<PAGE>
STAG LAST SURVIVOR
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICIES
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
P.O. BOX 2999
HARTFORD, CONNECTICUT 06104-2999
[LOGO] TELEPHONE: 1-800-231-5453
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Prospectus describes Stag Variable Life Last Survivor, last survivor
flexible premium variable life insurance policies (the "Policies," and each a
"Policy") offered by Hartford Life and Annuity Insurance Company ("Hartford") to
applicants where both Insureds will be generally between ages 20 and 80. 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. A 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.
Payments for the Policies will be held in a series of Separate Account VL II or
in the Fixed Account of Hartford. The following Sub-Accounts are available under
the Policies. Opposite each Sub-Account is the name of the underlying investment
for that Sub-Account. The Hartford Funds, Putnam Funds and Fidelity VIP Funds
are collectively referred to in this Prospectus as the "Funds."
<TABLE>
<S> <C> <C>
Hartford Adviser Fund Sub-Account -- shares of Class IA of Hartford Advisers HLS Fund, Inc.
("Hartford Advisers Fund")
Hartford Bond Fund Sub-Account -- shares of Class IA of Hartford Bond HLS Fund, Inc.
("Hartford Bond Fund")
Hartford Capital Appreciation Fund -- shares of Class IA of Hartford Capital Appreciation HLS
Sub-Account Fund, Inc.
("Hartford Capital Appreciation Fund")
Hartford Dividend and Growth Fund -- shares of Class IA of Hartford Dividend and Growth HLS
Sub-Account Fund, Inc.
("Hartford Dividend and Growth Fund")
Hartford Index Fund Sub-Account -- shares of Class IA of Hartford Index HLS Fund, Inc.
("Hartford Index Fund")
Hartford International Opportunities Fund -- shares of Class IA of Hartford International Opportunities
Sub-Account HLS Fund, Inc.
("Hartford International Opportunities Fund")
Hartford Mortgage Securities Fund -- shares of Class IA of Hartford Mortgage Securities HLS
Sub-Account Fund, Inc.
("Hartford Mortgage Securities Fund")
Hartford Stock Fund Sub-Account -- shares of Class IA of Hartford Stock HLS Fund, Inc.
("Hartford Stock Fund")
Hartford Money Market Fund Sub-Account -- shares of Class IA of Hartford Money Market HLS Fund, Inc.
("Hartford Money Market Fund")
Putnam VT Diversified Income Fund -- shares of Class IA of Putnam VT Diversified Income Fund of
Sub-Account the Putnam Variable Trust ("Putnam VT Diversified Income
Fund")
Putnam VT Global Asset Allocation Fund -- shares of Class IA of Putnam VT Global Asset Allocation
Sub-Account Fund of Putnam Variable Trust
("Putnam VT Global Asset Allocation Fund")
Putnam VT Global Growth Fund Sub-Account -- shares of Class IA of Putnam VT Global Growth Fund of
Putnam Variable Trust
("Putnam VT Global Growth Fund")
Putnam VT Growth and Income Fund Sub-Account -- shares of Class IA of Putnam VT Growth and Income Fund of
Putnam Variable Trust
("Putnam VT Growth and Income Fund")
Putnam VT High Yield Fund Sub-Account -- shares of Class IA of Putnam VT High Yield Fund of Putnam
Variable Trust
("Putnam VT High Yield Fund")
Putnam VT Money Market Fund Sub-Account -- shares of Class IA of Putnam VT Money Market Fund of
Putnam Variable Trust
("Putnam VT Money Market Fund")
Putnam VT New Opportunities Fund Sub-Account -- shares of Class IA of Putnam VT New Opportunities Fund of
Putnam Variable Trust
("Putnam VT New Opportunities Fund")
Putnam VT U.S. Government and High Quality -- shares of Class IA of Putnam VT U.S. Government and High
Bond Sub-Account Quality Bond of Putnam Variable Trust ("Putnam VT U.S.
Government and High Quality Bond Fund")
Putnam VT Utilities Growth and Income Fund -- shares of Class IA of Putnam VT Utilities Growth and
Sub-Account Income of Putnam Variable Trust ("Putnam VT Utilities and
Income Fund")
Putnam VT Voyager Fund Sub-Account -- shares of Class IA of Putnam VT Voyager Fund of Putnam
Variable Trust
("Putnam VT Voyager Fund")
Fidelity VIP Equity-Income Portfolio -- shares of Fidelity VIP Equity-Income Portfolio of the
Sub-Account Variable Insurance Products Fund
("Fidelity VIP Equity-Income Portfolio")
Fidelity VIP Overseas Portfolio Sub-Account -- shares of Fidelity VIP Overseas Portfolio of the Variable
Insurance Products Fund
("Fidelity VIP Overseas Portfolio")
Fidelity VIP II Asset Manager Portfolio -- shares of Fidelity VIP II Asset Manager Portfolio of the
Sub-Account Variable Insurance Products Fund ("Fidelity VIP II Asset
Manager Portfolio")
</TABLE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
THE DATE OF THIS PROSPECTUS IS MAY 1, 1998.
<PAGE>
2 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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.................................... 9
Accumulation Units................................................ 10
Accumulation Unit Values.......................................... 10
Premium Limitation................................................ 10
Account Values...................................................... 10
Amount Payable on Surrender of the Policy......................... 10
Load Refund....................................................... 10
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.................................. 11
Dollar Cost Averaging Option Program.............................. 11
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.................................. 12
Death Benefit....................................................... 12
Death Benefit Options............................................. 13
Option Change..................................................... 13
Death Benefit Guarantee........................................... 13
Minimum Death Benefit............................................. 13
Supplemental Face Amount.......................................... 13
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..................................................... 14
The Right to Examine or Exchange a 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......................................... 18
HARTFORD.............................................................. 18
</TABLE>
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 3
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
SEPARATE ACCOUNT VL II................................................ 18
<S> <C>
General............................................................. 18
Funds............................................................... 19
Hartford Funds.................................................... 19
Putnam Funds...................................................... 19
Fidelity VIP Funds................................................ 20
Investment Advisers................................................. 21
Hartford Funds.................................................... 21
Putnam Funds...................................................... 21
Fidelity VIP Funds................................................ 21
THE FIXED ACCOUNT..................................................... 22
OTHER MATTERS......................................................... 22
Voting Rights....................................................... 22
Statements to Policy Owners......................................... 23
Limit on Right to Contest........................................... 23
Misstatement as to Age.............................................. 23
Payment Options..................................................... 23
Beneficiary......................................................... 23
Assignment.......................................................... 23
Dividends........................................................... 24
SUPPLEMENTAL BENEFITS................................................. 24
Last Survivor Exchange Option Rider................................. 24
Estate Protection Rider............................................. 24
Maturity Date Extension Rider....................................... 24
Yearly Renewable Term Life Insurance Rider.......................... 24
EXECUTIVE OFFICERS AND DIRECTORS...................................... 24
DISTRIBUTION OF THE POLICIES.......................................... 28
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS.......................... 29
FEDERAL TAX CONSIDERATIONS............................................ 29
General............................................................. 29
Taxation of Hartford and the Separate Account....................... 29
Income Taxation of Policy Benefits -- Generally..................... 29
Diversification Requirements........................................ 30
Ownership of the Assets in the Separate Account..................... 30
Tax Deferral During Accumulation Period............................. 31
Modified Endowment Contracts........................................ 31
Estate and Generation Skipping Taxes................................ 32
Life Insurance Purchased for Use in Split Dollar Arrangements....... 32
Federal Income Tax Withholding...................................... 32
Non-Individual Ownership of Policies................................ 32
Other............................................................... 32
Life Insurance Purchases by Non-resident Aliens and Foreign
Corporations....................................................... 32
LEGAL PROCEEDINGS..................................................... 32
LEGAL MATTERS......................................................... 32
EXPERTS............................................................... 33
REGISTRATION STATEMENT................................................ 33
APPENDIX A -- ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES AND CASH
SURRENDER VALUES.................................................... 34
</TABLE>
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.
<PAGE>
4 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
ACCOUNT VALUE: The 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 a
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 represents Basic Face Amount and 40%
represents 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 Basic
Face Amount shown on Your Policy's specifications page as of the Date of Issue.
Thereafter, the Basic Face Amount may change in accordance with the terms of the
Policy.
CASH SURRENDER VALUE: The 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 Policy's 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. For a description of the three Death Benefit
Options provided, see "Detailed Description of Policy Benefits and Provisions --
Death Benefit," page 12.
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: The portion of Account Value invested in the General Account.
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, including the Separate Account.
GUIDELINE ANNUAL PREMIUM: The level annual premium payment necessary to provide
the future benefits under a Policy through maturity, based on certain
assumptions specified under 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 a Policy. For purposes of the Policy, the Guideline Annual Premium
is used only in limiting front-end sales loads.
HARTFORD (ALSO "WE," "US," "OUR"): Hartford Life and Annuity Insurance Company.
IN WRITING: In a written form satisfactory to Us.
INDEBTEDNESS: The outstanding loan on a Policy, including any interest due or
accrued.
INSUREDS: The two persons on whose lives a 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 the Sub-Accounts as a result of Policy loans. Amounts are held as
collateral and are credited with interest. Amounts held in the Loan Account are
not subject to the investment experience of the Separate Account.
MATURITY DATE: The date on which a Policy matures.
MONTHLY ACTIVITY DATE: The Policy Date and the same date in each succeeding
month as the Policy Date, except that
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 5
- --------------------------------------------------------------------------------
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.
MONTHLY DEDUCTION AMOUNT: The fees and charges deducted from the Account Value
on the Monthly Activity Date.
NATIONAL SERVICE CENTER: Hartford's National Service Center located in
Minneapolis, Minnesota.
NET PREMIUM: The amount of each premium actually allocated to the Account Value,
after a deduction as a percentage of premium is made for the premium processing
charge, premium tax, and federal tax charges and front-sales load attributable
to a Policy.
PLANNED PREMIUMS: The amount of premiums that You intend to pay , as indicated
on the application and shown on a Policy's specifications page.
POLICY: A last survivor flexible premium variable life insurance contract issued
by Hartford and 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 a
Policy during the lifetime of the two Insureds . A Policy Owner may or may not
be one of the Insureds.
POLICY YEAR: An annual period computed from the Policy Date.
PRO RATA BASIS: An allocation method based on the proportion of the Account
Value in the Fixed Account and in each Sub-Account.
SEC: The U.S. Securities and Exchange Commission.
SEPARATE ACCOUNT (ALSO "SEPARATE ACCOUNT VL II"): An account established by
Hartford to separate the assets funding the Policies from other assets of
Hartford.
SUB-ACCOUNT: A subdivision of the Separate Account.
SUPPLEMENTAL FACE AMOUNT: On the Policy Date, the Supplemental Face Amount is
shown on a 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 that 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 (generally, 4:00 p.m. Eastern Time) on such days.
VALUATION PERIOD: The period between the close of business on successive
Valuation Days.
VIP: Variable Insurance Products Fund of Fidelity Management & Research Company.
VIP II: Variable Insurance Products Fund II of Fidelity Management & Research
Company.
<PAGE>
6 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
SUMMARY
THE POLICY
This Prospectus has been designed to provide You with the necessary
information to make a decision on purchasing the last survivor flexible premium
variable life insurance Policy. The Policy is primarily a life insurance policy
with death benefits, cash values, and other features traditionally associated
with life insurance. The Policy is called "last survivor" because the Death
Proceeds are paid on the death of the last surviving Insured. The Policy is
called "flexible premium" because, once the desired level and pattern of death
benefits have been determined, a Policy Owner has considerable flexibility in
choosing the timing and amount of premium to be paid. The Policy is 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.
The Policy is funded by a Fixed Account and Separate Account VL II. Separate
Account VL II is presently comprised of 22 Sub-Accounts, each of which invests
exclusively in one of the underlying Funds. If an initial premium is submitted
with an application for a Policy, the Net Premium will be allocated to the
Hartford Money Market Fund Sub-Account. At a later date, the values in the
Hartford Money Market Fund Sub-Account will be allocated to one or more of the
Sub-Accounts or to the Fixed Account, as specified in the Policy Owner's
application. This later date is the latest of (1) 45 days after the application
is signed, (2) ten days after We mail or personally deliver a Notice of
Withdrawal Right, (3) ten days after We receive the initial premium and (4) the
date on which We receive the final requirement to put the Policy in force. The
Policy is credited with Accumulation Units in each selected Sub-Account, the
assets of which are invested in the applicable Fund. A Policy Owner may transfer
the assets among the Sub-Accounts and the Fixed Account, subject to any
applicable transfer charge. See "Detailed Description of Policy Benefits and
Provisions -- Transfers of Account Value," page 11.
POLICY OPTIONS
Available Policy options are structured to give a prospective Policy Owner
and his or her sales agent the ability to select a Policy tailored to the
prospective Policy Owner's specific life insurance needs.
The Policy options fall into three major categories:
1. Death Benefit Options -- The Policy Owner is able to select various
levels and patterns of Death Benefits. See "Detailed Description of Policy
Benefits and Provisions -- Death Benefit," page 12.
2. Investment Options -- Currently, the Policy Owner has the choice of
allocating the Account Value among a maximum of nine of the Policy's 22
available Sub-Accounts or a maximum of eight of the Policy's 22 Sub-Accounts and
the Fixed Account. See "Funds," page 19.
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. See "Detailed Description of Policy Benefits and Provisions
- -- Premiums -- Premium Payment Flexibility," page 9.
DEATH BENEFIT
The Policies provide for three Death Benefit Options: (1) a level Death
Benefit equal to the Face Amount ("Option A"); (2) the Face Amount plus Return
of Account Value Death Benefit ("Option B"); or (3) the Face Amount plus Return
of Premium Death Benefit ("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 and less any due and unpaid
Monthly Deduction Amount occurring during a grace period. Scheduled and
unscheduled increases in Face Amount may be requested. See "Detailed Description
of Policy Benefits and Provisions -- Death Benefit," page 13.
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, as
amended (the "1940 Act"). Separate Account VL II meets the definition of
"separate account" under federal securities law. Separate Account VL II
currently is comprised of 22 Sub-Accounts, each of which invests exclusively in
shares of one of the Funds.
Currently, the Funds are Hartford Advisers Fund, Hartford Bond Fund,
Hartford Capital Appreciation Fund, Hartford Dividend and Growth Fund, Hartford
Index Fund, Hartford International Opportunities Fund, Hartford Mortgage
Securities Fund, Hartford Stock Fund, and Hartford Money Market Fund; 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 Fidelity VIP Equity-Income Portfolio,
Fidelity VIP Overseas Portfolio and Fidelity VIP II Asset Manager Portfolio.
Prospective purchasers should read the
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 7
- --------------------------------------------------------------------------------
prospectuses for the Funds accompanying this Prospectus in connection with the
purchase of a Policy. For a discussion of the investment objectives of each of
the Funds, see "Separate Account VL II," page 18.
The investment adviser for the Hartford Funds is HL Investment Advisors,
Inc. ("HL Advisors"), a wholly-owned subsidiary of Hartford. HL Advisors retains
Wellington Management Company, LLP ("Wellington Management") and The Hartford
Investment Management Company, Inc. ("HIMCO") as investment sub-advisers with
respect to the Hartford Funds. The Putnam Funds are advised by Putnam Investment
Management, Inc., a subsidiary of Putnam Investments, Inc. The Fidelity VIP
Funds are managed by Fidelity Management & Research Company. For more details,
see "Separate Account VL II -- Investment Adviser," page 21.
FIXED ACCOUNT
Premium payments and Account Values may be allocated to the Fixed Account.
Amounts 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 laws governing the investments of insurance company general accounts.
ACCOUNT VALUE
As with many other types of insurance policies, each Policy will have an
Account Value. The Account Value will increase or decrease to reflect the
interest credited to the Fixed Account and the 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.
PREMIUM
You have considerable flexibility as to when and in what amounts You pay
premiums.
Prior to Policy 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. See "Detailed Description of Policy Benefits and Provisions -- Lapse and
Reinstatement," page 14.
The minimum premium subsequent to the initial premium is $50. We reserve the
right to refund any excess premium that would cause a 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 a Policy may become a Modified Endowment
Contract under federal tax law. If such an event, loans and other predeath
distributions are includable in gross income on an income-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 a Policy
becomes a Modified Endowment Contract. See "Federal Tax Considerations --
Modified Endowment Contracts," page 31, for a discussion of the "seven-pay
test."
DEDUCTIONS FROM THE PREMIUM
Before the premium is allocated 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 (after
such deductions) 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 processing costs with respect to a Policy.
PREMIUM TAX CHARGE AND FEDERAL TAX CHARGE
We deduct, as a percentage of each premium, a premium tax charge to cover
premium-based taxes assessed against Hartford by a state or other governmental
entity. Such percentage will vary by locale, depending on the tax rates in
effect at the time a Policy is issued. The range for such premium taxes
generally is 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.
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 paid 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%.
<PAGE>
8 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
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 Policies under
circumstances which may result in savings of such sales and distribution
expenses.
DEDUCTIONS AND CHARGES FROM
THE ACCOUNT VALUE
We will subtract amounts from Your Account Value to provide for the Monthly
Deduction Amount. Such deductions will be taken on a Pro Rata Basis from the
Fixed Account and the Sub-Accounts on each Monthly Activity Date.
The Monthly Deduction Amount equals the sum of :
(a) the Cost of Insurance;
(b) the charges for additional benefits provided by rider, if any;
(c) the charges for "special" insurance class rating, if any;
(d) the monthly administrative fee and issue charge;
(e) the mortality and expense risk charge, and
(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," page 17, and
"Federal Tax Considerations," page 29.
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.
CHARGES AGAINST THE FUNDS
Separate Account VL II purchases shares of the Funds at net asset value. The
net asset value of Fund shares reflects investment advisory fees and
administrative and other expenses already deducted from the assets of the Funds.
See "Detailed Description of Policy Benefits and Provisions -- Deductions and
Charges From the Account Value -- Charges Against the Funds," page 18.
The following table shows annual Fund operating expenses for the year ended
December 31, 1997:
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
<TABLE>
<CAPTION>
TOTAL FUND
OPERATING
OTHER EXPENSES EXPENSES
MANAGEMENT FEES (ABSENT (ABSENT
(ABSENT EXPENSE WAIVERS AND/OR
FEE WAIVERS) REIMBURSEMENTS) REIMBURSEMENTS)(1)
--------------- --------------- ---------------
<S> <C> <C> <C>
Hartford Advisers Fund.......................... 0.610% 0.020% 0.630%
Hartford Bond Fund.............................. 0.490% 0.020% 0.510%
Hartford Capital Appreciation Fund.............. 0.620% 0.020% 0.640%
Hartford Dividend and Growth Fund............... 0.660% 0.020% 0.680%
Hartford Index Fund............................. 0.375% 0.015% 0.390%
Hartford International Opportunities Fund....... 0.680% 0.090% 0.770%
Hartford Mortgage Securities Fund............... 0.425% 0.025% 0.450%
Hartford Stock Fund............................. 0.430% 0.020% 0.450%
Hartford Money Market Fund...................... 0.425% 0.015% 0.440%
Putnam VT Diversified Income Fund............... 0.690% 0.110% 0.800%
Putnam VT Global Asset Allocation Fund.......... 0.660% 0.110% 0.770%
Putnam VT Global Growth Fund.................... 0.600% 0.150% 0.750%
Putnam VT Growth and Income Fund................ 0.490% 0.040% 0.530%
Putnam VT High Yield Fund....................... 0.660% 0.060% 0.720%
Putnam VT Money Market Fund..................... 0.450% 0.090% 0.540%
Putnam VT New Opportunities Fund................ 0.580% 0.050% 0.630%
Putnam VT US Government and High Quality Bond
Fund.......................................... 0.610% 0.080% 0.690%
Putnam VT Utilities Growth and Income Fund...... 0.670% 0.070% 0.740%
Putnam VT Voyager Fund.......................... 0.540% 0.050% 0.590%
Fidelity VIP Equity-Income Portfolio (2)........ 0.500% 0.080% 0.580%
Fidelity VIP Overseas Portfolio (2)............. 0.750% 0.170% 0.920%
Fidelity VIP II Asset Manager Portfolio (2)..... 0.550% 0.100% 0.650%
</TABLE>
- ------------
(1) Management Fees generally represent the fees paid to the investment adviser
or its affiliate for investment and administrative services provided. Other
Expenses are expenses (other than Management Fees) which are deducted from
the fund including legal, accounting
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 9
- --------------------------------------------------------------------------------
and custodian fees. For complete description of the nature of the services
provided in consideration of the operating expenses deducted, please see the
Fund prospectuses.
(2) 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 whereby credits realized, as a result of
uninvested cash balances were used to reduce custodian expenses. Including
these reductions, the total operating expenses presented in the table would
have been 0.570% for Fidelity VIP Equity-Income Portfolio, 0.900% for
Fidelity VIP Overseas Portfolio and 0.640% for Fidelity VIP II Asset Manager
Portfolio.
POLICY LOANS
A Policy Owner may obtain a cash loan from Hartford. The loan is secured by
the Policy. At the time such loan is requested, Indebtedness may not exceed 90%
of the Account Value. See "Detailed Description of Policy Benefits and
Provisions -- Policy Loans," page 12.
SURRENDER
At any time prior to the Maturity Date, You may surrender Your Policy,
provided Your Policy has a Cash Surrender Value. See "Detailed Description of
Policy Benefits and Provisions -- Surrender," page 15.
THE RIGHT TO EXAMINE OR EXCHANGE THE POLICY
Any person purchasing a Policy has a limited right to return such Policy for
cancellation. If a purchaser returns a Policy (a) within ten days after
receiving such Policy, (b) ten days after We mail or personally deliver a Notice
of Withdrawal Right or (c) within 45 days after completion of the application
for the Policy, whichever is latest (subject to applicable state regulation),
Hartford, within seven business days thereafter, will return to such Policy
Owner the greater of (a) the premium paid minus any Indebtedness, or (b) the sum
of (1) the Account Value, minus any Indebtedness, on the date the returned
Policy is received by Hartford or by its agent, and (2) any deductions under
such Policy or by the Funds for taxes, charges or fees.
Additionally, once a Policy is in effect and during the first 24 months
after its Date of Issue, a Policy may be exchanged, without submitting proof of
insurability, for a non-variable last survivor life insurance policy offered by
Us on the life of the Insureds.
DETAILED DESCRIPTION OF POLICY BENEFITS AND PROVISIONS
GENERAL
This Prospectus describes a last survivor flexible premium variable life
insurance Policy that offers the Policy Owner 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 Policy 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
premium notices for Planned Premiums. Such 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 select are shown on Your Policy's specifications page. You may change
the Planned Premiums, subject to Our minimum amount rules then in effect.
A 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.
For more details, see "Detailed Description of Policy Benefits and Provisions --
Lapse and Reinstatement," page 14.
ALLOCATION OF PREMIUM PAYMENTS
The initial Net Premium will be allocated to the Hartford Money Market Fund
Sub-Account on the later of the Policy Date or the date We receive the premium.
The value in the Hartford Money Market Fund Sub-Account will then be
allocated to the Fixed Account and the Sub-Accounts according to the premium
allocation specified in the Policy application on the latest of (a) 45 days
after the Policy application is signed; (b) ten days after We receive the
premium payment; (c) ten days after We mail or personally deliver a Notice of
Withdrawal Right; and (d) the date on which 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 Fund Sub-Account.
You may change Your premium allocation upon request In Writing. Portions of
the premium allocated to the Fixed Account and the Sub-Accounts must be whole
percentages of 10% or more of the total premium. Subsequent Net Premiums will be
allocated to the Fixed Account and the Sub-Accounts according to Your most
recent instructions. Currently, the Account Value may be allocated to a maximum
of nine Sub-Accounts. (Hartford reserves the right to increase the number of
allocable investment options to more than nine in the future.) If We receive a
<PAGE>
10 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
premium payment and Your most recent premium allocation instructions would
violate the foregoing allocation limitation, We will allocate the Net Premium to
the Fixed Account and the Sub-Accounts on a Pro Rata Basis.
A Policy Owner receives several different types of notification as to what
his or her current premium allocation is. The initial allocation chosen by a
Policy Owner is shown in his or her Policy. Each transaction confirmation
received after a premium payment will show how a Net Premium has been allocated.
Additionally, each quarterly statement summarizes the current premium allocation
in effect for such Policy.
ACCUMULATION UNITS
Net Premiums allocated to the Sub-Accounts are used to credit Accumulation
Units to such Sub-Accounts.
The number of Accumulation Units in each Sub-Account to be credited to a
Policy (including the initial allocation to the Hartford Money Market Fund Sub-
Account) and the amount credited to the Fixed Account will be determined, first,
by multiplying the Net Premium by the appropriate allocation percentage in order
to determine the portion of the Net Premium to be invested in the Fixed Account
or the Sub-Account. Each portion of a Net Premium to be invested in a
Sub-Account is then divided by the value of the Accumulation Units in that
particular Sub-Account next computed following receipt of the premium payment.
The resulting figure is the number of Accumulation Units to be credited to each
Sub-Account.
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 the 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 premium payment is
received by Hartford at the National Service Center, provided 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 a 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 and any 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.
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, the interest credited to the Fixed Account and
the Loan Account, and the Monthly Deduction Amounts.
A Policy's Account Value 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 value of Accumulation Units
in that Sub-Account and then totaling the result for all the Sub-Accounts. A
Policy's Account Value equals the Account Value in all of the Sub-Accounts plus
the value of the Fixed Account and the Loan Account. The Policy's Cash Surrender
Value, which is the net amount available upon surrender of the Policy, is the
Account Value less any Indebtedness. See "-- Accumulation Unit Values," above.
AMOUNT PAYABLE ON SURRENDER OF THE POLICY
A Policy Owner may elect to fully surrender his or her Policy without the
consent of the beneficiary (provided the designation of beneficiary is not
irrevocable) as long as such Policy is in effect. Upon surrender, the Policy
Owner will receive the Cash Surrender Value determined as of the later of (a)
the date on which Hartford receives the Policy Owner's request for surrender In
Writing (b) the date requested by the Policy Owner. The Policy will terminate on
the later of (x) the date of receipt by Hartford of the request In Writing or
(y) the date the Policy Owner requests the surrender to be effective.
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.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 11
- --------------------------------------------------------------------------------
The refund will be equal to the excess, if any, of the sum of the actual
front-end sales load charged to date, divided by:
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; plus
2. 9% of each payment made in excess of two Guideline Annual Premiums.
PARTIAL WITHDRAWALS
One 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 in the future a partial withdrawal charge of up to $50.
TRANSFERS OF ACCOUNT VALUE
AMOUNT AND FREQUENCY OF TRANSFERS
Upon request and as long as Your Policy is in effect, You may transfer
amounts among the Fixed Account and the Sub-Accounts. Transfers may be made by
request In Writing or by calling Our National Service Center 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 requiring callers to provide certain identifying information for
themselves (if they are not Policy Owners) and the Policy Owner. All transfer
instructions communicated to Us 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, the Policy Owner may make one transfer per calendar month free of
charge, excluding any transfers made pursuant to Your enrollment in the dollar
cost averaging option. Each subsequent transfer in excess of one per calendar
month will be subject to a transfer charge of up to $25.
We reserve the right to limit at a future date the size of transfers and
remaining balances and the number and frequency of transfers.
TRANSFERS TO OR FROM SUB-ACCOUNTS
In the event of a transfer to a Sub-Account, We will increase the number of
Accumulation Units credited to the Sub-Account to which the transfer is being
made. The increase will equal:
1. the amount transferred, divided by
2. the value of Accumulation Units in the Sub-Account to which the transfer is
being made, determined as of the next Valuation Day after We receive Your
transfer request In Writing.
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 being made will be
reduced.
The reduction will be determined by dividing:
1. the amount transferred, by
2. the value of the Accumulation Units in the Sub-Account from which the
transfer is being made, determined as of the next Valuation Day after We
receive Your transfer request In Writing.
TRANSFERS FROM THE FIXED ACCOUNT
In addition to the conditions set forth 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 Your accumulated value in the Fixed Account exceeds $1,000, the amount
transferred from the Fixed Account in any Policy Year may not exceed 25% of
the accumulated value in the Fixed Account on the transfer date.
DOLLAR COST AVERAGING OPTION PROGRAM
You may elect to allocate Your Net Premiums among the Sub-Accounts and the
Fixed Account Program pursuant to the dollar cost averaging (DCA) option
program. If You choose the DCA option program, Your Net Premiums will be
deposited into the Hartford Money Market Fund Sub-Account. Each month, amounts
will be withdrawn monthly from that Sub-Account and allocated to the other
investment options, in accordance with Your allocation instructions. The
transfer date will be the monthly anniversary of the first transfer under Your
initial DCA election. The first transfer will commence within five business days
after Hartford receives Your initial election, either In
<PAGE>
12 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
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 Fund Sub-Account is less than
the amount You have elected to transfer, Your DCA program will terminate.
You may 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 the DCA program is to minimize the impact of
short-term price fluctuations. The DCA program allows Policy Owners to take
advantage of market fluctuations. Since the same dollar amount is transferred to
other investment options at set intervals, the DCA program 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. 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 program should have
the financial ability to continue making investments through periods of low
price levels.
POLICY LOANS
A Policy Owner may obtain a cash loan from Hartford as long as his or her
Policy is in effect, without the consent of the beneficiary (provided the
designation of beneficiary is not irrevocable). The loan is secured by the
Policy. Total Indebtedness at the time the new loan is requested (including the
accrued interest on prior loans plus the amount of the requested 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 Indebtedness at the Policy Loan Rate, which is
the interest rate as shown in the Policy. On each Monthly Activity Date, 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 the Sub-Accounts to
the Loan Account.
CREDITED INTEREST
A Loan Account, other than a Loan Account established pursuant to a
Preferred Loan as described in " -- Preferred Loan," below, will be credited
with interest in the following manner: During the first ten Policy Years, any
amounts in the Loan Account will be credited with interest at the rate of 2% (in
most states). Thereafter, the 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 of 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 Policy
loan repayment will be deducted from the Loan Account and will be allocated
among the Fixed Account and the Sub-Accounts in the same percentage as premiums
are allocated.
TERMINATION DUE TO EXCESSIVE INDEBTEDNESS
If total Indebtedness equals or exceeds Account Value, Your Policy will
terminate 61 days after We have mailed notice to Your last known address and to
the last known address of any assignees of record. If sufficient loan repayment
is not made by the end of such 61 day period, Your Policy will terminate without
value.
EFFECT OF LOANS ON ACCOUNT VALUE
A Policy loan, whether or not repaid, will have a permanent effect on Your
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 Policy loan is outstanding, the greater the
effect on Your Account Value is likely to be. Such effect could be favorable or
unfavorable. If the Fixed Account and the 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 Policy loan been made. If
the Fixed Account and the Sub-Accounts earn less than the Loan Account, the
Policy Owner's Account Value will be greater than it would have been had no
Policy loan been made. Additionally, if not repaid, the aggregate amount of the
outstanding Indebtedness will reduce the Death Proceeds and the Cash Surrender
Value otherwise payable.
DEATH BENEFIT
Each Policy provides for the payment of the Death Proceeds to the named
beneficiary upon the death of the
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 13
- --------------------------------------------------------------------------------
last surviving Insured. 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 You select, the minimum Death Benefit provision, and
whether or not the Death Benefit guarantee is in effect.
DEATH BENEFIT OPTIONS
There are three Death Benefit Options: (1) the Level Death Benefit Option
("Option A"), (2) the Return of Account Value Death Benefit Option ("Option B"),
and (3) the Return of Premium Death Benefit Option ("Option C"). Subject to the
minimum Death Benefit described below, the Death Benefit under each option is as
follows:
1. Under Option A, the Face Amount.
2. Under Option B, the Face Amount plus the Account Value.
3. Under Option C, 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 fees or charges against your Policy. 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
The Death Benefit guarantee is a Policy feature that is attached to every
Policy at issue, unless the Supplemental Face Amount exceeds the Basic Face
Amount. If the premiums paid during Policy Year 1 are less than the Annual Death
Benefit Guarantee Premium, the Death Benefit guarantee will be removed from the
Policy.
After Policy Year 1, the Death Benefit guarantee will be in effect as long
as the cumulative premiums paid into the Policy, less any 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) Policy Year 10 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 Your Policy.
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 a 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, and is not scheduled to
exceed, the Basic Face Amount; and
(c) on each Monthly Activity Date, the cumulative premiums paid into a Policy,
less withdrawals from such Policy, equal or exceed the Cumulative Death
Benefit Guarantee Premium.
MINIMUM DEATH BENEFIT
Notwithstanding the above, Your Policy has a minimum Death Benefit equal to
the Account Value multiplied by a percentage specified in such Policy. Such
percentage varies according to the Policy Year and each Insured's Issue Age, sex
(where unisex rates are not used) and insurance class, but may be increased by
You in Your Policy 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 payable to the
beneficiary.
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%).
All or part of the Death Proceeds may be paid in cash or applied under a
payment option (see "Other Matters -- Payment Options," page 23).
SUPPLEMENTAL FACE AMOUNT
If You selected Supplemental Face Amount coverage on Your Policy
application, the amount of such coverage is shown on the Policy's specifications
page, subject to any scheduled changes You instructed in Your Policy application
and any unscheduled increases and/or decreases in Face Amount, as described
below. You may discontinue a scheduled increase by request In Writing. A
decrease in Face
<PAGE>
14 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
Amount, other than as a result of a partial withdrawal, will affect Your
scheduled increases in Face Amount.
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 Your 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.
An unscheduled decrease in the Face Amount will be effective on the Monthly
Activity Date following the date We receive the request In Writing. The
remaining Face Amount must not be less than that specified by 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 and/or decreases made
under a Policy to no more than one in any 12 month period.
BENEFITS AT MATURITY
If either Insured under Your Policy is living on the Maturity Date, upon
surrender of Your Policy to Hartford, Hartford will pay to You the Cash
Surrender Value. On the Maturity Date, Your Policy will terminate and Hartford
will have no further obligations under such Policy.
LAPSE AND REINSTATEMENT
POLICY LAPSE AND GRACE PERIOD
A Policy will be in default on any Monthly Activity Date on which its 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 defaulting 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, such 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 to You 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 Your Policy
if We have not received the amount of the required premium, subject to the
following exception: If Your Policy is in the first ten Policy Years and the
cumulative premiums received, less withdrawals, equal or exceed the Cumulative
Death Benefit 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;
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 15
- --------------------------------------------------------------------------------
(b) You make Your request In Writing within five years from the date the Policy
lapsed;
(c) You submit satisfactory evidence of insurability;
(d) any Policy Indebtedness is repaid or carried over to the reinstated Policy;
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 Your 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 A POLICY
A prospective purchaser has a limited right to return a Policy for
cancellation. If a Policy is returned, by mail or personal delivery to Hartford
or to the agent who sold such Policy, to be canceled (a) within ten calendar
days after receipt of the Policy by the Policy Owner, (b) within ten days of
Hartford's mailing a Notice of Right to Withdraw, or (c) within 45 days of
completion of the Policy application (whichever is later, and subject to
applicable state regulation), Hartford will return to the Prospective purchaser,
within seven days thereafter, the greater of (x) the premium paid, less any
Indebtedness, or (y) 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 such Policy or by the Funds for taxes, charges or fees.
Once a 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
the Policy for which the policy was exchanged . An exchange of a Policy under
such circumstances should be a tax-free transaction under Section 1035 of the
Code.
SURRENDER
You may surrender Your Policy to Us at any time prior to the Maturity Date,
provided Your Policy has a Cash Surrender Value. You may surrender the Policy to
Us. Upon such surrender, We will pay You the Cash Surrender Value. Our liability
under the Policy will cease as of the date of Your request for surrender.
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 any such payment, unless (a) the New York
Stock Exchange is closed, (b) trading is restricted by the SEC, or (c) 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 In Writing.
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 a Policy application for any reason. No
change in the terms or conditions of a Policy will be made without the consent
of the Policy Owner.
A Policy will go into effect on the Policy Date only after Hartford has
received all outstanding delivery requirements and 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 specific plan, in accordance with Our rules
in effect as of the date the Policy application is approved. To qualify for such
a reduction, a plan must satisfy certain criteria, e.g., as to the size of the
plan, the expected number of participants and the 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
of the plan's members. The amount of reduction and the criteria for
qualification will be reflected in the reduced sales effort and administrative
costs resulting from, and the different
<PAGE>
16 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
mortality experience expected as a result of, sales to qualifying plans. We may
modify, from time to time on a uniform basis , 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, the premium tax
and federal tax charges and the front-end sales load. The amount of each premium
allocated to the Account Value after all such deductions are made 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 a percentage of each premium payment as a premium tax charge to
cover premium-based taxes assessed against Us by a state or other governmental
entity. This percentage will vary by locale, depending on the tax rates in
effect at the time the Policy is Issued. The range of such charge generally is
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 resulting from the receipt of premiums.
FRONT-END SALES LOAD
The front-end sales load is a charge deducted from each premium payment
based on (1) the amount of premium paid in relation to the Target Premium, (2)
the Policy Year in which the premium is paid and (3) the amount of the premium
Attributable to the Basic Face Amount and to the Supplemental Face Amount. See
"Special Terms," page 4, for a definition of "Target Premium."
Both current and maximum front-end sales loads 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. Thereafter, the current front-end sales load is 0%,
with a maximum of 2%.
Both current and maximum front-end sales loads 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. Thereafter,
the current front-end sales load is 0%, with a maximum of 2%.
Both current and maximum front-end sales loads 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. Thereafter, 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 Policies under
circumstances, which may result in savings of such sales and distribution
expenses.
EXAMPLE 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 10), for a Policy is
shown below. The example uses the same specific information (i.e., Issue Age,
Face Amount, premium level, etc.) as the illustration on page 41 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
Annual Planned Premium: $27,000
</TABLE>
IMPACT OF FRONT-END SALES LOAD/REFUND OF LOADS
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE CUMULATIVE AMOUNT OF
POLICY PREMIUM FRONT-END NON-REFUNDABLE REFUND UPON
YEAR PAID SALES 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>
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 17
- --------------------------------------------------------------------------------
DEDUCTIONS AND CHARGES FROM
THE ACCOUNT VALUE
MONTHLY DEDUCTION AMOUNTS
On the Policy Date and on each subsequent Monthly Activity Date, Hartford
will deduct 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 the sum of:
(a) the charge for the Cost of Insurance;
(b) the charges for additional benefits provided by rider, if any;
(c) the charges for "special" insurance class rating, if any;
(d) the monthly administrative fee and issue charge;
(e) the mortality and expense risk charge; and
(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 a Policy's Account Value and Death Benefit may vary from month to
month, the Cost of Insurance may also vary on each Monthly Activity Date.
On each Monthly Activity Date during the last 25 Policy Years before the
Maturity Date, Hartford will apply a discount to the Cost of Insurance rate,
provided You qualify for such discount. The discount equals 10%, multiplied
by the ratio of the Basic Face Amount at the Policy's issue date to the Face
Amount at the Policy's issue date, as shown on the Policy's specifications
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 equal at least 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 each Policy
Year 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 a 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 the
anticipated cost of providing supplemental benefits and is specified on the
applicable rider.
For a description of the available riders, see "Supplemental Benefits,"
page 24.
(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
We 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 the Policy issue date, paid in Policy
Years 1 through 10. On a blended rate basis, the charge for all Policy Years
is guaranteed never to exceed the sum of $10.00 per month, plus $0.03 per
month per $1000 of Basic Face Amount at the Policy issue date, and $15.00
per month plus $0.05 per month per $1000 of Supplemental Face
<PAGE>
18 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
Amount at the Policy issue date. This guaranteed charge is a blended rate
based on the ratio of the initial Basic Face Amount and the initial
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,
multiplied by $10.00, plus .20 multiplied by $15.00) and $.034 per thousand
of Face Amount (.80, multiplied by $.03, plus .20 multiplied by $.05).
Additionally, in the first five Policy Years, We assess 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 the date the Policy is
issued or unscheduled Supplemental Face Amount increase per month for the
first five years from the date of Policy issue or the date of 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 charge currently is made for mortality and expense risks assumed by
Hartford. This charge is allocated to the General Account. Hartford may
profit from this charge (see "-- 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-Accounts on the
Monthly Activity Date prior to assessing the Monthly Deduction Amount.
The current guaranteed mortality and expense risk rate for the first ten
Policy Years is 0.80%. Thereafter, the current and maximum rate is 0.80% on
the first $100,000 of Account Value as determined just prior to Hartford
assessing the Monthly Deduction Amount. On the remaining Account Value, the
current mortality and expense risk 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 by Hartford 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
a Policy. Hartford may profit from the mortality and expense risk charge and
may use any such 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.
CHARGES AGAINST THE FUNDS
The investment performance of each Fund reflects the management fee that the
Fund pays to its investment manager as well as other operating expenses that the
Fund incurs. Investment management fees are generally daily fees computed as a
percentage of a Fund's average daily net assets as an annual rate. Please read
the prospectus for each Fund for complete details.
HARTFORD
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. Effective on January 1, 1998, Hartford's
name changed from ITT Hartford Life and Annuity Insurance Company 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 controlled by
The Hartford Financial Services Group, Inc., a Delaware corporation.
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. 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, a separate account of Hartford, was 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. The Separate Account meets the definition of
"separate account" under federal
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 19
- --------------------------------------------------------------------------------
securities law. Under Connecticut law, the assets of the Separate Account are
held exclusively for the benefit of Policy Owners and persons entitled to
payments under the Policies. The assets of the Separate Account are not
chargeable with liabilities arising out of any other business which Hartford may
conduct.
FUNDS
The assets of each Sub-Account are invested exclusively in shares of 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 the Funds in connection with suchallocation. There is no assurance
that any Fund will achieve its stated objectives. All investment options may not
be available in all States. Policy Owners are also advised to read the
prospectuses for the Funds accompanying this Prospectus for more detailed
information.
HARTFORD FUNDS
HARTFORD ADVISERS FUND
Seeks maximum long-term total rate of return by investing in common stocks
and other equity securities, bonds and other debt securities and money market
instruments.
HARTFORD BOND FUND
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
Seeks growth of capital by investing in equity securities selected solely on
the basis of potential for capital appreciation.
HARTFORD DIVIDEND AND GROWTH FUND
Seeks a high level of current income consistent with growth of capital and
reasonable investment risk.
HARTFORD INDEX FUND
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.*
HARTFORD INTERNATIONAL OPPORTUNITIES FUND
Seeks growth of capital by investing primarily in equity securities issued
by non-U.S. companies.
HARTFORD MORTGAGE SECURITIES FUND
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
Seeks long-term growth of capital by investing primarily in equity
securities.
HARTFORD MONEY MARKET FUND
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 and Investment Grade Sector, a High Yield Sector (which invests
primarily in securities commonly known as "junk bonds"), and an International
Sector. See the special considerations for investments in high-yield securities
described in the Fund prospectus.
PUTNAM VT GLOBAL ASSET ALLOCATION FUND
Seeks a high level of long-term total return consistent with preservation of
capital by investing in U.S. equities, international equities, U.S. fixed income
securities and international fixed income securities.
PUTNAM VT GLOBAL GROWTH FUND
Seeks capital appreciation through a globally diversified portfolio of
common stocks.
PUTNAM VT GROWTH AND INCOME FUND
Seeks capital growth and current income by investing primarily in common
stocks that offer potential for capital growth, current income, or both.
* "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 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>
20 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
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 manager 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 Index 500.
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-rated
securities, see "Risks of Lower-Rated Debt Securities" in the Fidelity
prospectus for this Portfolio. International funds have increased economic and
political risks as they are exposed to events and factors in the various world
markets. These risks may be greater for funds that invest in emerging markets.
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 money market 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 organized as a Massachusetts
business trust with multiple portfolios. The Fidelity VIP Equity-Income
Portfolio and the Fidelity VIP Overseas Portfolio are portfolios of VIP. The
Fidelity VIP II Asset Manager Portfolio is a portfolio of VIP II.
Each Fund continuously issues an unlimited number of full and fractional
shares of beneficial interest in such Fund. Such shares are offered to separate
accounts, including the Separate Account, 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
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 21
- --------------------------------------------------------------------------------
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 contract
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 such contract 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 annuity and
variable life insurance separate accounts, Hartford will bear the attendant
expenses.
All investment income of, and other distributions to, each Sub-Account
arising from the applicable Fund are reinvested in shares of that Fund at net
asset value. The income and realized gains and/or losses on the assets of each
Sub-Account are therefore separate and are credited to or charged against the
Sub-Account without regard to income, gains and/or losses from any other
Sub-Account or from any other business of Hartford. Hartford will purchase
shares in a Fund 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 the Separate
Account and the 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 the Separate Account 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. For
further information, see the prospectuses for the Funds accompanying this
Prospectus.
INVESTMENT ADVISERS
HARTFORD FUNDS
The investment adviser for the Hartford Funds is HL Investment Advisors,
Inc. ("HL Advisors"), Hartford Plaza, Hartford, CT 06115. HL Advisors provides
investment advice pursuant to an investment advisory agreement entered into with
each of these Funds and, in general, supervises the management and investment
program of the Hartford Funds, for which HL Advisors receives a fee.
HL Advisors has entered into an investment services agreement with The
Hartford Investment Management Company, Inc. ("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 Hartford Money Market Fund.
Wellington Management Company, LLP ("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
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 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
("FMR"), whose principal business address is 82 Devonshire Street, Boston,
Massachusetts 02109. FMR, one of America's largest investment management
organizations, is composed of a number of different companies which provide a
variety of financial
<PAGE>
22 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
services and products. FMR, founded in 1946, is the original Fidelity company.
It provides investment research and portfolio management services to a number of
mutual funds and other clients. Various Fidelity companies perform certain
activities required to operate VIP and VIP II.
THE FIXED ACCOUNT
THAT PORTION OF THE POLICIES 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 SEC. 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
a Policy, as the case may be) having a voting interest in theSeparate Account.
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.
However, if the Investment Company Act of 1940 or any rule promulgated
thereunder should be amended, however, or if Hartford's present interpretation
of the law 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 a Policy Owner (or the assignee of a Policy) in the
Funds will be determined as follows: A Policy Owner may cast one vote for each
full or fractional Accumulation Unit owned under a 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 secured by a 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 that 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 disregard voting instructions when required by state insurance
regulatory authorities if such 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 may disregard voting instructions in favor of
changes initiated by a Policy Owner in the investment policy of or the
investment advisers to 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.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 23
- --------------------------------------------------------------------------------
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 Policy loans since the last
report;
(c) the amount of any Indebtedness;
(d) notifications required by the provisions of Your Policy; and
(e) any other information required by the Insurance Department of the state
where Your Policy was delivered.
LIMIT ON RIGHT TO CONTEST
Hartford may not contest the validity of a Policy after it has been in
effect during the lifetime of the Insureds for two years from the Issue Date. If
a 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 Your 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 $5,000, unless Hartford consents to a lesser amount 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 a Policy may be made
for the purpose of receiving a lump sum settlement in lieu of the life insurance
payments.
The following payment 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 Policies 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 with 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. However, Hartford may, from time to time, at Our
discretion if mortality appears more 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 Hartford
and the Policy Owner may agree on.
BENEFICIARY
A prospective purchaser in a Policy application names the beneficiary under
the Policy. You 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 or, otherwise, to the Policy Owner's estate.
ASSIGNMENT
A Policy may be assigned as collateral for a loan or other obligation.
Hartford is not responsible for any
<PAGE>
24 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
payment made or action taken before receipt of notice In Writing of such
assignment. 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 are among the options that may be
included in a Policy by rider, subject to the restrictions and limitations set
forth therein:
LAST SURVIVOR EXCHANGE OPTION RIDER
We will exchange Your Policy for two individual policies on the life of each
Insured, subject to the conditions stated in the Policy rider.
ESTATE PROTECTION RIDER
We will pay a term insurance benefit upon receipt of due proof of the last
surviving Insured's death while Your Policy and the rider are in force, subject
to the conditions stated in the rider.
MATURITY DATE EXTENSION RIDER
Subject to certain Death Benefit and premium restrictions, We will extend
the Maturity Date to the date of the death of the second Insured to die,
regardless of the age of either Insured. See "Federal Tax Considerations --
Income Taxation of Policy Benefits," page 29.
YEARLY RENEWABLE TERM LIFE INSURANCE RIDER
While the Policy and the rider thereto 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 the rider.
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
POSITION WITH HARTFORD, OTHER BUSINESS PROFESSION, VOCATION OR EMPLOYMENT
NAME, AGE YEAR OF ELECTION FOR PAST FIVE YEARS; OTHER DIRECTORSHIPS
- -------------------------------- ------------------------------------- ----------------------------------------------------------
<S> <C> <C>
Bossen, Wendell J., 64 Vice President, 1995** Vice President (1992-Present), Hartford Life and Accident
Insurance Company; Vice President (1992-Present),
Hartford Life Insurance Company; President
(1992-Present), International Corporate Marketing Group,
Inc.
Boyko, Gregory A., 46 Senior Vice President, Chief Vice President & Controller (1995-1997), Hartford;
Financial Officer & Director (1997-Present); Senior Vice President, Chief
Treasurer, 1997 Financial Officer & Treasurer (1997-Present); Vice
Director, 1997 * President & Controller (1995-1997), Hartford Life and
Accident Insurance Company; Director (1997-Present);
Senior Vice President, Chief Financial Officer &
Treasurer (1997-Present); Vice President and Controller
(1995-1997), Hartford Life Insurance Company; Senior
Vice President, Chief Financial Officer & Treasurer
(1997-Present), Hartford Life, Inc.; Chief Financial
Officer (1994-1995), IMG American Life; Senior Vice
President (1992-1994), Connecticut Mutual Life Insurance
Company.
Cummins, Peter W., 60 Senior Vice President, 1997 Vice President (1993-1997), Hartford; Senior Vice
President, (1997-Present); Vice President (1989-1997),
Hartford Life and Accident Insurance Company; Senior
Vice President (1997-Present); Vice President
(1989-1997); Senior Vice President (1997-Present); Vice
President (1989-1997), Hartford Life Insurance Company.
</TABLE>
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 25
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITION WITH HARTFORD, OTHER BUSINESS PROFESSION, VOCATION OR EMPLOYMENT
NAME, AGE YEAR OF ELECTION FOR PAST FIVE YEARS; OTHER DIRECTORSHIPS
- -------------------------------- ------------------------------------- ----------------------------------------------------------
<S> <C> <C>
de Raismes, Ann M., 47 Senior Vice President, 1997 Vice President (1994-1997), Hartford; Senior Vice
Director of Human President (1997-Present); Vice President (1994-1997);
Resources, 1994 Assistant Vice President (1992-1994); Director of Human
Resources (1991-Present), Hartford Life and Accident
Insurance Company; Senior Vice President (1997-Present);
Vice President (1994-1997); Assistant Vice President
(1992-1994); Director of Human Resources (1991-Present),
Hartford Life Insurance Company; Vice President, Human
Resources (1997-Present), Hartford Life, Inc.
Dooley, James R., 61 Vice President, 1993 Director, Information Services (1973-1997), Hartford Life
Insurance Company.
Fitch, Timothy M., 45 Vice President, 1995 Vice President (1995-Present); Actuary (1994-Present);
Actuary, 1997 Assistant Vice President(1992-1995), Hartford Life and
Accident Insurance Company; Vice President
(1995-Present); Actuary (1994-Present); Assistant Vice
President (1992-1995), Hartford Life Insurance Company.
Foy, David T., 31 Vice President, 1998 Assistant Vice President (1995-1998), Hartford; Vice
President (1998-Present), Assistant Vice President
(1995-1998), Hartford Life Insurance Company.
Garrett, J. Richard, 53 Vice President, 1994 Treasurer (1994-1997), Hartford; Vice President
Assistant Treasurer, 1997 (1993-Present); Assistant Treasurer (1997-Present);
Treasurer (1984-1997), Hartford Life and Accident
Insurance Company; Vice President, (1993-Present);
Assistant Treasurer (1997-Present); Treasurer
(1986-1997), Hartford Life Insurance Company; Vice
President (1997-Present), Hartford Life, Inc.
Gillette, Donald J., 52 Vice President, 1997 Assistant Vice President (1995-1997), Hartford; Assistant
Vice President (1995-1997), Hartford Life and Accident
Insurance Company; Assistant Vice President
(1995-Present), Hartford Life Insurance Company.
Ginnetti, John P.,, 52 Executive Vice President and Senior Vice President -- Individual Life and Annuity
Director, Asset Management Division (1988-1994), Hartford; Director (1988-Present);
Services, 1994 Director (1988-Present); Executive Vice President &
Director, 1988 Director, Asset Management Services (1994-Present);
Senior Vice President -- Individual Life and Annuity
Division (1988-1994), Hartford Life and Accident
Insurance Company; Executive Vice President, Asset
Management, Hartford Life, Inc. (1997-Present).
Godfrey, William A. III, 41 Senior Vice President, 1997 Senior Vice President (1997- Present), Hartford; Senior
Vice President (1997-Present), Hartford Life and
Accident Insurance Company; Vice President Information
Technology (1997-Present), Hartford Life, Inc.
</TABLE>
<PAGE>
26 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITION WITH HARTFORD, OTHER BUSINESS PROFESSION, VOCATION OR EMPLOYMENT
NAME, AGE YEAR OF ELECTION FOR PAST FIVE YEARS; OTHER DIRECTORSHIPS
- -------------------------------- ------------------------------------- ----------------------------------------------------------
<S> <C> <C>
Godkin, Lynda, 44 Senior Vice President, 1997 Assistant General Counsel and Secretary (1994-1995),
General Counsel, 1996 Hartford; Director (1997-Present); Senior Vice President
Corporate Secretary, 1996 (1997-Present); General Counsel (1996-Present);
Director, 1997 * Corporate Secretary (1995-Present); Associate General
Counsel (1995-1996); Assistant General Counsel and
Secretary (1994-1995); Counsel (1990-1994), Hartford
Life and Accident Insurance Company; Senior Vice
President (1997-Present); General Counsel
(1996-Present); Corporate Secretary (1995-Present);
Director (1997-Present); Associate General Counsel
(1995-1996); Assistant General Counsel and Secretary
(1994-1995); Counsel (1990-1994), Hartford Life
Insurance Company; Vice President and General Counsel
(1997-Present), Hartford Life, Inc.
Grady, Lois W., 53 Senior Vice President, 1998 Vice President (1994-1998), Hartford; Senior Vice
Vice President, 1994 President (1998-Present); Vice President (1993-1997);
Assistant Vice President (1987-1993), Hartford Life and
Accident Insurance Company; Senior Vice President
(1998-Present); Vice President (1994-1997); Assistant
Vice President (1987-1994), Hartford Life Insurance
Company.
Graham, Christopher, 47 Vice President, 1997
Hunt, Mark E., 37 Vice President, 1998 Assistant Vice President (1997-1998), Hartford; Vice
President (1998-Present), Hartford Life and Accident
Insurance Company.
Joyce, Stephen T., 39 Vice President, 1997 Assistant Vice President (1995-1997), Hartford; Assistant
Vice President (1994-1997), Hartford Life and Accident
Insurance Company; Vice President (1997-Present);
Assistant Vice President (1994-1997), Hartford Life
Insurance Company.
Keeler, Michael D., 37 Vice President, 1998 Vice President (1998-Present); Hartford Life and Accident
Insurance Company.
Kerzner, Robert A., 46 Senior Vice President, 1998 Senior Vice President (1998-Present); Vice President
Vice President, 1997 (1994-1998), Hartford; Senior Vice President
(1998-Present); Vice President (1994-1997); Regional
Vice President (1991-1994), Hartford Life Insurance
Company.
Levenson, David N., 31 Vice President, 1998 Assistant Vice President (1997-1998), Hartford.
Malchodi, William B., Jr., 50 Vice President, 1994 Vice President (1994-Present); Director of Taxes (1992-
1998), Hartford Life and Accident Insurance Company;
Vice President (1994-Present); Director of Taxes
(1991-1998), Hartford Life Insurance Company.
</TABLE>
<PAGE>
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 FIVE YEARS; OTHER DIRECTORSHIPS
- -------------------------------- ------------------------------------- ----------------------------------------------------------
<S> <C> <C>
Marra, Thomas M., 39 Executive Vice President, 1996 Senior Vice President (1993-1996); Director of Individual
Director, Individual Life and Annuities (1991-1993), Hartford; Director
Annuity Division, 1993 (1994-Present); Executive Vice President (1995-Present);
Director, 1994* Director, Individual Life and Annuity Division
(1994-Present); Senior Vice President (1994-1995); Vice
President (1989-1994); Actuary (1987-1997), Hartford
Life and Accident Insurance Company; Director
(1994-Present); Executive Vice President (1995-Present);
Director, Individual Life and Annuity Division
(1994-Present); Senior Vice President (1994-1995); Vice
President (1989-1994); Actuary (1987-1995), Hartford
Life Insurance Company; Executive Vice President,
Individual Life and Annuities (1997-Present), Hartford
Life, Inc.
Matthieson, Steven L., 53 Vice President, 1984 Director of New Business (1984-1997), Hartford.
O'Halloran, C. Michael, 51 Vice President, 1997 Vice President (1997-Present), Hartford Life and Accident
Insurance Company; Vice President (1997-Present),
Hartford Life Insurance Company; Corporate Secretary
(1997-Present), Hartford Life, Inc.; Senior Associate
General Counsel (1988-Present), Director of Corporate
Law (1994-Present), The Hartford Financial Services
Group.
Raymond, Craig R., 37 Senior Vice President, 1997 Vice President (1993-1997); Assistant Vice President
Chief Actuary, 1994 (1992-1993); Actuary (1989-1994), Hartford; Senior Vice
President (1997-Present); Chief Actuary (1995-Present);
Vice President (1993-1997); Actuary (1990-1995),
Hartford Life and Accident Insurance Company; Senior
Vice President (1997-Present); Chief Actuary
(1994-Present); Vice President (1993-1997); Assistant
Vice President (1992-1993); Actuary (1989-1994),
Hartford Life Insurance Company; Vice President and
Chief Actuary (1997-Present), Hartford Life, Inc.
Schrandt, David T., 50 Vice President, 1987 Treasurer (1987-1997); Controller (1987-1997), Hartford.
Smith, Lowndes A., 58 President, 1989 Chief Operating Officer (1989-1997), Hartford; Director
Chief Executive Officer, 1997 (1981-Present); President (1989-Present); Chief
Director, 1985* Executive Officer (1997-Present); Chief Operating
Officer (1989-1997), Hartford Life and Accident
Insurance Company; Director (1981-Present); President
(1989-Present), Chief Executive Officer (1997-Present);
Chief Operating Officer (1989-1997), Hartford Life
Insurance Company; Chief Executive Officer and President
and Director (1997-Present), Hartford Life, Inc.
</TABLE>
<PAGE>
28 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITION WITH HARTFORD, OTHER BUSINESS PROFESSION, VOCATION OR EMPLOYMENT
NAME, AGE YEAR OF ELECTION FOR PAST FIVE YEARS; OTHER DIRECTORSHIPS
- -------------------------------- ------------------------------------- ----------------------------------------------------------
<S> <C> <C>
Welnicki, Raymond P. , 49 Senior Vice President & Vice President (1993-1994), Hartford; Director
Director, Employee Benefit (1994-Present); Senior Vice President (1995-Present);
Division, 1994 Director, Employee Benefit Division (1997-Present); Vice
Director, 1994* President (1993-1995), Hartford Life and Accident
Insurance Company; Senior Vice President, Employee
Benefits (1997-Present), Hartford Life, Inc.; Board of
Directors, Ethix Corp.
Welsh, Walter C., 51 Senior Vice President, 1997 Senior Vice President (1997-Present); Vice President
(1994-1997); Assistant Vice President (1992-1995),
Hartford Life and Accident Insurance Company; Senior
Vice President (1997-Present); Vice President
(1995-1997); Assistant Vice President (1992-1995),
Hartford Life Insurance Company; Vice President,
Government Affairs (1997-Present), Hartford Life, Inc.
Zlatkus, Lizabeth H., 39 Senior Vice President, 1997 Vice President (1994-1997); Assistant Vice President
Director, 1994* (1992-1994), Hartford; Director (1994-Present); Senior
Vice President (1997-Present); Vice President
(1994-1997); Assistant Vice President (1992-1994),
Hartford Life and Accident Insurance Company; Vice
President, Group Life and Disability (1997-Present),
Hartford Life, Inc.
Znamierowski, David M., 38 Senior Vice President, 1997 Director (1998-Present); Senior Vice President
Director, 1998 (1997-Present), Hartford Life and Accident Insurance
Company; Director (1998-Present); Senior Vice President
(1997-Present); Director, Risk Management Strategy
(1996-Present); Vice President (1997), Hartford Life
Insurance Company; Vice President, Investment Strategy
(1997-Present), Hartford Life, Inc.; Vice President,
Investment Strategy & Policy, Aetna Life and Casualty
Company.
- ---------
* Denotes year of election to Board of Directors of Hartford.
** Affiliated company of The Hartford Financial Services Group, Inc.
</TABLE>
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 selling the Policies is qualified to sell variable life insurance
policies under applicable federal and state laws. Each broker-dealer selling the
Policies is registered with the SEC under the Securities Exchange Act of 1934
and all such broker-dealers 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, such sales commissions will not exceed
5.5% of premiums paid. Thereafter, agent commissions will not exceed 2% of
premiums paid. Sales commissions may be less
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 29
- --------------------------------------------------------------------------------
for premiums attributable to Supplemental Face Amount. Additionally, expense
allowances may be paid. A sales representative may be required to return all or
a portion of the commissions paid if a Policy sold by such sales representative
terminates prior to the Policy's second Policy Anniversary.
Broker-dealers or financial institutions are compensated according to a
schedule set forth by HESCO and any applicable rules or regulations for variable
insurance compensation. Compensation is generally based on premium payments made
by Policy Owners. This compensation is usually paid from the sales charges
described in this Prospectus.
In addition, a broker-dealer or financial institution may also receive
additional compensation for, among other things, training, marketing or other
services provided. HESCO, its affiliates or Hartford may also make compensation
arrangements with certain broker-dealers or financial institutions based on
total sales by the broker-dealer or financial institution of insurance products.
These payments, which may be different for different broker-dealers or financial
institutions, will be made by HESCO, its affiliates or Hartford out their own
assets and will not effect the amounts paid by the Policy Owners to purchase,
hold or surrender variable insurance products.
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS
The assets of the Separate Account are held by Hartford and 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.
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 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 (the underlying Funds) are reinvested and are taken into
account in determining the value of the Accumulation Units. (See "Detailed
Description of Policy Benefits and Provisions -- Accumulation Unit Values," page
10). As a result, such investment income and realized capital gains are
automatically applied to increase reserves under the Policy.
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 -- GENERALLY
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 Last Survivor 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
<PAGE>
30 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
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 fifteen 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 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 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.
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, Hartford may comply within a reasonable period and avoid the
taxation of policy income on an ongoing basis. However, either Hartford 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 the separate accounts and tests for diversification as
required by the Code. Hartford intends to administer all contracts subject to
the diversification requirements in a manner that will maintain adequate
diversification.
OWNERSHIP OF THE ASSETS IN
THE SEPARATE ACCOUNT
In certain circumstances, variable life insurance contract owners may be
considered the owners, for federal income tax purposes, of the assets of a
segregated asset account, such as the Separate Account, used to support their
contracts. In those circumstances, income and gains from the segregated asset
account would be includable in the contract owners' gross income. The Internal
Revenue Service (the "IRS") has stated in published rulings that a variable
contract owner will be considered the owner of the assets of a segregated asset
account if the owner possesses certain incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. In addition,
the Treasury Department announced, in connection with the issuance of
regulations concerning investment diversification, that those 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." This announcement also stated that guidance would be issued by
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 31
- --------------------------------------------------------------------------------
way of regulations or rulings on the "extent to which policyholders may direct
their investments to particular sub-accounts [of a segregated asset account]
without being treated as owners of the underlying assets." As of the date of
this Prospectus, no such guidance has been issued.
The ownership rights under the contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of the assets of a segregated
asset account. For example, a Policy Owner of this Policy has the choice of more
investment options to which to allocate premium payments and Separate Account
values, and may be able to transfer among investment options more frequently,
than in such rulings. These differences could result in the Policy Owner being
treated as the owner of a portion of the assets of the Separate Account. In
addition, Hartford does not know what standards will be set forth in the
regulations or rulings that the Treasury Department has stated it expects to
issue. Hartford therefore reserves the right to modify the contract as necessary
to attempt to prevent Policy Owners from being considered the owners of the
assets of the Separate Account. However, there is no assurance that such efforts
would be successful.
TAX DEFERRAL DURING ACCUMULATION PERIOD
Under existing provisions of the Code, except as described below, any
increase in a Policy Owner's contract value is generally not taxable to the
Policy Owner unless amounts are received (or are deemed to be received) under
the contract prior to the Insured's death. If there is a total withdrawal from
the contract, then the surrender value will be includable in the Policy Owner's
income to the extent that the amount received exceeds the "investment in the
contract." (If there is any debt at the time of a total withdrawal, then such
debt will be treated as an amount distributed to the Policy Owner.) The
"investment in the contract" is the aggregate amount of premium payments and
other consideration paid for the contract, less the aggregate amount received
under the contract previously to the extent such amounts received were
excludable from gross income. Whether partial withdrawals (or such other amounts
deemed to be distributed) from the contract constitute income to the Policy
Owner depends, in part, upon whether the contract is considered a modified
endowment contract for federal income tax purposes.
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. A policy fails the seven-pay test
if the accumulated amount paid into the Policy at any time during the first
seven Policy Years exceeds the sum of the net level premiums that would have
been paid up to that point if the Policy provided for paid-up future benefits
after the payment of seven level annual premiums. Computational rules for the
seven-pay test are described in Section 7702A(c).
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 increase in the Face
Amount. In addition, if there is a reduction in benefits under the Policy, 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 Policy is classified as a MEC, then withdrawals from
the Policy will be considered first as withdrawals of income and then as a
recovery of premium payments. Thus, withdrawals will be includable 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 policy will be treated
as a withdrawal from the policy 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 includable 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.
<PAGE>
32 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
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
includable 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
includable 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.
The federal estate tax is integrated with the federal gift tax under a
unified rate schedule and unified credit which shelters up to $625,000 (1998)
from the estate and gift tax. The Taxpayer Relief Act of 1997 gradually raises
the credit over the next eight years to $1,000,000. 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.
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
In certain circumstances, the Code limits the application of specific tax
advantages to individual owners of life insurance contracts. Prospective Policy
Owners which are not individuals should consult a qualified tax adviser to
determine the 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, 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
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 33
- --------------------------------------------------------------------------------
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 of Hartford.
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 the report on the
statutory-basis financial statements of Hartford Life and Annuity Insurance
Company (formerly "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, and are not presented in accordance with generally accepted
accounting principles. The principal business address of Arthur Andersen LLP is
One Financial Plaza, Hartford, Connecticut 06103.
The hypothetical Policy illustrations have been approved by Kenneth 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 such registration statement, the amendments and exhibits thereto, to
all of which reference is made for further information concerning the Separate
Account, Hartford, and the Policies.
<PAGE>
34 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS AND ACCOUNT VALUES
The tables in Appendix A illustrate the way in which a Policy operates. The
illustrations show how the Death Benefit and Account Values 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) 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;
(b) 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; (c) 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 (d) 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 Account 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 was made during the period of
time illustrated.
The illustrations reflect the deductions of current Policy charges and
guaranteed Policy charges for a single gross interest rate. The Death Benefits
and Account Values would change if current Cost of Insurance charges change.
The amounts shown for the Death Benefit and Account Values 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 Account Values 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 the
illustrations), Cost of Insurance charge, monthly administrative fee, issue
charge, and mortality and expense risk charge.
The hypothetical returns shown in the illustrations 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% , 6%,12%, respectively, to cover any
tax charges (see "Detailed Description of Policy Benefits and Provisions --
Deductions and Charges From the Account Value," page 17).
The "Premiums Accumulated at 5% Interest Per Year" column of each
illustration 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 and risk classification, a Policy's proposed 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>
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 12% (11.30% NET)
<TABLE>
<CAPTION>
PREMIUMS CURRENT CHARGES* GUARANTEED CHARGES**
END OF ACCUMULATED ------------------------- ------------------------
POLICY AT 5% 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 2 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 POLICY YEAR ONE AND $23,557.74 IN POLICY
YEAR 2 FOR THE CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT 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 AND ACCOUNT 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 AND ACCOUNT 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>
36 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 PLANNED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 6% (5.30% NET)
<TABLE>
<CAPTION>
PREMIUMS CURRENT CHARGES* GUARANTEED CHARGES**
END OF ACCUMULATED ------------------------- ------------------------
POLICY AT 5% 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 2 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 POLICY YEAR 1 AND $22,053.74 IN POLICY YEAR
2 FOR THE CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT 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 AND ACCOUNT 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 AND ACCOUNT VALUE 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>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 37
- --------------------------------------------------------------------------------
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 CURRENT CHARGES* GUARANTEED CHARGES**
END OF ACCUMULATED ------------------------- ------------------------
POLICY AT 5% 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 2 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 POLICY YEAR 1 AND $20,596.74 IN POLICY YEAR
2 FOR THE CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT 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 AND ACCOUNT 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 AND ACCOUNT 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>
38 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 PLANNED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 12% (11.30% NET)
<TABLE>
<CAPTION>
PREMIUMS CURRENT CHARGES* GUARANTEED CHARGES**
END OF ACCUMULATED ------------------------- ------------------------
POLICY AT 5% 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 2 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 POLICY YEAR 1 AND $9,606.00 IN POLICY YEAR
2 FOR THE CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT 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 AND ACCOUNT 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 AND ACCOUNT 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>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 39
- --------------------------------------------------------------------------------
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 PLANNED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 6% (5.30% NET)
<TABLE>
<CAPTION>
PREMIUMS CURRENT CHARGES* GUARANTEED CHARGES**
END OF ACCUMULATED ------------------------- ------------------------
POLICY AT 5% 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 2 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 POLICY YEAR 1 AND $8,828.00 IN POLICY YEAR
2 FOR THE CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT 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 AND ACCOUNT 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 AND ACCOUNT 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>
40 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 PLANNED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 0% (-0.70% NET)
<TABLE>
<CAPTION>
PREMIUMS CURRENT CHARGES* GUARANTEED CHARGES**
END OF ACCUMULATED ------------------------- ------------------------
POLICY AT 5% 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 2 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 POLICY YEAR 1 AND $8,078.00 IN POLICY YEAR
2 FOR THE CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT 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 AND ACCOUNT 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 AND ACCOUNT 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>
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 PLANNED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 12% (11.30% NET)
<TABLE>
<CAPTION>
PREMIUMS CURRENT CHARGES* GUARANTEED CHARGES**
END OF ACCUMULATED ------------------------- ------------------------
POLICY AT 5% 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 2 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 POLICY YEAR 1 AND $40,379.99 IN POLICY
YEAR 2 FOR THE CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT 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 AND ACCOUNT 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 AND ACCOUNT 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>
42 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 PLANNED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 6% (5.30% NET)
<TABLE>
<CAPTION>
PREMIUMS CURRENT CHARGES* GUARANTEED CHARGES**
END OF ACCUMULATED ------------------------- ------------------------
POLICY AT 5% 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 2 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 POLICY YEAR 1 AND $37,602.99 IN POLICY
YEAR 2 FOR THE CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT 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 AND ACCOUNT 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 AND ACCOUNT 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>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 43
- --------------------------------------------------------------------------------
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 PLANNED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 0% (-0.70% NET)
<TABLE>
<CAPTION>
PREMIUMS CURRENT CHARGES* GUARANTEED CHARGES**
END OF ACCUMULATED ------------------------- ------------------------
POLICY AT 5% 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 2 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 POLICY YEAR 1 AND $34,914.99 IN POLICY
YEAR 2 FOR THE CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT 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 AND ACCOUNT 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 AND ACCOUNT 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>
44 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 PLANNED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 12% (11.30% NET)
<TABLE>
<CAPTION>
PREMIUMS CURRENT CHARGES* GUARANTEED CHARGES**
END OF ACCUMULATED ------------------------- ------------------------
POLICY AT 5% 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 2 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 POLICY YEAR 1 AND $30,919.00 IN POLICY
YEAR 2 FOR THE CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT 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 AND ACCOUNT 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 AND ACCOUNT 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>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 45
- --------------------------------------------------------------------------------
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 PLANNED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 6% (5.30% NET)
<TABLE>
<CAPTION>
PREMIUMS CURRENT CHARGES* GUARANTEED CHARGES**
END OF ACCUMULATED ------------------------- ------------------------
POLICY AT 5% 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 2 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 POLICY YEAR 1 AND $28,481.00 IN POLICY
YEAR 2 FOR THE CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT 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 AND ACCOUNT 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 AND ACCOUNT 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>
46 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 PLANNED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 0% (-0.70% NET)
<TABLE>
<CAPTION>
PREMIUMS CURRENT CHARGES* GUARANTEED CHARGES**
END OF ACCUMULATED ------------------------- ------------------------
POLICY AT 5% 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 2 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 POLICY YEAR 1 AND $26,126.00 IN POLICY
YEAR 2 FOR THE CURRENT CHARGES.
THE DEATH BENEFIT MAY, AND THE ACCOUNT 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 AND ACCOUNT 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 AND ACCOUNT 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>
The following prospectuses contain information related to all of the funds
offered by the Hartford Funds, Putnam Variable Trust, and Fidelity's Variable
Insurance Products Fund and Variable Insurance Products Fund II. Not all of the
funds are available to Stag Last Survivor Policy Owners. Please review the Stag
Last Survivor product Prospectus for details regarding available funds. See
"Separate Account VL II -- Funds."
<PAGE>
47
- --------------------------------------------------------------------------------
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, 1997, the related statements of operations for the
year then ended and statements of changes in net assets for the year ended
December 31, 1997 and 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,
1997, the results of its operations for the year then ended, and the changes in
its net assets for the year ended December 31, 1997 the period from inception,
October 3, 1996, to December 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 16, 1998
<PAGE>
SEPARATE ACCOUNT VARIABLE LIFE TWO
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<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 235,252
Cost $ 244,230
Market Value......... $ 246,957 -- -- --
Hartford Stock Fund,
Inc.
Shares 45,309
Cost $ 229,324
Market Value......... -- $ 232,131 -- --
HVA Money Market Fund,
Inc.
Shares 1,438,143
Cost $1,438,143
Market Value......... -- -- $ 1,438,143 --
Hartford Advisers Fund,
Inc.
Shares 118,014
Cost $ 295,264
Market Value......... -- -- -- $ 298,191
Hartford Capital
Appreciation Fund,
Inc.
Shares 58,913
Cost $ 261,570
Market Value......... -- -- -- --
Hartford Mortgage
Securities Fund, Inc.
Shares 71,157
Cost $ 78,225
Market Value......... -- -- -- --
Hartford Index Fund,
Inc.
Shares 130,521
Cost $ 371,495
Market Value......... -- -- -- --
Hartford International
Opportunities Fund,
Inc.
Shares 113,752
Cost $ 156,261
Market Value......... -- -- -- --
Hartford Dividend and
Growth Fund, Inc.
Shares 62,762
Cost $ 118,541
Market Value......... -- -- -- --
Fidelity VIP Equity
Income Fund
Shares 2,430
Cost $ 54,864
Market Value......... -- -- -- --
Fidelity VIP Overseas
Fund
Shares 1,118
Cost $ 22,108
Market Value......... -- -- -- --
Fidelity VIP II Asset
Manager Fund
Shares 9,843
Cost $ 175,403
Market Value......... -- -- -- --
Due from ITT Hartford
Life and Annuity
Insurance Company..... 11,107 17 54,523 --
Receivable from shares
sold.................. -- -- -- --
----------- ------------ ------------ -------------
Total Assets........... 258,064 232,148 1,492,666 298,191
----------- ------------ ------------ -------------
LIABILITIES:
Due to ITT Hartford
Life and Annuity
Insurance Company..... -- -- -- --
Payable for fund shares
purchased............. 11,115 -- 54,334 --
----------- ------------ ------------ -------------
Total Liabilities...... 11,115 -- 54,334 --
----------- ------------ ------------ -------------
Net Assets (variable
life contract
liabilities).......... $ 246,949 $ 232,148 $ 1,438,332 $ 298,191
----------- ------------ ------------ -------------
----------- ------------ ------------ -------------
Units Owned by
Participants.......... 179,809 98,743 1,161,238 153,147
Unit Values............ $ 1.373400 $ 2.351023 $ 1.238620 $ 1.947093
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<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 235,252
Cost $ 244,230
Market Value......... -- -- -- -- --
Hartford Stock Fund,
Inc.
Shares 45,309
Cost $ 229,324
Market Value......... -- -- -- -- --
HVA Money Market Fund,
Inc.
Shares 1,438,143
Cost $1,438,143
Market Value......... -- -- -- -- --
Hartford Advisers Fund,
Inc.
Shares 118,014
Cost $ 295,264
Market Value......... -- -- -- -- --
Hartford Capital
Appreciation Fund,
Inc.
Shares 58,913
Cost $ 261,570
Market Value......... $ 259,788 -- -- -- --
Hartford Mortgage
Securities Fund, Inc.
Shares 71,157
Cost $ 78,225
Market Value......... -- $ 77,118 -- -- --
Hartford Index Fund,
Inc.
Shares 130,521
Cost $ 371,495
Market Value......... -- -- $ 375,602 -- --
Hartford International
Opportunities Fund,
Inc.
Shares 113,752
Cost $ 156,261
Market Value......... -- -- -- $ 147,248 --
Hartford Dividend and
Growth Fund, Inc.
Shares 62,762
Cost $ 118,541
Market Value......... -- -- -- -- $ 122,532
Fidelity VIP Equity
Income Fund
Shares 2,430
Cost $ 54,864
Market Value......... -- -- -- -- --
Fidelity VIP Overseas
Fund
Shares 1,118
Cost $ 22,108
Market Value......... -- -- -- -- --
Fidelity VIP II Asset
Manager Fund
Shares 9,843
Cost $ 175,403
Market Value......... -- -- -- -- --
Due from ITT Hartford
Life and Annuity
Insurance Company..... 11,210 -- -- 5,595 11,186
Receivable from shares
sold.................. -- -- 115,954 -- --
----------------- --------------- ----------- ---------- ------------
Total Assets........... 270,998 77,118 491,556 152,843 133,718
----------------- --------------- ----------- ---------- ------------
LIABILITIES:
Due to ITT Hartford
Life and Annuity
Insurance Company..... -- -- 116,326 -- --
Payable for fund shares
purchased............. 11,220 -- -- 5,596 11,192
----------------- --------------- ----------- ---------- ------------
Total Liabilities...... 11,220 -- 116,326 5,596 11,192
----------------- --------------- ----------- ---------- ------------
Net Assets (variable
life contract
liabilities).......... $ 259,778 $ 77,118 $ 375,230 $ 147,247 $ 122,526
----------------- --------------- ----------- ---------- ------------
----------------- --------------- ----------- ---------- ------------
Units Owned by
Participants.......... 121,620 57,150 161,530 98,062 61,304
Unit Values............ $ 2.135978 $ 1.349414 $ 2.322979 $ 1.501562 $ 1.998682
<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 235,252
Cost $ 244,230
Market Value......... -- -- --
Hartford Stock Fund,
Inc.
Shares 45,309
Cost $ 229,324
Market Value......... -- -- --
HVA Money Market Fund,
Inc.
Shares 1,438,143
Cost $1,438,143
Market Value......... -- -- --
Hartford Advisers Fund,
Inc.
Shares 118,014
Cost $ 295,264
Market Value......... -- -- --
Hartford Capital
Appreciation Fund,
Inc.
Shares 58,913
Cost $ 261,570
Market Value......... -- -- --
Hartford Mortgage
Securities Fund, Inc.
Shares 71,157
Cost $ 78,225
Market Value......... -- -- --
Hartford Index Fund,
Inc.
Shares 130,521
Cost $ 371,495
Market Value......... -- -- --
Hartford International
Opportunities Fund,
Inc.
Shares 113,752
Cost $ 156,261
Market Value......... -- -- --
Hartford Dividend and
Growth Fund, Inc.
Shares 62,762
Cost $ 118,541
Market Value......... -- -- --
Fidelity VIP Equity
Income Fund
Shares 2,430
Cost $ 54,864
Market Value......... $ 58,998 -- --
Fidelity VIP Overseas
Fund
Shares 1,118
Cost $ 22,108
Market Value......... -- $ 21,473 --
Fidelity VIP II Asset
Manager Fund
Shares 9,843
Cost $ 175,403
Market Value......... -- -- $ 177,276
Due from ITT Hartford
Life and Annuity
Insurance Company..... -- -- 1
Receivable from shares
sold.................. -- -- --
---------- ------------- ----------
Total Assets........... 58,998 21,473 177,277
---------- ------------- ----------
LIABILITIES:
Due to ITT Hartford
Life and Annuity
Insurance Company..... 2 1 --
Payable for fund shares
purchased............. -- -- --
---------- ------------- ----------
Total Liabilities...... 2 1 --
---------- ------------- ----------
Net Assets (variable
life contract
liabilities).......... $ 58,996 $ 21,472 $ 177,277
---------- ------------- ----------
---------- ------------- ----------
Units Owned by
Participants.......... 33,612 15,833 116,456
Unit Values............ $ 1.755189 $1.356104 $1.522265
</TABLE>
<PAGE>
SEPARATE ACCOUNT VARIABLE LIFE TWO
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<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.............. $10,020 $1,517 $22,397 $4,523
----------- ----------- ----------- ------
Net investment
income.............. 10,020 1,517 22,397 4,523
----------- ----------- ----------- ------
CAPITAL GAINS INCOME..... -- 113 -- 1,075
----------- ----------- ----------- ------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 281 287 -- (3)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 3,212 2,743 -- 3,056
----------- ----------- ----------- ------
Net gain (loss) on
investments......... 3,493 3,030 -- 3,053
----------- ----------- ----------- ------
Net increase
(decrease) in net
assets resulting
from operations..... $13,513 $4,660 $22,397 $8,651
----------- ----------- ----------- ------
----------- ----------- ----------- ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<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.............. $ 817 $ 2,894 $3,998 $ 1,213 $1,121
------- ------- ----------- ------- ------
Net investment
income.............. 817 2,894 3,998 1,213 1,121
------- ------- ----------- ------- ------
CAPITAL GAINS INCOME..... 385 -- 574 2,408 30
------- ------- ----------- ------- ------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 2,118 25 911 1,535 12
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (1,824) (1,118) 4,041 (9,304) 3,930
------- ------- ----------- ------- ------
Net gain (loss) on
investments......... 294 (1,093) 4,952 (7,769) 3,942
------- ------- ----------- ------- ------
Net increase
(decrease) in net
assets resulting
from operations..... $ 1,496 $ 1,801 $9,524 $(4,148) $5,093
------- ------- ----------- ------- ------
------- ------- ----------- ------- ------
<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.............. $ 18 $ 38 $ 37
------ ------ ------
Net investment
income.............. 18 38 37
------ ------ ------
CAPITAL GAINS INCOME..... 91 150 92
------ ------ ------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 782 (6) --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 4,077 (679) 1,822
------ ------ ------
Net gain (loss) on
investments......... 4,859 (685) 1,822
------ ------ ------
Net increase
(decrease) in net
assets resulting
from operations..... $4,968 $(497) $1,951
------ ------ ------
------ ------ ------
</TABLE>
<PAGE>
SEPARATE ACCOUNT VARIABLE LIFE TWO
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<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................ $ 10,020 $ 1,517 $ 22,397 $ 4,523
Capital gains income... -- 113 -- 1,075
Net realized gain
(loss) on security
transactions.......... 281 287 -- (3)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 3,212 2,743 -- 3,056
----------- ----------- ----------- -------------
Net increase (decrease)
in net assets
resulting from
operations............ 13,513 4,660 22,397 8,651
----------- ----------- ----------- -------------
UNIT TRANSACTIONS:
Purchases.............. 16,326 9,295 4,374,149 16,165
Net transfers.......... 161,664 224,575 (2,888,312) 256,828
Surrenders............. (4,558) (6,421) (61,718) (2,671)
Cost of insurance...... (4,584) (1,028) (55,698) (811)
----------- ----------- ----------- -------------
Total increase in net
assets resulting from
unit transactions..... 168,848 226,421 1,368,421 269,511
----------- ----------- ----------- -------------
Total increase in net
assets................ 182,361 231,081 1,390,818 278,162
NET ASSETS:
Beginning of period.... 64,588 1,067 47,514 20,029
----------- ----------- ----------- -------------
End of period.......... $246,949 $232,148 $ 1,438,332 $298,191
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION, OCTOBER 3, 1996 TO DECEMBER 31, 1996
MONEY
BOND FUND STOCK FUND MARKET FUND ADVISERS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- -------------
OPERATIONS:
Net investment
income................ $ 389 $ 3 $ 286 $ 53
Net unrealized
(depreciation)
appreciation 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) --
----------- ----------- ----------- -------------
Net increase in net
assets resulting from
unit transactions..... 64,683 1,000 47,228 20,105
----------- ----------- ----------- -------------
Total increase 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>
<TABLE>
<CAPTION>
CAPTIAL 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>
OPERATIONS:
Net investment
income................ $ 817 $ 2,894 $ 3,998 $ 1,213 $ 1,121
Capital gains income... 385 -- 574 2,408 30
Net realized gain
(loss) on security
transactions.......... 2,118 25 911 1,535 12
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (1,824) (1,118) 4,041 (9,304) 3,930
-------- ------- ----------- -------- ------------
Net increase (decrease)
in net assets
resulting from
operations............ 1,496 1,801 9,524 (4,148) 5,093
-------- ------- ----------- -------- ------------
UNIT TRANSACTIONS:
Purchases.............. 16,079 1,604 28,684 16,294 11,377
Net transfers.......... 253,669 76,343 352,567 125,494 109,235
Surrenders............. (7,630) (883) (9,226) (6,183) (2,933)
Cost of insurance...... (4,880) (2,772) (7,390) (4,631) (1,314)
-------- ------- ----------- -------- ------------
Total increase in net
assets resulting from
unit transactions..... 257,238 74,292 364,635 130,974 116,365
-------- ------- ----------- -------- ------------
Total increase in net
assets................ 258,734 76,093 374,159 126,826 121,458
NET ASSETS:
Beginning of period.... 1,044 1,025 1,071 20,421 1,068
-------- ------- ----------- -------- ------------
End of period.......... $259,778 $77,118 $375,230 $147,247 $122,526
-------- ------- ----------- -------- ------------
-------- ------- ----------- -------- ------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION, OCTOBER 3, 1996 TO DECEMBER 31, 1996
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
----------------- --------------- ----------- ------------------ ------------
OPERATIONS:
Net investment
income................ $ 2 $ 14 $ 5 $ 25 $ 6
Net unrealized
(depreciation)
appreciation of
investments during the
period................ 42 11 66 291 62
-------- ------- ----------- -------- ------------
Net increase (decrease)
in net assets
resulting from
operations............ 44 25 71 316 68
-------- ------- ----------- -------- ------------
UNIT TRANSACTIONS:
Purchases.............. 1,000 1,000 1,000 1,000 1,000
Net transfers.......... -- -- -- 19,105 --
Surrenders............. -- -- -- -- --
Cost of insurance...... -- -- -- -- --
-------- ------- ----------- -------- ------------
Net increase in net
assets resulting from
unit transactions..... 1,000 1,000 1,000 20,105 1,000
-------- ------- ----------- -------- ------------
Total increase in net
assets................ 1,044 1,025 1,071 20,421 1,068
NET ASSETS:
Beginning of period.... -- -- -- -- --
-------- ------- ----------- -------- ------------
End of period.......... $ 1,044 $ 1,025 $ 1,071 $ 20,421 $ 1,068
-------- ------- ----------- -------- ------------
-------- ------- ----------- -------- ------------
<CAPTION>
FIDELITY VIP FIDELITY VIP FIDELITY VIP II
EQUITY INCOME FUND OVERSEAS FUND ASSET MANAGER FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------ ------------- ------------------
<S> <C> <C> <C>
OPERATIONS:
Net investment
income................ $ 18 $ 38 $ 37
Capital gains income... 91 150 92
Net realized gain
(loss) on security
transactions.......... 782 (6) --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 4,077 (679) 1,822
------- ------------- --------
Net increase (decrease)
in net assets
resulting from
operations............ 4,968 (497) 1,951
------- ------------- --------
UNIT TRANSACTIONS:
Purchases.............. 2,252 1,594 10,283
Net transfers.......... 54,175 22,728 165,107
Surrenders............. (2,747) (1,120) (735)
Cost of insurance...... (708) (2,277) (379)
------- ------------- --------
Total increase in net
assets resulting from
unit transactions..... 52,972 20,925 174,276
------- ------------- --------
Total increase in net
assets................ 57,940 20,428 176,227
NET ASSETS:
Beginning of period.... 1,056 1,044 1,050
------- ------------- --------
End of period.......... $58,996 $21,472 $177,277
------- ------------- --------
------- ------------- --------
STATEMENT OF CHANGES IN N
FOR THE PERIOD FROM INCEP
FIDELITY VIP FIDELITY VIP FIDELITY VIP II
EQUITY INCOME FUND OVERSEAS FUND ASSET MANAGER FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------ ------------- ------------------
OPERATIONS:
Net investment
income................ $-- $-- $--
Net unrealized
(depreciation)
appreciation of
investments during the
period................ 56 44 50
------- ------------- --------
Net increase (decrease)
in net assets
resulting from
operations............ 56 44 50
------- ------------- --------
UNIT TRANSACTIONS:
Purchases.............. 1,000 1,000 1,000
Net transfers.......... -- -- --
Surrenders............. -- -- --
Cost of insurance...... -- -- --
------- ------------- --------
Net increase in net
assets resulting from
unit transactions..... 1,000 1,000 1,000
------- ------------- --------
Total increase in net
assets................ 1,056 1,044 1,050
NET ASSETS:
Beginning of period.... -- -- --
------- ------------- --------
End of period.......... $ 1,056 $ 1,044 $ 1,050
------- ------------- --------
------- ------------- --------
</TABLE>
<PAGE>
54
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT VARIABLE LIFE TWO
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 the Hartford and Fidelity Mutual
Funds (the Funds). The other ten sub-accounts, which invest in the Putnam VT
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. Dividend 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 funds are valued at
the closing net asset value per share as determined by the appropriate Fund as
of December 31, 1997.
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.
<PAGE>
55
- --------------------------------------------------------------------------------
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, 1997, and
the related statements of operations for the years then ended and statements of
changes in net assets for the year ended December 31, 1997 and 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of 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, 1997, the results of its operations for
the years then ended and the changes in its net assets for the year ended
December 31, 1997 and the period from inception, October 3, 1996, to December
31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 16, 1998
<PAGE>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT VARIABLE LIFE TWO
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
GLOBAL
ASSET
DIVERSIFIED ALLOCATION GLOBAL GROWTH AND
INCOME FUND FUND GROWTH FUND INCOME FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investments:
Putnam VT Diversified
Income Fund
Shares 7,515
Cost $ 84,758
Market Value......... $ 84,995 -- -- --
Putnam VT Global Asset
Allocation Fund
Shares 2,068
Cost $ 37,404
Market Value......... -- $ 38,799 -- --
Putnam VT Global Growth
Fund
Shares 16,488
Cost $303,958
Market Value......... -- -- $ 302,389 --
Putnam VT Growth and
Income Fund
Shares 5,487
Cost $147,425
Market Value......... -- -- -- $ 155,390
Putnam VT High Yield
Fund
Shares 3,451
Cost $ 46,220
Market Value......... -- -- -- --
Putnam VT Money Market
Fund
Shares 8,329
Cost $ 8,329
Market Value......... -- -- -- --
Putnam VT New
Opportunities Fund
Shares 8,115
Cost $168,253
Market Value......... -- -- -- --
Putnam VT U.S.
Government and High
Quality Bond Fund
Shares 16,624
Cost $219,484
Market Value......... -- -- -- --
Putnam VT Utilities
Growth and Income Fund
Shares 1,507
Cost $ 21,952
Market Value......... -- -- -- --
Putnam VT Voyager Fund
Shares 2,790
Cost $100,737
Market Value......... -- -- -- --
Due from ITT Hartford
Life & Annuity
Insurance Company..... -- 9 16,628 --
Receivable from fund
shares sold........... -- -- -- --
------------- ----------- ----------- -------------
Total Assets........... 84,995 38,808 319,017 155,390
LIABILITIES
Due to ITT Hartford
Life & Annuity
Insurance Company..... -- -- -- 3
Payable for fund shares
purchased............. -- -- 16,673 --
------------- ----------- ----------- -------------
Total Liabilities...... -- -- 16,673 3
------------- ----------- ----------- -------------
Net Assets (variable
life contract
liabilities).......... $ 84,995 $ 38,808 $ 302,344 $ 155,387
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
Variable life contracts
Individual Sub-Accounts:
Units Owned by
Participants.......... 6,561 2,119 16,635 7,028
Unit Price............. $12.954542 $18.314650 $18.175599 $22.109731
Contract Liability..... $ 84,995 $ 38,808 $ 302,344 $ 155,387
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
NEW U.S. GOVERNMENT & UTILITIES
HIGH MONEY OPPORTUNITIES HIGH QUALITY GROWTH AND
YIELD FUND MARKET FUND FUND BOND FUND INCOME FUND VOYAGER 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 7,515
Cost $ 84,758
Market Value......... -- -- -- -- -- --
Putnam VT Global Asset
Allocation Fund
Shares 2,068
Cost $ 37,404
Market Value......... -- -- -- -- -- --
Putnam VT Global Growth
Fund
Shares 16,488
Cost $303,958
Market Value......... -- -- -- -- -- --
Putnam VT Growth and
Income Fund
Shares 5,487
Cost $147,425
Market Value......... -- -- -- -- -- --
Putnam VT High Yield
Fund
Shares 3,451
Cost $ 46,220
Market Value......... $ 47,002 -- -- -- -- --
Putnam VT Money Market
Fund
Shares 8,329
Cost $ 8,329
Market Value......... -- $ 8,329 -- -- -- --
Putnam VT New
Opportunities Fund
Shares 8,115
Cost $168,253
Market Value......... -- -- $ 172,278 -- -- --
Putnam VT U.S.
Government and High
Quality Bond Fund
Shares 16,624
Cost $219,484
Market Value......... -- -- -- $ 223,091 -- --
Putnam VT Utilities
Growth and Income Fund
Shares 1,507
Cost $ 21,952
Market Value......... -- -- -- -- $ 25,830 --
Putnam VT Voyager Fund
Shares 2,790
Cost $100,737
Market Value......... -- -- -- -- -- $ 109,033
Due from ITT Hartford
Life & Annuity
Insurance Company..... -- -- -- 22,231 1 --
Receivable from fund
shares sold........... -- 1 -- -- -- 10,359
----------------- --------------- ----------- ------------------ ------------ ------------
Total Assets........... 47,002 8,330 172,278 245,322 25,831 119,392
LIABILITIES
Due to ITT Hartford
Life & Annuity
Insurance Company..... -- -- 9 -- -- 10,518
Payable for fund shares
purchased............. -- -- -- 22,231 -- --
----------------- --------------- ----------- ------------------ ------------ ------------
Total Liabilities...... -- -- 9 22,231 -- 10,518
----------------- --------------- ----------- ------------------ ------------ ------------
Net Assets (variable
life contract
liabilities).......... $ 47,002 $ 8,330 $ 172,269 $ 223,091 $ 25,831 $ 108,874
----------------- --------------- ----------- ------------------ ------------ ------------
----------------- --------------- ----------- ------------------ ------------ ------------
Variable life contracts
Individual Sub-Accounts:
Units Owned by
Participants.......... 2,841 6,765 9,421 16,422 1,372 4,695
Unit Price............. $16.545266 $ 1.231375 $18.284859 $13.584990 $18.827631 $23.187025
Contract Liability..... $ 47,002 $ 8,330 $ 172,269 $ 223,091 $ 25,831 $ 108,874
</TABLE>
<PAGE>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT VARIABLE LIFE TWO
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DIVERSIFIED GLOBAL ASSET GLOBAL GROWTH AND
INCOME FUND ALLOCATION FUND GROWTH FUND INCOME FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 57 $ 88 $ 420 $ 622
----- ------ ----------- -----------
CAPITAL GAINS INCOME..... 9 150 452 1,514
----- ------ ----------- -----------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 3 109 1,118 314
Net unrealized
appreciation
(depreciation) of
investments
during the period..... 207 1,348 (1,615) 7,951
----- ------ ----------- -----------
Net gain (loss) on
investments......... 210 1,457 (497) 8,265
----- ------ ----------- -----------
Net increase
(decrease) in net
assets resulting
from operations..... $276 $1,695 $ 375 $10,401
----- ------ ----------- -----------
----- ------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT & UTILITIES
HIGH MONEY NEW HIGH QUALITY GROWTH AND
YIELD FUND MARKET FUND OPPORTUNITIES FUND BOND FUND INCOME FUND VOYAGER FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ------------------ ------------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $154 $424 $-- $ 756 $ 40 $ 16
----- ----- ------- ------ ----------- ------------
CAPITAL GAINS INCOME..... 18 -- -- -- 54 355
----- ----- ------- ------ ----------- ------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 5 -- (1,905) 387 25 3,074
Net unrealized
appreciation
(depreciation) of
investments
during the period..... 757 -- 4,088 3,578 3,805 8,319
----- ----- ------- ------ ----------- ------------
Net gain (loss) on
investments......... 762 -- 2,183 3,965 3,830 11,393
----- ----- ------- ------ ----------- ------------
Net increase
(decrease) in net
assets resulting
from operations..... $934 $424 $ 2,183 $4,721 $3,924 $11,764
----- ----- ------- ------ ----------- ------------
----- ----- ------- ------ ----------- ------------
</TABLE>
<PAGE>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT VARIABLE LIFE TWO
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DIVERSIFIED GLOBAL ASSET GLOBAL GROWTH AND
INCOME FUND ALLOCATION FUND GROWTH FUND INCOME FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment
income................ $ 57 $ 88 $ 420 $ 622
Capital gains income... 9 150 452 1,514
Net realized gain
(loss) on security
transactions.......... 3 109 1,118 314
Net unrealized
appreciation
(depreciation) of
investments
during the period.... 207 1,348 (1,615) 7,951
----------- --------------- ----------- -----------
Net increase (decrease)
in net assets
resulting from
operations............ 276 1,695 375 10,401
----------- --------------- ----------- -----------
UNIT TRANSACTIONS:
Purchases.............. 4,114 3,230 13,967 7,475
Net transfers.......... 80,535 35,538 302,978 119,617
Surrenders............. (505) (1,812) (10,646) (6,077)
Cost of insurance...... (455) (890) (5,376) (2,516)
----------- --------------- ----------- -----------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 83,689 36,066 300,923 118,499
----------- --------------- ----------- -----------
Total increase
(decrease) in net
assets................ 83,965 37,761 301,298 128,900
NET ASSETS:
Beginning of period.... 1,030 1,047 1,046 26,487
----------- --------------- ----------- -----------
End of period.......... $84,995 $38,808 $302,344 $155,387
----------- --------------- ----------- -----------
----------- --------------- ----------- -----------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION, OCTOBER 3, 1996 TO DECEMBER 31, 1996
DIVERSIFIED GLOBAL ASSET GLOBAL GROWTH AND
INCOME FUND ALLOCATION FUND GROWTH FUND INCOME FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- --------------- ----------- -----------
OPERATIONS:
Net investment
income................ $-- $-- $ -- $ --
Capital gains income... -- -- -- --
Net realized gain
(loss) on security
transactions.......... -- -- -- --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 30 47 46 14
----------- --------------- ----------- -----------
Net increase (decrease)
in net assets
resulting from
operations............ 30 47 46 14
----------- --------------- ----------- -----------
UNIT TRANSACTIONS:
Purchases.............. 1,000 1,000 1,000 1,000
Net transfers.......... -- -- -- 25,473
Surrenders............. -- -- -- --
Cost of insurance...... -- -- -- --
----------- --------------- ----------- -----------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 1,000 1,000 1,000 26,473
----------- --------------- ----------- -----------
Total increase
(decrease) in net
assets................ 1,030 1,047 1,046 26,487
NET ASSETS:
Beginning of period.... -- -- -- --
----------- --------------- ----------- -----------
End of period.......... $ 1,030 $ 1,047 $ 1,046 $ 26,487
----------- --------------- ----------- -----------
----------- --------------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND UTILITIES
HIGH MONEY NEW HIGH QUALITY GROWTH AND
YIELD FUND MARKET FUND OPPORTUNITIES FUND BOND FUND INCOME FUND VOYAGER FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ------------------ ------------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment
income................ $ 154 $ 424 $-- $ 756 $ 40 $ 16
Capital gains income... 18 -- -- -- 54 355
Net realized gain
(loss) on security
transactions.......... 5 -- (1,905) 387 25 3,074
Net unrealized
appreciation
(depreciation) of
investments
during the period.... 757 -- 4,088 3,578 3,805 8,319
----------- ----------- ---------- ---------- ----------- ------------
Net increase (decrease)
in net assets
resulting from
operations............ 934 424 2,183 4,721 3,924 11,764
----------- ----------- ---------- ---------- ----------- ------------
UNIT TRANSACTIONS:
Purchases.............. 1,594 -- 13,204 10,535 1,604 10,861
Net transfers.......... 44,780 10,765 164,787 214,693 20,012 92,223
Surrenders............. (1,070) (2,441) (4,674) (4,108) (711) (4,146)
Cost of insurance...... (261) (1,430) (4,168) (3,779) (71) (2,805)
----------- ----------- ---------- ---------- ----------- ------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 45,043 6,894 169,149 217,341 20,834 96,133
----------- ----------- ---------- ---------- ----------- ------------
Total increase
(decrease) in net
assets................ 45,977 7,318 171,332 222,062 24,758 107,897
NET ASSETS:
Beginning of period.... 1,025 1,012 937 1,029 1,073 977
----------- ----------- ---------- ---------- ----------- ------------
End of period.......... $47,002 $8,330 $172,269 $223,091 $25,831 $108,874
----------- ----------- ---------- ---------- ----------- ------------
----------- ----------- ---------- ---------- ----------- ------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION, OCTOBER 3, 1996 TO DECEMBER 31, 1996
U.S. GOVERNMENT AND UTILITIES
HIGH MONEY NEW HIGH QUALITY GROWTH AND
YIELD FUND MARKET FUND OPPORTUNITIES FUND BOND FUND INCOME FUND VOYAGER FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ------------------ ------------------- ----------- ------------
OPERATIONS:
Net investment
income................ $-- $ 12 $-- $-- $-- $ --
Capital gains income... -- -- -- -- -- --
Net realized gain
(loss) on security
transactions.......... -- -- -- -- -- --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 25 -- (63) 29 73 (23)
----------- ----------- ---------- ---------- ----------- ------------
Net increase (decrease)
in net assets
resulting from
operations............ 25 12 (63) 29 73 (23)
----------- ----------- ---------- ---------- ----------- ------------
UNIT TRANSACTIONS:
Purchases.............. 1,000 1,000 1,000 1,000 1,000 1,000
Net transfers.......... -- -- -- -- -- --
Surrenders............. -- -- -- -- -- --
Cost of insurance...... -- -- -- -- -- --
----------- ----------- ---------- ---------- ----------- ------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 1,000 1,000 1,000 1,000 1,000 1,000
----------- ----------- ---------- ---------- ----------- ------------
Total increase
(decrease) in net
assets................ 1,025 1,012 937 1,029 1,073 977
NET ASSETS:
Beginning of period.... -- -- -- -- -- --
----------- ----------- ---------- ---------- ----------- ------------
End of period.......... $ 1,025 $1,012 $ 937 $ 1,029 $ 1,073 $ 977
----------- ----------- ---------- ---------- ----------- ------------
----------- ----------- ---------- ---------- ----------- ------------
</TABLE>
<PAGE>
62
- --------------------------------------------------------------------------------
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT VARIABLE LIFE TWO
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 VT funds (the Funds). The
other twelve subaccounts, which invest in the Hartford 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
contract-holders.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies of the
Account, which are in accordance with generally accepted accounting principles
in the investment company industry:
a) SECURITY TRANSACTIONS--Security transactions are recorded on the trade
date (date the order to buy or sell is executed). Cost of investments sold is
determined on the basis of identified cost. Dividend and capital gains income
are accrued as of the ex-dividend date. Capital gains income represents
dividends from the Funds which are characterized as capital gains under tax
regulations.
b) SECURITY VALUATION--The investments in shares of the Funds are valued at
the closing net asset value per share as determined by the appropriate Fund as
of December 31, 1997.
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>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of ITT Hartford Life
and Annuity Insurance Company:
We have audited the accompanying statutory 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,
1997 and 1996, and the related statutory statements of income, changes in
capital and surplus, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
statutory financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The Company presents its financial statements in conformity with statutory
accounting practices as described in Note 1 of notes to statutory financial
statements. When statutory financial statements are presented for purposes other
than for filing with a regulatory agency, generally accepted auditing standards
require that an auditors' report on them state whether they are presented in
conformity with generally accepted accounting principles. The accounting
practices used by the Company vary from generally accepted accounting principles
as explained and quantified in Note 1.
In our opinion, because the differences in accounting practices as described in
Note 1 are material, the statutory 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, 1997 and 1996, and the
results of its operations and its cash flows for each of three years in the
period ended December 31, 1997.
However, in our opinion, the statutory financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1997 and 1996, and the results of operations and its cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with statutory accounting practices as described in Note 1.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
January 27, 1998
<PAGE>
- --------------------------------------------------------------------------------
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATUTORY STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
($000)
<S> <C> <C> <C>
Revenues
Premiums and annuity considerations............. $ 296,645 $ 250,244 $ 165,792
Annuity and other fund deposits................. 1,981,246 1,897,347 1,087,661
Net investment income........................... 102,285 98,441 78,787
Commissions and expense allowances on
reinsurance ceded.............................. 396,921 370,637 183,380
Reserve adjustment on reinsurance ceded......... 3,672,076 3,864,395 1,879,785
Other revenues.................................. 288,632 161,906 140,796
---------- ---------- ----------
Total Revenues................................ 6,737,805 6,642,970 3,536,201
---------- ---------- ----------
Benefits and Expenses
Death and annuity benefits...................... 66,013 60,111 53,029
Surrenders and other benefit payments........... 461,733 276,720 221,392
Commissions and other expenses.................. 564,240 491,720 236,202
Increase in aggregate reserves for future
benefits....................................... 33,213 27,351 94,253
Increase in liability for premium and other
deposit funds.................................. 640,006 207,156 460,124
Net transfers to Separate Accounts.............. 4,914,980 5,492,964 2,414,669
---------- ---------- ----------
Total Benefits and Expenses................... 6,680,185 6,556,022 3,479,669
---------- ---------- ----------
Net Gain from Operations Before Federal Income
Taxes............................................ 57,620 86,948 56,532
Federal income tax (benefit) expense............ (14,878) 19,360 14,048
---------- ---------- ----------
Net Gain from Operations.......................... 72,498 67,588 42,484
Net realized capital gains, after tax........... 1,544 407 374
---------- ---------- ----------
Net Income........................................ $ 74,042 $ 67,995 $ 42,858
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statutory financial
statements.
<PAGE>
- --------------------------------------------------------------------------------
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATUTORY BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1997 1996
----------- -----------
($000)
<S> <C> <C>
Assets
Bonds........................................... $ 1,501,311 $ 1,268,480
Common stocks................................... 64,408 44,996
Mortgage loans.................................. 85,103 0
Policy loans.................................... 36,533 28,853
Cash and short-term investments................. 309,432 176,830
Other invested assets........................... 20,942 2,858
----------- -----------
Total cash and invested assets................ 2,017,729 1,522,017
----------- -----------
Investment income due and accrued............... 15,878 14,555
Premium balances receivable..................... 389 373
Receivables from affiliates..................... 1,269 257
Other assets.................................... 22,788 19,099
Separate Account assets......................... 23,208,728 14,619,324
----------- -----------
Total Assets.................................. $25,266,781 $16,175,625
----------- -----------
----------- -----------
Liabilities
Aggregate reserves for future benefits.......... $ 605,183 $ 571,970
Policy and contract claims...................... 5,672 6,806
Liability for premium and other deposit funds... 1,795,149 1,155,143
Asset valuation reserve......................... 13,670 7,442
Payable to affiliates........................... 20,972 10,022
Other liabilities............................... (754,393) (498,195)
Separate Account liabilities.................... 23,208,728 14,619,324
----------- -----------
Total liabilities............................. 24,894,981 15,872,512
----------- -----------
Capital and Surplus
Common stock.................................... 2,500 2,500
Gross paid-in and contributed surplus........... 226,043 226,043
Unassigned funds................................ 143,257 74,570
----------- -----------
Total capital and surplus..................... 371,800 303,113
----------- -----------
Total liabilities, capital and surplus.......... $25,266,781 $16,175,625
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statutory financial
statements.
<PAGE>
- --------------------------------------------------------------------------------
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATUTORY STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
($000)
<S> <C> <C> <C>
Capital and surplus -- beginning of year $ 303,113 $ 238,334 $ 91,285
--------- --------- ---------
Net income...................................... 74,042 67,995 42,858
Change in net unrealized capital gains (losses)
on common stocks and other invested assets..... 2,186 (5,171) 1,709
Change in asset valuation reserve............... (6,228) 568 (5,588)
Change in non-admitted assets................... (1,313) 1,387 (1,944)
Aggregate write-ins for surplus (See Note 3).... 0 0 8,080
Dividends to shareholder........................ 0 0 (10,000)
Paid-in surplus................................. 0 0 111,934
--------- --------- ---------
Change in capital and surplus................... 68,687 64,779 147,049
--------- --------- ---------
Capital and surplus -- end of year.............. $ 371,800 $ 303,113 $ 238,334
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statutory financial
statements.
<PAGE>
- --------------------------------------------------------------------------------
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATUTORY STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
($000)
<S> <C> <C> <C>
Operations
Premiums, annuity considerations and fund
deposits....................................... $ 2,277,874 $ 2,147,627 $ 1,253,511
Investment income............................... 101,991 106,178 78,328
Other income.................................... 4,381,718 4,396,892 2,253,466
----------- ----------- -----------
Total income.................................. 6,761,583 6,650,697 3,585,305
----------- ----------- -----------
Benefits Paid................................... 529,733 338,998 277,965
Federal income taxes (received) paid on
operations..................................... (14,499) 28,857 208,423
Other expenses.................................. 5,754,725 6,254,139 2,664,385
----------- ----------- -----------
Total benefits and expenses..................... 6,269,959 6,621,994 3,150,773
----------- ----------- -----------
Net cash from operations........................ 491,624 28,703 434,532
----------- ----------- -----------
Proceeds from Investments
Bonds........................................... 614,413 871,019 287,941
Common stocks................................... 11,481 72,100 52
Other........................................... 152 10 28
----------- ----------- -----------
Net investment proceeds....................... 626,046 943,129 288,021
----------- ----------- -----------
Taxes Paid on Capital Gains....................... 0 936 226
Paid-In Surplus................................... 0 0 111,934
Other Cash Provided............................. 0 41,998 28,199
----------- ----------- -----------
Total Proceeds................................ 1,117,670 1,012,894 862,460
----------- ----------- -----------
Cost of Investments Acquired
Bonds........................................... 848,267 914,523 720,521
Common stocks................................... 28,302 82,495 35,794
Mortgage loans.................................. 85,103 0 0
Miscellaneous applications...................... 18,548 130 2,146
----------- ----------- -----------
Total Investments Acquired.................... 980,220 997,148 758,461
----------- ----------- -----------
Other Cash Applied
Dividends paid to stockholders.................. 0 0 10,000
Other........................................... 4,848 12,220 5,007
----------- ----------- -----------
Total other cash applied...................... 4,848 12,220 15,007
----------- ----------- -----------
Total applications.......................... 985,068 1,009,368 773,468
----------- ----------- -----------
Net Change in Cash and Short-Term Investments..... 132,602 3,526 88,992
Cash and Short-Term Investments, Beginning of
Year........................................... 176,830 173,304 84,312
----------- ----------- -----------
Cash and Short-Term Investments, End of Year.... $ 309,432 $ 176,830 $ 173,304
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statutory financial
statements.
<PAGE>
- --------------------------------------------------------------------------------
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997
(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. ("HLI"), which is majority owned by The Hartford Financial
Services Group, Inc. ("The Hartford"), formerly a wholly owned subsidiary of ITT
Corporation ("ITT"). On February 10, 1997, HLI filed a registration statement,
as amended, with the Securities and Exchange Commission relating to the initial
public offering of HLI Class A Common Stock (the "Offering"). Pursuant to the
Offering on May 22, 1997, HLI sold to the public 26 million shares, representing
18.6% of the equity ownership of HLI. On December 19, 1995, ITT Corporation
distributed all the outstanding shares of The Hartford to ITT shareholders of
record in an action known herein as the "Distribution". As a result of the
Distribution, The Hartford became an independent, publicly traded company.
During 1996, ILA re-domesticated from the State of Wisconsin to the State of
Connecticut.
ILA offers a complete line of ordinary and universal life insurance,
individual annuities and certain supplemental accident and health benefit
coverages.
BASIS OF PRESENTATION
The accompanying ILA statutory 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. The most significant estimates are
for determining the liability for aggregate reserves for future benefits and the
liability for premium and other deposit funds. Although some variability is
inherent in these estimates, management believes the amounts provided are
adequate.
Statutory accounting practices and generally accepted accounting principles
("GAAP") differ in certain significant respects. These differences principally
involve:
(1) treatment of policy acquisition costs (commissions, underwriting and selling
expenses, premium taxes, etc.) which are charged to expense when incurred
for statutory purposes rather than on a pro-rata basis over the expected
life of the policy;
(2) recognition of premium revenues, which for statutory purposes are generally
recorded as collected or when due during the premium paying period of the
contract and which for GAAP purposes, for universal life policies and
investment products, generally, are only recorded for policy charges for the
cost of insurance, policy administration and surrender charges assessed to
policy account balances. Also, for GAAP purposes, premiums for traditional
life insurance policies are recognized as revenues when they are due from
policyholders and the retrospective deposit method is used in accounting for
universal life and other types of contracts where the payment pattern is
irregular or surrender charges are a significant source of profit. The
prospective deposit method is used for GAAP purposes where investment
margins are the primary source of profit;
(3) development of liabilities for future policy benefits, which for statutory
purposes predominantly use interest rate and mortality assumptions
prescribed by the NAIC which may vary considerably from interest and
mortality assumptions used for GAAP financial reporting;
(4) providing for income taxes based on current taxable income (tax return) only
for statutory purposes, rather than establishing additional assets or
liabilities for deferred Federal income taxes to recognize the tax effect
related to reporting revenues and expenses in different periods for
financial reporting and tax return purposes;
(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 recorded upon adoption of the applicable standard;
<PAGE>
- --------------------------------------------------------------------------------
(7) establishing a formula reserve for realized and unrealized losses due to
default and equity risk associated with certain invested assets (Asset
Valuation Reserve); as well as the deferral and amortization of realized
gains and losses, motivated by changes in interest rates during the period
the asset is held, into income over the remaining life to maturity of the
asset sold (Interest Maintenance Reserve); whereas on a GAAP basis, no such
formula reserve is required and realized gains and losses are recognized in
the period the asset is sold;
(8) the reporting of reserves and benefits net of reinsurance ceded, where risk
transfer has taken place; whereas on a GAAP basis, reserves are reported
gross of reinsurance with reserve credits presented as recoverable assets;
(9) the reporting of fixed maturities at amortized cost, whereas GAAP requires
that fixed maturities be classified as "held-to-maturity",
"available-for-sale" or "trading", based on the Company's intentions with
respect to the ultimate disposition of the security and its ability to
affect those intentions. The Company's bonds were classified on a GAAP basis
as "available-for-sale" and accordingly, those investments and common stocks
were reflected at fair value with the corresponding impact included as a
component of Stockholder's Equity designated as "Net unrealized capital
gains (losses) on securities net of tax". For statutory reporting purposes,
Change in Net Unrealized Capital Gains (Losses) on Common Stocks and Other
Invested Assets includes the change in unrealized gains (losses) on common
stock reported at fair value; and
(10) separate account liabilities are valued on the Commissioner's Annuity
Reserve Valuation Method ("CARVM"), with the surplus generated recorded as a
liability to the general account (and a contra liability on the balance
sheet of the general account), whereas GAAP liabilities are valued at
account value.
As of and for the years ended December 31, 1997, 1996 and 1995, the
significant differences between statutory and GAAP basis net income and capital
and surplus for the Company are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ---------- ----------
<S> <C> <C> <C>
GAAP Net Income............... $ 58,050 $ 41,202 $ 38,821
Amortization and
deferral of policy
acquisition costs............ (345,658) (341,572) (174,341)
Change in unearned revenue
reserve...................... 4,641 55,504 32,300
Deferred taxes................ 47,113 2,090 2,801
Separate accounts............. 282,818 306,978 146,635
Other, net.................... 27,078 3,793 (3,358)
------------ ---------- ----------
Statutory Net Income.......... $ 74,042 $ 67,995 $ 42,858
------------ ---------- ----------
------------ ---------- ----------
<CAPTION>
1997 1996 1995
------------ ---------- ----------
<S> <C> <C> <C>
GAAP Capital and
Surplus...................... $ 570,469 $ 503,887 $ 455,541
Deferred policy acquisition
costs........................ (1,283,771) (938,114) (596,542)
Unearned revenue reserve...... 134,789 130,148 74,644
Deferred taxes................ 64,522 12,823 1,493
Separate accounts............. 923,040 640,101 333,123
Asset valuation reserve....... (13,670) (7,442) (8,010)
Unrealized gains (losses) on
bonds........................ 13,943 5,112 (1,696)
Adjustment relating to Lyndon
contribution (see Note 3).... (41,277) (41,277) (41,277)
Other, net.................... 3,755 (2,125) 21,058
------------ ---------- ----------
Statutory Capital and
Surplus...................... $ 371,800 $ 303,113 $ 238,334
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
AGGREGATE RESERVES FOR FUTURE BENEFITS AND LIABILITY FOR PREMIUM AND OTHER
DEPOSIT FUNDS
Aggregate reserves for payment of future life, health and annuity benefits
were computed in accordance with actuarial standards. Reserves for life
insurance policies are generally based on the 1958 and 1980 Commissioner's
Standard Ordinary Mortality Tables and various valuation rates ranging from 2.5%
to 6%. Accumulation and on-benefit annuity reserves are based principally on
individual annuity tables at various rates ranging from 2.5% to 8.75% and using
CARVM. Accident and health reserves are established using a two year preliminary
term method and morbidity tables based on Company experience.
ILA has established separate accounts to segregate the assets and
liabilities of certain annuity contracts that must be segregated from the
Company's general assets under the terms of the contracts. The assets consist
primarily of marketable securities reported at market value. Premiums, benefits
and expenses of these contracts are reported in the Statutory Statements of
Income.
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 fair value with the current year change in the
difference from cost reflected in surplus. Other invested assets are generally
recorded at fair value.
The Asset Valuation Reserve ("AVR") is designed to provide a standardized
reserving process for realized and unrealized losses due to default and equity
risks associated with invested assets. The reserve increased by $6,228 in 1997,
decreased by $568 in 1996 and increased by $5,588 in 1995. Additionally, the
Interest Maintenance Reserve
<PAGE>
- --------------------------------------------------------------------------------
("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 Statements of Income. Realized investment gains and losses are
determined on a specific identification basis. The amount of net capital losses
reclassified from the IMR was $719 in 1997 and the amount of net capital gains
reclassified was $1,413 and $39 in 1996 and 1995, respectively. The amount of
income amortized was $85, $392 and $256 in 1997, 1996 and 1995, respectively.
OTHER LIABILITIES
The amount reflected in other liabilities includes a receivable from the
separate accounts of $923 million and $640 million as of December 31, 1997 and
1996, respectively. The balances are classified in accordance with NAIC
accounting practices.
MORTGAGE LOANS
Mortgage loans, carried at cost, which approximates fair value, include
investments in assets backed by mortgage loan pools.
2. INVESTMENTS:
(A) COMPONENTS OF NET INVESTMENT INCOME
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Interest income from bonds and
short-term investments....... $100,475 $89,940 $ 76,100
Interest income from policy
loans........................ 1,958 1,846 1,504
Interest and dividends from
other investments............ 1,005 7,864 2,288
-------- ------- --------
Gross investment income....... 103,438 99,650 79,892
Less: investment expenses..... 1,153 1,209 1,105
-------- ------- --------
Net investment income......... $102,285 $98,441 $ 78,787
-------- ------- --------
-------- ------- --------
</TABLE>
(B) COMPONENTS OF NET UNREALIZED CAPITAL GAINS (LOSSES) ON COMMON STOCKS
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Gross unrealized capital gains at
end of year........................ $ 537 $ 713 $ 1,724
Gross unrealized capital losses at
end of year........................ (1,820) (4,160) 0
-------- ------- --------
Net unrealized capital (losses)
gains.............................. (1,283) (3,447) 1,724
Balance at beginning of year........ (3,447) 1,724 15
-------- ------- --------
Change in net unrealized capital
gains (losses) on common stocks.... $ 2,164 $(5,171) $ 1,709
-------- ------- --------
-------- ------- --------
</TABLE>
(C) COMPONENTS OF NET UNREALIZED CAPITAL GAINS (LOSSES) ON BONDS AND SHORT-TERM
INVESTMENTS
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- --------
<S> <C> <C> <C>
Gross unrealized capital gains at
end of year........................ $23,357 $ 11,821 $ 22,251
Gross unrealized capital losses at
end of year........................ (1,906) (3,842) (1,374)
------- -------- --------
Net unrealized capital gains........ 21,451 7,979 20,877
Balance at beginning of year........ 7,979 20,877 33,732
------- -------- --------
Change in net unrealized capital
gains (losses) on bonds and
short-term investments............. $13,472 $(12,898) $ 54,609
------- -------- --------
------- -------- --------
</TABLE>
(D) COMPONENTS OF NET REALIZED CAPITAL GAINS
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Bonds and short-term investments......... $ (120) $ 2,756 $ 56
Common stocks............................ 0 0 52
Real estate and other.................... 114 0 0
------- ------- ------
Realized capital (losses) gains.......... (6) 2,756 208
Capital gains (benefit) tax.............. (831) 936 (205)
------- ------- ------
Net realized capital gains, after tax.... 825 1,820 413
Less: IMR capital (losses) gains......... (719) 1,413 39
------- ------- ------
Net realized capital gains............... $ 1,544 $ 407 $ 374
------- ------- ------
------- ------- ------
</TABLE>
(E) OFF-BALANCE SHEET INVESTMENTS
The Company had no significant financial instruments with off-balance sheet
risk as of December 31, 1997 and 1996.
(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.
<PAGE>
- --------------------------------------------------------------------------------
(G) BONDS, SHORT-TERM INVESTMENTS AND COMMON STOCKS
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
1997 COST GAINS LOSSES VALUE
- --------------------------------------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. government and government agencies and
authorities:
Guaranteed and sponsored................... $ 11,114 $ 55 $ (51) $ 11,118
Guaranteed and sponsored -- asset-backed... 55,506 1,056 (269) 56,293
States, municipalities and political
subdivisions................................ 26,404 329 0 26,733
International governments.................... 7,609 500 0 8,109
Public utilities............................. 73,024 754 (132) 73,646
All other corporate.......................... 517,715 14,110 (704) 531,121
All other corporate -- asset-backed.......... 630,069 5,005 (739) 634,335
Short-term investments....................... 277,330 33 (8) 277,355
Certificates of deposit...................... 93,770 1,515 (3) 95,282
Parents, subsidiaries and affiliates......... 86,100 0 0 86,100
----------- ---------- ---------- -----------
Total bonds and short-term investments....... $ 1,778,641 $23,357 $(1,906) $ 1,800,092
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
1997 COST GAINS LOSSES VALUE
- --------------------------------------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Common stock -- unaffiliated................. $ 30,307 $ 537 $ 0 $ 30,844
Common stock -- affiliated................... 35,384 0 (1,820) 33,564
----------- ---------- ---------- -----------
Total common stocks.......................... $ 65,691 $ 537 $(1,820) $ 64,408
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
1997 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 0 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 0 (66) 148,028
Certificates of deposit...................... 83,378 563 (110) 83,831
Parents, subsidiaries and affiliates......... 48,100 0 0 48,100
----------- ---------- ---------- -----------
Total bonds and short-term investments....... $ 1,416,574 $11,821 $(3,842) $ 1,424,553
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
1997 COST GAINS LOSSES VALUE
- --------------------------------------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
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>
The amortized cost and estimated fair value of bonds and short-term
investments at December 31, 1997 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>
- --------------------------------------------------------------------------------
over the remaining life of the securities. Expected maturities differ from
contractual maturities reflecting borrowers' rights to call or prepay their
obligations.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
MATURITY COST FAIR VALUE
- --------------------------------------------- ---------- -----------
<S> <C> <C>
Due in one year or less...................... $ 424,518 $ 696,203
Due after one year through five years........ 586,980 708,365
Due after five years through ten years....... 451,963 295,896
Due after ten years.......................... 315,180 99,628
---------- -----------
Total...................................... $1,778,641 $ 1,800,092
---------- -----------
---------- -----------
</TABLE>
Proceeds from sales of investments in bonds and short-term investments
during 1997, 1996 and 1995 were $367,626, $668,078 and $313,961, respectively,
resulting in gross realized gains of $964, $3,675 and $1,419, respectively, and
gross realized losses of $1,084, $919 and $1,263, 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>
1997 1996
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
ASSETS
Bonds and short-term investments........... $1,778 $ 1,800 $1,417 $ 1,425
Common stocks.............................. 64 64 45 45
Policy loans............................... 37 37 29 29
Mortgage loans............................. 85 85 0 0
Other invested assets...................... 21 21 3 3
LIABILITIES
Liabilities on investment contracts........ $1,911 $ 1,835 $1,245 $ 1,191
</TABLE>
The carrying amounts for policy loans approximates fair value. The fair
value of liabilities on investment contracts 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. The Company has also invested in bonds
of its subsidiaries, Hartford Financial Services Corporation and HL Investment
Advisors, Inc., and common stock of its subsidiary, ITT Hartford Life, LTD.
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 HLI, the Company will be included for Federal
income tax purposes in the consolidated group of which The Hartford is the
common parent. It is the 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 (received) paid by the Company were $(14,499), $29,792 and
$215,921 in 1997, 1996 and 1995, respectively. The effective tax rate was (26)%,
22% and 25% in 1997, 1996 and 1995, respectively. The following schedule
provides a reconciliation of the tax provision at the U.S. Federal Statutory
rate to Federal income tax (benefit) expense (in millions).
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Tax provision at U.S. Federal statutory
rate........................................ $ 20 $ 30 $ 20
Tax deferred acquisition costs............... 25 27 8
Statutory to tax reserve differences......... 1 0 3
Unrealized gain on separate accounts......... (44) (21) (13)
Investments and other........................ (17) (17) (4)
----- ----- -----
Federal income tax (benefit) expense......... $ (15) $ 19 $ 14
----- ----- -----
----- ----- -----
</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 1997 or
1996. 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 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
<PAGE>
- --------------------------------------------------------------------------------
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
$265, $358, and $1,034 in 1997, 1996 and 1995, 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 1997, 1996 and 1995.
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 8.5% for 1997, 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
1997, 1996 and 1995.
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 1997, 1996 and 1995.
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>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Direct premiums................... $266,427 $226,612 $159,918
Premiums assumed.................. 51,630 33,817 13,299
Premiums ceded.................... (21,412) (10,185) (7,425)
-------- -------- --------
Premiums and annuity
considerations................... $296,645 $250,244 $165,792
-------- -------- --------
-------- -------- --------
</TABLE>
The Company cedes to RGA Reinsurance Company, on a modified coinsurance
basis, 80% of the variable annuity business written since 1994.
8. SEPARATE ACCOUNTS:
The Company maintains separate account assets and liabilities totaling $23.2
billion and $14.6 billion at December 31, 1997 and 1996, 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 $252 million, $144
million and $72 million in 1997, 1996 and 1995, respectively, and are recorded
as a component of other revenues on the Statutory Statements of Income.
9. COMMITMENTS AND CONTINGENCIES:
As of December 31, 1997 and 1996, 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 $1,544, $1,262 and $1,684 in 1997, 1996 and 1995,
respectively. ILA incurred guaranteed fund expense of $548 in 1997 and 1996 and
$0 in 1995.
