GUARANTEED COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
*** IF YOU SURRENDER YOUR POLICY DURING THE FIRST TWO POLICY YEARS, YOU WILL
RECEIVE A REFUND IN ADDITION TO THE CASH VALUES SHOWN. THE REFUND PLUS THE
CASH VALUE WOULD BE $12,546.50 IN YEAR ONE AND $26,126.00 IN YEAR TWO FOR
THE CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT VALUES AND CASH SURRENDER VALUES WILL
DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES.
</TABLE>
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS
THAN THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGE 0% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM
THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE
ACCOUNTS AND THE RATES OF RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF
INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 45
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
ITT Hartford Life and Annuity Insurance Company:
We have audited the accompanying statutory-basis balance sheets of ITT Hartford
Life and Annuity Insurance Company (a Connecticut Corporation and wholly owned
subsidiary of Hartford Life Insurance Company) (the Company) as of December 31,
1996 and 1995, and the related statutory-basis statements of income, changes in
capital and surplus, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
statutory-basis 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-basis
financial statements. When statutory-basis 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 the
differences in accounting practices as described in Note 1 are material, the
statutory-basis financial statements referred to above do not present fairly, in
accordance with generally accepted accounting principles, the financial position
of the Company as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996.
However, in our opinion, the statutory-basis financial statements referred to
above present fairly, in all material respects, the financial position of the
Company as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1996
in conformity with statutory accounting practices as described in Note 1.
As discussed in Note 1 of notes to statutory financial statements, during 1994,
the Company changed its valuation method in determining aggregate reserves for
future benefits.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 10, 1997
<PAGE>
46 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATUTORY BASIS STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
($000)
<S> <C> <C> <C>
Revenues
Premiums and Annuity Considerations.... $ 250,244 $ 165,792 $ 442,173
Annuity and Other Fund Deposits........ 1,897,347 1,087,661 608,685
Net Investment Income.................. 98,441 78,787 29,012
Commissions and Expense Allowances on
Reinsurance Ceded..................... 370,637 183,380 154,527
Reserve Adjustment on Reinsurance
Ceded................................. 3,864,395 1,879,785 1,266,926
Other Revenues......................... 161,906 140,796 41,857
---------- ---------- ----------
Total Revenues....................... 6,642,970 3,536,201 2,543,180
---------- ---------- ----------
Benefits and Expenses
Death and Annuity Benefits............. 60,111 53,029 7,948
Surrenders and Other Benefit
Payments.............................. 276,720 221,392 181,749
Commissions and Other Expenses......... 491,720 236,202 186,303
Increase in Reserves for Future
Benefits.............................. 27,351 94,253 416,748
Increase in Liability for Premium and
Other Deposit Funds................... 207,156 460,124 182,934
Net Transfers to Separate Accounts..... 5,492,964 2,414,669 1,541,419
---------- ---------- ----------
Total Benefits and Expenses.......... 6,556,022 3,479,669 2,517,101
---------- ---------- ----------
Net Gain from Operations Before Federal
Income Tax Expense...................... 86,948 56,532 26,079
Federal Income Tax Expense............. 19,360 14,048 24,038
---------- ---------- ----------
Net Gain from Operations................. 67,588 42,484 2,041
Net Realized Capital Gains (Losses).... 407 374 (2)
---------- ---------- ----------
Net Income............................... $ 67,995 $ 42,858 $ 2,039
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 47
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATUTORY BASIS BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1996 1995
----------- ----------
<S> <C> <C>
($000)
Assets
Bonds........................................... $ 1,268,480 $1,226,489
Common Stocks................................... 44,996 39,776
Policy Loans.................................... 28,853 22,521
Cash and Short-Term Investments................. 176,830 173,304
Other Invested Assets........................... 2,858 13,432
----------- ----------
Total Cash and Invested Assets................ 1,522,017 1,475,522
----------- ----------
Investment Income Due and Accrued............... 14,555 18,021
Premium Balances Receivable..................... 373 402
Receivables from Affiliates..................... 257 8,182
Other Assets.................................... 19,099 25,907
Separate Account Assets......................... 14,619,324 7,324,910
----------- ----------
Total Assets.................................. $16,175,625 $8,852,944
----------- ----------
----------- ----------
Liabilities
Aggregate Reserves for Future Benefits.......... $ 571,970 $ 542,082
Policy and Contract Claims...................... 6,806 8,223
Liability for Premium and Other Deposit Funds... 1,155,143 948,361
Asset Valuation Reserve......................... 7,442 8,010
Payable to Affiliates........................... 10,022 3,682
Other Liabilities............................... (498,195) (220,658)
Separate Account Liabilities.................... 14,619,324 7,324,910
----------- ----------
Total Liabilities............................. 15,872,512 8,614,610
----------- ----------
Capital and Surplus
Common Stock.................................... 2,500 2,500
Gross Paid-In and Contributed Surplus........... 226,043 226,043
Unassigned Funds................................ 74,570 9,791
----------- ----------
Total Capital and Surplus..................... 303,113 238,334
----------- ----------
Total Liabilities and Capital and Surplus....... $16,175,625 $8,852,944
----------- ----------
----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
48 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATUTORY BASIS STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
($000)
Capital and Surplus -- Beginning of
Year................................... $ 238,334 $ 91,285 $ 88,693
--------- --------- --------
Net Income............................ 67,995 42,858 2,039
Change in Net Unrealized Capital
(Losses) Gains on Common Stocks...... (5,171) 1,709 (133)
Change in Asset Valuation Reserve..... 568 (5,588) (1,356)
Change in Non-Admitted Assets......... 1,387 (1,944) (8,599)
Change in Reserve (Valuation Basis)... -- -- 10,659
Aggregate Write-ins for Surplus....... -- 8,080 (18)
Dividends to Shareholder.............. -- (10,000) --
Paid-In Surplus....................... -- 111,934 --
--------- --------- --------
Change in Capital and Surplus....... 64,779 147,049 2,592
--------- --------- --------
Capital and Surplus -- End of Year...... $ 303,113 $ 238,334 $ 91,285
--------- --------- --------
--------- --------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 49
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATUTORY BASIS STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
($000)
Operations
Premiums, Annuity Considerations and
Other Fund Deposits.................. $ 2,147,627 $ 1,253,511 $ 1,050,493
Net Investment Income................. 106,178 78,328 24,519
Other Revenues........................ 4,396,892 2,253,466 1,515,700
----------- ----------- -----------
Total Revenues...................... 6,650,697 3,585,305 2,590,712
----------- ----------- -----------
Benefits Paid......................... 338,998 277,965 181,205
Federal Income Taxes Paid on
Operations........................... 28,857 208,423 20,634
Other Expenses........................ 6,254,139 2,664,385 1,832,905
----------- ----------- -----------
Total Benefits and Expenses......... 6,621,994 3,150,773 2,034,744
----------- ----------- -----------
Net Cash from Operations............ 28,703 434,532 555,968
----------- ----------- -----------
Proceeds from Investments
Bonds................................. 871,019 287,941 87,747
Common Stocks......................... 72,100 52 --
Other................................. 10 28 40
----------- ----------- -----------
Total Investment Proceeds........... 943,129 288,021 87,787
----------- ----------- -----------
Taxes (Paid) Received on Capital (Gains)
Losses................................. (936) (226) 96
Paid-In Surplus......................... -- 111,934 --
Other Cash Provided..................... 41,998 28,199 30,554
----------- ----------- -----------
Total Proceeds...................... 1,012,894 862,460 674,405
----------- ----------- -----------
Cost of Investments Acquired
Bonds................................. 914,523 720,521 595,181
Common Stocks......................... 82,495 35,794 808
Miscellaneous Applications............ 130 2,146 2,523
----------- ----------- -----------
Total Investments Acquired.......... 997,148 758,461 598,512
----------- ----------- -----------
Other Cash Applied
Dividends Paid to Shareholders........ -- 10,000 --
Other................................. 12,220 5,007 24,813
----------- ----------- -----------
Total Other Cash Applied............ 12,220 15,007 24,813
----------- ----------- -----------
Total Applications................ 1,009,368 773,468 623,325
----------- ----------- -----------
Net Change in Cash and Short-Term
Investments............................ 3,526 88,992 51,080
Cash and Short-Term Investments,
Beginning of Year...................... 173,304 84,312 33,232
----------- ----------- -----------
Cash and Short-Term Investments, End of
Year................................... $ 176,830 $ 173,304 $ 84,312
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
50 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)
- ---------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
ITT Hartford Life and Annuity Insurance Company ("ILA" or "the Company"),
formerly known as ITT Life Insurance Corporation, is a wholly owned subsidiary
of Hartford Life Insurance Company ("HLIC"), which is an indirect subsidiary of
Hartford Life, Inc. ("Hartford Life"), which is ultimately owned by ITT Hartford
Group, Inc. ("The Hartford"), formerly a wholly owned subsidiary of ITT
Corporation ("ITT"). On February 10, 1997, The Hartford announced its plans to
sell up to 20% of Hartford Life to the public. 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") and the State of
Connecticut Department of Insurance.
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.
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;
(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, generally, for universal life
policies and investment products, are only recorded for policy charges for
the cost of insurance, policy administration and surrender charges assessed
to policy account balances. Also, for GAAP purposes, premiums for
traditional life insurance policies are recognized as revenues when they are
due from policyholders and the retrospective deposit method is used in
accounting for universal life and other types of contracts where the payment
pattern is irregular or surrender charges are a significant source of
profit. The prospective deposit method is used for GAAP purposes where
investment margins are the primary source of profit;
(3) development of liabilities for future policy benefits, which for
statutory purposes predominantly use interest rate and mortality assumptions
prescribed by the NAIC which may vary considerably from interest and
mortality assumptions used for GAAP financial reporting;
(4) providing for income taxes based on current taxable income (tax return)
only for statutory purposes, rather than establishing additional assets or
liabilities for deferred Federal income taxes to recognize the tax effect
related to reporting revenues and expenses in different periods for
financial reporting and tax return purposes;
(5) excluding certain GAAP assets designated as non-admitted assets (e.g.,
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 on an option basis, using a twenty year phase-in approach,
whereas GAAP liabilities are required to be recorded;
(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
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 51
- --------------------------------------------------------------------------------
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;
(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 fixed maturities were classified on a
GAAP basis as "available-for- sale" and accordingly, those investments were
reflected at fair value with the corresponding impact included as a
component of Stockholder's Equity designated as "Net unrealized capital
(loss)/ gain on investments, net of tax". For statutory reporting purposes,
Net Unrealized Capital Losses (Gains) on Common Stocks represent unrealized
losses (gains) 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, 1996, 1995 and 1994, the
significant differences between statutory and GAAP basis net income and capital
and surplus for the Company are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
GAAP Net Income................ $ 41,202 $ 38,821 $ 23,295
Amortization and deferral of
policy acquisition costs...... (341,572) (174,341) (117,863)
Change in unearned revenue
reserve....................... 55,504 32,300 24,494
Deferred taxes................. 2,090 2,801 (9,267)
Separate accounts.............. 306,978 146,635 75,941
Other, net..................... 3,793 (3,358) 5,439
----------- ----------- -----------
Statutory Net Income........... $ 67,995 $ 42,858 $ 2,039
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
GAAP Capital and Surplus....... $ 503,887 $ 455,541 $ 199,785
Deferred policy acquisition
costs......................... (938,114) (596,542) (422,201)
Unearned revenue reserve....... 130,148 74,644 42,344
Deferred taxes................. 12,823 1,493 13,257
Separate accounts.............. 640,101 333,123 186,488
Asset valuation reserve........ (7,442) (8,010) (2,422)
Unrealized gain (loss) on
bonds......................... 5,112 (1,696) 21,918
Adjustment relating to Lyndon
contribution (see Note 3)..... (41,277) (41,277) --
Other, net..................... (2,125) 21,058 52,116
----------- ----------- -----------
Statutory Capital and
Surplus....................... $ 303,113 $ 238,334 $ 91,285
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
AGGREGATE RESERVES AND LIABILITIES 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 5%. 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 Income.
During 1994, the Company changed the valuation method on aggregate reserves
for future benefits resulting in a $10.7 million increase in surplus. The new
valuation method is in accordance with presently accepted actuarial standards.
INVESTMENTS
Investments in bonds are carried at amortized cost. Bonds which 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.
Common stocks are carried at market value with the difference from cost
reflected in surplus. Other invested assets are generally recorded at fair
value.
<PAGE>
52 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
Changes in net unrealized capital (losses)/gains on common stocks are
reported as (reductions)/additions of surplus. 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 decreased by $568 in 1996 and increased by $5,588 and $1,356
in 1995 and 1994, respectively. Additionally, the Interest Maintenance Reserve
("IMR") captures net realized capital gains and losses, net of applicable income
taxes, resulting from changes in interest rates and amortizes these gains or
losses into income over the remaining life of the mortgage loan or bond sold.
Realized capital gains and losses, net of taxes not included in IMR are reported
in the Statutory Basis Statements of Income. Realized investment gains and
losses are determined on a specific identification basis. The amount of net
capital gains reclassified from the IMR was $1,413 and $39 in 1996 and 1995,
respectively, and the amount of net capital losses was $67 in 1994. The amount
of income amortized was $392, $256 and $114 in 1996, 1995 and 1994,
respectively.
OTHER LIABILITIES
The amount reflected in other liabilities includes a receivable from the
separate accounts of $640 million and $333 million as of December 31, 1996 and
1995, respectively. The balances are classified in accordance with NAIC
accounting practices.
- ---------------------------------------------------
2. INVESTMENTS
(A) COMPONENTS OF NET INVESTMENT INCOME
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Interest income from
bonds.................... $ 89,940 $ 76,100 $ 28,335
Interest income from
policy loans............. 1,846 1,504 454
Interest and dividends
from other investments... 7,864 2,288 1,069
--------- --------- ---------
Gross investment income... 99,650 79,892 29,858
Less: investment
expenses................. 1,209 1,105 846
--------- --------- ---------
Net investment income..... $ 98,441 $ 78,787 $ 29,012
--------- --------- ---------
--------- --------- ---------
</TABLE>
(B) COMPONENTS OF NET UNREALIZED CAPITAL (LOSSES) GAINS ON COMMON STOCKS
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Gross unrealized capital gains
at end of year............... $ 713 $ 1,724 $ 75
Gross unrealized capital
losses at end of year........ (4,160) -- (60)
--------- --------- ---------
Net unrealized capital
(losses) gains............... (3,447) 1,724 15
Balance at beginning of
year......................... 1,724 15 148
--------- --------- ---------
Change in net unrealized
capital (losses) gains on
common stocks................ $ (5,171) $ 1,709 $ (133)
--------- --------- ---------
--------- --------- ---------
</TABLE>
(C) COMPONENTS OF NET UNREALIZED CAPITAL (LOSSES) GAINS ON BONDS AND SHORT-TERM
INVESTMENTS
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Gross unrealized
capital gains at end
of year............... $ 11,821 $ 22,251 $ 986
Gross unrealized
capital losses at end
of year............... (3,842) (1,374) (34,718)
---------- ---------- ----------
Net unrealized capital
gains (losses) after
tax................... 7,979 20,877 (33,732)
Balance at beginning of
year.................. 20,877 (33,732) 5,232
---------- ---------- ----------
Change in net
unrealized capital
(losses) gains on
bonds and short-term
investments........... $ (12,898) $ 54,609 $ (38,964)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
(D) COMPONENTS OF NET REALIZED CAPITAL GAINS (LOSSES)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Bonds and short-term
investments.................... $ 2,756 $ 156 $ (101)
Common stocks................... 0 52 0
Real estate and other........... 0 0 34
--------- --------- ---------
Realized capital gains
(losses)....................... 2,756 208 (67)
Capital gains taxes (benefit)... 936 (205) 2
--------- --------- ---------
Net realized capital gains
(losses) after tax............. 1,820 413 (69)
Less: IMR capital gains
(losses)....................... 1,413 39 (67)
--------- --------- ---------
Net realized capital gains
(losses)....................... $ 407 $ 374 $ (2)
--------- --------- ---------
--------- --------- ---------
</TABLE>
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 53
- --------------------------------------------------------------------------------
(E) OFF-BALANCE SHEET INVESTMENTS
The Company had no significant financial instruments with off-balance sheet
risk as of December 31, 1996 and 1995.
(F) CONCENTRATION OF CREDIT RISK
Excluding U.S. government and government agency investments, the Company is
not exposed to any significant concentration of credit risk.
(G) BONDS, SHORT-TERM AND COMMON STOCK INVESTMENTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
------------------------------------------------
GROSS UNREALIZED
AMORTIZED -------------------- FAIR
COST GAINS LOSSES VALUE
------------ --------- --------- ------------
<S> <C> <C> <C> <C>
U.S. government and government agencies and authorities:
(Guaranteed and sponsored)............................................. $ 58,761 $ 6 $ (195) $ 58,572
(Guaranteed and sponsored) -- asset-backed............................. 78,237 1,477 (609) 79,105
States, municipalities and political subdivisions........................ 25,958 163 (2) 26,119
International governments................................................ 7,447 205 -- 7,652
Public utilities......................................................... 70,116 396 (424) 70,088
All other corporate...................................................... 410,530 6,357 (1,355) 415,532
All other corporate -- asset-backed...................................... 485,953 2,654 (1,081) 487,526
Short-term investments................................................... 148,094 -- (66) 148,028
Certificates of deposit.................................................. 83,378 563 (110) 83,831
Parents, subsidiaries and affiliates..................................... 48,100 -- -- 48,100
------------ --------- --------- ------------
Total bonds and short-term investments................................. $ 1,416,574 $ 11,821 $ (3,842) $ 1,424,553
------------ --------- --------- ------------
------------ --------- --------- ------------
Common stock -- unaffiliated............................................. $ 13,064 $ 713 $ 0 $ 13,777
Common stock -- affiliated............................................... 35,379 0 4,160 31,219
------------ --------- --------- ------------
Total common stocks...................................................... $ 48,443 $ 713 $ 4,160 $ 44,996
------------ --------- --------- ------------
------------ --------- --------- ------------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
----------------------------------------------------
GROSS UNREALIZED
AMORTIZED ------------------------ FAIR
COST GAINS LOSSES VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. government and government agencies and authorities:
(Guaranteed and sponsored)........................................... $ 44,268 $ 14 $ (248) $ 44,034
(Guaranteed and sponsored) -- asset-backed........................... 176,160 4,644 (682) 180,122
States, municipalities and political subdivisions...................... 16,948 38 (6) 16,980
International governments.............................................. 5,402 441 -- 5,843
Public utilities....................................................... 108,083 1,652 (90) 109,645
All other corporate.................................................... 374,058 8,145 (248) 381,955
All other corporate -- asset-backed.................................... 410,197 5,841 (89) 415,949
Short-term investments................................................. 139,011 18 -- 139,029
Certificates of deposit................................................ 91,373 1,458 (11) 92,820
------------ ----------- ----------- ------------
Total bonds and short-term investments............................... $ 1,365,500 $ 22,251 $ (1,374) $ 1,386,377
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Common stock -- unaffiliated........................................... $ 2,668 $ 555 $ -- $ 3,223
Common stock -- affiliated............................................. 35,384 1,169 -- 36,553
------------ ----------- ----------- ------------
Total common stocks.................................................. $ 38,052 $ 1,724 $ -- $ 39,776
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
The amortized cost and estimated market value of bonds and short-term
investments at December 31, 1996 by management's anticipated maturity are shown
below. Asset-backed securities are distributed to maturity year based on ILA's
estimate of the rate of future prepayments of principal
<PAGE>
54 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
over the remaining life of the securities. Expected maturities differ from
contractual maturities reflecting borrowers' rights to call or prepay their
obligations.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
MATURITY COST VALUE
- ------------------------------ ------------ ------------
<S> <C> <C>
Due in one year or less....... $ 478,095 $ 478,852
Due after one year through
five years................... 622,805 623,105
Due after five years through
ten years.................... 259,479 265,681
Due after ten years........... 56,195 56,915
------------ ------------
Total....................... $ 1,416,574 $ 1,424,553
</TABLE>
Proceeds from sales of investments in bonds and short-term investments
during 1996, 1995 and 1994 were $668,078, $313,961 and $117,912, respectively,
resulting in gross realized gains of $3,675, $1,419 and $518, respectively, and
gross realized losses of $919, $1,263 and $619, respectively, before transfers
to IMR. The Company had realized gains of $52 during 1995 from a capital gain
distribution.
(H) FAIR VALUE OF FINANCIAL INSTRUMENTS
BALANCE SHEET ITEMS (IN MILLIONS):
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Assets
Bonds and short-term
investments......... $ 1,417 $ 1,425 $ 1,366 $ 1,386
Common stocks........ 45 45 40 40
Policy loans......... 29 29 23 23
Other invested
assets.............. 3 3 13 13
Liabilities
Liabilities on
investment
contracts........... $ 1,245 $ 1,191 $ 1,031 $ 981
</TABLE>
The carrying amounts for policy loans approximates fair value. The
liabilities are determined by forecasting future cash flows and discounting the
forecasted cash flows at current market rates.
- ---------------------------------------------------
3. RELATED PARTY TRANSACTIONS
Transactions between the Company and its affiliates within The Hartford
relate principally to tax settlements, reinsurance, service fees, capital
contributions and payments of dividends.
On June 30, 1995, the assets of Lyndon Insurance Company were contributed to
ILA. As a result, ILA received approximately $365 million in bonds and short-
term investments, common stocks and cash, $28 million in policy reserves, $187
million of current tax liability, $26 million in IMR, $8 million in AVR (offset
by an aggregate write-in to surplus), and $4 million of other liabilities. The
assets in excess of liabilities of $112 million were recorded as an increase to
paid-in surplus.
For additional information, see Note 5.
- ---------------------------------------------------
4. 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 to file separate federal, state and local
income tax returns.
As long as The Hartford continues to beneficially own, directly or
indirectly, at least 80% of the combined voting power and 80% of the value of
the outstanding capital stock of Hartford Life, the Company will be included for
Federal income tax purposes in the consolidated group of which The Hartford is
the common parent. It is the current intention of The Hartford and its
subsidiaries to continue to file a single consolidated Federal income tax
return. The Company will continue to remit (receive from) The Hartford a current
income tax provision (benefit) computed in accordance with such tax sharing
agreement. Federal income taxes paid by the Company were $29,792, $215,921 and
$20,538 in 1996, 1995 and 1994, respectively. The effective tax rate was 22%,
25% and 92% in 1996, 1995 and 1994, respectively. The following schedule
provides a reconciliation of the tax provision at the U.S. Federal Statutory
rate to Federal income tax expense (in millions).
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- -----
<S> <C> <C> <C>
Tax provision at U.S. Federal statutory rate..... $ 30 $ 20 $ 9
Tax deferred acquisition costs................... 27 8 8
Statutory to tax reserve differences............. -- 3 5
Unrealized (gain)/loss on separate accounts...... (21) (13) 2
Investments and other............................ (17) (4) --
--------- --------- ---
Federal income tax expense....................... $ 19 $ 14 $ 24
--------- --------- ---
--------- --------- ---
</TABLE>
- ---------------------------------------------------
5. 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 subject to
restrictions relating to statutory surplus. Dividends are paid as determined by
the Board of Directors and are not cumulative. No dividends were paid in 1996 or
1994. ILA paid dividends of $10 million to its parent, HLIC, in 1995. As a
result of the Distribution by ITT, the assets of ITT Lyndon Insurance
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 55
- --------------------------------------------------------------------------------
Company (Lyndon) were contributed to ILA in June 1995. Substantially all the
business was removed from Lyndon prior to the contribution. The amount of assets
which exceeded liabilities at the contribution date ($112 million) was included
in paid-in surplus.
- ---------------------------------------------------
6. PENSION PLANS AND OTHER POST-RETIREMENT
AND POST-EMPLOYMENT BENEFITS
The Company'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. The Company's funding policy is to contribute annually an
amount between the minimum funding requirements set forth in the Employee
Retirement Income Security Act of 1974 and the maximum amount that can be
deducted for Federal income tax purposes. Generally, pension costs are funded
through the purchase of HLIC's group pension contracts. Pension expense was
$358, $1,034, and $1,211 in 1996, 1995 and 1994, respectively. Liabilities for
the plan are held by The Hartford.
The Company also participates in The Hartford's Investment and Savings Plan,
which includes a deferred compensation option under IRC section 401(k) and an
ESOP allocation under IRC section 404(k). The liabilities for these plans are
included in the financial statements of The Hartford. The cost to ILA was not
material in 1996, 1995 and 1994.
The Company's employees are included in The Hartford's contributory defined
health care and life insurance benefit plans. These plans provide health care
and life insurance benefits for retired employees. Substantially all employees
may become eligible for those benefits if they reach normal or early retirement
age while still working for the Company. The Company has prefunded a portion of
the health care and life insurance obligations through trust funds where such
prefunding can be accomplished on a tax effective basis. Amounts allocated by
The Hartford for post-retirement health care and life insurance benefits expense
(not including provisions for accrual of post-retirement benefit obligations)
are immaterial. The assumed rate of future increases in the per capita cost of
health care (the health care trend rate) was 9.3% for 1996, decreasing ratably
to 6% in the year 2001. Increasing the health care trend rates by one percent
per year would have an immaterial impact on the accumulated post-retirement
benefit obligation and the annual expense. The cost to ILA was not material in
1996, 1995 and 1994.
Post-employment benefits are primarily comprised of obligations to provide
medical and life insurance to employees on long-term disability. Post-employment
benefit expense was not material in 1996, 1995 and 1994.
- ---------------------------------------------------
7. REINSURANCE
The Company cedes insurance to non-affiliated insurers in order to limit its
maximum loss. Such transfer does not relieve ILA of its primary liability. ILA
also assumes insurance from other insurers.
Life insurance net retained premiums were comprised of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums................... $ 226,612 $ 159,918 $ 133,180
Premiums assumed.................. 33,817 13,299 960
Premiums ceded.................... (10,185) (7,425) 308,033
---------- ---------- ----------
Premiums and annuity
considerations................... $ 250,244 $ 165,792 $ 442,173
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The Company ceded to a third party, on a modified coinsurance basis, 80% of
the variable annuity business written in 1994. The ceded business includes both
general and separate account liabilities. As a result of the agreement, in
December 1994, ILA transferred approximately $1,352 million in assets and
liabilities. The financial impact of the cession was an increase of
approximately $15 million to net income and surplus in 1994.
In November 1994, the Company ceded, on a modified coinsurance basis, 30% of
the separate account variable annuity business distributed by Paine Webber to
Paine Webber Life Insurance Company ("PWLIC"). As a result of the agreement, ILA
transferred approximately $24 million in assets and liabilities to PWLIC. The
financial impact of the cession was an increase of approximately $765 to net
income and surplus in 1994.
In October 1994, the agreement, effective December 1990, which required ILA
to coinsure 90% of all existing and new business, excluding variable annuity
business, written by the Company to HLIC, was terminated. As a result of the
termination, ILA received approximately $430 million in assets and liabilities
from HLIC. The impact of the transaction was a decrease of approximately $15
million to net income and surplus in 1994.
In November 1993, ILA acquired, through an assumption reinsurance
transaction, substantially all of the individual fixed and variable annuity
business of Hartford Life and Accident, an affiliate. As a result of this
transaction, the assets and liabilities of the Company increased approximately
$1 billion, substantially all of which was transferred to the separate accounts
of the Company. The remaining assets and liabilities (approximately $41 million)
were transferred in October 1995. The impact of these transactions on net income
and surplus was not significant.
<PAGE>
56 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
- ---------------------------------------------------
8. SEPARATE ACCOUNTS
The Company maintains separate account assets and liabilities totaling $14.6
billion and $7.3 billion at December 31, 1996 and 1995, 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 $144 million, $72
million and $42 million in 1996, 1995 and 1994, respectively, and are recorded
as a component of other revenues on the Statutory Basis Statements of Income.
- ---------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES
As of December 31, 1996 and 1995, 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 various legal actions
which have arisen in the normal course of its business. In the opinion of
management, the ultimate liability with respect to such lawsuits as well as
other contingencies is not considered to be material in relation to the results
of operations and financial position of the Company.
Under insurance guaranty laws in most states, insurers doing business
therein 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 $1,262, $1,684 and $583 in 1996, 1995 and 1994,
respectively. ILA incurred guaranteed fund expense of $548, $0 and $0 in 1996,
1995 and 1994, respectively.
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 57
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ITT Hartford Life and Annuity Insurance Company
Separate Account Variable Life Two and to the
Owners of Units of Interest Therein:
We have audited the accompanying statement of assets and liabilities of the Bond
Fund Sub-Account, Stock Fund Sub-Account, Money Market Fund Sub-Account,
Advisers Fund Sub-Account, Capital Appreciation Fund Sub-Account, Mortgage
Securities Fund Sub-Account, Index Fund Sub-Account, International Opportunities
Fund Sub-Account, Dividend and Growth Fund Sub-Account, Fidelity VIP Equity
Income Portfolio Sub-Account, Fidelity VIP Overseas Portfolio Sub-Account and
Fidelity VIP II Asset Manager Portfolio Sub-Account (constituting ITT Hartford
Life and Annuity Insurance Company Separate Account Variable Life Two) (the
Accounts) as of December 31, 1996, and the related statements of operations and
changes in net assets for the period from inception, October 3, 1996, to
December 31, 1996. These financial statements are the responsibility of the
Accounts' management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides 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 Bond Fund Sub-Account,
Stock Fund Sub-Account, Money Market Fund Sub-Account, Advisers Fund
Sub-Account, Capital Appreciation Fund Sub-Account, Mortgage Securities Fund
Sub-Account, Index Fund Sub-Account, International Opportunities Fund
Sub-Account, Dividend and Growth Fund Sub-Account, Fidelity VIP Equity Income
Portfolio Sub-Account, Fidelity VIP Overseas Portfolio Sub-Account and Fidelity
VIP II Asset Manager Portfolio Sub-Account (constituting ITT Hartford Life and
Annuity Insurance Company Separate Account Variable Life Two) as of December 31,
1996, the results of its operations and the changes in its net assets for the
period from inception, October 3, 1996, to December 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 14, 1997
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 58
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Separate Account Variable Life Two
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY
BOND FUND STOCK FUND MARKET FUND ADVISERS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
ASSETS:
Investments:
Hartford Bond Fund,
Inc.
Shares 64,640
Cost $65,072
Market Value......... $ 64,588 -- -- --
Hartford Stock Fund,
Inc.
Shares 258
Cost $1,003
Market Value......... -- $ 1,067 -- --
HVA Money Market Fund,
Inc.
Shares 47,513
Cost $47,513
Market Value......... -- -- $ 47,513 --
Hartford Advisers Fund,
Inc.
Shares 9,232
Cost $20,157
Market Value......... -- -- -- $ 20,029
Hartford Capital
Appreciation Fund,
Inc.
Shares 267
Cost $1,002
Market Value......... -- -- -- --
Hartford Mortgage
Securities Fund, Inc.
Shares 971
Cost $1,014
Market Value......... -- -- -- --
Hartford Index Fund,
Inc.
Shares 450
Cost $1,005
Market Value......... -- -- -- --
Hartford International
Opportunities Fund,
Inc.
Shares 14,515
Cost $20,130
Market Value......... -- -- -- --
Hartford Dividend and
Growth Fund, Inc.
Shares 690
Cost $1,006
Market Value......... -- -- -- --
Fidelity VIP Equity
Income Fund
Shares 50
Cost $1,000
Market Value......... -- -- -- --
Fidelity VIP Overseas
Fund
Shares 55
Cost $1,000
Market Value......... -- -- -- --
Fidelity VIP II Asset
Manager Fund
Shares 62
Cost $1,000
Market Value......... -- -- -- --
Due from ITT Hartford
Life and Annuity
Insurance Company..... -- -- 2,039 --
Receivable from fund
shares sold........... -- -- -- --
----------- ------------ ------------ -------------
Total Assets........... 64,588 1,067 49,552 20,029
----------- ------------ ------------ -------------
LIABILITIES:
Due to ITT Hartford
Life and Annuity
Insurance Company..... -- -- -- --
Payable for fund shares
purchased............. -- -- 2,038 --
----------- ------------ ------------ -------------
Total Liabilities...... -- -- 2,038 --
----------- ------------ ------------ -------------
Net Assets (variable
annuity contract
liabilities).......... $ 64,588 $ 1,067 $ 47,514 $ 20,029
----------- ------------ ------------ -------------
----------- ------------ ------------ -------------
DEFERRED ANNUITY
CONTRACTS IN THE
ACCUMULATION PERIOD:
GROUP SUB-ACCOUNTS:
Units Owned by
Participants.......... 52,360 596 40,404 12,807
Unit Price............. $ 1.233518 $ 1.789555 $ 1.175949 $ 1.563874
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 59
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL MORTGAGE INTERNATIONAL DIVIDEND AND
APPRECIATION FUND SECURITIES FUND INDEX FUND OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- --------------- ----------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Hartford Bond Fund,
Inc.
Shares 64,640
Cost $65,072
Market Value......... -- -- -- -- --
Hartford Stock Fund,
Inc.
Shares 258
Cost $1,003
Market Value......... -- -- -- -- --
HVA Money Market Fund,
Inc.
Shares 47,513
Cost $47,513
Market Value......... -- -- -- -- --
Hartford Advisers Fund,
Inc.
Shares 9,232
Cost $20,157
Market Value......... -- -- -- -- --
Hartford Capital
Appreciation Fund,
Inc.
Shares 267
Cost $1,002
Market Value......... $ 1,044 -- -- -- --
Hartford Mortgage
Securities Fund, Inc.
Shares 971
Cost $1,014
Market Value......... -- $ 1,025 -- -- --
Hartford Index Fund,
Inc.
Shares 450
Cost $1,005
Market Value......... -- -- $ 1,071 -- --
Hartford International
Opportunities Fund,
Inc.
Shares 14,515
Cost $20,130
Market Value......... -- -- -- $ 20,421 --
Hartford Dividend and
Growth Fund, Inc.
Shares 690
Cost $1,006
Market Value......... -- -- -- -- $ 1,068
Fidelity VIP Equity
Income Fund
Shares 50
Cost $1,000
Market Value......... -- -- -- -- --
Fidelity VIP Overseas
Fund
Shares 55
Cost $1,000
Market Value......... -- -- -- -- --
Fidelity VIP II Asset
Manager Fund
Shares 62
Cost $1,000
Market Value......... -- -- -- -- --
Due from ITT Hartford
Life and Annuity
Insurance Company..... -- -- -- -- --
Receivable from fund
shares sold........... -- -- -- -- --
----------------- --------------- ----------- ---------- ------------
Total Assets........... 1,044 1,025 1,071 20,421 1,068
----------------- --------------- ----------- ---------- ------------
LIABILITIES:
Due to ITT Hartford
Life and Annuity
Insurance Company..... -- -- -- -- --
Payable for fund shares
purchased............. -- -- -- -- --
----------------- --------------- ----------- ---------- ------------
Total Liabilities...... -- -- -- -- --
----------------- --------------- ----------- ---------- ------------
Net Assets (variable
annuity contract
liabilities).......... $ 1,044 $ 1,025 $ 1,071 $ 20,421 $ 1,068
----------------- --------------- ----------- ---------- ------------
----------------- --------------- ----------- ---------- ------------
DEFERRED ANNUITY
CONTRACTS IN THE
ACCUMULATION PERIOD:
GROUP SUB-ACCOUNTS:
Units Owned by
Participants.......... 598 828 611 13,646 705
Unit Price............. $ 1.745910 $ 1.237827 $ 1.752378 $ 1.496455 $ 1.515489
<CAPTION>
FIDELITY VIP FIDELITY VIP FIDELITY VIP II
EQUITY INCOME OVERSEAS ASSET MANAGER
PORTFOLIO PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------ ------------- ------------------
<S> <C> <C> <C>
ASSETS:
Investments:
Hartford Bond Fund,
Inc.
Shares
Cost
Market Value......... -- -- --
Hartford Stock Fund,
Inc.
Shares
Cost
Market Value......... -- -- --
HVA Money Market Fund,
Inc.
Shares
Cost
Market Value......... -- -- --
Hartford Advisers Fund,
Inc.
Shares
Cost
Market Value......... -- -- --
Hartford Capital
Appreciation Fund,
Inc.
Shares
Cost
Market Value......... -- -- --
Hartford Mortgage
Securities Fund, Inc.
Shares
Cost
Market Value......... -- -- --
Hartford Index Fund,
Inc.
Shares
Cost
Market Value......... -- -- --
Hartford International
Opportunities Fund,
Inc.
Shares
Cost
Market Value......... -- -- --
Hartford Dividend and
Growth Fund, Inc.
Shares
Cost
Market Value......... -- -- --
Fidelity VIP Equity
Income Fund
Shares
Cost
Market Value......... $ 1,056 -- --
Fidelity VIP Overseas
Fund
Shares
Cost
Market Value......... -- $ 1,044 --
Fidelity VIP II Asset
Manager Fund
Shares
Cost
Market Value......... -- -- $ 1,050
Due from ITT Hartford
Life and Annuity
Insurance Company..... -- -- --
Receivable from fund
shares sold........... -- -- --
---------- ------------- ----------
Total Assets........... 1,056 1,044 1,050
---------- ------------- ----------
LIABILITIES:
Due to ITT Hartford
Life and Annuity
Insurance Company..... -- -- --
Payable for fund shares
purchased............. -- -- --
---------- ------------- ----------
Total Liabilities...... -- -- --
---------- ------------- ----------
Net Assets (variable
annuity contract
liabilities).......... $ 1,056 $ 1,044 $ 1,050
---------- ------------- ----------
---------- ------------- ----------
DEFERRED ANNUITY
CONTRACTS IN THE
ACCUMULATION PERIOD:
GROUP SUB-ACCOUNTS:
Units Owned by
Participants.......... 771 859 832
Unit Price............. $ 1.370219 $1.215706 $1.261761
</TABLE>
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 60
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT VARIABLE LIFE TWO
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION, OCTOBER 3, 1996, TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY
BOND FUND STOCK FUND MARKET FUND ADVISERS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 389 $ 3 $ 286 $ 53
----------- --- ----- ------
Net investment income
(loss).............. 389 3 286 53
----------- --- ----- ------
CAPITAL GAINS INCOME..... -- -- -- --
----------- --- ----- ------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... -- -- -- --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (484) 64 -- (129)
----------- --- ----- ------
Net gain (loss) on
investments......... (484) 64 -- (129)
----------- --- ----- ------
Net increase
(decrease) in net
assets resulting
from operations..... $ (95) $ 67 $ 286 $ (76)
----------- --- ----- ------
----------- --- ----- ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 61
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL MORTGAGE INTERNATIONAL DIVIDEND AND
APPRECIATION FUND SECURITIES FUND INDEX FUND OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- --------------- ----------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 2 $ 14 $ 5 $ 25 $ 6
--- --- --- ----- ---
Net investment income
(loss).............. 2 14 5 25 6
--- --- --- ----- ---
CAPITAL GAINS INCOME..... -- -- -- -- --
--- --- --- ----- ---
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... -- -- -- -- --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 42 11 66 291 62
--- --- --- ----- ---
Net gain (loss) on
investments......... 42 11 66 291 62
--- --- --- ----- ---
Net increase
(decrease) in net
assets resulting
from operations..... $ 44 $ 25 $ 71 $ 316 $ 68
--- --- --- ----- ---
--- --- --- ----- ---
<CAPTION>
FIDELITY VIP FIDELITY VIP FIDELITY VIP II
EQUITY INCOME OVERSEAS ASSET MANAGER
PORTFOLIO PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------ ------------- ----------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ -- $ -- $ --
--- --- ---
Net investment income
(loss).............. -- -- --
--- --- ---
CAPITAL GAINS INCOME..... -- -- --
--- --- ---
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... -- -- --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 56 44 50
--- --- ---
Net gain (loss) on
investments......... 56 44 50
--- --- ---
Net increase
(decrease) in net
assets resulting
from operations..... $ 56 $ 44 $ 50
--- --- ---
--- --- ---
</TABLE>
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 62
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Separate Account Variable Life Two
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION, OCTOBER 3, 1996, TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY
BOND FUND STOCK FUND MARKET FUND ADVISERS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 389 $ 3 $ 286 $ 53
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (484) 64 -- (129)
----------- ----------- ----------- -------
Net increase (decrease)
in net assets
resulting from
operations............ (95) 67 286 (76)
----------- ----------- ----------- -------
UNIT TRANSACTIONS:
Purchases.............. 1,000 1,000 176,110 1,000
Net transfers.......... 63,683 -- (127,365) 19,105
Surrenders............. -- -- (1,225) --
Cost of insurance...... -- -- (292) --
----------- ----------- ----------- -------
Total increase
(decrease) in net
assets resulting from
unit transactions..... 64,683 1,000 47,228 20,105
----------- ----------- ----------- -------
Total increase
(decrease) in net
assets................ 64,588 1,067 47,514 20,029
NET ASSETS:
Beginning of period.... -- -- -- --
----------- ----------- ----------- -------
End of period.......... $64,588 $1,067 $ 47,514 $20,029
----------- ----------- ----------- -------
----------- ----------- ----------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 63
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPTIAL MORTGAGE INTERNATIONAL DIVIDEND AND FIDELITY VIP
APPRECIATION FUND SECURITIES FUND INDEX FUND OPPORTUNITIES FUND GROWTH FUND EQUITY INCOME FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- --------------- ----------- ------------------ ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 2 $ 14 $ 5 $ 25 $ 6 $ --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 42 11 66 291 62 56
------ ------ ----------- ------- ------ ------
Net increase (decrease)
in net assets
resulting from
operations............ 44 25 71 316 68 56
------ ------ ----------- ------- ------ ------
UNIT TRANSACTIONS:
Purchases.............. 1,000 1,000 1,000 1,000 1,000 1,000
Net transfers.......... -- -- -- 19,105 -- --
Surrenders............. -- -- -- -- -- --
Cost of insurance...... -- -- -- -- -- --
------ ------ ----------- ------- ------ ------
Total increase
(decrease) in net
assets resulting from
unit transactions..... 1,000 1,000 1,000 20,105 1,000 1,000
------ ------ ----------- ------- ------ ------
Total increase
(decrease) in net
assets................ 1,044 1,025 1,071 20,421 1,068 1,056
NET ASSETS:
Beginning of period.... -- -- -- -- -- --
------ ------ ----------- ------- ------ ------
End of period.......... $1,044 $1,025 $1,071 $20,421 $1,068 $1,056
------ ------ ----------- ------- ------ ------
------ ------ ----------- ------- ------ ------
<CAPTION>
FIDELITY VIP FIDELITY VIP II
OVERSEAS FUND ASSET MANAGER FUND
SUB-ACCOUNT SUB-ACCOUNT
------------- ------------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ -- $ --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 44 50
------ ------
Net increase (decrease)
in net assets
resulting from
operations............ 44 50
------ ------
UNIT TRANSACTIONS:
Purchases.............. 1,000 1,000
Net transfers.......... -- --
Surrenders............. -- --
Cost of insurance...... -- --
------ ------
Total increase
(decrease) in net
assets resulting from
unit transactions..... 1,000 1,000
------ ------
Total increase
(decrease) in net
assets................ 1,044 1,050
NET ASSETS:
Beginning of period.... -- --
------ ------
End of period.......... $1,044 $1,050
------ ------
------ ------
</TABLE>
<PAGE>
64 ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT VARIABLE LIFE TWO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- ---------------------------------------------------
1. ORGANIZATION:
Separate Account Variable Life Two (the Account) is a separate investment
account within ITT Hartford Life and Annuity Insurance Company (the Company) and
is registered with the Securities and Exchange Commission (SEC) as a unit
investment trust under the Investment Company Act of 1940, as amended. The
Account consists of twenty two sub-accounts. These financial statements include
twelve sub-accounts which invest solely in Hartford Mutual Funds and Fidelity
Mutual Funds (the Funds). The other ten sub-accounts, which invest in Putnam
Variable Trust Funds, are presented in separate financial statements. 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 life contractholders of the Company in the Funds as
directed by the contractholders.
- ---------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies of the
Account, which are in accordance with generally accepted accounting principles
in the investment company industry:
a) SECURITY TRANSACTIONS--Security transactions are recorded on the trade
date (date the order to buy or sell is executed). Cost of investments
sold is determined on the basis of identified cost. Dividends and
capital gains income are accrued as of the ex-dividend date. Capital
gains income represents dividends from the Funds which are characterized
as capital gains under tax regulations.
b) SECURITY VALUATION--The investment in shares of the Hartford, and
Fidelity mutual funds are valued at the closing net asset value per
share as determined by the appropriate Fund as of December 31, 1996.
c) FEDERAL INCOME TAXES--The operations of the Account form a part of, and
are taxed with, the total operations of the Company, which is taxed as
an insurance company under the Internal Revenue Code. Under current law,
no federal income taxes are payable with respect to the operations of
the Account.
d) USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the financial statements and
the reported amounts of income and expenses during the period. Operating
results in the future could vary from the amounts derived from
management's estimates.
- ---------------------------------------------------
3.ADMINISTRATION OF THE ACCOUNT AND
RELATED CHARGES:
In accordance with the terms of the contracts, the Company makes deductions
for mortality and expense undertakings, cost of insurance, administrative fees,
and state premium taxes. These charges are deducted through termination of units
of interest from applicable contractholders' accounts in accordance with the
terms of the contracts.
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 65
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ITT Hartford Life and Annuity Insurance Company Putnam Capital
Manager Trust Separate Account Variable Life Two and to the
Owners of Units of Interest therein:
We have audited the accompanying statement of assets and liabilities of
Diversified Income Fund Sub-Account, Global Asset Allocation Fund Sub-Account,
Global Growth Fund Sub-Account, Growth and Income Fund Sub-Account, High Yield
Fund Sub-Account, Money Market Fund Sub-Account, New Opportunities Fund
Sub-Account, U.S. Government and High Quality Bond Fund Sub-Account, Utilities
Growth and Income Fund Sub-Account and Voyager Fund Sub-Account (constituting
ITT Hartford Life and Annuity Insurance Company Putnam Capital Manager Trust
Separate Account Variable Life Two) (the Account) as of December 31, 1996, and
the related statements of operations and changes in net assets for the period
from inception, October 3, 1996, to December 31, 1996. 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 audit.
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 audit provides 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 Diversified Income Fund
Sub-Account, Global Asset Allocation Fund Sub-Account, Global Growth Fund
Sub-Account, Growth and Income Fund Sub-Account, High Yield Fund Sub-Account,
Money Market Fund Sub-Account, New Opportunities Fund Sub-Account, U.S.
Government and High Quality Bond Fund Sub-Account, Utilities Growth and Income
Fund Sub-Account and Voyager Fund Sub-Account (constituting ITT Hartford Life
and Annuity Insurance Company Putnam Capital Manager Trust Separate Account
Variable Life Two) as of December 31, 1996, the results of its operations and
the changes in its net assets for the period from inception, October 3, 1996, to
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 14, 1997
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 66
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Putnam Capital Manager Trust Separate Account Variable Life Two
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
GLOBAL
ASSET
DIVERSIFIED ALLOCATION GLOBAL
INCOME FUND FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Investments:
Putnam VT Diversified
Income Fund
Shares 91
Cost $ 1,000
Market Value:........ $ 1,030 -- --
Putnam VT Global Asset
Allocation Fund
Shares 61
Cost $ 1,000
Market Value:........ -- $ 1,047 --
Putnam VT Global Growth
Fund
Shares 62
Cost $ 1,000
Market Value:........ -- -- $ 1,046
Putnam VT Growth and
Income Fund
Shares 1,078
Cost $26,473
Market Value:........ -- -- --
Putnam VT High Yield
Fund
Shares 79
Cost $ 1,000
Market Value:........ -- -- --
Putnam VT Money Market
Fund
Shares 1,011
Cost $ 1,011
Market Value:........ -- -- --
Putnam VT New
Opportunities Fund
Shares 54
Cost $ 1,000
Market Value:........ -- -- --
Putnam VT U.S.
Government and High
Quality Bond Fund
Shares 78
Cost $ 1,000
Market Value:........ -- -- --
Putnam VT Utilities
Growth and Income Fund
Shares 73
Cost $ 1,000
Market Value:........ -- -- --
Putnam VT Voyager Fund
Shares 30
Cost $ 1,000
Market Value:........ -- -- --
Receivable from fund
shares sold........... -- -- --
------------- ----------- -----------
Total Assets........... 1,030 1,047 1,046
------------- ----------- -----------
Net Assets (variable
annuity contract
liabilities).......... $ 1,030 $ 1,047 $ 1,046
------------- ----------- -----------
------------- ----------- -----------
DEFERRED ANNUITY
CONTRACTS IN THE
ACCUMULATION PERIOD:
GROUP SUB-ACCOUNTS:
Units Owned by
Participants.......... 85 68 66
Unit Price............. $12.064581 $15.301933 $15.897325
GRAND TOTAL:
Contract Liability..... $ 1,030 $ 1,047 $ 1,046
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 67
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVT.
AND HIGH UTILITIES
GROWTH AND HIGH YIELD MONEY NEW QUALITY GROWTH AND
INCOME FUND FUND MARKET FUND OPPORTUNITIES FUND BOND FUND INCOME FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ----------------- ----------------- ------------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
Putnam VT Diversified
Income Fund
Shares 91
Cost $ 1,000
Market Value:........ -- -- -- -- -- --
Putnam VT Global Asset
Allocation Fund
Shares 61
Cost $ 1,000
Market Value:........ -- -- -- -- -- --
Putnam VT Global Growth
Fund
Shares 62
Cost $ 1,000
Market Value:........ -- -- -- -- -- --
Putnam VT Growth and
Income Fund
Shares 1,078
Cost $26,473
Market Value:........ $ 26,487 -- -- -- -- --
Putnam VT High Yield
Fund
Shares 79
Cost $ 1,000
Market Value:........ -- $ 1,025 -- -- -- --
Putnam VT Money Market
Fund
Shares 1,011
Cost $ 1,011
Market Value:........ -- -- $ 1,011 -- -- --
Putnam VT New
Opportunities Fund
Shares 54
Cost $ 1,000
Market Value:........ -- -- -- $ 937 -- --
Putnam VT U.S.
Government and High
Quality Bond Fund
Shares 78
Cost $ 1,000
Market Value:........ -- -- -- -- $ 1,029 --
Putnam VT Utilities
Growth and Income Fund
Shares 73
Cost $ 1,000
Market Value:........ -- -- -- -- -- $ 1,073
Putnam VT Voyager Fund
Shares 30
Cost $ 1,000
Market Value:........ -- -- -- -- -- --
Receivable from fund
shares sold........... -- -- 1 -- -- --
------------- ----------------- ----------------- ------------------ ------------ ------------
Total Assets........... 26,487 1,025 1,012 937 1,029 1,073
------------- ----------------- ----------------- ------------------ ------------ ------------
Net Assets (variable
annuity contract
liabilities).......... $ 26,487 $ 1,025 $ 1,012 $ 937 $ 1,029 $ 1,073
------------- ----------------- ----------------- ------------------ ------------ ------------
------------- ----------------- ----------------- ------------------ ------------ ------------
DEFERRED ANNUITY
CONTRACTS IN THE
ACCUMULATION PERIOD:
GROUP SUB-ACCOUNTS:
Units Owned by
Participants.......... 1,487 71 865 63 82 72
Unit Price............. $17.812315 $14.470063 $ 1.170296 $14.831271 $12.504679 $14.812870
GRAND TOTAL:
Contract Liability..... $ 26,487 $ 1,025 $ 1,012 $ 937 $ 1,029 $ 1,073
<CAPTION>
VOYAGER FUND
SUB-ACCOUNT
------------
<S> <C>
ASSETS
Investments:
Putnam VT Diversified
Income Fund
Shares
Cost
Market Value:........ --
Putnam VT Global Asset
Allocation Fund
Shares
Cost
Market Value:........ --
Putnam VT Global Growth
Fund
Shares
Cost
Market Value:........ --
Putnam VT Growth and
Income Fund
Shares
Cost
Market Value:........ --
Putnam VT High Yield
Fund
Shares
Cost
Market Value:........ --
Putnam VT Money Market
Fund
Shares
Cost
Market Value:........ --
Putnam VT New
Opportunities Fund
Shares
Cost
Market Value:........ --
Putnam VT U.S.
Government and High
Quality Bond Fund
Shares
Cost
Market Value:........ --
Putnam VT Utilities
Growth and Income Fund
Shares
Cost
Market Value:........ --
Putnam VT Voyager Fund
Shares
Cost
Market Value:........ $ 977
Receivable from fund
shares sold........... --
------------
Total Assets........... 977
------------
Net Assets (variable
annuity contract
liabilities).......... $ 977
------------
------------
DEFERRED ANNUITY
CONTRACTS IN THE
ACCUMULATION PERIOD:
GROUP SUB-ACCOUNTS:
Units Owned by
Participants.......... 53
Unit Price............. $18.327403
GRAND TOTAL:
Contract Liability..... $ 977
</TABLE>
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 68
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Putnam Capital Manager Trust Separate Account Variable Life Two
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION, OCTOBER 3, 1996 TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
GLOBAL
ASSET
DIVERSIFIED ALLOCATION GLOBAL
INCOME FUND FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ -- $ -- $ --
------ ----------- -----------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 30 47 46
------ ----------- -----------
Net increase (decrease)
in net assets
resulting from
operations............ $ 30 $ 47 $ 46
------ ----------- -----------
------ ----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 69
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVT.
AND HIGH UTILITIES
GROWTH AND HIGH YIELD MONEY NEW QUALITY GROWTH AND
INCOME FUND FUND MARKET FUND OPPORTUNITIES FUND BOND FUND INCOME FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ----------------- ----------------- ------------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ -- $ -- $ 12 $ -- $ -- $ --
------ ------ ------ ------ ------ ------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 14 25 -- (63) 29 73
------ ------ ------ ------ ------ ------
Net increase (decrease)
in net assets
resulting from
operations............ $ 14 $ 25 $ 12 $ (63) $ 29 $ 73
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
<CAPTION>
VOYAGER FUND
SUB-ACCOUNT
------------
<S> <C>
INVESTMENT INCOME:
Dividends.............. $ --
------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (23)
------
Net increase (decrease)
in net assets
resulting from
operations............ $ (23)
------
------
</TABLE>
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 70
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Putnam Capital Manager Trust Separate Account Variable Life Two
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION, OCTOBER 3, 1996 TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
GLOBAL ASSET
DIVERSIFIED ALLOCATION GLOBAL
INCOME FUND FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ------------- -----------
<S> <C> <C> <C>
OPERATIONS:
Net investment
income................ $ -- $ -- $ --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 30 47 46
----------- ------------- -----------
Net increase (decrease)
in net assets
resulting from
operations............ 30 47 46
----------- ------------- -----------
UNIT TRANSACTIONS:
Purchases.............. 1,000 1,000 1,000
Net transfers.......... -- -- --
----------- ------------- -----------
Net increase in net
assets resulting from
unit transactions..... 1,000 1,000 1,000
----------- ------------- -----------
Total increase in net
assets................ 1,030 1,047 1,046
NET ASSETS:
Beginning of period.... -- -- --
----------- ------------- -----------
End of period.......... $ 1,030 $ 1,047 $ 1,046
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 71
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVT.
AND HIGH UTILITIES
GROWTH AND HIGH YIELD MONEY NEW QUALITY GROWTH AND
INCOME FUND FUND MARKET FUND OPPORTUNITIES FUND BOND FUND INCOME FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ----------------- ----------------- ------------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment
income................ $ -- $ -- $ 12 $ -- $ -- $ --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 14 25 -- (63) 29 73
------------- -------- -------- ------------------ ------------ ------------
Net increase (decrease)
in net assets
resulting from
operations............ 14 25 12 (63) 29 73
------------- -------- -------- ------------------ ------------ ------------
UNIT TRANSACTIONS:
Purchases.............. 1,000 1,000 1,000 1,000 1,000 1,000
Net transfers.......... 25,473 -- -- -- -- --
------------- -------- -------- ------------------ ------------ ------------
Net increase in net
assets resulting from
unit transactions..... 26,473 1,000 1,000 1,000 1,000 1,000
------------- -------- -------- ------------------ ------------ ------------
Total increase in net
assets................ 26,487 1,025 1,012 937 1,029 1,073
NET ASSETS:
Beginning of period.... -- -- -- -- -- --
------------- -------- -------- ------------------ ------------ ------------
End of period.......... $ 26,487 $ 1,025 $ 1,012 $ 937 $ 1,029 1,073
------------- -------- -------- ------------------ ------------ ------------
------------- -------- -------- ------------------ ------------ ------------
<CAPTION>
VOYAGER FUND
SUB-ACCOUNT
------------
<S> <C>
OPERATIONS:
Net investment
income................ $ --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (23)
------------
Net increase (decrease)
in net assets
resulting from
operations............ (23)
------------
UNIT TRANSACTIONS:
Purchases.............. 1,000
Net transfers.......... --
------------
Net increase in net
assets resulting from
unit transactions..... 1,000
------------
Total increase in net
assets................ 977
NET ASSETS:
Beginning of period.... --
------------
End of period.......... 977
------------
------------
</TABLE>
<PAGE>
72 ITT Hartford Life and Annuity Insurance Company
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT VARIABLE LIFE TWO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- ---------------------------------------------------
1. ORGANIZATION:
Separate Account Variable Life Two (the Account) is a separate investment
account within ITT Hartford Life and Annuity Insurance Company (the Company) and
is registered with the Securities and Exchange Commission (SEC) as a unit
investment trust under the Investment Company Act of 1940, as amended. The
Account consists of twenty two sub-accounts. These financial statements include
ten sub-accounts which invest solely in the Putnam Variable Trust Funds (the
Funds). The other twelve sub-accounts, which invest in Hartford Mutual Funds and
Fidelity Mutual Funds, are presented in separate financial statements. 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 life contractholders of the Company in the Funds as
directed by the contractholders.
- ---------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies of the
Account, which are in accordance with generally accepted accounting principles
in the investment company industry:
A) SECURITY TRANSACTIONS -- Security transactions are recorded on the trade
date (date the order to buy or sell is executed). Cost of investments
sold is determined on the basis of identified cost. Dividends and capital
gains income are accrued as of the ex-dividend date. Capital gains income
represents dividends from the Funds which are characterized as capital
gains under tax regulations.
B) SECURITY VALUATION -- The investment in shares of the Hartford, and
Fidelity mutual funds are valued at the closing net asset value per share
as determined by the appropriate Fund as of December 31, 1996.
C) FEDERAL INCOME TAXES -- The operations of the Account form a part of, and
are taxed with, the total operations of the Company, which is taxed as an
insurance company under the Internal Revenue Code. Under current law, no
federal income taxes are payable with respect to the operations of the
Account.
D) USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported
amounts of income and expenses during the period. Operating results in
the future could vary from the amounts derived from management's
estimates.
- ---------------------------------------------------
3. ADMINISTRATION OF THE ACCOUNT AND
RELATED CHARGES:
In accordance with the terms of the contracts, the Company makes deductions
for mortality and expense undertakings, cost of insurance, administrative fees,
and state premium taxes. These charges are deducted through termination of units
of interest from applicable contract owners' accounts, in accordance with the
terms of the contracts.
<PAGE>
NOT ALL OF THE FOLLOWING FUNDS ARE AVAILABLE IN THE STAG LAST SURVIVOR PRODUCT.
PLEASE REFER TO PAGE 1 OF THE PROSPECTUS FOR A LIST OF THE AVAILABLE FUNDS.
