<PAGE>
<TABLE>
<S> <C>
STAG VARIABLE LIFE LAST SURVIVOR
SEPARATE ACCOUNT VL II
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
P.O. BOX 2999
HARTFORD, CONNECTICUT 06104-2999
TELEPHONE: (800) 231-5453 [LOGO]
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Prospectus describes information you should know before you purchase the
Stag Variable Life Last Survivor variable life insurance policy. Please read it
carefully.
Stag Variable Life Last Survivor is a contract between you and Hartford Life and
Annuity Insurance Company. You agree to make sufficient premium payments to us,
and we agree to pay a death benefit to your beneficiary. The policy is a last
survivor flexible premium variable life insurance policy. It is:
x Last survivor, because we pay a death benefit after the death of the last
surviving insured.
x Flexible premium, because you may add payments to your policy after the first
payment.
x Variable, because the value of your life insurance policy will fluctuate with
the performance of the investment options you select and the Fixed Account.
- --------------------------------------------------------------------------------
The following Sub-Accounts are available under the policy:
<TABLE>
<CAPTION>
SUB-ACCOUNT PURCHASES SHARES OF:
<S> <C>
Hartford Advisers Fund Sub-Account Class IA of Hartford Advisers HLS Fund, Inc.
Hartford Bond Fund Sub-Account Class IA of Hartford Bond HLS Fund, Inc.
Hartford Capital Appreciation Fund Sub-Account Class IA of Hartford Capital Appreciation HLS
Fund, Inc.
Hartford Dividend and Growth Fund Sub-Account Class IA of Hartford Dividend and Growth HLS
Fund, Inc.
Hartford Growth and Income Fund Sub-Account Class IA of Hartford Growth and Income HLS Fund of
Hartford Series Fund, Inc.
Hartford Index Fund Sub-Account Class IA of Hartford Index HLS Fund, Inc.
Hartford International Advisers Fund Sub-Account Class IA of Hartford International Advisers HLS
Fund, Inc.
Hartford International Opportunities Fund Sub-Account Class IA of Hartford International Opportunities HLS
Fund, Inc.
Hartford MidCap Fund Sub-Account Class IA of Hartford MidCap HLS Fund, Inc.
Hartford Money Market Fund Sub-Account Class IA of Hartford Money Market HLS Fund, Inc.
Hartford Mortgage Securities Fund Sub-Account Class IA of Hartford Mortgage Securities HLS
Fund, Inc.
Hartford Small Company Fund Sub-Account Class IA of Hartford Small Company HLS Fund, Inc.
Hartford Stock Fund Sub-Account Class IA of Hartford Stock HLS Fund, Inc.
Putnam VT Asia Pacific Growth Fund Sub-Account Class IA of Putnam VT Asia Pacific Growth Fund of
Putnam Variable Trust
Putnam VT Diversified Income Fund Sub-Account Class IA of Putnam VT Diversified Income Fund of
Putnam Variable Trust
Putnam VT Global Asset Allocation Fund Sub-Account Class IA of Putnam VT Global Asset Allocation Fund of
Putnam Variable Trust
Putnam VT Global Growth Fund Sub-Account Class IA of Putnam VT Global Growth Fund of Putnam
Variable Trust
Putnam VT Growth and Income Fund Sub-Account Class IA of Putnam VT Growth and Income Fund of Putnam
Variable Trust
Putnam VT Health Sciences Fund Sub-Account Class IA of Putnam VT Health Sciences Fund of Putnam
Variable Trust
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUB-ACCOUNT PURCHASES SHARES OF:
<S> <C>
Putnam VT High Yield Fund Sub-Account Class IA of Putnam VT High Yield Fund of Putnam
Variable Trust
Putnam VT Income Fund Sub-Account Class IA of Putnam VT Income Fund of Putnam Variable
Trust
Putnam VT International Growth Fund Sub-Account Class IA of Putnam VT International Growth Fund of
Putnam Variable Trust
Putnam VT International Growth and Income Fund Class IA of Putnam VT International Growth and Income
Sub-Account Fund of Putnam Variable Trust
Putnam VT International New Opportunities Fund Class IA of Putnam VT International New Opportunities
Sub-Account Fund of Putnam Variable Trust
Putnam VT Investors Fund Sub-Account Class IA of Putnam VT Investors Fund of Putnam
Variable Trust
Putnam VT Money Market Fund Sub-Account Class IA of Putnam VT Money Market Fund of Putnam
Variable Trust
Putnam VT New Opportunities Fund Sub-Account Class IA of Putnam VT New Opportunities Fund of Putnam
Variable Trust
Putnam VT New Value Fund Sub-Account Class IA of Putnam VT New Value Fund of Putnam
Variable Trust
Putnam VT OTC & Emerging Growth Fund Sub-Account Class IA of Putnam VT OTC & Emerging Growth Fund of
Putnam Variable Trust
Putnam VT The George Putnam Fund of Boston Class IA of Putnam VT The George Putnam Fund of Boston
Sub-Account of Putnam Variable Trust
Putnam VT Utilities Growth and Income Fund Sub-Account Class IA of Putnam VT Utilities Growth and Income Fund
of Putnam Variable Trust
Putnam VT Vista Fund Sub-Account Class IA of Putnam VT Vista Fund of Putnam Variable
Trust
Putnam VT Voyager Fund Sub-Account Class IA of Putnam VT Voyager Fund of Putnam Variable
Trust
Fidelity VIP II Asset Manager Portfolio Sub-Account Initial Class of Fidelity VIP II Asset Manager
Portfolio
Fidelity VIP Equity-Income Portfolio Sub-Account Initial Class of Fidelity VIP Equity-Income Portfolio
Fidelity VIP Overseas Portfolio Sub-Account Initial Class of Fidelity VIP Overseas Portfolio
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The policy may not be available for sale in all states.
This Prospectus can also be obtained from the Securities and Exchange
Commission's website (HTTP://WWW.SEC.GOV).
This life insurance policy IS NOT:
- a bank deposit or obligation;
- federally insured; or
- endorsed by any bank or governmental agency.
- --------------------------------------------------------------------------------
PROSPECTUS DATED: MAY 1, 2000
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 3
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
- ----------------------------------------------------------------------
<S> <C>
SUMMARY OF BENEFITS AND RISKS 4
- ----------------------------------------------------------------------
FEE TABLES 6
- ----------------------------------------------------------------------
ABOUT US 10
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Hartford Life and Annuity Insurance Company 10
- ----------------------------------------------------------------------
Separate Account VL II 10
- ----------------------------------------------------------------------
The Funds 10
- ----------------------------------------------------------------------
CHARGES AND DEDUCTIONS 13
- ----------------------------------------------------------------------
YOUR POLICY 15
- ----------------------------------------------------------------------
PREMIUMS 17
- ----------------------------------------------------------------------
DEATH BENEFITS AND POLICY VALUES 18
- ----------------------------------------------------------------------
MAKING WITHDRAWALS FROM YOUR POLICY 19
- ----------------------------------------------------------------------
LOANS 20
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LAPSE AND REINSTATEMENT 20
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TAXES 21
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LEGAL PROCEEDINGS 24
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GLOSSARY OF SPECIAL TERMS 25
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WHERE YOU CAN FIND MORE INFORMATION 26
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</TABLE>
<PAGE>
4 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
SUMMARY OF BENEFITS AND RISKS
BENEFITS OF YOUR POLICY
FLEXIBILITY -- The policy is designed to be flexible to meet your specific life
insurance needs. You have the flexibility to choose death benefit options,
investment options, and premiums you pay.
DEATH BENEFIT -- While the policy is in force and when the last surviving
insured dies, we pay a death benefit to your beneficiary. You select one of
three death benefit options:
x Level Option: The death benefit equals the current Face Amount.
x Return of Account Value Option: The death benefit is the current Face Amount
plus the Account Value of your policy;
x Return of Premium Option: The death benefit is the current Face Amount plus
the total of your premium payments.
The death benefit is reduced by any money you owe us, such as outstanding loans,
loan interest, or unpaid charges. You may change your death benefit option under
certain circumstances. You may increase or decrease the Face Amount on your
policy under certain circumstances.
INVESTMENT CHOICES -- You may invest in up to 9 different investment choices
within your policy, from a choice of 36 investment options and a Fixed Account.
You may transfer money among your investment choices, subject to restrictions.
PREMIUM PAYMENTS -- You have the flexibility to choose how you pay premiums. You
choose a planned premium when you purchase the policy. You may change your
planned premium, or pay additional premium any time, subject to certain
limitations.
RIGHT TO EXAMINE YOUR POLICY -- You have a limited right to return the policy
for cancellation after purchase. See "Making Withdrawals From Your Policy --
Right to Examine a Policy."
RIGHT TO EXCHANGE YOUR POLICY -- During the first 24 months after your policy is
issued, you may exchange it, without submitting proof of insurability, for a
non-variable last survivor life insurance policy offered by us on the life of
the insureds.
SURRENDER -- You may surrender your policy at any time prior to the maturity
date for its Cash Surrender Value. You may make a partial surrender once per
month, subject to certain minimums. (See "Risks of Your Policy," below).
LOANS -- You may take a loan on the policy. The policy secures the loan.
SETTLEMENT OPTIONS -- You or your beneficiary may choose to receive the proceeds
of the policy over a period of time by using one of several settlement options.
OPTIONAL COVERAGE -- You may add other coverages to your policy. See "Your
Policy -- Other Benefits."
WHAT DOES YOUR PREMIUM PAY FOR?
Your premium pays for three things. It pays for life insurance coverage, it acts
as an investment in the Sub-Accounts, and it pays for sales loads and other
charges.
RISKS OF YOUR POLICY
INVESTMENT PERFORMANCE -- The value of your policy will fluctuate with the
performance of the investment options you choose. Your investment options may
decline in value, or they may not perform to your expectations. Your policy
values in the Sub-Accounts are not guaranteed.
UNSUITABLE FOR SHORT-TERM SAVINGS -- The policy is designed for long term
financial planning. You should not purchase the policy if you will need the
premium payment in a short time period.
RISK OF LAPSE -- Your policy could terminate if the value of the policy becomes
too low to support the policy's monthly charges. If this occurs, we will notify
you in writing. You will then have a 61-day grace period to pay additional
amounts to prevent the policy from terminating.
WITHDRAWAL LIMITATIONS -- You are limited to one partial surrender per month.
Withdrawals will reduce your policy's death benefit.
TRANSFER LIMITATIONS -- We reserve the right to limit the size of transfers and
remaining balances, and to limit the number and frequency of transfers among
your investment options and the Fixed Account.
LOANS -- Taking a loan from your policy may increase the risk that your policy
will lapse, will have a permanent effect on the policy's Account Value, and will
reduce the death proceeds.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 5
- --------------------------------------------------------------------------------
ADVERSE TAX CONSEQUENCES -- You may be subject to income tax if you receive any
loans, withdrawals or other amounts from the policy, and you may be subject to a
10% penalty tax. Under certain circumstances (usually if you prefund future
benefits in seven years or less), your policy may become a modified endowment
policy under federal tax law. If these circumstances were to occur, loans and
other pre-death distributions are includable in gross income on an income first
basis, and may be subject to a 10% penalty (unless you have attained age
59 1/2). You should consult with a tax adviser before taking steps that may
affect whether your policy becomes a modified endowment policy. See "Taxes."
<PAGE>
6 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
FEE TABLES
The following tables describe the MAXIMUM fees and expenses that you will pay
when buying, owning, and surrendering the policy. The first table describes the
maximum fees and expenses that you will pay at the time that you buy the policy,
surrender the policy, or transfer cash value between investment options.
TRANSACTION FEES
<TABLE>
<CAPTION>
CHARGE WHEN CHARGE IS DEDUCTED AMOUNT DEDUCTED
<S> <C> <C>
Sales Charge When you pay premium. Premiums attributable to the Basic
Face Amount up to the Target
Premium.
Policy Year Percent
1 50%
2-5 15%
6-10 10%
11-20 2%
20+ 2%
Premiums attributable to the Basic
Face Amount in excess of the Target
Premium:
Policy Year Percent
1 9%
2-10 4%
11-20 2%
20+ 2%
Premiums attributable to the
Supplemental Face Amount:
Policy Year Percent
1-10 4%
11-20 2%
20+ 2%
Premium Tax Charge When you pay premium. A percent of premium which varies
by your state and municipality of
residence. The range of premium tax
charge is generally between 0% and
4%.
This rate will change if your state
or municipality changes its premium
tax charges. It may change if you
change your state or municipality
of residence.
Federal Tax Charge When you pay premium. 1.25% of each premium payment.
Premium Processing When you pay premium. 1.25% of each premium payment.
Charge
Unscheduled Face Each month for five (5) years $0.05 per $1,000 of unscheduled
Amount Increase Fee beginning on the effective date of face amount increase.
any unscheduled increase in Face
Amount you request.
Transfer Fees When you make a transfer after the $25 per transfer.
first transfer in any month.
Withdrawal Charge When you take a withdrawal. $50 per withdrawal.
<CAPTION>
CHARGE POLICIES FROM WHICH CHARGE IS DEDUCTED
<S> <C>
Sales Charge All
Premium Tax Charge All
Federal Tax Charge All
Premium Processing All
Charge
Unscheduled Face Policies where the owner has made an
Amount Increase Fee unscheduled increase.
Transfer Fees Those policies with more than one
transfer per month.
Withdrawal Charge Those policies where the owner has
made a withdrawal.
</TABLE>
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 7
- --------------------------------------------------------------------------------
The next table describes the MAXIMUM fees and expenses that you will pay
periodically during the time that you own the policy, not including Fund fees
and expenses.
CHARGES OTHER THAN FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
CHARGE WHEN CHARGE IS DEDUCTED AMOUNT DEDUCTED
<S> <C> <C>
Cost of Insurance Monthly. The charge is the maximum cost of
Charges insurance rate times the net amount
at risk. Maximum cost of insurance
rates are individualized, depending
on the insureds' issue ages, sexes,
insurance classes, substandard
ratings, and age of the policy.
Mortality and Expense Monthly. Policy Years 1-10:
Risk Charge 0.80% of the Sub-Account
accumulated value.
Policy Years 11+
0.80% of the first $100,000 of
accumulated Sub-Account value. For
the remaining Sub-Account value,
0.40% of Sub-Account value
attributable to the Basic Face
Amount, and 0.50% of Sub-Account
value attributable to the
Supplemental Face Amount.
Administrative Charge Monthly. Years 1-5
$10 per month plus $0.03 per month
per $1,000 of Basic Face Amount at
the policy issue date, and $15 per
month plus $0.05 per month per
$1,000 of Supplemental Face Amount
at the policy issue date.
Years 6+:
$10
Issue Charge Monthly. $20 per month for the first five
policy years plus $0.05 per $1,000
of Face Amount at the date of
policy issue or unscheduled
Supplemental Face Amount increase
per month for the first five years
from the date of policy issue or
the date of increase.
Special Class Charge Monthly. Individualized based on a special
insurance class rating.
Rider Charges Monthly. Individualized based on optional
rider selected.
<CAPTION>
CHARGE POLICIES FROM WHICH CHARGE IS DEDUCTED
<S> <C>
Cost of Insurance All
Charges
Mortality and Expense All
Risk Charge
Administrative Charge All
Issue Charge All
Special Class Charge Only those Policies with benefits
rated for a special class.
Rider Charges Only those policies with benefits
provided by rider.
</TABLE>
The next table describes the Fund fees and expenses that you will pay
periodically during the time that you own the policy. The table shows the actual
fees and expenses charged by the Funds for the year ended December 31, 1999.
More detail concerning each Fund's fees and expenses is contained in the
prospectus for each Fund.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
TOTAL FUND
OPERATING
MANAGEMENT OTHER EXPENSES
FEES EXPENSES (INCLUDING ANY
(INCLUDING ANY (INCLUDING ANY WAIVERS AND ANY
WAIVERS) REIMBURSEMENTS) REIMBURSEMENTS)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Hartford Advisers HLS Fund 0.63% 0.02% 0.65%
- ----------------------------------------------------------------------------------------------------------------
Hartford Bond HLS Fund 0.49% 0.03% 0.52%
- ----------------------------------------------------------------------------------------------------------------
Hartford Capital Appreciation HLS Fund 0.64% 0.02% 0.66%
- ----------------------------------------------------------------------------------------------------------------
Hartford Dividend and Growth HLS Fund 0.65% 0.03% 0.68%
- ----------------------------------------------------------------------------------------------------------------
Hartford Growth and Income HLS Fund 0.78% 0.04% 0.82%
- ----------------------------------------------------------------------------------------------------------------
Hartford Index HLS Fund 0.40% 0.03% 0.43%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
8 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL FUND
OPERATING
MANAGEMENT OTHER EXPENSES
FEES EXPENSES (INCLUDING ANY
(INCLUDING ANY (INCLUDING ANY WAIVERS AND ANY
WAIVERS) REIMBURSEMENTS) REIMBURSEMENTS)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Hartford International Advisers HLS Fund 0.76% 0.09% 0.85%
- ----------------------------------------------------------------------------------------------------------------
Hartford International Opportunities HLS Fund 0.69% 0.09% 0.78%
- ----------------------------------------------------------------------------------------------------------------
Hartford MidCap HLS Fund 0.76% 0.03% 0.79%
- ----------------------------------------------------------------------------------------------------------------
Hartford Money Market HLS Fund 0.45% 0.02% 0.47%
- ----------------------------------------------------------------------------------------------------------------
Hartford Mortgage Securities HLS Fund 0.45% 0.03% 0.48%
- ----------------------------------------------------------------------------------------------------------------
Hartford Small Company HLS Fund 0.75% 0.03% 0.78%
- ----------------------------------------------------------------------------------------------------------------
Hartford Stock HLS Fund 0.46% 0.02% 0.48%
- ----------------------------------------------------------------------------------------------------------------
Putnam VT Asia Pacific Growth Fund 0.80% 0.33% 1.13%
- ----------------------------------------------------------------------------------------------------------------
Putnam VT Diversified Income Fund 0.68% 0.10% 0.78%
- ----------------------------------------------------------------------------------------------------------------
Putnam VT Global Asset Allocation Fund 0.65% 0.12% 0.77%
- ----------------------------------------------------------------------------------------------------------------
Putnam VT Global Growth Fund 0.61% 0.12% 0.73%
- ----------------------------------------------------------------------------------------------------------------
Putnam VT Growth and Income Fund 0.46% 0.04% 0.50%
- ----------------------------------------------------------------------------------------------------------------
Putnam VT Health Sciences Fund 0.70% 0.13% 0.83%
- ----------------------------------------------------------------------------------------------------------------
Putnam VT High Yield Fund 0.65% 0.07% 0.72%
- ----------------------------------------------------------------------------------------------------------------
Putnam VT Income Fund 0.60% 0.07% 0.67%
- ----------------------------------------------------------------------------------------------------------------
Putnam VT International Growth Fund 0.80% 0.22% 1.02%
- ----------------------------------------------------------------------------------------------------------------
Putnam VT International Growth and Income Fund 0.80% 0.18% 0.98%
- ----------------------------------------------------------------------------------------------------------------
Putnam VT International New Opportunities Fund 1.08% 0.33% 1.41%
- ----------------------------------------------------------------------------------------------------------------
Putnam VT Investors Fund 0.63% 0.08% 0.71%
- ----------------------------------------------------------------------------------------------------------------
Putnam VT Money Market Fund 0.41% 0.08% 0.49%
- ----------------------------------------------------------------------------------------------------------------
Putnam VT New Opportunities Fund 0.54% 0.05% 0.59%
- ----------------------------------------------------------------------------------------------------------------
Putnam VT New Value Fund 0.70% 0.10% 0.80%
- ----------------------------------------------------------------------------------------------------------------
Putnam VT OTC & Emerging Growth Fund (1) 0.53% 0.37% 0.90%
- ----------------------------------------------------------------------------------------------------------------
Putnam VT The George Putnam Fund of Boston 0.65% 0.18% 0.83%
- ----------------------------------------------------------------------------------------------------------------
Putnam VT Utilities Growth and Income Fund 0.65% 0.06% 0.71%
- ----------------------------------------------------------------------------------------------------------------
Putnam VT Vista Fund 0.65% 0.10% 0.75%
- ----------------------------------------------------------------------------------------------------------------
Putnam VT Voyager Fund 0.53% 0.04% 0.57%
- ----------------------------------------------------------------------------------------------------------------
Fidelity VIP II Asset Manager Portfolio (2) 0.53% 0.09% 0.62%
- ----------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio (2) 0.48% 0.08% 0.56%
- ----------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio (2) 0.73% 0.14% 0.87%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Total Annual Fund Operating Expenses for Putnam VT OTC & Emerging Growth
Fund reflect voluntary reductions and reimbursements through at least
December 31, 2000. Absent voluntary reductions and reimbursements, Total
Annual Fund Operating Expenses would have been as follows:
<TABLE>
<CAPTION>
TOTAL ANNUAL
MANAGEMENT OTHER FUND OPERATING
FEES EXPENSES EXPENSES
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Putnam VT OTC & Emerging Growth Fund 0.70% 0.37% 1.07%
- ----------------------------------------------------------------------------------------------------
</TABLE>
(2) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, through arrangements with certain funds
or FMR on behalf of certain funds' custodian, credits realized as a result
of uninvested cash balances were used to reduce a portion of each applicable
fund's expenses. These reductions will continue through at least
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 9
- --------------------------------------------------------------------------------
December 31, 2000 pursuant to an agreement between the advisor and the
funds. Without these reductions, Total Operating Fund Expenses would have
been:
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT OTHER OPERATING
FEE EXPENSES EXPENSES
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Fidelity VIP II Asset Manager Portfolio 0.53% 0.10% 0.63%
- ------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 0.48% 0.09% 0.57%
- ------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 0.73% 0.18% 0.91%
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
10 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
ABOUT US
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
Hartford Life and Annuity Insurance Company is a stock life insurance company
engaged in the business of writing life insurance and annuities, both individual
and group, in all states of the United States, the District of Columbia and
Puerto Rico, except New York. On January 1, 1998, Hartford's name changed from
ITT Hartford Life and Annuity Insurance Company to Hartford Life and Annuity
Insurance Company. We were originally incorporated under the laws of Wisconsin
on January 9, 1956, and subsequently redomiciled to Connecticut. Our offices are
located in Simsbury, Connecticut; however, our mailing address is P.O. Box 2999,
Hartford, CT 06104-2999. We are ultimately controlled by The Hartford Financial
Services Group, Inc., one of the largest financial service providers in the
United States.
HARTFORD'S RATINGS
<TABLE>
<CAPTION>
EFFECTIVE DATE
RATING AGENCY OF RATING RATING BASIS OF RATING
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
A.M. Best and
Company, Inc. 1/1/99 A+ Financial performance
- --------------------------------------------------------------------------------
Standard & Poor's 8/1/99 AA Insurer financial strength
- --------------------------------------------------------------------------------
Duff & Phelps 7/1/99 AA+ Claims paying ability
- --------------------------------------------------------------------------------
</TABLE>
SEPARATE ACCOUNT VL II
The Sub-Accounts are subdivisions of our separate account, called Separate
Account VL II. The Separate Account exists to keep your life insurance policy
assets separate from our company assets. As such, the investment performance of
the Separate Account is independent from the investment performance of
Hartford's other assets. Hartford's other assets are utilized to pay our
insurance obligations under the policy. Your assets in the Separate Account are
held exclusively for your benefit and may not be used for any other liability of
Hartford. Separate Account VL II was established on September 30, 1994 under the
laws of Connecticut.
THE FUNDS
The Sub-Accounts of the Separate Account purchase shares of mutual funds set up
exclusively for variable annuity and variable life insurance products. These
funds are not the same mutual funds that you buy through your stockbroker or
through a retail mutual fund, but they may have similar investment strategies
and the same portfolio managers as retail mutual funds. You choose the
Sub-Accounts that meet your investment style.
We do not guarantee the investment results of any of the underlying Funds. Since
each underlying Fund has different investment objectives, each is subject to
different risks. These risks and the Funds' expenses are more fully described in
the accompanying prospectuses for the Funds, and the Funds' Statements of
Additional Information, which may be ordered from us. The Funds' prospectuses
should be read in conjunction with this Prospectus before investing.
The Funds may not be available in all states.
You may also allocate some or all of your premium payments to the "Fixed
Account," which pays a declared interest rate. See "The Fixed Account."
The investment goals of each of the Funds are as follows:
HARTFORD ADVISERS HLS 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. Sub-advised by Wellington Management.
HARTFORD BOND HLS FUND -- Seeks maximum current income consistent with
preservation of capital by investing primarily in investment grade 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
in the accompanying prospectus for the Funds entitled "Hartford Bond HLS
Fund, Inc." Sub-advised by HIMCO.
HARTFORD CAPITAL APPRECIATION HLS FUND -- Seeks growth of capital by investing
in equity securities selected solely on the basis of potential for capital
appreciation. Sub-advised by Wellington Management.
HARTFORD DIVIDEND AND GROWTH HLS FUND -- Seeks a high level of current income
consistent with growth of capital by investing primarily in dividend paying
equity securities. Sub-advised by Wellington Management.
HARTFORD GROWTH AND INCOME HLS FUND -- Seeks growth of capital and current
income by investing primarily in equity securities with earnings growth
potential and steady or rising dividends. Sub-advised by Wellington Management.
HARTFORD INDEX HLS FUND -- Seeks to provide investment results that 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.* Sub-advised by HIMCO.
HARTFORD INTERNATIONAL ADVISERS HLS FUND -- Seeks maximum long-term total return
by investing in a portfolio of equity, debt and money market securities.
Securities in which the Fund
* "STANDARD & POOR'S," "S&P-REGISTERED TRADEMARK-," "S&P
500-REGISTERED TRADEMARK-," "STANDARD & POOR'S 500," AND "500" ARE TRADEMARKS
OF THE MCGRAW-HILL COMPANIES, INC. AND HAVE BEEN LICENSED FOR USE BY HARTFORD.
THE INDEX FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD &
POOR'S AND STANDARD & POOR'S MAKES NO REPRESENTATION REGARDING THE
ADVISABILITY OF INVESTING IN THE INDEX FUND.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 11
- --------------------------------------------------------------------------------
invests primarily will be denominated in non-U.S. currencies and will be traded
in non-U.S. markets. Sub-advised by Wellington Management.
HARTFORD INTERNATIONAL OPPORTUNITIES HLS FUND -- Seeks growth of capital by
investing primarily in equity securities issued by non-U.S. companies.
Sub-advised by Wellington Management.
HARTFORD MIDCAP HLS FUND -- Seeks to achieve long-term capital growth through
capital appreciation by investing primarily in equity securities of companies
with market capitalizations within the range represented by the Standard &
Poor's MidCap 400 Index. Sub-advised by Wellington Management.
HARTFORD MONEY MARKET HLS FUND -- Seeks maximum current income consistent with
liquidity and preservation of capital. Sub-advised by HIMCO.
HARTFORD MORTGAGE SECURITIES HLS FUND -- Seeks maximum current income consistent
with safety of principal and maintenance of liquidity by investing primarily in
mortgage-related securities. Sub-advised by HIMCO.
HARTFORD SMALL COMPANY HLS FUND -- Seeks growth of capital by investing
primarily in equity securities within the range represented by the Russell 2000
Index selected on the basis of potential for capital appreciation. Sub-advised
by Wellington Management.
HARTFORD STOCK HLS FUND -- Seeks long-term growth by investing primarily in
equity securities. Sub-advised by Wellington Management.
PUTNAM VT ASIA PACIFIC GROWTH FUND -- Seeks capital appreciation.
PUTNAM VT DIVERSIFIED INCOME FUND -- Seeks as high a level of current income as
Putnam Management believes is consistent with capital preservation. The Fund
invests in higher-yielding, lower-rated securities commonly referred to as "junk
bonds." See the special considerations for, and risks associated with,
investments in these 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.
PUTNAM VT GLOBAL GROWTH FUND -- Seeks capital appreciation.
PUTNAM VT GROWTH AND INCOME FUND -- Seeks capital growth and current income.
PUTNAM VT HEALTH SCIENCES FUND -- Seeks capital appreciation.
PUTNAM VT HIGH YIELD FUND -- Seeks high current income. Capital growth is a
secondary goal when consistent with achieving high current income. The Fund
invests in higher-yielding, lower-rated securities commonly referred to as "junk
bonds." See the special considerations for, and risks associated with,
investments in these securities described in the Fund prospectus.
PUTNAM VT INCOME FUND -- Seeks high current income consistent with what Putnam
Management believes to be prudent risk.
PUTNAM VT INTERNATIONAL GROWTH FUND -- Seeks capital appreciation.
PUTNAM VT INTERNATIONAL GROWTH AND INCOME FUND -- Seeks capital growth. Current
income is a secondary objective.
PUTNAM VT INTERNATIONAL NEW OPPORTUNITIES FUND -- Seeks long term capital
appreciation.
PUTNAM VT INVESTORS FUND -- Seeks long-term growth of capital and any increased
income that results from this growth.
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.
PUTNAM VT NEW OPPORTUNITIES FUND -- Seeks long-term capital appreciation.
PUTNAM VT NEW VALUE FUND -- Seeks long-term capital appreciation.
PUTNAM VT OTC & EMERGING GROWTH FUND -- Seeks capital appreciation.
PUTNAM VT THE GEORGE PUTNAM FUND OF BOSTON -- Seeks to provide a balanced
investment composed of a well-diversified portfolio of stocks and bonds which
produce both capital growth and current income.
PUTNAM VT UTILITIES GROWTH AND INCOME FUND -- Seeks capital growth and current
income.
PUTNAM VT VISTA FUND -- Seeks capital appreciation.
PUTNAM VT VOYAGER FUND -- Seeks capital appreciation.
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 fund may invest in all varieties of fixed income securities
including, lower-quality debt securities maturing in more than one year. For a
further discussion of lower-rated securities, see "Risks of Lower-Rated Debt
Securities" in the Fidelity prospectus for this Portfolio.
FIDELITY VIP EQUITY-INCOME PORTFOLIO -- Seeks reasonable income by investing
primarily in income-producing equity securities. In choosing these securities,
the fund 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.
FMR normally invests at least 65% of the fund's total assets in income-producing
securities. FMR may also invest the fund's assets in other types of equity
securities and debt securities, including lower quality debt securities.
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12 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
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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.
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.
INVESTMENT ADVISERS -- Hartford HLS Funds are sponsored and administered by
Hartford Life Insurance Company. HL Investment Advisors, LLC ("HL Advisors")
serves as the investment adviser to each of the Hartford HLS Funds. Wellington
Management Company, LLP ("Wellington Management") and Hartford Investment
Management Company ("HIMCO") serve as sub-investment advisors and provide day to
day investment services.
Each Hartford HLS Fund, except for Hartford Growth and Income HLS Fund, is a
separate Maryland corporation registered with the Securities and Exchange
Commission as an open-end management investment company. Hartford Growth and
Income HLS Fund is a diversified series of Hartford Series Fund, Inc., a
Maryland corporation, also registered with the Securities and Exchange
Commission as an open-end management investment company. The shares of each Fund
have been divided into Class IA and Class IB. Only Class IA shares are available
in this policy.
Putnam Investment Management, Inc. ("Putnam Management") serves as the
investment manager for the Putnam Variable Trust. Putnam Management is
ultimately controlled by Marsh & McLennan Companies, Inc., a publicly owned
holding company whose principal businesses are international insurance brokerage
and employee benefit consulting.
The Funds of the Putnam Variable Trust are generally managed in styles similar
to other open-end investment companies which are managed by Putnam Management
and whose shares are generally offered to the public. These other Putnam funds
may, however, employ different investment practices and may invest in securities
different from those in which their counterpart Funds invest, and consequently
will not have identical portfolios or experience identical investment results.
Subject to the general oversight of the Trustees of Putnam Variable Trust,
Putnam Management manages the Funds' portfolios in accordance with their stated
investment objectives and policies, makes investment decisions for the Funds,
places orders to purchase and sell securities on behalf of the Funds, and
administers the affairs of the Funds. For its services, the Funds pay Putnam
Management a quarterly fee. See the accompanying Funds prospectus for a more
complete description of Putnam Management and the respective fees of the Funds.
Fidelity Management & Research Company is the investment adviser for the
Fidelity VIP Funds.
MIXED AND SHARED FUNDING -- Shares of the Funds may be sold to our other
separate accounts and our insurance company affiliates or other unaffiliated
insurance companies to serve as the underlying investment for both variable
annuity contracts and variable life insurance policies, a practice known as
"mixed and shared funding." As a result, there is a possibility that a material
conflict may arise between the interests of policy owners, and of owners of
other contracts whose contract values are allocated to one or more of these
other separate accounts investing in any one of the Funds. In the event of any
such material conflicts, we will consider what action may be appropriate,
including removing the Fund from the Separate Account or replacing the Fund with
another underlying fund. There are certain risks associated with mixed and
shared funding, as disclosed in the prospectuses for the Funds.
VOTING RIGHTS -- For Sub-Accounts in which you have invested, we will notify you
of shareholder's meetings of the Funds purchased by those Sub-Accounts. We will
send you proxy materials and instructions for you to vote the shares held for
your benefit by those Sub-Accounts. We will arrange for the handling and
tallying of proxies received from you or other policy owners. If you give no
instructions, we will vote those shares in the same proportion as shares for
which we received instructions.
ADMINISTRATIVE SERVICES -- Hartford has entered into agreements with the
investment advisers or distributors of many of the Funds. Under the terms of
these agreements, Hartford provides administrative services and the Funds pay a
fee to Hartford that is usually based on an annual percentage of the average
daily net assets of the Funds. These agreements may be different for each Fund
or each Fund family.
THE FIXED ACCOUNT
You may allocate amounts to the Fixed Account. The Fixed Account is not a part
of the Separate Account, but is a part of our general assets. As such, the Fixed
Account (and this description of the Fixed Account) is not subject to the same
securities laws as the Separate Account.
The Fixed Account credits at least 4% per year. We are not obligated to, but
may, credit more than 4% per year. If we do, such rates are determined at our
sole discretion. You assume the risk that, at any time, the Fixed Account may
credit no more than 4%.
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HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 13
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CHARGES AND DEDUCTIONS
DEDUCTIONS FROM PREMIUM
Before your premium is allocated to the Sub-Accounts and/or the Fixed Account,
we deduct a percentage from your premium for a sales load and a premium tax
charge. The amount allocated after the deductions is called your Net Premium.
FRONT-END SALES LOAD -- We deduct a front-end sales load from each premium you
pay. The front-end sales load is based on:
- - the amount of premium paid in relation to the Target Premium;
- - the policy year in which the premium is paid; and
- - the amount of the premium Attributable to the Basic Face Amount and to the
Supplemental Face Amount.
Both current and maximum front-end sales loads for premiums Attributable to the
Basic Face Amount up to the Target Premium are:
- - 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 are:
- - 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%.
PREMIUM TAX CHARGE -- We deduct a premium tax charge from each premium you pay.
The premium tax charge covers taxes assessed against us by a state and/or other
governmental entity. The range of such charge generally is between 0% and 4%.
FEDERAL TAX CHARGE -- We 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.
PREMIUM PROCESSING CHARGE -- We deduct a 1.25% charge from each premium payment
for premium collection costs and premium and policy processing costs.
DEDUCTIONS FROM ACCOUNT VALUE
MONTHLY DEDUCTION AMOUNTS -- Each month we will deduct an amount from your
Account Value to pay for the benefits provided by your policy. This amount is
called the Monthly Deduction Amount and equals the sum of:
- - the charge for the cost of insurance;
- - the mortality and expense risk charge;
- - the monthly administrative charge;
- - the issue charge;
- - charges for "special" insurance class rating, if any;
- - any charges for additional benefits provided by rider;
- - any Face Amount increase fee;
Each Monthly Deduction Amount will be deducted pro rata from the Fixed Account
and each of the Sub-Accounts. The Monthly Deduction Amount will vary from month
to month.
COST OF INSURANCE CHARGE -- The charge for the cost of insurance equals:
- - the cost of insurance rate per $1,000, multiplied by
- - the amount at risk, divided by
- - $1,000.
On any Monthly Activity Date, the amount at risk equals the Death Benefit less
the Account Value on that date, prior to assessing the Monthly Deduction Amount.
Cost of insurance rates will be determined on each policy anniversary based on
our future expectations of such factors as mortality, expenses, interest,
persistency and taxes. For standard risks, the cost of insurance rates will not
exceed those based on the 1980 Commissioners' Standard Ordinary Mortality Table
(ALB), Male or Female, Nonsmoker or Smoker Table, age last birthday (unisex
rates may be required in some states). A table of guaranteed cost of insurance
rates per $1,000 will be included in your policy, however, we reserve the right
to use rates less than those shown in the table. Substandard risks will be
charged higher cost of insurance rates that will not exceed rates based on a
multiple of 1980 Commissioners' Standard Ordinary Mortality Table (ALB), Male or
Female, Nonsmoker or Smoker Table, age last birthday (unisex rates may be
required in some states) plus any flat extra amount assessed. The multiple will
be based on the insured's substandard rating.
<PAGE>
14 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
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Any changes in the cost of insurance rates will be made uniformly for all
insureds of the same issue ages, sexes, 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 your Account Value and death benefit may vary from month to month, the
cost of insurance may also vary on each Monthly Activity Date. The cost of
insurance depends on your policy's amount at risk. Items which may affect the
amount at risk include the amount and timing of premium payments, investment
performance, fees and charges assessed, rider charges, policy loans and changes
to the Face Amount.
On each Monthly Activity Date during the last 25 policy years before the
Maturity Date, we will apply a discount to the cost of insurance rate, provided
you qualify. 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.
MORTALITY AND EXPENSE RISK CHARGE -- We deduct a mortality and expense risk
charge each month from your Account Value. The current mortality and expense
risk charge for any Monthly Activity Date is equal to:
- - the current mortality and expense risk rate; multiplied by
- - 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 and maximum 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 and expense risk charge compensates us for mortality and expense
risks assumed under the policies. The mortality risk assumed is that the cost of
insurance charges are insufficient to meet actual claims. The expense risk
assumed is that the expense incurred in issuing, distributing and administering
the policies exceed the administrative charges and sales loads collected.
Hartford may keep any difference between cost it incurs and the charges it
collects.
MONTHLY ADMINISTRATIVE CHARGE -- We deduct a monthly administrative charge from
your Account Value to compensate us for issue and administrative costs of the
policy. 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 Amount at the policy
issue date. This maximum 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 maximum 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).
ISSUE CHARGE -- In the first five policy years, we assess a monthly issue charge
to compensate us 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.
FACE AMOUNT INCREASE FEE -- We deduct a dollar amount from your Account Value
for an unscheduled increase of the Face Amount on your policy. The fee is $.05
per $1,000 of each increase per month for the first five policy years from the
date of each increase. This fee compensates us for underwriting and processing
costs for such increases.
RIDER CHARGE -- If your policy includes riders, a charge applicable to the
riders is made from the Account Value each month. The charge applicable to these
riders is to compensate Hartford for the anticipated cost of providing these
benefits and is specified on the applicable rider. For a description of the
riders available, see "Your Policy -- Supplemental Benefits."
CHARGES FOR 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.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 15
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YOUR POLICY
CONTRACT RIGHTS
POLICY OWNER, OR "YOU" -- As long as your policy is in force, you may exercise
all rights under the policy while either of the insureds is alive and no
beneficiary has been irrevocably named.
BENEFICIARY -- You name the beneficiary in your application for the policy. You
may change the beneficiary (unless irrevocably named) while either of the
insureds is alive by notifying us in writing. If no beneficiary is living when
the last surviving insured dies, the death benefit will be paid to you, if
living; otherwise, it will be paid to your estate.
ASSIGNMENT -- You may assign your policy. Until you notify us in writing, no
assignment will be effective against us. We are not responsible for the validity
of any assignment.
STATEMENTS -- We will send you a statement at least once each year, showing:
- - the current Account Value, Cash Surrender Value and Face Amount;
- - the premiums paid, monthly deduction amounts and any loans since your last
statement;
- - the amount of any Indebtedness;
- - any notifications required by the provisions of your policy; and
- - any other information required by the Insurance Department of the state where
your policy was delivered.
CONTRACT LIMITATIONS
ALLOCATIONS TO SUB-ACCOUNTS AND THE FIXED ACCOUNT -- You may allocate amounts to
a maximum of nine (9) Sub-
Accounts, or eight (8) Sub-Accounts and the Fixed Account.
TRANSFERS OF ACCOUNT VALUE -- You may transfer amounts among the Fixed Account
and the Sub-Accounts subject to a charge described below. You may request
transfers in writing or by calling us at 1-800-231-5453. Transfers by telephone
may be made by your agent of record or by your attorney-in-fact pursuant to a
power of attorney. Telephone transfers may not be permitted in some states. We
will not be responsible for losses that result from acting upon telephone
requests reasonably believed to be genuine. We will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. The
procedures we follow for transactions initiated by telephone include requiring
callers to provide certain identifying information. All transfer instructions
communicated to us by telephone are tape recorded.
You may make one transfer per calendar month free of charge, excluding any
transfers made pursuant to your enrollment in the Dollar Cost Averaging Program.
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 to limit the number and
frequency of transfers.
TRANSFERS FROM THE FIXED ACCOUNT -- Except for transfers made under the Dollar
Cost Averaging Program, any transfers from the Fixed Account must occur during
the 30-day period following each policy anniversary, and, 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.
DEFERRAL OF PAYMENTS -- We may defer payment of any Cash Surrender Values,
withdrawals and loan amounts which are not from the Sub-Accounts for up to six
months from the date of the request. If we defer payment for more than 30 days,
we will pay you interest.
CHANGES TO CONTRACT OR SEPARATE ACCOUNT
MODIFICATION OF POLICY -- The only way the policy may be modified is by a
written agreement signed by our President, or one of our Vice Presidents,
Secretaries, or Assistant Secretaries.
SUBSTITUTION OF FUNDS -- We reserve the right to substitute the shares of any
other registered investment company for the shares of any Fund already purchased
or to be purchased in the future by the Separate Account provided that the
substitution has been approved by the Securities and Exchange Commission.
CHANGE IN OPERATION OF THE SEPARATE ACCOUNT -- The operation of the Separate
Account may be modified to the extent permitted by law, including deregistration
under the securities laws.
SEPARATE ACCOUNT TAXES -- Currently, no charge is made to the Separate Account
for federal, state and local taxes that may be allocable to the Separate
Account. A change in the applicable federal, state or local tax laws which
impose tax on Hartford and/ or the Separate Account may result in a charge
against the policy in the future. Charges for other taxes, if any, allocable to
the Separate Account may also be made.
OTHER BENEFITS
DOLLAR COST AVERAGING PROGRAM -- You may elect to allocate your Net Premiums
among the Sub-Accounts and the Fixed Account pursuant to the Dollar Cost
Averaging (DCA) program. If you choose the DCA program, your Net Premiums will
be deposited into the Hartford Money Market Sub-Account or the Fixed Account.
Amounts will be transferred monthly to the other investment choices in
accordance with your premium allocation instructions. The dollar amount will be
allocated to the investment choices that you specify, in the proportions that
you specify. If, on any transfer date, your Account Value allocated to the
Dollar Cost Averaging program 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 or by calling us at
1-800-231-5453. We reserve the right to change or discontinue the DCA program.
<PAGE>
16 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
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The main objective of a DCA program is to minimize the impact of short-term
price fluctuations. The DCA program allows you to take advantage of market
fluctuations. Since the same dollar amount is transferred to your selected
investment choices 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 the DCA program
does not assure a profit or protect against loss in a declining market.
SETTLEMENT OPTIONS -- Proceeds under your policy may be paid in a lump sum or
may be applied to one of our four settlement options. The minimum amount that
may be placed under a settlement option is $5,000 (unless we consent to a lesser
amount), subject to our then-current rules. Once payments under the Second
Option, the Third Option or the Fourth Option begin, no surrender may be made
for a lump sum settlement in lieu of the life insurance payments. The following
payment options are available to you or your beneficiary. If a payment option is
not selected, proceeds will be paid in a lump sum. Your beneficiary may choose a
settlement.
FIRST OPTION -- INTEREST INCOME
Payments of interest at the rate we declare (but not less than 3.5% 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 3.5% 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 policy provides 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,
we may make payments less often.
The table for the Fourth Option is based on the 1983a Individual Annuity
Mortality Table, set back one year and 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. We may, however, 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.
Other arrangements for income payments may be agreed upon.
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 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 rider
are in force, subject to the conditions stated in the rider.
- - MATURITY DATE EXTENSION RIDER -- We will extend the maturity date to the date
of the death of the second insured, regardless of the age of either insured,
subject to certain death benefit and premium restrictions.
- - YEARLY RENEWABLE TERM LIFE INSURANCE RIDER -- While the rider is 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.
BENEFITS AT MATURITY -- If either insured is living on the "maturity date," we
will pay the Cash Surrender Value to you upon surrender of the policy to us. On
the maturity date, your policy will terminate and Hartford will have no further
obligations under the policy.
CLASS OF PURCHASERS
REDUCED CHARGES FOR ELIGIBLE GROUPS -- Certain charges and deductions described
above may be reduced for policies issued in connection with a specific plan, in
accordance with our rules in effect as of the date the application for a policy
is approved. To qualify for such a reduction, a plan must satisfy certain
criteria, i.e., as to size of the plan, expected number of participants and
anticipated premium payment from the plan. Generally, the sales contacts and
effort, administrative costs and mortality cost per policy vary, based on such
factors as the size of the plan, the purposes for which policies are purchased
and certain characteristics 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 mortality experience
expected as a result of, sales to qualifying plans. We may modify, from time to
time on a uniform basis, both the amounts of reductions and the criteria for
qualification. Reductions in these charges will not be unfairly discriminatory
against any person, including the affected policy owners invested in Separate
Account VL II.
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HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 17
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PREMIUMS
APPLICATION FOR A POLICY -- To purchase a policy you must submit an application
to us. Within limits, you may choose the initial Basic Face Amount and the
initial Supplemental Face Amount. The Basic Face Amount plus the Supplemental
Face Amount equals your 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 us. Acceptance is subject to our underwriting
rules and we reserve the right to reject an application for any reason. No
change in the terms or conditions of a policy will be made without your consent.
The minimum initial premium is the amount required to keep the policy in force
for one month, but not less than $50.
Your policy will be effective on the policy date only after we receive all
outstanding delivery requirements and the initial premium payment. The policy
date is the date used to determine all future cyclical transactions on the
policy, such as Monthly Activity Date and policy years.
PREMIUM PAYMENT FLEXIBILITY -- You have considerable flexibility as to when and
in what amounts you pay premiums under your policy.
Prior to policy issue, you choose a planned premium, within a range determined
by us. 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.
After the first premium has been paid, your subsequent premium payments are
flexible. The actual amount and frequency of payment will affect the Account
Value and could affect the amount and duration of insurance provided by the
policy. Your policy may lapse if the value of your policy becomes insufficient
to cover the Monthly Deduction Amounts. In such case you may be required to pay
additional premiums in order to prevent the policy from terminating. For details
see, "Lapse and Reinstatement."
You may pay additional premiums at any time prior to the scheduled maturity
date, subject to the following limitations:
- - The minimum premium that we will accept is $50 or the amount required to keep
the policy in force.
- - We reserve the right to refund any excess premiums that would cause the policy
to fail to meet the definition of life insurance under the Internal Revenue
Code.
- - We reserve the right to require evidence of insurability for any premium
payment that results in an increase in the death benefit greater than the
amount of the premium.
- - Any premium payment in excess of $1,000,000 is subject to our approval.
ALLOCATION OF PREMIUM PAYMENTS -- The initial Net Premium (and any additional
Net Premiums received by us before the end of the right to examine period) will
be allocated to the Hartford Money Market Sub-Account on the later of the policy
date or the date we receive your premium payment.
We will then allocate the Account Value in the Hartford Money Market Sub-Account
to the Fixed Account and the Sub-Accounts according to the premium allocation
specified in your policy application upon the expiration of the right to examine
policy period, or the date we receive the final requirement to put the policy in
force, whichever is later.
You may change your premium allocation upon request in writing. Subsequent Net
Premiums will be allocated to the Fixed Account and the Sub-Accounts according
to your most recent written instructions as long as the number of investment
choices does not exceed nine (9), and the percentage you allocate to each
Sub-Account and/or the Fixed Account is in whole percentages. If we receive a
premium payment with a premium allocation instruction that does not comply with
the above rules, we will allocate the Net Premium pro rata based on the values
of your existing investment choices.
You will receive several different types of notifications as to what your
current premium allocation is. Each transaction confirmation received after we
receive a premium payment will show how a Net Premium has been allocated.
Additionally, each quarterly statement summarizes the current premium allocation
in effect for your 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 Sub-Account) and
the amount to be 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 Net Premiums or transferred Account Value to be
invested in the Fixed Account or the Sub-Account. Each portion of the Net
Premium or transferred Account Value to be invested in a Sub-Account is then
divided by the accumulation unit value in a particular Sub-Account next computed
following its receipt. 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
<PAGE>
18 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
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the net asset value per share of the corresponding Fund at the beginning of the
Valuation Period.
All valuations in connection with a policy, (i.e., with respect to determining
Account Value, in connection with policy loans, or in calculation of death
benefits, or with respect to determining the number of accumulation units to be
credited to a policy with each premium payment other than the initial premium
payment) will be made on the date the request or payment is received by us 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.
ACCOUNT VALUES -- 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, Net Premiums paid, and any
withdrawals taken.
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, first, multiplying the number of accumulation units in each
Sub-Account as of the Valuation Day by the then current value of the
accumulation units in that Sub-Account and then totaling the result for all of
the Sub-Accounts. A policy's Account Value equals the policy's value in all of
the Sub-Accounts, the Fixed Account, and the Loan Account. A policy's Cash Value
is equal to the Account Value less any applicable surrender charges. A policy's
Cash Surrender Value, which is the net amount available upon surrender of the
policy, is the Cash Value less any Indebtedness. See "Accumulation Unit Values,"
above.
We will pay death proceeds, Cash Surrender Values, partial withdrawals, and loan
amounts allocable to the Sub-Accounts within seven days after we receive all the
information needed to process the payment, unless the New York Stock Exchange is
closed for other than a regular holiday or weekend, trading is restricted by the
Commission or the Commission declares that an emergency exists.
DEATH BENEFITS AND POLICY VALUES
- --------------------------------------------------------------------------------
DEATH BENEFIT -- Your policy provides for the payment of the death proceeds to
the named beneficiary upon receipt of due proof of the death of the last
surviving insured. Your policy will be effective on the policy date only after
we receive all outstanding delivery requirements and the initial premium
payment. You must notify us in writing as soon as possible after the death of
either 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: the Level Death
Benefit Option ("Option A"), the Return of Account Value Death Benefit Option
("Option B") and the Return of Premium Death Benefit Option ("Option C").
Subject to the minimum death benefit described below, the death benefit under
each option is as follows:
- - Under Option A, the current Face Amount.
- - Under Option B, the current Face Amount plus the Account Value on the date we
receive due proof of the last surviving insured's death.
- - Under Option C, the current Face Amount plus the sum of the premiums paid.
DEATH BENEFIT OPTION CHANGES -- You may change your death benefit option to
Option A or Option B without evidence of insurability. If you change to Option
A, the Face Amount will become that amount available as a death benefit
immediately prior to the option change. If you change to Option B, 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 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 feature for all
policies 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, 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 you chose.
If the death benefit guarantee is in effect, payment of the Basic Face Amount
upon the death of the last surviving insured will be
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HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 19
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guaranteed, regardless of your policy's investment performance. The death
benefit guarantee is in effect if:
- - the death benefit guarantee period has not expired;
- - the Supplemental Face Amount has never exceeded, and is not scheduled to
exceed, the Basic Face Amount; and
- - on each Monthly Activity Date, the cumulative premiums paid into your policy,
less withdrawals, equal or exceed the Cumulative Death Benefit Guarantee
Premium.
MINIMUM DEATH BENEFIT -- Your policy has a minimum death benefit. We will
automatically increase the death benefit so that it will never be less than the
Account Value multiplied by the minimum death benefit percentage for the then
current year. This percentage varies according to the policy year and each
insured's issue age, sex (where unisex rates are not used) and insurance class.
EXAMPLES OF MINIMUM DEATH BENEFIT:
<TABLE>
<CAPTION>
A B
<S> <C> <C> <C>
- --------------------------------------------------------
Face Amount $100,000 $100,000
- --------------------------------------------------------
Account Value 46,500 34,000
- --------------------------------------------------------
Specified Percentage 250% 250%
- --------------------------------------------------------
Death Benefit Option Level Level
- --------------------------------------------------------
</TABLE>
In Example A, the 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 death benefit is $100,000, i.e., the greater of $100,000 (the
Face Amount) or $85,000 (the Account Value of $34,000, multiplied by the
specified percentage of 250%).
SUPPLEMENTAL FACE AMOUNT -- If you selected Supplemental Face Amount coverage on
your policy application, the amount of such coverage is shown on your 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 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 a change in the Face Amount by writing to us.
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.
CHARGES AND POLICY VALUES -- Your policy values decrease due to the deduction of
policy charges. Policy values may increase or decrease depending on investment
performance; investment expenses and fees reduce the investment performance of
the Sub-Accounts. Fluctuations in your account value may have an effect on your
death benefit. If your policy lapses, the policy terminates and no death benefit
will be paid.
MAKING WITHDRAWALS FROM YOUR POLICY
- --------------------------------------------------------------------------------
SURRENDER -- Provided your policy has a Cash Surrender Value, you may surrender
your policy to us. We will pay you the Cash Surrender Value. Our liability under
the policy will cease as of the date of your request for surrender, or the date
you request to have your policy surrendered, if later.
AMOUNT PAYABLE ON SURRENDER OF THE POLICY -- You may elect to fully surrender
your policy as long as your policy is in effect. Upon surrender, you will
receive the Cash Surrender Value determined as of the later of (a) the date on
which we receive your request for surrender in writing (b) the date you request.
The policy will terminate on the later of (x) the date we receive your request
in writing or (y) the date you request the surrender to be effective.
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 pro
rata from the Fixed Account and the Sub-Accounts. Currently, we do not impose a
<PAGE>
20 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
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partial withdrawal charge. However, we reserve the right to impose in the future
a partial withdrawal charge of up to $50.
RIGHT TO EXAMINE A POLICY -- You have a limited right to return your policy for
cancellation. You may deliver or mail the policy to us or to the agent from whom
it was purchased any time during your free look period. Your free look period
ends the later of 10 days after you receive your policy, 10 days after we
deliver to you a Notice of Right to Withdraw, or 45 days after you sign the
application for your policy (or longer in some states). In such event, the
policy will be rescinded and we will pay an amount equal to the greater of the
premiums paid for the policy less any Indebtedness or the sum of: i) the Account
Value less any Indebtedness, on the date the returned policy is received by us
or the agent from whom it was purchased; and, ii) any deductions under the
policy or charges associated with the Separate Account. If your policy is
replacing another policy, your free look period and the amount paid to you upon
the return of your policy vary by state.
RIGHT TO EXCHANGE A POLICY -- During the first 24 months after its issuance, you
may exchange your policy for a non-variable life insurance policy on the life of
the insured offered by us or an affiliate. 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 new policy was exchanged. An exchange of a policy under such
circumstances should be a tax-free transaction under Section 1035 of the Code.
LOANS
- --------------------------------------------------------------------------------
AVAILABILITY OF LOANS -- At any time while the policy is in force, you may
borrow against the policy by assigning it as sole security to us. Any new loan
taken together with any existing Indebtedness may not exceed 90% of Account
Value on the date we grant a loan.
Unless you specify otherwise, all loan amounts will be transferred on a pro rata
basis from the Fixed Account and each of the Sub-Accounts to the Loan Account.
If total Indebtedness equals or exceeds the Account Value on any Monthly
Activity Date, the policy will then go into default. See "Lapse and
Reinstatement."
PREFERRED INDEBTEDNESS -- If, at any time after the tenth (10th) policy
anniversary, your Account Value exceeds the total of all premiums paid since
issue, a portion of your Indebtedness may qualify as preferred. Preferred
Indebtedness is charged a lower interest rate than non-preferred Indebtedness,
if any. The maximum amount of preferred Indebtedness is the amount by which the
Account Value exceeds the total premiums paid and is determined on each Monthly
Activity Date.
LOAN REPAYMENTS -- You can repay all or any part of a loan at any time while
your policy is in force and either of the insureds' is alive. The amount of your
policy loan repayment will be deducted from the Loan Account. It will be
allocated among the Fixed Account and Sub-Accounts in the same percentage as
premiums are allocated.
EFFECT OF LOANS ON ACCOUNT VALUE -- A loan, whether or not repaid, will have a
permanent effect on your Account Value. This effect occurs because the
investment results of each Sub-Account will apply only to the amount remaining
in such Sub-Accounts. In addition, the rate of interest credited to the Fixed
Account will usually be different than the rate credited to the Loan Account.
The longer a loan is outstanding, the greater the effect 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, your Account Value will not increase as rapidly as it
would have had no loan been made. If the Fixed Account and the Sub-Accounts earn
less than the Loan Account, then your Account Value will be greater than it
would have been had no 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.
CREDITED INTEREST -- Any amounts in the Loan Account will be credited with
interest at an annual rate of 2% (in most states) during the first ten policy
years. Thereafter, the rate will be 3% (in most states). For preferred loans,
the rate is 4% (in most states).
INTEREST CHARGED ON INDEBTEDNESS -- Interest will accrue daily on the
Indebtedness at the policy loan rate. Because the interest charged on
Indebtedness may exceed the rate credited to the Loan Account, the Indebtedness
may grow faster than the Loan Account. If this happens, any difference between
the value of the Loan Account and the Indebtedness will be transferred on each
Monthly Activity Date from the Fixed Account and Sub-Accounts to the Loan
Account on a pro rata basis. Policy loan rates are shown in the policy.
LAPSE AND REINSTATEMENT
- --------------------------------------------------------------------------------
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.
We will mail you 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
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 21
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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:
- - the ten-year period, measured from the policy date; and
- - the Annual Death Benefit Guarantee Premium for that ten-year period.
REINSTATEMENT -- Unless the policy has been surrendered for its Cash Surrender
Value, the policy may be reinstated prior to the maturity date, provided:
- - the insureds alive at the end of the grace period are also alive on the date
of reinstatement;
- - You make your request in writing within five years from the date the policy
lapsed;
- - You submit to us satisfactory evidence of insurability;
- - any policy Indebtedness is repaid or carried over to the reinstated policy;
and
- - 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:
- - the Account Value at the time of termination; plus
- - 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.
TAXES
- --------------------------------------------------------------------------------
GENERAL
Since federal tax law is complex, the tax consequences of purchasing this policy
will vary depending on your situation. You may need tax or legal advice to help
you determine whether purchasing this policy is right for you.
Our general discussion of the tax treatment of this policy is based on our
understanding of federal income tax laws as they are currently interpreted. A
detailed description of all federal income tax consequences regarding the
purchase of this policy cannot be made in the prospectus. We also do not discuss
state, municipal or other tax laws that may apply to this policy. For detailed
information, you should consult with a qualified tax adviser familiar with your
situation.
TAXATION OF HARTFORD AND THE
SEPARATE ACCOUNT
The Separate Account is taxed as a part of Hartford which is taxed as a life
insurance company under Subchapter L of the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, the Separate Account will not be taxed as a
"regulated investment company" under Subchapter M of the Code. Investment income
and realized capital gains on the assets of the Separate Account (the underlying
Funds) are reinvested and are taken into account in determining the value of the
Accumulation Units. (See "Accumulation Unit Values"). 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
<PAGE>
22 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
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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 contracts under Section 7702 of the Code. The death benefit under a
life insurance contract 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 702 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 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
The Code requires that investments supporting your policy be adequately
diversified. Code Section 817 provides that a variable life insurance contract
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. If a contract is not treated as a life insurance contract, the
policy owner will be subject to income tax on annual increases in cash value.
The Treasury Department's diversification regulations require, among other
things, that:
- - no more than 55% of the value of the total assets of the segregated asset
account underlying a variable contract is represented by any one investment,
- - no more than 70% is represented by any two investments,
- - no more than 80% is represented by any three investments and
- - no more than 90% is represented by any four investments.
In determining whether the diversification standards are met, all securities of
the same issuer, all interests in the same real property project, and all
interests in the same commodity are each treated as a single investment. In the
case of government securities, each government agency or instrumentality is
treated as a separate issuer.
A separate account must be in compliance with the diversification standards on
the last day of each calendar quarter or within 30 days after the quarter ends.
If an insurance company inadvertently fails to meet the diversification
requirements, the company may still comply within a reasonable period and avoid
the taxation of contract income on an ongoing basis. However, either the company
or the policy owner must agree to pay the tax due for the period during which
the diversification requirements were not met.
We monitor the diversification of investments in the separate accounts and test
for diversification as required by the Code. We intend to administer all
policies subject to the diversification requirements in a manner that will
maintain adequate diversification.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 23
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OWNERSHIP OF THE ASSETS IN THE
SEPARATE ACCOUNT
In order for a variable life insurance contract to qualify for tax deferral,
assets in the separate accounts supporting the contract must be considered to be
owned by the insurance company and not by the policy owner. It is unclear under
what circumstances an investor is considered to have enough control over the
assets in the separate account to be considered the owner of the assets for tax
purposes.
The IRS has issued several rulings discussing investor control. These rulings
say that certain incidents of ownership by the policy owner, such as the ability
to select and control investments in a separate account, will cause the policy
owner to be treated as the owner of the assets for tax purposes.
In its explanation of the diversification regulations, the Treasury Department
recognized that the temporary regulations "do not provide guidance concerning
the circumstances in which investor control of the investments of a segregated
asset account may cause the investor, rather than the insurance company, to be
treated as the owner of the assets in the account." The explanation further
indicates that "the temporary regulations provide that in appropriate cases a
segregated asset account may include multiple sub-accounts, but do not specify
the extent to which policyholders may direct their investments to particular
sub-accounts without being treated as the owners of the underlying assets.
Guidance on this and other issues will be provided in regulations or revenue
rulings under Section 817(d), relating to the definition of variable contract."
The final regulations issued under Section 817 did not provide guidance
regarding investor control, and as of the date of this prospectus, guidance has
yet to be issued. We do not know if additional guidance will be issued. If
guidance is issued, we do not know if it will have a retroactive effect.
Due to the lack of specific guidance on investor control, there is some
uncertainty about when a policy owner is considered the owner of the assets for
tax purposes. We reserve the right to modify the policy, as necessary, to
prevent you from being considered the owner of assets in the separate account.
TAX DEFERRAL DURING ACCUMULATION PERIOD
Under existing provisions of the Code, except as described below, any increase
in an owner's contract value is generally not taxable to the owner unless
amounts are received (or are deemed to be received) under the policy prior to
the Insured's death. If there is a total withdrawal from the policy, then the
surrender value will be includible in the 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 owner.) The "investment in the contract" is the aggregate
amount of premium payments and other consideration paid for the policy, less the
aggregate amount received under the policy 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 policy constitute income to the
owner depends, in part, upon whether the policy 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 within
the first seven years, the seven-pay test is applied as if the policy had
initially been issued at the reduced benefit level. Any reduction in benefits
attributable to the nonpayment of premiums will not be taken into account for
purposes of the seven-pay test if the benefits are reinstated within 90 days
after the reduction.
A policy that is classified as a MEC is eligible for certain aspects of the
beneficial tax treatment accorded to life insurance. That is, the death benefit
is excluded from income and increments in value are not subject to current
taxation. However, if the policy is classified as a MEC, then withdrawals from
the contract will be considered first as withdrawals of income and then as a
recovery of premium payments. Thus, withdrawals will be includible in income to
the extent the contract value exceeds the investment in the contract. The amount
of any loan (including unpaid interest thereon) under the contract will be
treated as a withdrawal from the contract for tax purposes. In addition, if the
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 owner's investment in the
contract is increased by the amount includible in income with respect to such
assignment, pledge, or loan, though it is not affected by any other aspect of
the assignment, pledge, or loan (including its release or repayment).
Generally, only distributions and loans made in the first year in which a policy
becomes a MEC, and in subsequent years, are
<PAGE>
24 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
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 policy that is a MEC,
an owner should consult a qualified tax adviser.
All MEC policies that are issued within any calendar year to the same policy
owner by one company or its affiliates are treated as one MEC policy for the
purpose of determining the taxable portion of any loan or distribution.
Hartford has instituted procedures to monitor whether a policy may become
classified as a MEC after issue.
ESTATE AND GENERATION-SKIPPING TAXES
When the last surviving Insured dies, the Death Proceeds will generally be
includible in the policy owner's estate for purposes of federal estate tax if
the last surviving Insured owned the policy. If the policy owner was not the
last surviving Insured, the fair market value of the policy would be included in
the policy owner's estate upon the policy owner's death. The policy would not be
includible in the last surviving Insured's estate if he or she neither retained
incidents of ownership at death nor had given up ownership within three years
before death.
The federal estate tax is integrated with the federal gift tax under a unified
rate schedule and unified credit which shelters up to $675,000 (for 2000) from
the estate and gift tax. The Taxpayer Relief Act of 1997 gradually raises the
credit over the next six 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 as adjusted for inflation. 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.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 25
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GLOSSARY OF SPECIAL TERMS
ACCOUNT VALUE: the total of all amounts in the Fixed Account, Loan Account and
Sub-Accounts.
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.
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.
FACE AMOUNT: an amount we use to determine the Death Benefit. On the policy
date, the Face Amount equals the initial Face Amount shown in your policy.
Thereafter, it may change under the terms of the policy. On any day, the Face
Amount equals the Basic Face Amount plus the Supplemental Face Amount.
FIXED ACCOUNT: part of our general account to which all or a portion of the
Account Value may be allocated.
FUNDS: the registered open-end management companies in which assets of the
Separate Account may be invested.
INDEBTEDNESS: all loans taken on the policy, plus any interest due or accrued
minus any loan repayments.
LOAN ACCOUNT: an account established for any amounts transferred from the Fixed
Account and Sub-Accounts as a result of loans. The amounts in the Loan Account
are credited with interest and are not subject to the investment experience of
any Sub-Accounts.
MONTHLY ACTIVITY DATE: the policy date and the same date in each succeeding
month as the policy date. However, whenever the Monthly Activity Date falls on a
date other than a Valuation Day, the Monthly Activity Date will be deemed to be
the next Valuation Day.
NET PREMIUM: the amount of premium credited to Account Value. It is premium paid
minus the sales load and premium tax charge.
SEPARATE ACCOUNT: an account which has been established by us to separate the
assets funding the variable benefits for the class of contracts to which the
policy belongs from our other assets.
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: the date on which a Sub-Account is valued. This occurs every day
the New York Stock Exchange is open for trading.
WE, US, OUR: Hartford Life and Annuity Insurance Company, sometimes referred to
as "Hartford."
YOU, YOUR: the owner of the policy.
<PAGE>
26 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
WHERE YOU CAN FIND MORE INFORMATION
You can call us at 1-800-231-5453 to ask us questions. The Statement of
Additional Information contains more information about this life insurance
policy and, like this prospectus, is filed with the Securities and Exchange
Commission. You should read the Statement of Additional Information because you
are bound by the terms contained in it.
We file other information with the Securities and Exchange Commission. You may
read and copy any document we file at the SEC's public reference room in
Washington, DC 20549-6009. Please call the SEC at 1-800-SEC-0330 for further
information. Our SEC filings are also available to the public at the SEC's web
site at http://www.sec.gov.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
SEPARATE ACCOUNT VL II
This Statement of Additional Information is not a prospectus. To obtain a
prospectus, write us at P.O. Box 2999, Hartford, CT 06104-2999, or call us at
1-800-231-5453.
DATE OF PROSPECTUS: MAY 1, 2000
DATE OF STATEMENT OF ADDITIONAL INFORMATION: MAY 1, 2000
<PAGE>
2 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
GENERAL INFORMATION AND HISTORY 3
- ----------------------------------------------------------------------
SERVICES 5
- ----------------------------------------------------------------------
EXPERTS 5
- ----------------------------------------------------------------------
DISTRIBUTION OF THE POLICIES 6
- ----------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT CHARGES 6
- ----------------------------------------------------------------------
ILLUSTRATION OF DEATH BENEFITS, ACCOUNT VALUES AND CASH
SURRENDER VALUES 8
- ----------------------------------------------------------------------
FINANCIAL STATEMENTS SA-1
- ----------------------------------------------------------------------
</TABLE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION 3
- --------------------------------------------------------------------------------
GENERAL INFORMATION AND HISTORY
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY ("HARTFORD") -- Hartford Life and
Annuity Insurance Company is a stock life insurance company engaged in the
business of writing life insurance and annuities, both individual and group, in
all states of the United States, the District of Columbia and Puerto Rico,
except New York. On January 1, 1998, Hartford's name changed from ITT Hartford
Life and Annuity Insurance Company to Hartford Life and Annuity Insurance
Company. We were originally incorporated under the laws of Wisconsin on
January 9, 1956, and subsequently redomiciled to Connecticut. Our offices are
located in Simsbury, Connecticut; however, our mailing address is P.O. Box 2999,
Hartford, CT 06104-2999. We are ultimately controlled by The Hartford Financial
Services Group, Inc., one of the largest financial service providers in the
United States.
Hartford Life and Annuity Insurance Company is controlled by Hartford Life
Insurance Company, which is controlled by Hartford Life & Accident Insurance
Company, which is controlled by Hartford Life Inc., which is controlled by
Hartford Accident & Indemnity Company, which is controlled by Hartford Fire
Insurance Company, which is controlled by Nutmeg Insurance Company, which is
controlled by The Hartford Financial Services Group, Inc. Each of these
companies is engaged in the business of insurance and financial services.
The following table shows a brief description of the business experience of
officers and directors of Hartford Life and Annuity Insurance Company:
<TABLE>
<CAPTION>
POSITION WITH OTHER BUSINESS PROFESSION,
HARTFORD; VOCATION OR EMPLOYMENT FOR PAST
NAME YEAR OF ELECTION FIVE YEARS; OTHER DIRECTORSHIPS
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
David A. Carlson Vice President, 1999 Assistant Vice President and Director of Taxes
(1998-1999), Hartford; CIGNA Corporation (1975-1998).
Peter W. Cummins 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),
Hartford Life Insurance Company.
Timothy M. Fitch 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.
Mary Jane B. Fortin Vice President & Chief Vice President & Chief Accounting Office (1998-Present),
Accounting Officer, 1998 Hartford Life Insurance Company; Vice President & Chief
Accounting Officer (1998-Present), Royal Life Insurance
Company of America; Vice President & Chief Accounting
Officer (1998-Present) Alpine Life Insurance Company;
Chief Accounting Officer (1997-Present), Hartford Life,
Inc.; Director, Finance (1995-1997), Value Health, Inc.;
Senior Manager (1993-1995), Coopers and Lybrand; Audit
Manager (1993-1996) Arthur Andersen & Co.
David T. Foy Senior Vice President, Chief Senior Vice President (1998-present), Vice President
Financial Officer & (1998), Assistant Vice President (1995-1998), Hartford;
Treasurer, 1998 Senior Vice President (1998-Present), Hartford Life and
Director, 1999* Accident Insurance Company; Director, Strategic Planning
Corporate Finance (1995-1996), IA Product Development
(1994-1995), Hartford; Various Actuarial Roles
(1989-1993), Milliman & Robertson.
</TABLE>
<PAGE>
4 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
<TABLE>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
POSITION WITH OTHER BUSINESS PROFESSION,
HARTFORD; VOCATION OR EMPLOYMENT FOR PAST
NAME YEAR OF ELECTION FIVE YEARS; OTHER DIRECTORSHIPS
<S> <C> <C>
Lynda Godkin 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); Corporate
Director, 1997* 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.
Lois W. Grady 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.
Stephen T. Joyce Senior Vice President, 1999 Vice President (1997-1999), Assistant Vice President
(1995-1997), Hartford; Assistant Vice President
(1994-1997), Hartford Life and Accident Insurance Company;
Vice President (1997-Present); Vice President (1997-1999);
Assistant Vice President (1994-1997), Hartford Life
Insurance Company.
Michael D. Keeler Vice President, 1998 Vice President (1998-Present); Hartford Life and Accident
Insurance Company; Vice President (1995-1997), Providian
Insurance; Supervisor/Manager (1985-1995), U.S. West
Communications.
Robert A. Kerzner Senior Vice President, 1998 Director of Individual Life (1998-Present); Vice President
(1994-1998), Hartford; Senior Vice President
(1998-Present); Vice President (1994-1997); Regional Vice
President (1991-1994), Hartford Life Insurance Company.
Thomas M. Marra President, 2000 Executive Vice President (1996-2000), Senior Vice
Director, 1994* President (1993-1996); Hartford; Director (1994-Present);
Executive Vice President (1995-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); Senior Vice President (1994-1995); Vice
President (1989-1994); Actuary (1987-1995), Hartford Life
Insurance Company; Chief Operating Officer (2000-Present),
Executive Vice President, Individual Life and Annuities
(1997-2000), Hartford Life, Inc.
Craig R. Raymond 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.
</TABLE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION 5
- --------------------------------------------------------------------------------
<TABLE>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
POSITION WITH OTHER BUSINESS PROFESSION,
HARTFORD; VOCATION OR EMPLOYMENT FOR PAST
NAME YEAR OF ELECTION FIVE YEARS; OTHER DIRECTORSHIPS
<S> <C> <C>
Lowndes A. Smith Chief Executive Officer, 1997 President (1989-2000), Chief Operating Officer
Director, 1985* (1989-1997), Hartford; Director (1981-Present); President
(1989-Present); Chief Executive Officer (1997-Present);
Chief Operating Officer (1989-1997), Hartford Life and
Accident Insurance Company; Director (1985-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.
David M. Znamierowski Senior Vice President & Chief Vice President (1997); Senior Vice President (1997);
Investment Officer, 1997 Director, Risk Management Strategy (1996); Director
Director, 1998 (1998), Hartford; Director (1998-Present); Senior Vice
President (1997-Present), Hartford Life and Accident
Insurance Company; Vice President, Investment Strategy
(1997-Present), Hartford Life, Inc.; Vice President,
Investment Strategy & Policy (1991-1996), Aetna Life and
Casualty.
</TABLE>
- ---------
* Denotes date of election to Board of Directors of Hartford.
Unless otherwise indicated, the principal business address of each of the above
individuals is P.O. Box 2999, Hartford, CT 06104-2999.
SEPARATE ACCOUNT VL II was established as a separate account under Connecticut
law on September 30, 1994. The Separate Account is classified as a unit
investment trust registered with the Securities and Exchange Commission under
the Investment Company Act of 1940.
SERVICES
- --------------------------------------------------------------------------------
SAFEKEEPING OF ASSETS -- Title to the assets of the Separate Account is held by
Hartford. The assets are kept physically segregated and are held separate and
apart from Hartford's general corporate assets. Records are maintained of all
purchases and redemptions of Fund shares held in each of the Sub-Accounts.
EXPERTS
- --------------------------------------------------------------------------------
INDEPENDENT PUBLIC ACCOUNTANTS -- The audited financial statements included in
this registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports. Reference is made to the report on the statutory
financial statements of Hartford Life and Annuity Insurance Company which states
the statutory financial statements are presented in accordance with statutory
accounting practices prescribed or permitted by the National Association of
Insurance Commissioners and the State of Connecticut Insurance Department, and
are not presented in accordance with generally accepted accounting principles.
The principal business address of Arthur Andersen LLP is One Financial Plaza,
Hartford, Connecticut 06103.
ACTUARIAL EXPERT -- The hypothetical Policy illustrations included in this
Statement of Additional Information and the registration statement with respect
to the Separate Account have been approved by Thomas P. Kalmbach, FSA, MAAA,
Actuary, for Hartford, and are included in reliance upon his opinion as to their
reasonableness.
<PAGE>
6 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
DISTRIBUTION OF THE POLICIES
Hartford Equity Sales Company, Inc. ("HESCO") serves as principal underwriter
for the policies and will offer the policies on a continuous basis. HESCO is
controlled by Hartford and is located at the same address as Hartford. HESCO is
registered with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 as a broker-dealer and is a member of the National
Association of Securities Dealers, Inc. ("NASD").
The policies will be sold by salespersons who represent Hartford as insurance
agents and who are registered representatives of HESCO or certain other
registered broker-dealers who have entered into distribution agreements with
HESCO.
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 premium paid up to a Target Premium, and 5% of any
excess. In Policy Years 2 through 10, such sales commission will not exceed 5.5%
of premiums paid. Thereafter, agent commissions will not exceed 2% of premiums
paid. Sales commissions may be less 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 the Policy 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.
This compensation is usually paid from the sales charges described in the
Prospectus.
In addition, a broker-dealer or financial institution may also receive
additional compensation for, among other things, training, marketing or other
services provided. HESCO, its affiliates or Hartford may also make compensation
arrangements with certain broker-dealers or other financial institutions based
on total sales by the broker-dealer or financial institution of insurance
products. These payments, which may be different for broker-dealers or financial
institutions, will be made by HESCO, its affiliates or Hartford out of their
assets and will not affect the amounts paid by the policy owner to purchase,
hold or surrender variable insurance products.
The following table shows officers and directors of HESCO:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
BUSINESS ADDRESS POSITIONS AND OFFICES
<S> <C>
- --------------------------------------------------------------------
David A. Carlson Vice President
- --------------------------------------------------------------------
Peter W. Cummins Senior Vice President
- --------------------------------------------------------------------
David T. Foy Treasurer
- --------------------------------------------------------------------
Lynda Godkin Senior Vice President, General Counsel
and Corporate Secretary
- --------------------------------------------------------------------
George R. Jay Controller
- --------------------------------------------------------------------
Robert A. Kerzner Executive Vice President, Director
- --------------------------------------------------------------------
Thomas M. Marra Executive Vice President, Director
- --------------------------------------------------------------------
Donald R. Salama Vice President
- --------------------------------------------------------------------
Lowndes A. Smith President and Chief Executive Officer,
Director
- --------------------------------------------------------------------
</TABLE>
ADDITIONAL INFORMATION ABOUT CHARGES
- --------------------------------------------------------------------------------
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.
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%.
The front-end load under the policies may be used to cover expenses related to
the sale and distribution of the policies.
REDUCED CHARGES FOR ELIGIBLE GROUPS -- Certain charges and deductions described
above may be reduced for policies issued in connection with a specific plan, in
accordance with our rules in effect as of the date the application for a policy
is approved. To qualify for such a reduction, a plan must satisfy certain
criteria, i.e., as to size of the plan, expected number of participants and
anticipated premium payment from the plan. Generally, the sales contacts and
effort, administrative costs and mortality cost per policy vary, based on such
factors as the size of the plan, the purposes for which policies are purchased
and certain characteristics 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 mortality experience
expected as a result of, sales to qualifying plans. We may modify, from time to
time on a uniform basis, both the amounts of reductions and the criteria for
qualification. Reductions in these charges will not be unfairly
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION 7
- --------------------------------------------------------------------------------
discriminatory against any person, including the affected policy owners invested
in Separate Account VL II.
UNDERWRITING PROCEDURES -- To purchase a policy you must submit an application
to us. Within limits, you may choose the Scheduled Premiums and the initial Face
Amount and the Guarantee Period in the policy application. Policies generally
will be issued only on the lives of insureds the ages of 20 and 80 who supply
evidence of insurability satisfactory to us. (We 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 our underwriting rules and we reserve the right to reject an
application for any reason. No change in the terms or conditions of a policy
will be made without your consent.
The Cost of Insurance charge is to cover our anticipated mortality costs and
other expenses. For standard risks, the Cost of Insurance rates 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, we reserve the right
to use rates less than those shown in the table. Substandard risks will be
charged a higher Cost of Insurance rate which 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 Insured's
risk class. We 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 age, sex and risk class 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 Insured's health.
Because the Account Value and the Death Benefit may vary from month to month,
the Cost of Insurance charge may also vary on each Monthly Activity Date.
INCREASES 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 is based on Our
rules then in effect.
If You selected Supplemental Face Amount coverage on Your Policy application,
the amount of the coverage is shown on the Policy's specifications page, subject
to any scheduled changes You instructed in Your Policy application and any
unscheduled increases in Face Amount, as described below. You may discontinue a
scheduled increase by request In Writing.
Any 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.
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.
We reserve the right to limit the number of increases made under a Policy to no
more than one in any 12 month period.
<PAGE>
8 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
ILLUSTRATION OF DEATH BENEFITS, ACCOUNT VALUES
AND CASH SURRENDER VALUES
The following tables illustrate the way in which a Policy operates. They 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%. They 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 tables 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 0.73% 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 0.73% average daily charge) of -0.73%, 5.27% and 11.27%,
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 1.75% 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.
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>
STATEMENT OF ADDITIONAL INFORMATION 9
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
DEATH BENEFIT OPTION: LEVEL
$1,000,000 BASIC FACE AMOUNT
ISSUE AGE 55 MALE PREFERRED PLUS
ISSUE AGE 50 FEMALE PREFERRED PLUS
$15,500 PLANNED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 12% (11.27% 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 6,681 1,000,000 6,396 1,000,000
2 33,364 19,958 1,000,000 19,358 1,000,000
3 51,307 34,510 1,000,000 33,562 1,000,000
4 70,147 50,446 1,000,000 49,115 1,000,000
5 89,930 67,888 1,000,000 66,132 1,000,000
6 110,701 88,707 1,000,000 86,483 1,000,000
7 132,511 111,486 1,000,000 108,743 1,000,000
8 155,412 136,401 1,000,000 133,084 1,000,000
9 179,457 163,646 1,000,000 159,693 1,000,000
10 204,705 193,429 1,000,000 188,773 1,000,000
11 231,215 230,047 1,000,000 222,390 1,000,000
12 259,051 270,651 1,000,000 259,291 1,000,000
13 288,279 315,678 1,000,000 299,795 1,000,000
14 318,968 365,605 1,000,000 344,264 1,000,000
15 351,191 420,975 1,000,000 393,114 1,000,000
16 385,026 482,386 1,000,000 446,838 1,000,000
17 420,552 550,484 1,000,000 506,021 1,000,000
18 457,855 626,041 1,000,000 571,367 1,000,000
19 497,022 709,925 1,000,000 643,728 1,000,000
20 538,148 803,100 1,000,000 724,139 1,000,000
25 724,270 1,448,915 1,550,339 1,286,552 1,376,610
30 1,014,302 2,533,462 2,660,136 2,218,430 2,329,352
- --------------------------------------------------------------------------------------
</TABLE>
*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.
The Death Benefit may, and the Account Values and Cash Surrender Values will
differ if premiums are paid in different amounts or frequencies.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN
THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGE 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM
THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE
ACCOUNTS AND THE RATES OF RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF
INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 12%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
10 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 PLUS
ISSUE AGE 50 FEMALE PREFERRED PLUS
$15,500 PLANNED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 6% (5.27% 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 6,293 1,000,000 6,016 1,000,000
2 33,364 18,447 1,000,000 17,882 1,000,000
3 51,307 31,038 1,000,000 30,171 1,000,000
4 70,147 44,064 1,000,000 42,881 1,000,000
5 89,930 57,519 1,000,000 56,006 1,000,000
6 110,701 73,065 1,000,000 71,208 1,000,000
7 132,511 89,095 1,000,000 86,876 1,000,000
8 155,412 105,598 1,000,000 103,002 1,000,000
9 179,457 122,560 1,000,000 119,568 1,000,000
10 204,705 139,956 1,000,000 136,548 1,000,000
11 231,215 161,458 1,000,000 155,427 1,000,000
12 259,051 183,992 1,000,000 174,794 1,000,000
13 288,279 207,601 1,000,000 194,599 1,000,000
14 318,968 232,324 1,000,000 214,776 1,000,000
15 351,191 258,212 1,000,000 235,250 1,000,000
16 385,026 285,307 1,000,000 255,940 1,000,000
17 420,552 313,623 1,000,000 276,757 1,000,000
18 457,855 343,233 1,000,000 297,609 1,000,000
19 497,022 374,217 1,000,000 318,394 1,000,000
20 538,148 406,659 1,000,000 338,995 1,000,000
25 724,270 591,888 1,000,000 432,879 1,000,000
30 1,014,302 823,513 1,000,000 485,322 1,000,000
- ------------------------------------------------------------------------------------
</TABLE>
*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.
The Death Benefit may, and the Account Values and Cash Surrender Values will
differ if premiums are paid in different amounts or frequencies.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN
THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGE 6% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM
THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE
ACCOUNTS AND THE RATES OF RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF
INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 6%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION 11
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
DEATH BENEFIT OPTION: LEVEL
$1,000,000 BASIC FACE AMOUNT
ISSUE AGE 55 MALE PREFERRED PLUS
ISSUE AGE 50 FEMALE PREFERRED PLUS
$15,500 PLANNED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 0% (-0.73% 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 5,906 1,000,000 5,638 1,000,000
2 33,364 16,984 1,000,000 16,452 1,000,000
3 51,307 27,794 1,000,000 27,002 1,000,000
4 70,147 38,320 1,000,000 37,272 1,000,000
5 89,930 48,540 1,000,000 47,239 1,000,000
6 110,701 60,028 1,000,000 58,478 1,000,000
7 132,511 71,136 1,000,000 69,340 1,000,000
8 155,412 81,835 1,000,000 79,796 1,000,000
9 179,457 92,091 1,000,000 89,812 1,000,000
10 204,705 101,860 1,000,000 99,343 1,000,000
11 231,215 114,503 1,000,000 109,608 1,000,000
12 259,051 126,973 1,000,000 119,294 1,000,000
13 288,279 139,263 1,000,000 128,315 1,000,000
14 318,968 151,355 1,000,000 136,565 1,000,000
15 351,191 163,242 1,000,000 143,926 1,000,000
16 385,026 174,905 1,000,000 150,263 1,000,000
17 420,552 186,284 1,000,000 155,430 1,000,000
18 457,855 197,386 1,000,000 159,263 1,000,000
19 497,022 208,218 1,000,000 161,575 1,000,000
20 538,148 218,786 1,000,000 162,143 1,000,000
25 724,270 263,672 1,000,000 126,159 1,000,000
30 1,014,302 286,320 1,000,000 0 0
- ------------------------------------------------------------------------------------
</TABLE>
*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.
The Death Benefit may, and the Account Values and Cash Surrender Values will
differ if premiums are paid in different amounts or frequencies.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN
THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGE 0% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM
THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE
ACCOUNTS AND THE RATES OF RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF
INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
12 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 PLUS
ISSUE AGE 50 FEMALE PREFERRED PLUS
$7,500 PLANNED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 12% (11.27% 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 3,593 1,000,000 3,228 1,000,000
2 16,144 9,645 1,000,000 8,879 1,000,000
3 24,826 16,219 1,000,000 15,008 1,000,000
4 33,942 23,344 1,000,000 21,642 1,000,000
5 43,514 31,049 1,000,000 28,805 1,000,000
6 53,565 40,561 1,000,000 37,719 1,000,000
7 64,118 50,836 1,000,000 47,331 1,000,000
8 75,199 61,916 1,000,000 57,678 1,000,000
9 86,834 73,841 1,000,000 68,791 1,000,000
10 99,051 86,647 1,000,000 80,697 1,000,000
11 111,878 103,187 1,000,000 93,957 1,000,000
12 125,347 121,479 1,000,000 108,117 1,000,000
13 139,490 141,721 1,000,000 123,221 1,000,000
14 154,339 164,110 1,000,000 139,266 1,000,000
15 169,931 188,874 1,000,000 156,238 1,000,000
16 186,303 216,258 1,000,000 174,119 1,000,000
17 203,493 246,496 1,000,000 192,887 1,000,000
18 221,543 279,915 1,000,000 212,512 1,000,000
19 240,495 316,888 1,000,000 232,966 1,000,000
20 260,394 357,825 1,000,000 254,201 1,000,000
25 375,851 636,712 1,000,000 368,538 1,000,000
30 523,206 1,108,388 1,163,807 481,735 1,000,000
- -------------------------------------------------------------------------------------
</TABLE>
*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.
The Death Benefit may, and the Account Values and Cash Surrender Values will
differ if premiums are paid in different amounts or frequencies.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN
THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGE 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM
THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE
ACCOUNTS AND THE RATES OF RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF
INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 12%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION 13
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
DEATH BENEFIT OPTION: LEVEL
$750,000 BASIC FACE AMOUNT
$250,000 SUPPLEMENTAL FACE AMOUNT
ISSUE AGE 55 MALE PREFERRED PLUS
ISSUE AGE 50 FEMALE PREFERRED PLUS
$7,500 PLANNED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 6% (5.27% 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 3,371 1,000,000 3,018 1,000,000
2 16,144 8,864 1,000,000 8,142 1,000,000
3 24,826 14,496 1,000,000 13,388 1,000,000
4 33,942 20,250 1,000,000 18,738 1,000,000
5 43,514 26,102 1,000,000 24,170 1,000,000
6 53,565 33,182 1,000,000 30,809 1,000,000
7 64,118 40,353 1,000,000 37,518 1,000,000
8 75,199 47,579 1,000,000 44,262 1,000,000
9 86,834 54,820 1,000,000 50,997 1,000,000
10 99,051 62,019 1,000,000 57,665 1,000,000
11 111,878 71,890 1,000,000 64,705 1,000,000
12 125,347 82,144 1,000,000 71,545 1,000,000
13 139,490 92,788 1,000,000 78,069 1,000,000
14 154,339 103,829 1,000,000 84,138 1,000,000
15 169,931 115,325 1,000,000 89,588 1,000,000
16 186,303 127,278 1,000,000 94,229 1,000,000
17 203,493 139,644 1,000,000 97,850 1,000,000
18 221,543 152,447 1,000,000 100,212 1,000,000
19 240,495 165,716 1,000,000 101,030 1,000,000
20 260,394 179,481 1,000,000 99,955 1,000,000
25 375,851 251,176 1,000,000 46,850 1,000,000
30 523,206 319,682 1,000,000 0 0
- ------------------------------------------------------------------------------------
</TABLE>
*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.
The Death Benefit may, and the Account Values and Cash Surrender Values will
differ if premiums are paid in different amounts or frequencies.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN
THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGE 6% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM
THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE
ACCOUNTS AND THE RATES OF RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF
INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 6%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
14 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 PLUS
ISSUE AGE 50 FEMALE PREFERRED PLUS
$7,500 PLANNED PREMIUM
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 0% (-0.73% 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 3,151 1,000,000 2,808 1,000,000
2 16,144 8,111 1,000,000 7,432 1,000,000
3 24,826 12,894 1,000,000 11,883 1,000,000
4 33,942 17,481 1,000,000 16,142 1,000,000
5 43,514 21,846 1,000,000 20,184 1,000,000
6 53,565 27,072 1,000,000 25,091 1,000,000
7 64,118 32,000 1,000,000 29,705 1,000,000
8 75,199 36,594 1,000,000 33,989 1,000,000
9 86,834 40,816 1,000,000 37,904 1,000,000
10 99,051 44,609 1,000,000 41,394 1,000,000
11 111,878 50,638 1,000,000 44,878 1,000,000
12 125,347 56,520 1,000,000 47,792 1,000,000
13 139,490 62,247 1,000,000 50,033 1,000,000
14 154,339 67,799 1,000,000 51,478 1,000,000
15 169,931 73,167 1,000,000 51,987 1,000,000
16 186,303 78,328 1,000,000 51,397 1,000,000
17 203,493 83,214 1,000,000 49,531 1,000,000
18 221,543 87,830 1,000,000 46,185 1,000,000
19 240,495 92,183 1,000,000 41,129 1,000,000
20 260,394 96,276 1,000,000 34,083 1,000,000
25 375,851 107,095 1,000,000 0 0
30 523,206 88,289 1,000,000 0 0
- ------------------------------------------------------------------------------------
</TABLE>
*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.
The Death Benefit may, and the Account Values and Cash Surrender Values will
differ if premiums are paid in different amounts or frequencies.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN
THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGE 0% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM
THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE
ACCOUNTS AND THE RATES OF RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF
INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hartford Life and Annuity Insurance Company
Separate Account VL II and to the Owners of Units of Interest therein:
We have audited the accompanying statements of assets and liabilities of
Hartford Life and Annuity Insurance Company Separate Account VL II (Bond Fund,
Stock Fund, Money Market Fund, Advisers Fund, Capital Appreciation Fund,
Mortgage Securities Fund, Index Fund, International Opportunities Fund, Dividend
and Growth Fund, Growth and Income Fund, International Advisers Fund, Small
Company Fund, MidCap Fund, Fidelity VIP Equity-Income Portfolio, Fidelity VIP
Overseas Portfolio and Fidelity VIP II Asset Manager Portfolio) (collectively,
the Account) as of December 31, 1999, and the related statements of operations
and the statements of changes in net assets for the periods presented. These
financial statements are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Account as of December 31,
1999, and the results of their operations and the changes in their net assets
for the periods presented in conformity with generally accepted accounting
principles.
Hartford, Connecticut
February 17, 2000 ARTHUR ANDERSEN LLP
SA-1
<PAGE>
SEPARATE ACCOUNT VL II -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
December 31, 1999 Bond Fund Stock Fund Money Advisers Capital Mortgage Index Fund
Sub-Account Sub-Account Market Fund Fund Appreciation Securities Sub-Account
Sub-Account Sub-Account Fund Fund
Sub-Account Sub-Account
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments:
---------------------------------------------------------------------------------------------------------------------------
HARTFORD BOND HLS FUND, INC. -
CLASS IA
Shares 6,146,042
Cost $6,517,756
..........................................................................................................................
Market Value $6,108,317 $ -- $ -- $ -- $ -- $ -- $ --
---------------------------------------------------------------------------------------------------------------------------
HARTFORD STOCK HLS FUND, INC. -
CLASS IA
Shares 2,762,395
Cost $17,713,082
..........................................................................................................................
Market Value -- 19,743,908 -- -- -- -- --
---------------------------------------------------------------------------------------------------------------------------
HARTFORD MONEY MARKET HLS
FUND, INC. - CLASS IA
Shares 35,162,986
Cost $35,162,986
..........................................................................................................................
Market Value -- -- 35,162,986 -- -- -- --
---------------------------------------------------------------------------------------------------------------------------
HARTFORD ADVISERS HLS FUND, INC.
-CLASS IA
Shares 4,786,407
Cost $13,734,488
..........................................................................................................................
Market Value -- -- -- 14,190,615 -- -- --
---------------------------------------------------------------------------------------------------------------------------
HARTFORD CAPITAL APPRECIATION HLS
FUND, INC. - CLASS IA
Shares 1,792,395
Cost $8,630,428
..........................................................................................................................
Market Value -- -- -- -- 10,925,342 -- --
---------------------------------------------------------------------------------------------------------------------------
HARTFORD MORTGAGE SECURITIES HLS
FUND, INC. - CLASS IA
Shares 599,557
Cost $655,939
..........................................................................................................................
Market Value -- -- -- -- -- 623,234 --
---------------------------------------------------------------------------------------------------------------------------
HARTFORD INDEX HLS FUND, INC. -
CLASS IA
Shares 6,529,463
Cost $22,457,967
..........................................................................................................................
Market Value -- -- -- -- -- -- 27,350,486
---------------------------------------------------------------------------------------------------------------------------
HARTFORD INTERNATIONAL
OPPORTUNITIES HLS FUND, INC. -
CLASS IA
Shares 1,627,053
Cost $2,292,796
..........................................................................................................................
Market Value -- -- -- -- -- -- --
---------------------------------------------------------------------------------------------------------------------------
Due from Hartford Life and
Annuity Insurance Company -- 54,616 463,281 2,393 28,816 -- 23,192
..........................................................................................................................
Receivable from fund shares sold 1,238 -- -- -- -- -- --
..........................................................................................................................
Total Assets 6,109,555 19,798,524 35,626,267 14,193,008 10,954,158 623,234 27,373,678
..........................................................................................................................
LIABILITIES:
Due to Hartford Life and Annuity
Insurance Company 1,269 -- -- -- -- -- --
..........................................................................................................................
Payable for fund shares purchased -- 54,537 462,299 2,428 28,947 -- 23,875
..........................................................................................................................
Total Liabilities 1,269 54,537 462,299 2,428 28,947 -- 23,875
---------------------------------------------------------------------------------------------------------------------------
NET ASSETS (VARIABLE LIFE
CONTRACT LIABILITIES) $6,108,286 $19,743,987 $35,163,968 $14,190,580 $10,925,211 $ 623,234 $27,349,803
---------------------------------------------------------------------------------------------------------------------------
Units Owned by Participants 4,197,044 5,253,119 25,709,955 5,287,048 3,222,333 426,305 7,630,809
Unit Values $ 1.455378 $ 3.758526 $ 1.367718 $ 2.684027 $ 3.390466 $ 1.461942 $ 3.584129
---------------------------------------------------------------------------------------------------------------------------
<S> <C>
December 31, 1999 International
Opportunities
Fund
Sub-Account
------------------------------------------------------------
ASSETS:
Investments:
------------------------------------------------------------------------
HARTFORD BOND HLS FUND, INC. -
CLASS IA
Shares 6,146,042
Cost $6,517,756
................................
Market Value $ --
------------------------------------------------------------------------------------
HARTFORD STOCK HLS FUND, INC. -
CLASS IA
Shares 2,762,395
Cost $17,713,082
................................
Market Value --
------------------------------------------------------------------------------------------------
HARTFORD MONEY MARKET HLS
FUND, INC. - CLASS IA
Shares 35,162,986
Cost $35,162,986
................................
Market Value --
------------------------------------------------------------------------------------------------------------
HARTFORD ADVISERS HLS FUND, INC.
-CLASS IA
Shares 4,786,407
Cost $13,734,488
................................
Market Value --
------------------------------------------------------------------------------------------------------------------------
HARTFORD CAPITAL APPRECIATION HLS
FUND, INC. - CLASS IA
Shares 1,792,395
Cost $8,630,428
................................
Market Value --
---------------------------------------------------------------------------------------------------------------------------
HARTFORD MORTGAGE SECURITIES HLS
FUND, INC. - CLASS IA
Shares 599,557
Cost $655,939
................................
Market Value --
---------------------------------------------------------------------------------------------------------------------------
HARTFORD INDEX HLS FUND, INC. -
CLASS IA
Shares 6,529,463
Cost $22,457,967
................................
Market Value --
---------------------------------------------------------------------------------------------------------------------------
HARTFORD INTERNATIONAL
OPPORTUNITIES HLS FUND, INC. -
CLASS IA
Shares 1,627,053
Cost $2,292,796
................................
Market Value 3,052,245
---------------------------------------------------------------------------------------------------------------------------
Due from Hartford Life and
Annuity Insurance Company --
................................
Receivable from fund shares sold --
................................
Total Assets 3,052,245
................................
LIABILITIES:
Due to Hartford Life and Annuity
Insurance Company 114
................................
Payable for fund shares purchased --
................................
Total Liabilities 114
---------------------------------------------------------------------------------------------------------------------------
NET ASSETS (VARIABLE LIFE
CONTRACT LIABILITIES) $3,052,131
---------------------------------------------------------------------------------------------------------------------------
Units Owned by Participants 1,284,374
Unit Values $ 2.376357
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-2
<PAGE>
SEPARATE ACCOUNT VL II -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF ASSETS & LIABILITIES (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
December 31, 1999 Dividend Growth and International Small MidCap Fund Fidelity Fidelity
and Growth Income Fund Advisers Company Sub-Account VIP VIP
Fund Sub-Account Fund Fund Equity- Overseas
Sub-Account Sub-Account Sub-Account Income Portfolio
Portfolio Sub-Account
Sub-Account
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments:
-------------------------------------------------------------------------------------------------------------------------
HARTFORD DIVIDEND AND GROWTH HLS
FUND, INC. - CLASS IA
Shares 3,004,060
Cost $6,359,805
........................................................................................................................
Market Value $6,455,208 $ -- $ -- $ -- $ -- $ -- $ --
-------------------------------------------------------------------------------------------------------------------------
HARTFORD GROWTH AND INCOME HLS
FUND, INC. - CLASS IA
Shares 1,498,531
Cost $1,943,326
........................................................................................................................
Market Value -- 2,145,358 -- -- -- -- --
-------------------------------------------------------------------------------------------------------------------------
HARTFORD INTERNATIONAL ADVISERS
HLS FUND, INC. - CLASS IA
Shares 187,834
Cost $226,878
........................................................................................................................
Market Value -- -- 262,345 -- -- -- --
-------------------------------------------------------------------------------------------------------------------------
HARTFORD SMALL COMPANY HLS
FUND, INC. - CLASS IA
Shares 591,371
Cost $956,662
........................................................................................................................
Market Value -- -- -- 1,293,787 -- -- --
-------------------------------------------------------------------------------------------------------------------------
HARTFORD MIDCAP HLS FUND, INC. -
CLASS IA
Shares 1,055,994
Cost $1,787,486
........................................................................................................................
Market Value -- -- -- -- 2,168,483 -- --
-------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP EQUITY-INCOME
PORTFOLIO
Shares 137,789
Cost $3,436,883
........................................................................................................................
Market Value -- -- -- -- -- 3,542,551 --
-------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP OVERSEAS PORTFOLIO
Shares 72,487
Cost $1,506,287
........................................................................................................................
Market Value -- -- -- -- -- -- 1,989,051
-------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP II ASSET MANAGER
PORTFOLIO
Shares 97,000
Cost $1,710,904
........................................................................................................................
Market Value -- -- -- -- -- -- --
-------------------------------------------------------------------------------------------------------------------------
Due from Hartford Life and
Annuity Insurance Company 577 2,326 -- 6,539 7,866 5,465 8,224
........................................................................................................................
Receivable from fund shares sold -- -- -- -- -- -- --
........................................................................................................................
Total Assets 6,455,785 2,147,684 262,345 1,300,326 2,176,349 3,548,016 1,997,275
........................................................................................................................
LIABILITIES:
Due to Hartford Life and Annuity
Insurance Company -- -- -- -- -- -- --
........................................................................................................................
Payable for fund shares purchased 588 2,359 -- 6,540 7,873 5,510 8,257
........................................................................................................................
TOTAL LIABILITIES 588 2,359 -- 6,540 7,873 5,510 8,257
........................................................................................................................
NET ASSETS (VARIABLE LIFE
CONTRACT LIABILITIES) $6,455,197 $2,145,325 $ 262,345 $1,293,786 $2,168,476 $3,542,506 $1,989,018
-------------------------------------------------------------------------------------------------------------------------
Units Owned by Participants 2,634,320 1,529,997 211,426 724,835 1,294,214 1,700,502 911,992
Unit Values $ 2.450422 $ 1.402176 $1.240838 $1.784939 $ 1.675516 $ 2.083213 $ 2.180961
-------------------------------------------------------------------------------------------------------------------------
<S> <C>
December 31, 1999 Fidelity
VIP II
Asset
Manager
Portfolio
Sub-Account
----------------------------------------------------------
ASSETS:
Investments:
----------------------------------------------------------------------
HARTFORD DIVIDEND AND GROWTH HLS
FUND, INC. - CLASS IA
Shares 3,004,060
Cost $6,359,805
................................
Market Value $ --
----------------------------------------------------------------------------------
HARTFORD GROWTH AND INCOME HLS
FUND, INC. - CLASS IA
Shares 1,498,531
Cost $1,943,326
................................
Market Value --
----------------------------------------------------------------------------------------------
HARTFORD INTERNATIONAL ADVISERS
HLS FUND, INC. - CLASS IA
Shares 187,834
Cost $226,878
................................
Market Value --
----------------------------------------------------------------------------------------------------------
HARTFORD SMALL COMPANY HLS
FUND, INC. - CLASS IA
Shares 591,371
Cost $956,662
................................
Market Value --
----------------------------------------------------------------------------------------------------------------------
HARTFORD MIDCAP HLS FUND, INC. -
CLASS IA
Shares 1,055,994
Cost $1,787,486
................................
Market Value --
-------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP EQUITY-INCOME
PORTFOLIO
Shares 137,789
Cost $3,436,883
................................
Market Value --
-------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP OVERSEAS PORTFOLIO
Shares 72,487
Cost $1,506,287
................................
Market Value --
-------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP II ASSET MANAGER
PORTFOLIO
Shares 97,000
Cost $1,710,904
................................
Market Value 1,810,995
-------------------------------------------------------------------------------------------------------------------------
Due from Hartford Life and
Annuity Insurance Company 303
................................
Receivable from fund shares sold --
................................
Total Assets 1,811,298
................................
LIABILITIES:
Due to Hartford Life and Annuity
Insurance Company --
................................
Payable for fund shares purchased 295
................................
TOTAL LIABILITIES 295
................................
NET ASSETS (VARIABLE LIFE
CONTRACT LIABILITIES) $1,811,003
-------------------------------------------------------------------------------------------------------------------------
Units Owned by Participants 930,804
Unit Values $ 1.945633
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-3
<PAGE>
SEPARATE ACCOUNT VL II -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
For the Year Ended Bond Fund Stock Fund Money Advisers Capital Mortgage Index Fund
December 31, 1999 Sub-Account Sub-Account Market Fund Appreciation Securities Sub-Account
Fund Sub-Account Fund Fund
Sub-Account Sub-Account Sub-Account
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 333,423 $ 131,640 $800,903 $ 289,143 $ 32,940 $ 34,905 $ 240,349
........................................................................................................................
Capital gains income 13,422 523,019 257 362,974 255,982 -- 235,278
........................................................................................................................
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
........................................................................................................................
Net realized (loss) gain on
security transactions (10,936) (1,322) -- 201 (11,561) (16) (2,132)
........................................................................................................................
Net unrealized (depreciation)
appreciation of investments
during the period (395,236) 1,470,668 -- 228,460 1,988,151 (31,744) 3,270,915
........................................................................................................................
Net (loss) gain on investments (406,172) 1,469,346 -- 228,661 1,976,590 (31,760) 3,268,783
-------------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS $ (59,327) $2,124,005 $801,160 $ 880,778 $2,265,512 $ 3,145 $3,744,410
-------------------------------------------------------------------------------------------------------------------------
<S> <C>
For the Year Ended International
December 31, 1999 Opportunities
Fund
Sub-Account
------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 33,938
................................
Capital gains income --
................................
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
................................
Net realized (loss) gain on
security transactions 110,868
................................
Net unrealized (depreciation)
appreciation of investments
during the period 695,310
................................
Net (loss) gain on investments 806,178
------------------------------------------------------------------------
NET (DECREASE) INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS $ 840,116
------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-4
<PAGE>
SEPARATE ACCOUNT VL II -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
For the Year Ended Dividend Growth and International Small MidCap Fund Fidelity Fidelity
December 31, 1999 and Growth Income Fund Advisers Company Sub-Account VIP VIP
Fund Sub-Account Fund Fund Equity- Overseas
Sub-Account Sub-Account Sub-Account Income Portfolio
Portfolio Sub-Account
Sub-Account
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $100,615 $ 5,788 $ 4,605 $ -- $ -- $ 23,696 $ 16,232
........................................................................................................................
Capital gains income 118,987 13,333 -- 1,692 82,187 52,380 26,180
........................................................................................................................
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
........................................................................................................................
Net realized (loss) gain on
security transactions (461) (274) 1 2,003 (2,189) (4,629) 112,350
........................................................................................................................
Net unrealized (depreciation)
appreciation of investments
during the period (25,993) 197,340 31,108 324,664 372,819 31,327 438,753
........................................................................................................................
Net (loss) gain on investments (26,454) 197,066 31,109 326,667 370,630 26,698 551,103
-------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $193,148 $216,187 $ 35,714 $328,359 $ 452,817 $ 102,774 $ 593,515
-------------------------------------------------------------------------------------------------------------------------
<S> <C>
For the Year Ended Fidelity
December 31, 1999 VIP II
Asset
Manager
Portfolio
Sub-Account
------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 13,958
................................
Capital gains income 17,680
................................
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
................................
Net realized (loss) gain on
security transactions 548
................................
Net unrealized (depreciation)
appreciation of investments
during the period 82,405
................................
Net (loss) gain on investments 82,953
------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $114,591
------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-5
<PAGE>
SEPARATE ACCOUNT VL II -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
For the Year Ended Bond Fund Stock Fund Money Market Advisers Capital Mortgage Index Fund
December 31, 1999 Sub-Account Sub-Account Fund Fund Appreciation Securities Sub-Account
Sub-Account Sub-Account Fund Fund
Sub-Account Sub-Account
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 333,423 $ 131,640 $ 800,903 $ 289,143 $ 32,940 $ 34,905 $ 240,349
.............................................................................................................................
Capital gains income 13,422 523,019 257 362,974 255,982 -- 235,278
.............................................................................................................................
Net realized (loss) gain on
security transactions (10,936) (1,322) -- 201 (11,561) (16) (2,132)
.............................................................................................................................
Net unrealized (depreciation)
appreciation of investments
during the period (395,236) 1,470,668 -- 228,460 1,988,151 (31,744) 3,270,915
.............................................................................................................................
Net (decrease) increase in net
assets resulting from
operations (59,327) 2,124,005 801,160 880,778 2,265,512 3,145 3,744,410
.............................................................................................................................
UNIT TRANSACTIONS:
Purchases 1,116,710 3,539,905 97,498,245 2,459,695 2,036,106 39,491 3,166,528
.............................................................................................................................
Net transfers 2,969,489 9,958,243 (72,516,882) 8,314,204 3,727,669 557,329 11,023,584
.............................................................................................................................
Surrenders for benefit payments
and fees (65,653) (426,813) (587,181) (205,445) (262,338) (9,550) (339,245)
.............................................................................................................................
Net loan activity 14,226 (14,597) (595,739) (32,863) (3) -- (48,709)
.............................................................................................................................
Cost of insurance (171,351) (629,327) (2,417,385) (483,197) (313,821) (10,668) (624,639)
.............................................................................................................................
Net increase in net assets
resulting from unit
transactions 3,863,421 12,427,411 21,381,058 10,052,394 5,187,613 576,602 13,177,519
.............................................................................................................................
Net increase in net assets 3,804,094 14,551,416 22,182,218 10,933,172 7,453,125 579,747 16,921,929
.............................................................................................................................
NET ASSETS:
Beginning of period 2,304,192 5,192,571 12,981,750 3,257,408 3,472,086 43,487 10,427,874
------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD $6,108,286 $19,743,987 $ 35,163,968 $14,190,580 $10,925,211 $ 623,234 $27,349,803
------------------------------------------------------------------------------------------------------------------------------
<S> <C>
For the Year Ended International
December 31, 1999 Opportunities
Fund
Sub-Account
------------------------------------------------------------
OPERATIONS:
Net investment income $ 33,938
................................
Capital gains income --
................................
Net realized (loss) gain on
security transactions 110,868
................................
Net unrealized (depreciation)
appreciation of investments
during the period 695,310
................................
Net (decrease) increase in net
assets resulting from
operations 840,116
................................
UNIT TRANSACTIONS:
Purchases 585,350
................................
Net transfers 324,908
................................
Surrenders for benefit payments
and fees (65,954)
................................
Net loan activity 5,695
................................
Cost of insurance (108,222)
................................
Net increase in net assets
resulting from unit
transactions 741,777
................................
Net increase in net assets 1,581,893
................................
NET ASSETS:
Beginning of period 1,470,238
------------------------------------------------------------------------
END OF PERIOD $3,052,131
------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-6
<PAGE>
SEPARATE ACCOUNT VL II -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
For the Year Ended Dividend Growth and International Small MidCap Fidelity Fidelity
December 31, 1999 and Growth Income Fund Advisers Company Fund Fund VIP Equity- VIP
Fund Sub-Account Fund Sub-Account Sub-Account Income Overseas
Sub-Account Sub-Account Portfolio Portfolio
Sub-Account Sub-Account
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 100,615 $ 5,788 $ 4,605 $ -- $ -- $ 23,696 $ 16,232
...........................................................................................................................
Capital gains income 118,987 13,333 -- 1,692 82,187 52,380 26,180
...........................................................................................................................
Net realized (loss) gain on
security transactions (461) (274) 1 2,003 (2,189) (4,629) 112,350
...........................................................................................................................
Net unrealized (depreciation)
appreciation of investments
during the period (25,993) 197,340 31,108 324,664 372,819 31,327 438,753
...........................................................................................................................
Net increase in net assets
resulting from operations 193,148 216,187 35,714 328,359 452,817 102,774 593,515
...........................................................................................................................
UNIT TRANSACTIONS:
Purchases 1,379,402 378,405 10,899 67,151 231,734 626,931 332,337
...........................................................................................................................
Net transfers 2,970,543 1,558,447 144,272 848,771 1,448,161 1,672,590 248,522
...........................................................................................................................
Surrenders for benefit payments
and fees (155,404) (16,145) (4,694) (13,485) (16,009) (105,540) (67,389)
...........................................................................................................................
Net loan activity (5,150) -- -- (4) (4) -- --
...........................................................................................................................
Cost of insurance (207,847) (34,387) (4,204) (21,813) (37,372) (126,745) (73,427)
...........................................................................................................................
Net increase in net assets
resulting from unit
transactions 3,981,544 1,886,320 146,273 880,620 1,626,510 2,067,236 440,043
...........................................................................................................................
Net increase in net assets 4,174,692 2,102,507 181,987 1,208,979 2,079,327 2,170,010 1,033,558
...........................................................................................................................
NET ASSETS:
Beginning of period 2,280,505 42,818 80,358 84,807 89,149 1,372,496 955,460
----------------------------------------------------------------------------------------------------------------------------
END OF PERIOD $6,455,197 $2,145,325 $262,345 $1,293,786 $2,168,476 $3,542,506 $1,989,018
----------------------------------------------------------------------------------------------------------------------------
<S> <C>
For the Year Ended Fidelity
December 31, 1999 VIP II
Asset
Manager
Portfolio
Sub-Account
------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 13,958
................................
Capital gains income 17,680
................................
Net realized (loss) gain on
security transactions 548
................................
Net unrealized (depreciation)
appreciation of investments
during the period 82,405
................................
Net increase in net assets
resulting from operations 114,591
................................
UNIT TRANSACTIONS:
Purchases 305,467
................................
Net transfers 1,086,533
................................
Surrenders for benefit payments
and fees (46,507)
................................
Net loan activity --
................................
Cost of insurance (37,787)
................................
Net increase in net assets
resulting from unit
transactions 1,307,706
................................
Net increase in net assets 1,422,297
................................
NET ASSETS:
Beginning of period 388,706
------------------------------------------------------------------------------------------------------------
END OF PERIOD $1,811,003
------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-7
<PAGE>
SEPARATE ACCOUNT VL II -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
For the Year Ended Bond Fund Stock Fund Money Market Advisers Capital Mortgage Index Fund
December 31, 1998 Sub-Account Sub-Account Fund Fund Appreciation Securities Sub-Account
Sub-Account Sub-Account Fund Fund
Sub-Account Sub-Account
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 106,052 $ 38,074 $ 178,529 $ 63,199 $ 17,887 $ 2,575 $ 79,420
............................................................................................................................
Capital gains income -- 18,418 -- 11,531 30,576 -- 12,992
............................................................................................................................
Net realized gain (loss) on
security transactions 746 (2,645) -- 1,768 (3,241) (114) 14,698
............................................................................................................................
Net unrealized (depreciation)
appreciation of investments
during the period (16,930) 557,352 -- 224,740 308,545 147 1,617,496
............................................................................................................................
Net increase in net assets
resulting from operations 89,868 611,199 178,529 301,238 353,767 2,608 1,724,606
............................................................................................................................
UNIT TRANSACTIONS:
Purchases 219,212 486,207 44,552,053 332,157 483,397 7,687 443,474
............................................................................................................................
Net transfers 1,873,633 4,031,316 (32,394,672) 2,418,661 2,506,371 (37,994) 8,055,206
............................................................................................................................
Surrenders for benefit payments
and fees (22,489) (93,425) (423,409) (40,763) (79,406) (1,565) (110,057)
............................................................................................................................
Net loan activity (63,707) (57) (6,910) (23,103) -- -- --
............................................................................................................................
Cost of insurance (39,274) (74,817) (362,173) (28,973) (51,821) (4,367) (60,585)
............................................................................................................................
Net increase (decrease) in net
assets resulting from unit
transactions 1,967,375 4,349,224 11,364,889 2,657,979 2,858,541 (36,239) 8,328,038
............................................................................................................................
Net increase (decrease) in net
assets 2,057,243 4,960,423 11,543,418 2,959,217 3,212,308 (33,631) 10,052,644
............................................................................................................................
NET ASSETS:
Beginning of period 246,949 232,148 1,438,332 298,191 259,778 77,118 375,230
-----------------------------------------------------------------------------------------------------------------------------
END OF PERIOD $2,304,192 $5,192,571 $ 12,981,750 $3,257,408 $3,472,086 $ 43,487 $10,427,874
-----------------------------------------------------------------------------------------------------------------------------
<S> <C>
For the Year Ended International
December 31, 1998 Opportunities
Fund
Sub-Account
------------------------------------------------------------
OPERATIONS:
Net investment income $ 18,410
................................
Capital gains income 17,744
................................
Net realized gain (loss) on
security transactions 77
................................
Net unrealized (depreciation)
appreciation of investments
during the period 73,152
................................
Net increase in net assets
resulting from operations 109,383
................................
UNIT TRANSACTIONS:
Purchases 286,640
................................
Net transfers 1,011,184
................................
Surrenders for benefit payments
and fees (27,008)
................................
Net loan activity (17,916)
................................
Cost of insurance (39,292)
................................
Net increase (decrease) in net
assets resulting from unit
transactions 1,213,608
................................
Net increase (decrease) in net
assets 1,322,991
................................
NET ASSETS:
Beginning of period 147,247
------------------------------------------------------------------------
END OF PERIOD $1,470,238
------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-8
<PAGE>
SEPARATE ACCOUNT VL II -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
For the Year Ended Dividend Growth and International Small MidCap Fidelity Fidelity
December 31, 1998 and Growth Income Fund Advisers Company Fund Fund VIP Equity- VIP
Fund Sub-Account* Fund Sub-Account* Sub-Account* Income Overseas
Sub-Account Sub-Account* Portfolio Portfolio
Sub-Account Sub-Account
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 33,160 $ 138 $ -- $ -- $ -- $ 1,864 $ 540
...........................................................................................................................
Capital gains income 8,141 -- -- -- -- 6,635 1,592
...........................................................................................................................
Net realized gain (loss) on
security transactions 63 21 308 (148) 19 (1,856) 89
...........................................................................................................................
Net unrealized appreciation of
investments during the period 117,405 4,692 4,361 12,462 8,178 70,207 44,647
...........................................................................................................................
Net increase in net assets
resulting from operations. 158,769 4,851 4,669 12,314 8,197 76,850 46,868
...........................................................................................................................
UNIT TRANSACTIONS:
Purchases 250,584 1,000 1,000 10,618 1,000 213,483 152,670
...........................................................................................................................
Net transfers 1,838,934 37,221 75,134 62,509 80,559 1,066,683 770,437
...........................................................................................................................
Surrenders for benefit payments
and fees (49,049) (181) (356) (439) (361) (28,144) (16,660)
...........................................................................................................................
Net loan activity -- -- -- -- -- -- --
...........................................................................................................................
Cost of insurance (41,259) (73) (89) (195) (246) (15,372) (19,327)
...........................................................................................................................
Net increase in net assets
resulting from unit
transactions 1,999,210 37,967 75,689 72,493 80,952 1,236,650 887,120
...........................................................................................................................
Net increase in net assets 2,157,979 42,818 80,358 84,807 89,149 1,313,500 933,988
...........................................................................................................................
NET ASSETS:
Beginning of period 122,526 -- -- -- -- 58,996 21,472
----------------------------------------------------------------------------------------------------------------------------
END OF PERIOD $2,280,505 $ 42,818 $80,358 $ 84,807 $ 89,149 $1,372,496 $955,460
----------------------------------------------------------------------------------------------------------------------------
<S> <C>
For the Year Ended Fidelity
December 31, 1998 VIP II
Asset
Manager
Portfolio
Sub-Account
------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 5,839
................................
Capital gains income 17,517
................................
Net realized gain (loss) on
security transactions (16)
................................
Net unrealized appreciation of
investments during the period 15,814
................................
Net increase in net assets
resulting from operations. 39,154
................................
UNIT TRANSACTIONS:
Purchases 54,314
................................
Net transfers 134,602
................................
Surrenders for benefit payments
and fees (10,808)
................................
Net loan activity --
................................
Cost of insurance (5,833)
................................
Net increase in net assets
resulting from unit
transactions 172,275
................................
Net increase in net assets 211,429
................................
NET ASSETS:
Beginning of period 177,277
------------------------------------------------------------------------------------------------------------
END OF PERIOD $388,706
------------------------------------------------------------------------------------------------------------------------
</TABLE>
* From inception, August 3, 1998, to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-9
<PAGE>
SEPARATE ACCOUNT VL II -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
Notes to Financial Statements
December 31, 1999
1. ORGANIZATION:
Separate Account VL II (the Account) is a separate investment account within
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. 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 various mutual funds (the Funds) as directed
by the contractholders.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies of the Account,
which are in accordance with generally accepted accounting principles in the
investment company industry:
A) SECURITY TRANSACTIONS -- Security transactions are recorded on the trade
date (date the order to buy or sell is executed). Realized gains and losses on
the sales of securities are computed on the basis of identified cost of the fund
shares sold. Dividend and capital gains income is accrued as of the ex-dividend
date. Capital gains income represents those dividends from the Funds which are
characterized as capital gains under tax regulations.
B) SECURITY VALUATION -- The investments in shares of the Funds are valued at
the closing net asset value per share as determined by the appropriate Fund as
of December 31, 1999.
C) UNIT TRANSACTIONS -- Unit transactions are executed based on the unit values
calculated at the close of the business day.
D) 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.
E) USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported amounts
of income and expenses during the period. Operating results in the future could
vary from the amounts derived from management's estimates.
3. ADMINISTRATION OF THE ACCOUNT AND RELATED CHARGES:
A) DEDUCTIONS AND CHARGES FROM THE ACCOUNT VALUE -- On the policy date and on
each subsequent monthly activity date, the Company will deduct from the Account
an amount to cover mortality and expense risk charges, cost of insurance,
administrative charges and any other benefits provided by the rider. These
charges, which may vary from month to month in accordance which the terms of the
contracts, are deducted through termination of units of interest from the
applicable contractholders' accounts.
SA-10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hartford Life and Annuity Insurance Company Separate Account VL II and to the
Owners of Units of Interest therein:
We have audited the accompanying statements of assets and liabilities of
Hartford Life and Annuity Insurance Company Separate Account VL II (Asia Pacific
Growth, Diversified Income, The George Putnam Fund of Boston, Global Asset
Allocation, Global Growth, Growth and Income, Health Sciences, High Yield,
Income, International Growth, International Growth and Income, International New
Opportunities, Investors, Money Market, New Opportunities, New Value, OTC &
Emerging Growth, Utilities Growth and Income, Vista, and Voyager sub-accounts),
(collectively, the Account) as of December 31, 1999, and the related statements
of operations and the statements of changes in net assets for the periods
presented. These financial statements are the responsibility of the Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Account as of December 31,
1999, and the results of its operations and the changes in its net assets for
the periods presented in conformity with generally accepted accounting
principles.
Hartford, Connecticut
February 11, 2000 ARTHUR ANDERSEN LLP
SA-11
<PAGE>
SEPARATE ACCOUNT VL II -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1999 Asia Pacific Diversified The George Global Asset Global Growth Health
Growth Income Putnam Fund Allocation Growth and Income Sciences
Sub-Account Sub-Account of Boston Sub-Account Sub-Account Sub-Account Sub-Account
Sub-Account
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments:
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT ASIA PACIFIC GROWTH
FUND
Shares 44,412
Cost $541,366
................................................................................................................................
Market Value: $767,881 $ -- $ -- $ -- $ -- $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT DIVERSIFIED INCOME
FUND
Shares 58,275
Cost $596,967
................................................................................................................................
Market Value: -- 578,674 -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT THE GEORGE PUTNAM
FUND OF BOSTON
Shares 25,881
Cost $265,835
................................................................................................................................
Market Value: -- -- 258,291 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT GLOBAL ASSET
ALLOCATION FUND
Shares 31,976
Cost $581,099
................................................................................................................................
Market Value: -- -- -- 627,040 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT GLOBAL GROWTH FUND
Shares 257,107
Cost $5,139,043
................................................................................................................................
Market Value: -- -- -- -- 7,839,192 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT GROWTH AND INCOME
FUND
Shares 360,961
Cost $10,069,295
................................................................................................................................
Market Value: -- -- -- -- -- 9,673,749 --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT HEALTH SCIENCES FUND
Shares 57,991
Cost $580,209
................................................................................................................................
Market Value: -- -- -- -- -- -- 608,902
- ---------------------------------------------------------------------------------------------------------------------------------
Due from Hartford Life
Insurance Company 30,001 -- 1 20 9,719 18,900 --
................................................................................................................................
Receivable from fund shares
sold -- -- -- -- -- -- --
................................................................................................................................
TOTAL ASSETS 797,882 578,674 258,292 627,060 7,848,911 9,692,649 608,902
................................................................................................................................
LIABILITIES
Due to Hartford Life Insurance
Company -- -- -- -- -- -- 9
................................................................................................................................
Payable for fund shares
purchased 30,000 -- -- -- 10,026 18,750 --
................................................................................................................................
TOTAL LIABILITIES 30,000 -- -- -- 10,026 18,750 9
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (VARIABLE LIFE
CONTRACT LIABILITIES) $767,882 $578,674 $258,292 $627,060 $7,838,885 $9,673,899 $608,893
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-12
<PAGE>
SEPARATE ACCOUNT VL II -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF ASSETS & LIABILITIES (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1999 High Yield Income International International International Investors Money
Sub-Account Sub-Account Growth Growth and New Sub-Account Market
Sub- Income Opportunities Sub-Account
Account Sub-Account Sub-Account
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments:
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT HIGH YIELD FUND
Shares 336,333
Cost $3,838,275
................................................................................................................................
Market Value: $3,729,931 $ -- $ -- $ -- $ -- $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT INCOME FUND
Shares 189,663
Cost $2,462,713
................................................................................................................................
Market Value: -- 2,374,582 -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT INTERNATIONAL
GROWTH FUND
Shares 45,031
Cost $704,229
................................................................................................................................
Market Value: -- -- 974,929 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT INTERNATIONAL
GROWTH AND INCOME FUND
Shares 29,898
Cost $416,492
................................................................................................................................
Market Value: -- -- -- 455,947 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT INTERNATIONAL
NEW OPPORTUNITIES FUND
Shares 24,288
Cost $374,709
................................................................................................................................
Market Value: -- -- -- -- 566,149 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT INVESTORS FUND
Shares 127,372
Cost $1,615,839
................................................................................................................................
Market Value: -- -- -- -- -- 1,930,961 --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT MONEY MARKET
FUND
Shares 1,378,310
Cost $1,378,310
................................................................................................................................
Market Value: -- -- -- -- -- -- 1,378,310
- ---------------------------------------------------------------------------------------------------------------------------------
Due from Hartford Life
Insurance Company -- 4 5,393 -- 1 3,638 --
................................................................................................................................
Receivable from fund
shares sold 20 -- -- -- -- -- 280
................................................................................................................................
TOTAL ASSETS 3,729,951 2,374,586 980,322 455,947 566,150 1,934,599 1,378,590
................................................................................................................................
LIABILITIES
Due to Hartford Life
Insurance Company 10 -- -- 11 -- -- 221
................................................................................................................................
Payable for fund shares
purchased -- -- 5,398 -- -- 3,608 --
................................................................................................................................
TOTAL LIABILITIES 10 -- 5,398 11 -- 3,608 221
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (VARIABLE LIFE
CONTRACT LIABILITIES) $3,729,941 $2,374,586 $974,924 $455,936 $566,150 $1,930,991 $1,378,369
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-13
<PAGE>
SEPARATE ACCOUNT VL II -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF ASSETS & LIABILITIES (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1999 New New OTC & Utilities Vista Voyager
Opportunities Value Emerging Growth Sub-Account Sub-Account
Sub-Account Sub-Account Growth and Income
Sub-Account Sub-Account
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments:
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT NEW OPPORTUNITIES FUND
Shares 132,675
Cost $3,677,974
................................................................................................................................
Market Value: $5,776,681 $ -- $ -- $ -- $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT NEW VALUE FUND
Shares 61,174
Cost $741,893
................................................................................................................................
Market Value: -- 725,528 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT OTC & EMERGING GROWTH FUND
Shares 24,505
Cost $349,307
................................................................................................................................
Market Value: -- -- 558,460 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT UTILITIES GROWTH & INCOME FUND
Shares 72,857
Cost $1,229,280
................................................................................................................................
Market Value: -- -- -- 1,236,384 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT VISTA FUND
Shares 36,807
Cost $618,966
................................................................................................................................
Market Value: -- -- -- -- 761,162 --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT VOYAGER FUND
Shares 180,504
Cost $8,200,788
................................................................................................................................
Market Value: -- -- -- -- -- 11,958,371
- ---------------------------------------------------------------------------------------------------------------------------------
Due from Hartford Life Insurance Company 8,780 1 9,793 -- 2,686 17,930
................................................................................................................................
Receivable from fund shares sold -- -- -- 1,253 -- --
................................................................................................................................
TOTAL ASSETS 5,785,461 725,529 568,253 1,237,637 763,848 11,976,301
................................................................................................................................
LIABILITIES
Due to Hartford Life Insurance Company -- -- -- 1,255 -- --
................................................................................................................................
Payable for fund shares purchased 8,773 -- 9,810 -- 2,685 17,675
................................................................................................................................
TOTAL LIABILITIES 8,773 -- 9,810 1,255 2,685 17,675
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (VARIABLE LIFE CONTRACT
LIABILITIES) $5,776,688 $725,529 $558,443 $1,236,382 $761,163 $11,958,626
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-14
<PAGE>
SEPARATE ACCOUNT VL II -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1999 Units Unit Contract
Owned by Price Liability
Participants
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Variable life contracts:
Asia Pacific Growth Fund 34,596 $22.195777 $ 767,882
....................................................................................................
Diversified Income Fund 44,505 13.002362 578,674
....................................................................................................
George Putnam Fund of Boston 24,450 10.564227 258,292
....................................................................................................
Global Asset Allocation Fund 26,963 23.255993 627,060
....................................................................................................
Global Growth Fund 201,512 38.900326 7,838,885
....................................................................................................
Growth and Income Fund 373,182 25.922728 9,673,899
....................................................................................................
Health Sciences Fund 56,377 10.800460 608,893
....................................................................................................
High Yield Fund 226,074 16.498765 3,729,941
....................................................................................................
Income Fund 164,884 14.401541 2,374,586
....................................................................................................
International Growth Fund 62,217 15.669625 974,924
....................................................................................................
International Growth and Income Fund 37,465 12.169641 455,936
....................................................................................................
International New Opportunities Fund 28,600 19.795791 566,150
....................................................................................................
Investors Fund 132,670 14.554810 1,930,991
....................................................................................................
Money Market Fund 1,014,621 1.358506 1,378,369
....................................................................................................
New Opportunities Fund 149,987 38.514515 5,776,688
....................................................................................................
New Value Fund 68,192 10.639520 725,529
....................................................................................................
OTC & Emerging Growth Fund 22,885 24.402281 558,443
....................................................................................................
Utilities Growth and Income Fund 57,523 21.493623 1,236,382
....................................................................................................
Vista Fund 46,906 16.227448 761,163
....................................................................................................
Voyager Fund 262,107 45.624980 11,958,626
....................................................................................................
GRAND TOTAL: $52,781,313
- -----------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-15
<PAGE>
SEPARATE ACCOUNT VL II -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended Asia Pacific Diversified The George Global Asset Global Growth Health
December 31, 1999 Growth Income Putnam Allocation Growth and Income Sciences
Sub-Account Sub-Account Fund Sub-Account Sub-Account Sub-Account Sub-Account
of Boston
Sub-Account
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ -- $ 23,061 $ 5,950 $ 6,496 $ 10,324 $ 82,679 $ 519
................................................................................................................................
Capital gains income -- -- 319 18,235 214,984 412,587
................................................................................................................................
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
................................................................................................................................
Net realized gain (loss) on
security transactions 677 (296) 27 273 (8,555) (19,393) 849
................................................................................................................................
Net unrealized appreciation
(depreciation) of
investments during the
period 226,183 (11,756) (9,563) 29,249 2,479,211 (561,127) 23,736
................................................................................................................................
Net gain (loss) on
investments 226,860 (12,052) (9,536) 29,522 2,470,656 (580,520) 24,585
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $226,860 $ 11,009 $(3,267) $54,253 $2,695,964 $ (85,254) $25,104
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-16
<PAGE>
SEPARATE ACCOUNT VL II -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended High Yield Income International International International Investors Money Market
December 31, 1999 Sub-Account Sub-Account* Growth Growth and New Sub-Account Sub-Account
Sub-Account Income Opportunities
Sub-Account Sub-Account
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 188,019 $ 57,563 $ -- $ -- $ 13 $ -- $ 36,485
................................................................................................................................
Capital gains income -- 17,173 -- -- -- -- --
................................................................................................................................
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
................................................................................................................................
Net realized (loss) gain on
security transactions (4,621) (1,612) 55,875 14,000 167,282 285 --
................................................................................................................................
Net unrealized
(depreciation)
appreciation of
investments during the
period (56,566) (103,792) 268,792 38,658 191,201 305,881 --
................................................................................................................................
Net (loss) gain on
investments (61,187) (105,404) 324,667 52,658 358,483 306,166 --
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS $ 126,832 $ (30,668) $ 324,667 $ 52,658 $ 358,496 $ 306,166 $ 36,485
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Formerly Putnam U.S. Government and High Quality Bond Sub-Account, change
effective on April 9, 1999.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-17
<PAGE>
SEPARATE ACCOUNT VL II -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended New New OTC & Utilities Growth Vista Voyager
December 31, 1999 Opportunities Value Emerging and Income Sub-Account Sub-Account
Sub-Account Sub-Account Growth Sub-Account
Sub-Account
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ -- $ 2 $ -- $ 17,021 $ -- $ 3,744
.............................................................................................................................
Capital gains income 21,300 410 1,285 17,875 53,041 300,222
.............................................................................................................................
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
.............................................................................................................................
Net realized (loss) gain on
security transactions (74,118) (42) 194 (5,144) 340 3,384
.............................................................................................................................
Net unrealized appreciation
(depreciation) of investments
during the period 1,903,919 (17,299) 201,676 (28,195) 141,175 3,398,379
.............................................................................................................................
Net gain (loss) on investments 1,829,801 (17,341) 201,870 (33,339) 141,515 3,401,763
------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $1,851,101 $(16,929) $203,155 $ 1,557 $194,556 $3,705,729
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-18
<PAGE>
SEPARATE ACCOUNT VL II -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended Asia Pacific Diversified The George Global Asset Global Growth and Health
December 31, 1999 Growth Income Putnam Fund Allocation Growth Income Sub- Sciences
Sub-Account Sub-Account of Boston Sub-Account Sub-Account Account Sub-Account
Sub-Account
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ -- $ 23,061 $ 5,950 $ 6,496 $ 10,324 $ 82,679 $ 519
...............................................................................................................................
Capital gains income -- -- 319 18,235 214,984 412,587 --
...............................................................................................................................
Net realized gain (loss)
on security
transactions 677 (296) 27 273 (8,555) (19,393) 849
...............................................................................................................................
Net unrealized
appreciation
(depreciation) of
investments during the
period 226,183 (11,756) (9,563) 29,249 2,479,211 (561,127) 23,736
...............................................................................................................................
Net increase (decrease)
in net assets resulting
from operations 226,860 11,009 (3,267) 54,253 2,695,964 (85,254) 25,104
...............................................................................................................................
UNIT TRANSACTIONS:
Purchases 11,544 51,671 61,898 127,321 927,414 1,931,571 45,376
...............................................................................................................................
Net transfers 534,285 325,503 121,681 154,876 2,582,332 5,598,828 530,101
...............................................................................................................................
Surrenders for benefit
payments and fees (8,845) (13,076) (7,613) (20,284) (113,107) (186,185) (16,861)
...............................................................................................................................
Net loan activity -- -- -- -- (42,601) 4,745 (3)
...............................................................................................................................
Cost of insurance (4,531) (20,872) (13,604) (21,379) (139,949) (391,660) (19,700)
...............................................................................................................................
Net increase (decrease)
in net assets resulting
from unit transactions 532,453 343,226 162,362 240,534 3,214,089 6,957,299 538,913
...............................................................................................................................
Total increase (decrease)
in net assets 759,313 354,235 159,095 294,787 5,910,053 6,872,045 564,017
...............................................................................................................................
NET ASSETS:
Beginning of period 8,569 224,439 99,197 332,273 1,928,832 2,801,854 44,876
--------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD $767,882 $578,674 $258,292 $627,060 $7,838,885 $9,673,899 $608,893
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-19
<PAGE>
SEPARATE ACCOUNT VL II -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended High Yield Income International International International Investors Money
December 31, 1999 Sub-Account Sub- Growth Growth and New Sub-Account Market
Account* Sub-Account Income Opportunities Sub-Account
Sub-Account Sub-Account
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 188,019 $ 57,563 $ -- $ -- $ 13 $ -- $ 36,485
..............................................................................................................................
Capital gains income -- 17,173 -- -- -- -- --
..............................................................................................................................
Net realized gain (loss) on
security transactions (4,621) (1,612) 55,875 14,000 167,282 285 --
..............................................................................................................................
Net unrealized (depreciation)
appreciation of investments
during the period (56,566) (103,792) 268,792 38,658 191,201 305,881 --
..............................................................................................................................
Net increase (decrease) in
net assets resulting from
operations 126,832 (30,668) 324,667 52,658 358,496 306,166 36,485
..............................................................................................................................
UNIT TRANSACTIONS:
Purchases 757,124 368,161 97,192 52,504 14,025 172,801 185,196
..............................................................................................................................
Net transfers 2,282,146 1,315,129 588,502 357,272 209,334 1,432,571 1,058,352
..............................................................................................................................
Surrenders for benefit
payments and fees (63,031) (40,709) (13,235) (12,129) (7,540) (30,687) (18,664)
..............................................................................................................................
Net loan activity (31,040) -- (4) -- -- --
..............................................................................................................................
Cost of insurance (93,855) (50,346) (42,836) (16,228) (11,827) (44,912) (24,680)
..............................................................................................................................
Net increase (decrease) in
net assets resulting from
unit transactions 2,851,344 1,592,235 629,619 381,419 203,992 1,529,773 1,200,204
..............................................................................................................................
Total increase (decrease) in
net assets 2,978,176 1,561,567 954,286 434,077 562,488 1,835,939 1,236,689
..............................................................................................................................
NET ASSETS:
Beginning of period 751,765 813,019 20,638 21,859 3,662 95,052 141,680
- -------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD $3,729,941 $2,374,586 $ 974,924 $ 455,936 $ 566,150 $1,930,991 $1,378,369
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Formerly Putnam U.S. Government and High Quality Bond Sub-Account, change
effective on April 9, 1999.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-20
<PAGE>
SEPARATE ACCOUNT VL II -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended New New OTC & Utilities Vista Voyager
December 31, 1999 Opportunities Value Emerging Growth Sub-Account Sub-Account
Sub-Account Sub-Account Growth and Income
Sub-Account Sub-Account
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ -- $ 2 $ -- $ 17,021 $ -- $ 3,744
......................................................................................................................
Capital gains income 21,300 410 1,285 17,875 53,041 300,222
......................................................................................................................
Net realized gain (loss) on
security transactions (74,118) (42) 194 (5,144) 340 3,384
......................................................................................................................
Net unrealized appreciation
(depreciation) of investments
during the period 1,903,919 (17,299) 201,676 (28,195) 141,175 3,398,379
......................................................................................................................
Net increase (decrease) in net
assets resulting from
operations 1,851,101 (16,929) 203,155 1,557 194,556 3,705,729
......................................................................................................................
UNIT TRANSACTIONS:
Purchases 1,084,027 55,882 35,239 211,762 45,420 1,775,053
......................................................................................................................
Net transfers 1,897,800 705,264 314,874 658,887 532,694 4,254,791
......................................................................................................................
Surrenders for benefit payments
and fees (129,321) (10,254) (8,673) (34,570) (11,139) (237,711)
......................................................................................................................
Net loan activity (5,580) (3) (9) -- (4) (8,610)
......................................................................................................................
Cost of insurance (145,610) (17,973) (13,596) (43,706) (7,815) (244,692)
......................................................................................................................
Net increase (decrease) in net
assets resulting from unit
transactions 2,701,316 732,916 327,835 792,373 559,156 5,538,831
......................................................................................................................
Total increase (decrease) in net
assets 4,552,417 715,987 530,990 793,930 753,712 9,244,560
......................................................................................................................
NET ASSETS
Beginning of period 1,224,271 9,542 27,453 442,452 7,451 2,714,066
-----------------------------------------------------------------------------------------------------------------------
END OF PERIOD $5,776,688 $725,529 $558,443 $1,236,382 $761,163 $11,958,626
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-21
<PAGE>
SEPARATE ACCOUNT VL II -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended Asia Pacific Diversified The George Global Asset Global Growth Health
December 31, 1998 Growth Income Putnam Fund Allocation Growth and Income Sciences
Sub-Account* Sub-Account of Boston Sub-Account Sub-Account Sub-Account Sub-Account*
Sub-Account*
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ -- $ 3,629 $ 778 $ 2,857 $ 10,284 $ 6,912 $ 38
...............................................................................................................................
Capital gains income -- 1,541 -- 12,271 51,418 45,119 --
...............................................................................................................................
Net realized gain (loss)
on security
transactions 1 21 2 16 2,284 (64) (1)
...............................................................................................................................
Net unrealized
appreciation
(depreciation) of
investments during the
period 331 (6,773) 2,018 15,297 222,508 157,616 4,957
...............................................................................................................................
Net increase (decrease)
in net assets resulting
from operations 332 (1,582) 2,798 30,441 286,494 209,583 4,994
...............................................................................................................................
UNIT TRANSACTIONS:
Purchases 1,000 18,359 1,018 15,068 322,831 341,341 1,000
...............................................................................................................................
Net transfers 7,366 130,020 95,712 264,595 1,095,109 2,215,815 39,704
...............................................................................................................................
Surrenders for benefit
payments and fees (106) (3,807) 42 (10,473) (47,555) (85,000) (308)
...............................................................................................................................
Cost of insurance (23) (3,546) (373) (6,166) (30,391) (35,272) (514)
...............................................................................................................................
Net increase (decrease)
in net assets resulting
from unit transactions 8,237 141,026 96,399 263,024 1,339,994 2,436,884 39,882
...............................................................................................................................
Total increase (decrease)
in net assets 8,569 139,444 99,197 293,465 1,626,488 2,646,467 44,876
...............................................................................................................................
NET ASSETS
Beginning of period -- 84,995 -- 38,808 302,344 155,387 --
--------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD $8,569 $224,439 $99,197 $332,273 $1,928,832 $2,801,854 $44,876
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*From inception, August 3, 1998, to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-22
<PAGE>
SEPARATE ACCOUNT VL II -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended High Yield Income International International International Investors Money
December 31, 1998 Sub-Account Sub-Account** Growth Growth and New Sub-Account* Market
Sub-Account* Income Opportunities Sub-Account
Sub-Account* Sub-Account*
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 10,447 $ 10,911 $ 66 $ 206 $ -- $ 112 $ 1,123
...............................................................................................................................
Capital gains income 1,639 284 -- 496 -- -- --
...............................................................................................................................
Net realized gain (loss)
on security
transactions 5,348 (1,150) 11 8 5 14 --
...............................................................................................................................
Net unrealized
appreciation
(depreciation) of
investments during the
period (52,560) 12,055 1,909 796 239 9,241 --
...............................................................................................................................
Net increase (decrease)
in net assets resulting
from operations (35,126) 22,100 1,986 1,506 244 9,367 1,123
...............................................................................................................................
UNIT TRANSACTIONS:
Purchases 295,001 11,794 1,018 5,809 1,000 7,115 49,306
...............................................................................................................................
Net transfers 484,563 574,461 18,763 14,788 2,548 79,363 88,070
...............................................................................................................................
Surrenders for benefit
payments and fees (33,428) (10,223) (618) (143) (104) (437) (3,369)
...............................................................................................................................
Cost of insurance (6,247) (8,204) (511) (101) (26) (356) (1,780)
...............................................................................................................................
Net increase (decrease)
in net assets resulting
from unit transactions 739,889 567,828 18,652 20,353 3,418 85,685 132,227
...............................................................................................................................
Total increase (decrease)
in net assets 704,763 589,928 20,638 21,859 3,662 95,052 133,350
...............................................................................................................................
NET ASSETS
Beginning of period 47,002 223,091 -- -- -- -- 8,330
--------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD $ 751,765 $ 813,019 $ 20,638 $ 21,859 $ 3,662 $ 95,052 $ 141,680
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*From inception, August 3, 1998, to December 31, 1998.
**Formerly Putnam U.S. Government and High Quality Bond Sub-Account, change
effective on April 9, 1999.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-23
<PAGE>
SEPARATE ACCOUNT VL II -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended New New OTC & Utilities Vista Voyager
December 31, 1998 Opportunities Value Emerging Growth Sub- Sub-Account
Sub-Account Sub-Account* Growth and Income Account*
Sub- Sub-Account
Account*
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ -- $ 98 $ 10 $ 1,849 $ -- $ 896
.......................................................................................................................
Capital gains income 4,296 19 -- 3,187 -- 21,866
.......................................................................................................................
Net realized gain (loss) on
security transactions (21,117) 15 21 58 11 (5,975)
.......................................................................................................................
Net unrealized appreciation
(depreciation) of investments
during the period 190,762 934 7,477 31,421 1,020 350,909
.......................................................................................................................
Net increase (decrease) in net
assets resulting from
operations 173,941 1,066 7,508 36,515 1,031 367,696
.......................................................................................................................
UNIT TRANSACTIONS:
Purchases 258,118 1,525 3,676 12,990 1,000 364,335
.......................................................................................................................
Net transfers 690,830 7,543 17,238 379,093 5,651 1,952,698
.......................................................................................................................
Surrenders for benefit payments
and fees (36,267) (191) (314) (5,423) (223) (51,533)
.......................................................................................................................
Cost of insurance (34,620) (401) (655) (6,554) (8) (28,004)
.......................................................................................................................
Net increase (decrease) in net
assets resulting from unit
transactions 878,061 8,476 19,945 380,106 6,420 2,237,496
.......................................................................................................................
Total increase (decrease) in net
assets 1,052,002 9,542 27,453 416,621 7,451 2,605,192
.......................................................................................................................
NET ASSETS:
Beginning of period 172,269 -- -- 25,831 -- 108,874
------------------------------------------------------------------------------------------------------------------------
END OF PERIOD $1,224,271 $9,542 $27,453 $442,452 $7,451 $2,714,066
------------------------------------------------------------------------------------------------------------------------
</TABLE>
*From inception, August 3, 1998, to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-24
<PAGE>
SEPARATE ACCOUNT VL II -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. ORGANIZATION:
Separate Account VL II (the Account) is a separate investment account within
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. 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
policyowners of the Company in the various mutual funds (the Funds) as directed
by the policyowners.
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). Realized gains and losses on the
sales of securities are computed on the basis of identified cost of the fund
shares sold. Dividend and capital gains income is 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, 1999.
C) UNIT TRANSACTIONS -- Unit transactions are executed based on the unit values
calculated at the close of the business day. All unit transactions are executed
at fair value.
D) 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.
E) USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported amounts
of income and expenses during the period. Operating results in the future could
vary from the amounts derived from management's estimates.
3. ADMINISTRATION OF THE ACCOUNT AND RELATED CHARGES:
A) COST OF INSURANCE -- In accordance with terms of the policies, the Company
assesses deductions for costs of insurance charges to cover the Company's
anticipated mortality costs. Because a policy's account value and death benefit
may vary from month to month, the cost of insurance charges may also vary.
B) MORTALITY AND EXPENSE RISK CHARGE -- The Company, as issuer of variable life
policies, provides the mortality and expense undertakings and, with respect to
the Account, receives a maximum annual fee of 0.80% of the Account's average
daily net assets. These charges are reflected in surrenders for benefit payments
and fees on the accompanying statements of changes in net assets.
C) ADMINISTRATIVE CHARGES -- The Company assesses a monthly administrative
charge to compensate the Company for administrative costs in connection with the
policies. This charge covers the average expected cost for these services and
varies based on the face amount of the underlying policy, among other factors.
These charges are reflected in surrenders for benefit payments and fees on the
accompanying statements of changes in net assets.
D) DEDUCTION OF ANNUAL MAINTENANCE FEE -- Annual maintenance fees are deducted
through termination of units of interest from applicable policyowners' accounts,
in accordance with the terms of the policies. These charges are reflected in
surrenders for benefit payments and fees on the accompanying statements of
changes in net assets.
SA-25
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------------------
To the Board of Directors of
Hartford Life and Annuity Insurance Company:
We have audited the accompanying statutory balance sheets of Hartford Life and
Annuity Insurance Company (a Connecticut Corporation and wholly owned subsidiary
of Hartford Life Insurance Company) (the Company) as of December 31, 1999 and
1998, and the related statutory statements of operations, changes in capital and
surplus, and cash flows for each of the three years in the period ended December
31, 1999. These statutory 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 auditing standards generally accepted
in the United States. 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 2 of notes to statutory financial
statements. When financial statements are presented for purposes other than for
filing with a regulatory agency, auditing standards generally accepted in the
United States require that an auditors' report on them state whether they are
presented in conformity with accounting principles generally accepted in the
United States. The accounting practices used by the Company vary from accounting
principles generally accepted in the United States as explained and quantified
in Note 2.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the statutory financial statements referred to above do not present
fairly, in conformity with accounting principles generally accepted in the
United States, the financial position of the Company as of December 31, 1999 and
1998, or the results of its operations or its cash flows for each of the three
years in the period ended December 31, 1999.
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, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999 in conformity
with statutory accounting practices as described in Note 2.
Hartford, Connecticut
January 31, 2000 ARTHUR ANDERSEN LLP
F-1
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
BALANCE SHEETS
(STATUTORY BASIS)
($000)
--------------------------------------------------------
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Bonds $ 1,465,815 $ 1,453,792
Common stocks 42,430 40,650
Mortgage loans 63,784 59,548
Policy loans 59,429 47,212
Cash and short-term investments 267,579 469,955
- ------------------------------------------------------------------------------------------------
Other invested assets 2,892 2,188
- ------------------------------------------------------------------------------------------------
Total cash and invested assets 1,901,929 2,073,345
Investment income due and accrued 21,069 20,126
Other assets 39,576 45,691
Separate account assets 44,865,042 32,876,278
- ------------------------------------------------------------------------------------------------
TOTAL ASSETS $46,827,616 $35,015,440
- ------------------------------------------------------------------------------------------------
LIABILITIES
Aggregate reserves for future benefits $ 591,621 $ 579,140
Policy and contract claim liabilities 7,677 5,667
Liability for premium and other deposit funds 1,969,262 2,011,672
Asset valuation reserve 4,935 21,782
Payable to affiliates 14,084 19,271
Accrued expense allowances and other amounts due from
separate accounts (1,377,927) (1,173,513)
Remittances and items not allocated 111,582 87,449
Other liabilities 118,464 111,182
Separate account liabilities 44,865,042 32,876,278
- ------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 46,304,740 34,538,928
- ------------------------------------------------------------------------------------------------
CAPITAL AND SURPLUS
Common stock 2,500 2,500
Gross paid-in and contributed surplus 226,043 226,043
Unassigned funds 294,333 247,969
- ------------------------------------------------------------------------------------------------
TOTAL CAPITAL AND SURPLUS 522,876 476,512
- ------------------------------------------------------------------------------------------------
TOTAL LIABILITIES, CAPITAL AND SURPLUS $46,827,616 $35,015,440
- ------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statutory basis financial
statements.
F-2
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(STATUTORY BASIS)
($000)
--------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums and annuity considerations $ 621,789 $ 469,343 $ 296,645
Annuity and other fund deposits 2,991,363 2,051,251 1,981,246
Net investment income 122,322 129,982 102,285
Commissions and expense allowances on reinsurance ceded 379,905 444,241 396,921
Reserve adjustment on reinsurance ceded 1,411,342 3,185,590 3,672,076
Fee income 647,565 448,260 290,675
Other revenues 842 9,930 (2,043)
- -------------------------------------------------------------------------------------------------------
TOTAL REVENUES 6,175,128 6,738,597 6,737,805
- -------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Death and annuity benefits 47,372 43,152 65,961
Disability and other benefits 6,270 6,352 7,532
Surrenders and other fund withdrawals 1,250,813 739,663 454,417
Commissions 467,338 435,994 470,334
Increase (Decrease) in aggregate reserves for future
benefits 12,481 (10,711) 33,213
(Decrease) Increase in liability for premium and other
deposit funds (47,852) 218,642 640,840
General insurance expenses 192,196 190,979 77,237
Net transfers to separate accounts 4,160,501 4,956,007 4,914,980
Other expenses 35,385 22,091 15,671
- -------------------------------------------------------------------------------------------------------
TOTAL BENEFITS AND EXPENSES 6,124,504 6,602,169 6,680,185
- -------------------------------------------------------------------------------------------------------
NET GAIN FROM OPERATIONS
Before federal income tax (benefit) expense 50,624 136,428 57,620
Federal income tax (benefit) expense (10,231) 35,887 (14,878)
- -------------------------------------------------------------------------------------------------------
NET GAIN FROM OPERATIONS 60,855 100,541 72,498
Net realized capital (losses) gains, after tax (36,428) 2,085 1,544
- -------------------------------------------------------------------------------------------------------
NET INCOME $ 24,427 $ 102,626 $ 74,042
- -------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statutory basis financial
statements.
F-3
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
(STATUTORY BASIS)
($000)
--------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK
Beginning and end of year $ 2,500 $ 2,500 $ 2,500
- -------------------------------------------------------------------------------------------------
GROSS PAID-IN AND CONTRIBUTED SURPLUS
Beginning and end of year 226,043 226,043 226,043
- -------------------------------------------------------------------------------------------------
UNASSIGNED FUNDS
Balance, beginning of year 247,969 143,257 74,570
Net income 24,427 102,626 74,042
Change in net unrealized capital gains on common stocks
and other invested assets 2,258 1,688 2,186
Change in asset valuation reserve 16,847 (8,112) (6,228)
Change in non-admitted assets 6,557 (1,277) (1,313)
Credit on reinsurance ceded (3,725) 9,787 --
- -------------------------------------------------------------------------------------------------
Balance, end of year 294,333 247,969 143,257
- -------------------------------------------------------------------------------------------------
CAPITAL AND SURPLUS,
End of year $522,876 $476,512 $371,800
- -------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statutory basis financial
statements.
F-4
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(STATUTORY BASIS)
($000)
--------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums and annuity considerations $3,613,217 $2,520,655 $2,277,874
Net investment income 122,998 127,425 101,991
Fee income 647,565 448,260 290,675
Other income 1,799,323 3,644,704 4,091,043
- -------------------------------------------------------------------------------------------------------
Total income 6,183,103 6,741,044 6,761,583
- -------------------------------------------------------------------------------------------------------
Benefits paid 1,303,801 790,051 529,733
Federal income tax (recoveries) payments (8,815) 25,780 (14,499)
Net transfers to separate accounts 4,364,914 5,222,144 5,199,354
Other expenses 669,525 626,240 547,692
- -------------------------------------------------------------------------------------------------------
Total benefits and expenses 6,329,425 6,664,215 6,262,280
- -------------------------------------------------------------------------------------------------------
NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES (146,322) 76,829 499,303
- -------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
PROCEEDS FROM INVESTMENTS SOLD
Bonds 753,358 633,926 614,413
Common stocks 939 34,010 11,481
Mortgage loans 53,704 85,275 --
Other 1,490 19,990 152
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT PROCEEDS 809,491 773,201 626,046
- -------------------------------------------------------------------------------------------------------
COST OF INVESTMENTS ACQUIRED
Bonds 804,947 586,913 848,267
Common stocks 464 7,012 28,302
Mortgage loans 57,665 59,702 85,103
Other 14,211 11,847 26,227
- -------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS ACQUIRED 877,287 665,474 987,899
- -------------------------------------------------------------------------------------------------------
NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES $ (67,796) $ 107,727 $ (361,853)
- -------------------------------------------------------------------------------------------------------
FINANCING AND MISCELLANEOUS ACTIVITIES
Net other cash provided (used) 11,742 (24,033) (4,848)
- -------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) FINANCING
AND MISCELLANEOUS ACTIVITIES 11,742 (24,033) (4,848)
- -------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and short-term investments (202,376) 160,523 132,602
Cash and short-term investments, beginning of year 469,955 309,432 176,830
- -------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR $ 267,579 $ 469,955 $ 309,432
- -------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statutory basis financial
statements.
F-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(STATUTORY BASIS)
DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND DESCRIPTION OF BUSINESS:
Hartford Life and Annuity Insurance Company (the "Company") is a wholly owned
subsidiary of Hartford Life Insurance Company ("HLIC"), which is an indirect
subsidiary of Hartford Life, Inc. ("HLI"). HLI is indirectly majority owned by
The Hartford Financial Services Group, Inc. ("The Hartford"). 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 approximately 18.6% of the
equity ownership of HLI.
In 1998, the Company changed its name to Hartford Life and Annuity Insurance
Company from ITT Hartford Life and Annuity Insurance Company.
The Company offers a complete line of fixed and variable annuities, as well as
variable, universal and traditional individual life insurance.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying statutory basis financial statements of the Company 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. Certain reclassifications have
been made to prior year financial information to conform to the current year
presentation.
Current prescribed statutory accounting practices include accounting
publications of the NAIC, as well as state laws, regulations and general
administrative rules. Permitted statutory accounting practices encompass
accounting practices approved by state insurance departments. The Company does
not follow any permitted statutory accounting practices that have a material
effect on statutory surplus, statutory net income or risk-based capital.
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 periods. Actual results could
differ from those estimates. The most significant estimates include those used
in determining the liability for aggregate reserves for future benefits and the
liability for premium and other deposit funds. Although some variability is
inherent in these estimates, management believes the amounts provided are
adequate.
STATUTORY ACCOUNTING PRACTICES VERSUS GAAP
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, etc.) which are charged to expense when incurred for statutory
purposes rather than on a pro-rata basis over the expected life and gross
profit stream of the policy for GAAP purposes;
(2) recognition of premium revenues, which for statutory purposes are generally
recorded as collected or when due during the premium paying period of the
contract and which for GAAP purposes, for universal life policies and
investment products, generally only consist of charges assessed to policy
account balances for cost of insurance, policy administration and
surrenders. When policy charges received relate to coverage or services to
be provided in the future, the charges are recognized as revenue on a
pro-rata basis over the expected life and gross profit stream of the policy.
Also, for GAAP purposes, premiums for traditional life insurance policies
are recognized as revenues when they are due from policyholders;
(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 under GAAP;
(4) providing for income taxes based on current taxable income 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 or required under GAAP;
(5) excluding certain assets designated as non-admitted assets (e.g., negative
Interest Maintenance Reserve, and past due agents' balances) from the
balance sheet for statutory purposes by directly charging surplus;
(6) the calculation of post retirement benefits obligation which, for statutory
accounting, excludes non-vested employees whereas GAAP liabilities include a
provision for such employees; statutory and GAAP accounting permit either
immediate recognition of the liability or straight-line amortization of the
liability over a period not to exceed 20 years. For GAAP, The Hartford's
obligation was immediately recognized, whereas for statutory accounting, the
obligation is being recognized ratably over a 20 year period;
F-6
<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) for statutory purposes; as well as the deferral and
amortization of realized gains and losses, caused 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) for
statutory purposes; 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 for
statutory purposes; 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 for statutory purposes,
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 separate component of Stockholder's
Equity; as well as the change in the basis of the Company's other invested
assets, which consist primarily of limited partnership investments, which is
recognized as income under GAAP and as a change in surplus under statutory
accounting; and
(10) statutory accounting calculates separate account liabilities using
prescribed actuarial methodologies, which approximate the market value of
separate account assets less applicable surrender charges. The separate
account surplus generated by these reserving methods is recorded as an
amount due to or from the separate account on the statutory basis balance
sheet, with changes reflected in the statutory basis results of operations.
On a GAAP basis, separate account assets and liabilities are held at fair
value.
As of and for the years ended December 31, the significant differences between
Statutory and GAAP basis net income and capital and surplus for the Company are
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
----------------------------------------
GAAP Net Income $ 75,654 $ 74,525 $ 58,050
Deferral and amortization of policy
acquisition costs, net (272,171) (331,882) (345,657)
Change in unearned revenue reserve (64,915) 23,118 4,058
Deferred taxes 57,833 2,476 47,092
Separate account expense allowance 214,388 259,287 282,818
Asset impairments and write-downs (17,250) 17,250 --
Benefit reserve adjustment 11,491 5,360 24,666
Gain on commutation of reinsurance
(Note 4) -- 52,026 --
Prepaid reinsurance premium (3,524) -- --
Statutory voluntary reserve (6,286) -- --
Other, net 29,207 466 3,015
----------------------------------------
STATUTORY NET INCOME $ 24,427 $ 102,626 $ 74,042
----------------------------------------
GAAP Stockholder's Equity $ 676,428 $ 648,097 $ 570,469
Deferred policy acquisition costs (1,887,824) (1,615,653) (1,283,771)
Unearned revenue reserve 95,965 160,951 134,789
Deferred taxes 122,105 68,936 64,522
Separate account expense allowance 1,398,030 1,183,642 924,355
Asset impairments and write-downs -- 17,250 --
Unrealized losses (gains) on
investments 26,292 (24,955) (21,451)
Benefit reserve adjustment 81,111 69,233 16,378
Asset valuation reserve (4,935) (21,782) (13,670)
Adjustment relating to Lyndon
contribution (Note 4) -- -- (23,671)
Prepaid reinsurance premium (7,728) (4,204) --
Statutory voluntary reserve (6,286) -- --
Other, net 29,718 (5,003) 3,850
----------------------------------------
STATUTORY CAPITAL AND SURPLUS $ 522,876 $ 476,512 $ 371,800
----------------------------------------
</TABLE>
F-7
<PAGE>
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 applicable 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 the Commissioners Annuity Reserve Valuation Method
("CARVM").
The Company has established separate accounts to segregate the assets and
liabilities of certain life insurance and annuity contracts that must be
segregated from the Company's general assets under the terms of its contracts.
The assets consist primarily of marketable securities and are reported at market
value. Premiums, benefits and expenses of these contracts are reported in the
statutory basis statements of operations.
An analysis of Annuity Actuarial Reserves and Deposit Liabilities by Withdrawal
Characteristics as of December 31, 1999 (including general and separate account
liabilities) is as follows:
<TABLE>
<CAPTION>
% of
Amount Total
<S> <C> <C>
--------------------
Subject to discretionary withdrawal:
--------------------
With market value adjustment $ 4,564 0.0%
At book value less current surrender charge of 5% or more 1,427,302 3.2%
At market value 42,431,996 95.4%
--------------------
Total with adjustment or at market value 43,863,862 98.6%
At book value without adjustment (minimal or no charge or
adjustment): 573,583 1.3%
Not subject to discretionary withdrawal: 34,816 0.1%
--------------------
Total, gross 44,472,261 100.0%
Reinsurance ceded --
------------
Total, net $44,472,261
------------
</TABLE>
INVESTMENTS
Investments in bonds are carried at amortized cost. Bonds that are deemed
ineligible to be held at amortized cost by the NAIC Securities Valuation Office
("SVO") are carried at the appropriate SVO published value. When a reduction in
the value of a security is deemed to be unrecoverable, the decline in value is
reported as a realized loss and the carrying value is adjusted accordingly.
Short-term investments consist of money market funds and are stated at cost,
which approximates fair value. Common stocks are carried at fair value with the
current year change in the difference from cost reflected in surplus. Mortgage
loans, which are carried at cost and approximate fair value, include investments
in assets backed by mortgage loan pools. 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 AVR balances were $4,935 and $21,782
as of December 31, 1999 and 1998, respectively. Additionally, the Interest
Maintenance Reserve ("IMR") captures net realized capital gains and losses, net
of applicable income taxes, resulting from changes in interest rates and
amortizes these gains or losses into income over the life of the bond or
mortgage sold. The IMR balance as of December 31, 1999 is an asset balance of
$981 and is reflected as a component of non-admitted assets in Unassigned Funds
in accordance with statutory accounting practices. The IMR balance as of
December 31, 1998 is a liability balance of $452 and is reflected as an other
liability. The net capital (losses) gains transferred to the IMR in 1999, 1998
and 1997 were $(1,255), $852 and $(719), respectively. The amount of income
(expense) amortized from the IMR in 1999, 1998 and 1997 included in the
Company's Statements of Operations, was $178, $(207), and $(85), respectively.
Realized capital gains and losses, net of taxes, not included in the IMR are
reported in the statutory basis statements of operations. Realized investment
gains and losses are determined on a specific identification basis.
CODIFICATION
The NAIC adopted the Codification of Statutory Accounting Principles in March
1998. The proposed effective date for this statutory accounting guidance is
January 1, 2001. It is expected that Connecticut, the Company's domiciliary
state, will adopt these accounting standards and, therefore, the Company will
make the necessary accounting and reporting changes required for implementation.
The Company has not yet determined the impact that these new accounting
standards will have on its statutory basis financial statements.
F-8
<PAGE>
3. INVESTMENTS:
(a) COMPONENTS OF NET INVESTMENT INCOME
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
-----------------------------
Interest income from bonds and short-term investments $113,646 $123,370 $100,475
Interest income from policy loans 3,494 3,133 1,958
Interest and dividends from other investments 6,371 4,482 1,005
-----------------------------
Gross investment income 123,511 130,985 103,438
Less: investment expenses 1,189 1,003 1,153
-----------------------------
NET INVESTMENT INCOME $122,322 $129,982 $102,285
-----------------------------
</TABLE>
(b) COMPONENTS OF NET UNREALIZED CAPITAL (LOSSES) GAINS ON BONDS AND
SHORT-TERM INVESTMENTS
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
-----------------------------
Gross unrealized capital gains $ 561 $ 10,905 $23,357
Gross unrealized capital losses (6,441) (833) (1,906)
-----------------------------
Net unrealized capital (losses) gains (5,880) 10,072 21,451
Balance, beginning of year 10,072 21,451 7,979
-----------------------------
CHANGE IN NET UNREALIZED CAPITAL (LOSSES) GAINS ON BONDS AND
SHORT-TERM INVESTMENTS $(15,952) $(11,379) $13,472
-----------------------------
</TABLE>
(c) COMPONENTS OF NET UNREALIZED CAPITAL GAINS (LOSSES) ON COMMON STOCKS
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
--------------------------
Gross unrealized capital gains $2,508 $ 2,204 $ 537
Gross unrealized capital losses (24) (1,871) (1,820)
--------------------------
Net unrealized capital gains (losses) 2,484 333 (1,283)
Balance, beginning of year 333 (1,283) (3,447)
--------------------------
CHANGE IN NET UNREALIZED CAPITAL GAINS ON COMMON STOCKS $2,151 $ 1,616 $ 2,164
--------------------------
</TABLE>
(d) COMPONENTS OF NET REALIZED CAPITAL (LOSSES) GAINS
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
--------------------------
Bonds and short-term investments $(37,959) $1,314 $ (120)
Common stocks 104 1,624 421
Other invested assets 172 (1) (307)
--------------------------
Realized capital (losses) gains (37,683) 2,937 (6)
Capital gains benefit -- -- (831)
--------------------------
Net realized capital (losses) gains (37,683) 2,937 825
Less: amounts transferred to the IMR (1,255) 852 (719)
--------------------------
NET REALIZED CAPITAL (LOSSES) GAINS $(36,428) $2,085 $1,544
--------------------------
</TABLE>
Sales and maturities of investments in bonds and short-term investments for the
years ended December 31, 1999, 1998 and 1997 resulted in proceeds of $1,367,027,
$1,354,563 and $1,435,820, gross realized capital gains of $1,106, $1,705, and
$964 and gross realized capital losses of $39,065, $391, and $1,084,
respectively, before transfers to the IMR. Sale of common stocks for the years
ended December 31, 1999, 1998 and 1997 resulted in proceeds of $939, $33,088,
and $10,168, gross realized capital gains of $115, $1,688, and $421 and gross
realized capital losses of $11, $64, and $0, respectively.
(e) DERIVATIVE INVESTMENTS
The Company had no significant derivative holdings as of December 31, 1999, 1998
or 1997.
(f) CONCENTRATION OF CREDIT RISK
Excluding U.S. government and government agency investments, the Company is not
exposed to any significant concentrations of credit risk in fixed maturities of
a single issuer greater than 10% of capital and surplus as of December 31, 1999.
F-9
<PAGE>
(g) BONDS, SHORT-TERM INVESTMENTS AND COMMON STOCKS
<TABLE>
<CAPTION>
1999
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
----------------------------------------------
U.S. government and government agencies and authorities:
-- Guaranteed and sponsored $ 4,768 $ 1 $ (37) $ 4,732
-- Guaranteed and sponsored -- asset backed 170,746 -- -- 170,746
States, municipalities and political subdivisions 10,401 -- (48) 10,353
International governments 7,351 94 (15) 7,430
Public utilities 18,413 92 (73) 18,432
All other corporate -- excluding asset-backed 592,233 374 (6,194) 586,413
All other corporate -- asset-backed 539,688 -- -- 539,688
Short-term investments 228,105 -- -- 228,105
Certificates of deposit 5,158 -- (74) 5,084
Parents, subsidiaries and affiliates 117,057 -- -- 117,057
----------------------------------------------
TOTAL BONDS AND SHORT-TERM INVESTMENTS $1,693,920 $561 $(6,441) $1,688,040
----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
--------------------------------------------
Common stock -- unaffiliated $ 4,562 $1,105 $ (24) $ 5,643
Common stock -- affiliated 35,384 1,403 -- 36,787
--------------------------------------------
TOTAL COMMON STOCKS $39,946 $2,508 $ (24) $42,430
--------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1999
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
----------------------------------------------
U.S. government and government agencies and authorities:
-- Guaranteed and sponsored $ 4,982 $ 35 $ (2) $ 5,015
-- Guaranteed and sponsored -- asset-backed 75,615 -- -- 75,615
States, municipalities and political subdivisions 10,402 415 -- 10,817
International governments 7,466 568 -- 8,034
Public utilities 94,475 1,330 (39) 95,766
All other corporate -- excluding asset-backed 607,679 8,473 (792) 615,360
All other corporate -- asset-backed 505,900 -- -- 505,900
Short-term investments 343,783 -- -- 343,783
Certificates of deposit 130,216 84 -- 130,300
Parents, subsidiaries and affiliates 117,057 -- -- 117,057
----------------------------------------------
TOTAL BONDS AND SHORT-TERM INVESTMENTS $1,897,575 $10,905 $(833) $1,907,647
----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
--------------------------------------------
Common stock -- unaffiliated $ 4,933 $ 290 $ (50) $ 5,173
Common stock -- affiliated 35,384 1,914 (1,821) 35,477
--------------------------------------------
TOTAL COMMON STOCKS $40,317 $2,204 $(1,871) $40,650
--------------------------------------------
</TABLE>
The amortized cost and estimated fair value of bonds and short-term investments
as of December 31, 1999 by estimated maturity year are shown below. Asset-backed
securities, including mortgage-backed securities and collaterialized mortgage
obligations, are distributed to maturity year based on the Company's estimates
of the rate of
F-10
<PAGE>
future prepayments of principal over the remaining lives of the securities.
Expected maturities differ from contractual maturities due to call or prepayment
provisions.
<TABLE>
<CAPTION>
Amortized Estimated
Maturity Cost Fair Value
<S> <C> <C>
--------------------------
One year or less $ 545,290 $ 543,397
Over one year through five years 692,881 690,476
Over five years through ten years 370,835 369,548
Over ten years 84,914 84,619
--------------------------
TOTAL $1,693,920 $1,688,040
--------------------------
</TABLE>
Bonds with a carrying value of $10,457 were on deposit as of December 31, 1999
with various regulatory authorities as required.
(h) FAIR VALUE OF FINANCIAL INSTRUMENTS-BALANCE SHEET ITEMS (IN MILLIONS):
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C>
------------------------------------------------------
ASSETS
Bonds and short-term investments $1,694 $1,688 $1,898 $1,908
Common stocks 42 42 41 41
Policy loans 59 59 47 47
Mortgage loans 64 64 60 60
Other invested assets 3 3 2 2
LIABILITIES
Deposit funds and other benefits $2,051 $2,017 $2,078 $2,053
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments: fair value of bonds, short-term
investments, common stock, and other invested assets approximate those
quotations published by the NAIC; policy loans and mortgage loans carrying
amounts approximates fair value; and fair value of liabilities on deposit funds
and other benefits is determined by forecasting future cash flows and
discounting the forecasted cash flows at current market rates.
4. REINSURANCE:
The Company cedes insurance to other insurers in order to limit its maximum
losses. Such transfer does not relieve the Company of its primary liability to
the policyholder. Failure of reinsurers to honor their obligations could result
in losses to the Company. The Company reduces this risk by evaluating the
financial condition of reinsurers and monitoring for possible concentrations of
credit risk.
The Company cedes significant portions of its variable annuity business written
since 1994 to RGA Reinsurance Company ("RGA"). Certain core annuity products
were excluded from this reinsurance arrangement beginning in the second quarter
of 1999 and, as such, the amounts ceded to RGA have declined significantly.
In 1995, The Hartford was "spun-off" from ITT Industries, Inc. and became its
own, autonomous entity. In conjunction with this spin-off, the assets and
liabilities of Lyndon Insurance Company (Lyndon) were merged into the Company.
The statutory net assets contributed to the Company as a result of this
transaction were approximately $112 million and were reflected as an increase in
Gross Paid-In and Contributed Surplus at December 31, 1995. This amount was
approximately $41 million lower than the value of net assets contributed on a
GAAP basis.
The majority of the business written in Lyndon was assumed from an unaffiliated
insurer. In 1998, this unaffiliated insurer recaptured the inforce blocks of
business it had been ceding to the Company through Lyndon. In conjunction with
this commutation transaction, the Company transferred statutory basis reserves
of $26,404. Additionally, the Company received fair value consideration for the
bonds it transferred which exceeded the statutory statement value of these
assets by $25,622. As a result of this activity, the Company recognized a
pre-tax gain from this transaction of $52,026 in its 1998 Statements of
Operations.
There were no material reinsurance recoverables from reinsurers outstanding as
of and for the years ended, December 31, 1999 and 1998.
F-11
<PAGE>
The effect of reinsurance as of and for the years ended December 31, is
summarized as follows:
<TABLE>
<CAPTION>
1999 Direct Assumed Ceded Net
<S> <C> <C> <C> <C>
------------------------------------------------------
Aggregate Reserves for Future
Benefits $ 784,502 $ 53 $ (192,934) $ 591,621
Policy and Contract Claim
Liabilities $ 7,827 $ 203 $ (353) $ 7,677
Premium and Annuity Considerations $ 674,219 $ 1,261 $ (53,691) $ 621,789
Annuity and Other Fund Deposits $6,195,917 $ -- $(3,204,554) $2,991,363
Death, Annuity, Disability and
Other Benefits $ 65,251 $ 1,104 $ (12,713) $ 53,642
Surrenders $2,541,449 $ -- $(1,290,636) $1,250,813
</TABLE>
<TABLE>
<CAPTION>
1998 Direct Assumed Ceded Net
<S> <C> <C> <C> <C>
------------------------------------------------------
Aggregate Reserves for Future
Benefits $ 713,375 $ 50 $ (134,285) $ 579,140
Policy and Contract Claim
Liabilities $ 5,895 $ 85 $ (313) $ 5,667
Premium and Annuity Considerations $ 483,328 $24,954 $ (38,939) $ 469,343
Annuity and Other Fund Deposits $6,461,470 $ -- $(4,410,219) $2,051,251
Death, Annuity, Disability and
Other Benefits $ 64,331 $ 1,574 $ (16,401) $ 49,504
Surrenders $1,481,797 $ -- $ (742,134) $ 739,663
</TABLE>
<TABLE>
<CAPTION>
1997 Direct Assumed Ceded Net
<S> <C> <C> <C> <C>
------------------------------------------------------
Premium and Annuity Considerations $ 266,427 $51,630 $ (21,412) $ 296,645
Annuity and Other Fund Deposits $6,515,347 $ -- $(4,534,101) $1,981,246
Death, Annuity, Disability and
Other Benefits $ 79,779 $ 839 $ (7,126) $ 73,492
Surrenders $ 882,094 $ -- $ (427,677) $ 454,417
</TABLE>
5. RELATED PARTY TRANSACTIONS:
Transactions between the Company and its affiliates, relate principally to tax
settlements, reinsurance, insurance coverages, rental and service fees, capital
contributions and payments of dividends. In addition, certain affiliated
insurance companies purchased group annuity contracts from the Company to fund
pension costs and claim annuities to settle casualty claims. Substantially all
general insurance expenses related to the Company, including rent and benefit
plan expenses, are initially paid by The Hartford. Direct expenses are allocated
using specific identification and indirect expenses are allocated using other
applicable methods. Indirect expenses include those for corporate areas which,
depending on type, are allocated based on either a percentage of direct expenses
or on utilization.
The Company has also invested in bonds of its affiliates, Hartford Financial
Services Corporation and HL Investment Advisors, Inc., and common stock of its
subsidiary, Hartford Life, LTD.
For additional information, see Notes 4, 6, and 8.
6. FEDERAL INCOME TAXES:
The Company and The Hartford have entered into a tax sharing agreement under
which each member in the consolidated U.S. Federal income tax return will make
payments between them such that, with respect to any period, the amount of taxes
to be paid by the Company, subject to certain adjustments, generally will be
determined as though the Company were filing separate Federal, state and local
income tax returns.
As long as The Hartford continues to own at least 80% of the combined voting
power and 80% of the value of the outstanding capital stock of HLI, the Company
will be included for Federal income tax purposes in the affiliated group of
which The Hartford is the common parent. The Hartford and its non-life
subsidiaries filed a single consolidated Federal income tax return for 1998 and
1997 and intend to file a separate consolidated Federal income tax return for
1999. The life insurance companies filed a separate consolidated Federal income
tax return for 1998 and 1997 and intend to file a separate consolidated Federal
income tax return for 1999. Federal income taxes (received) paid by the Company
for operations and capital gains (losses) were $(8,815), $25,780, and $(14,499)
in 1999, 1998 and 1997, respectively. The effective tax rate was (73)%, 27%, and
(28)% in 1999, 1998 and 1997, respectively.
F-12
<PAGE>
The following schedule provides a reconciliation of the tax provision (including
realized capital gains(losses)) at the U.S. Federal Statutory rate to Federal
income tax (benefit) expense (in millions):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
------------------
Tax provision at U.S. Federal Statutory rate $ 5 $48 $ 20
Tax deferred acquisition costs 31 25 25
Statutory to tax reserve differences (7) 8 1
Investments (31) (60) (61)
Other (8) 15 (1)
------------------
FEDERAL INCOME TAX (BENEFIT) EXPENSE $(10) $36 $(16)
------------------
</TABLE>
7. CAPITAL AND SURPLUS AND SHAREHOLDER DIVIDEND RESTRICTIONS:
The maximum amount of dividends which can be paid to shareholders by Connecticut
domiciled insurance companies, without prior approval, is generally restricted
to the greater of 10% of surplus as of the preceding December 31st or the net
gain from operations for the previous year. Dividends are paid as determined by
the Board of Directors and are not cumulative. No dividends were paid in 1999,
1998 or 1997. The amount available for dividend in 2000 is approximately
$60,855.
8. PENSION, RETIREMENT, AND OTHER POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS:
All employees that work for The Hartford's life insurance companies 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 Hartford's funding
policy is to contribute annually an amount between the minimum funding
requirements set forth in the Employee Retirement Income Security Act of 1974,
as amended, and the maximum amount that can be deducted for U.S. Federal income
tax purposes. Generally, pension costs are funded through the purchase of group
pension contracts sold by affiliates. The costs that were allocated to the
Company for pension related expenses were $762, $1,045 and $840 for 1999, 1998
and 1997, respectively.
Employees of The Hartford's life insurance companies are also provided, through
The Hartford, certain health care and life insurance benefits for eligible
retired employees. The contribution for health care benefits depends on the
retiree's date of retirement and years of service. In addition, this benefit
plan has a defined dollar cap, which limits average company contributions. The
Hartford has prefunded a portion of the health care and life insurance
obligations through trust funds where such prefunding can be accomplished on a
tax effective basis. Postretirement health care and life insurance benefits
expense allocated to the Company was not material to the results of operations
for 1999, 1998 or 1997.
The assumed rate in the per capita cost of health care (the health care trend
rate) was 7.1% for 1999, decreasing ratably to 5.0% in the year 2003. Increasing
the health care trend rates by one percent per year would have an immaterial
impact on the accumulated postretirement benefit obligation and the annual
expense. To the extent that the actual experience differs from the inherent
assumptions, the effect will be amortized over the average future service of
covered employees.
Substantially all of The Hartford's life insurance companies' employees are
eligible to participate in The Hartford's Investment and Savings Plan. Under
this plan, designated contributions, which may be invested in Class A Common
Stock of HLI or certain other investments, are matched to a limit of 3% of
compensation.
9. SEPARATE ACCOUNTS:
The Company maintains separate account assets totaling $44.9 billion and $32.9
billion as of December 31, 1999 and 1998, respectively. Separate account assets
are segregated from other investments and reported at fair value. Separate
account liabilities are determined in accordance with prescribed actuarial
methodologies, which approximate the market value less applicable surrender
charges. The resulting surplus is recorded in the general account statement of
operations as a component of Net Transfers to Separate Accounts. The Company's
separate accounts are non-guaranteed, wherein the policyholder assumes
substantially all the investment risk and rewards. Investment income (including
investment gains and losses) and interest credited to policyholders on separate
account assets are not separately reflected in the statutory statements of
operations.
Separate account management fees, net of minimum guarantees, were $493 million,
$363 million, and $252 million in 1999, 1998 and 1997, respectively, and are
recorded as a component of fee income on the Company's statutory basis
Statements of Operations.
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10. COMMITMENTS AND CONTINGENT LIABILITIES:
(a) LITIGATION
The Company is involved in pending and threatened litigation in the normal
course of its business in which claims for alleged economic and punitive damages
have been asserted. Some of these cases have been filed as purported class
actions and some cases have been filed in certain jurisdictions that permit
punitive damage awards disproportionate to the actual damages incurred. Although
there can be no assurances, at the present time, the Company does not anticipate
that the ultimate liability, arising from such pending or threatened litigation,
will have a material adverse effect on the statutory capital and surplus of the
Company.
(b) GUARANTY FUNDS
Under insurance guaranty fund laws in each state, the District of Columbia and
Puerto Rico, insurers licensed to do business can be assessed by state insurance
guaranty associations for certain obligations of insolvent insurance companies
to policyholders and claimants. Recent regulatory actions against certain large
life insurers encountering financial difficulty have prompted various state
insurance guaranty associations to begin assessing life insurance companies for
the deemed losses. Most of these laws do provide, however, that an assessment
may be excused or deferred if it would threaten an insurer's solvency and
further provide annual limits on such assessments. Part of the assessments paid
by the Company pursuant to these laws may be used as credits for a portion of
the associated premium taxes. The Company paid guaranty fund assessments of
approximately $523, $1,043 and $1,544 in 1999, 1998, and 1997, respectively, of
which $318, $995, and $548 in 1999, 1998 and 1997, respectively were estimated
to be creditable against premium taxes.
(c) TAX MATTERS
The Company's Federal income tax returns are routinely audited by the Internal
Revenue Service ("IRS"). The Company's 1997 and 1996 Federal income tax returns
are currently under audit by the IRS. As of March 31, 2000, the audit was in its
initial stage and no material issues had been raised.
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