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STAG LAST SURVIVOR
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICIES
HARTFORD LIFE INSURANCE COMPANY
P.O. BOX 2999
HARTFORD, CT 06104-2999
[LOGO] TELEPHONE: (800) 231-5453
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This Prospectus describes Stag Variable Life Last Survivor, last survivor
flexible premium variable life insurance policies (the "Policies," and each a
"Policy") offered by Hartford Life Insurance Company ("Hartford") to applicants
where both Insureds will be generally between ages 20 and 80. For a given amount
of Death Benefit chosen, the Policy Owner has considerable flexibility in
selecting the timing and amount of premium payments.
The Policies provide for a Death Benefit payable at the death of the last
surviving Insured. A Policy Owner may select one of three Death Benefit Options:
a level amount equal to the Face Amount ("Option A"), a variable amount equal to
the Face Amount plus the Account Value ("Option B"), or a variable amount equal
to the Face Amount plus a return of premiums ("Option C"). The required minimum
initial Face Amount is generally $500,000.
Payments for the Policies will be held in a series of Separate Account VL II or
in the Fixed Account of Hartford. The following Sub-Accounts are available under
the Contracts. Opposite each Sub-Account is the name of the underlying
investment for that Sub-Account. The Hartford Funds, Putnam Funds and Fidelity
VIP Funds are collectively referred to in this Prospectus as the "Funds."
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Hartford Adviser Fund Sub-Account -- shares of Class IA of Hartford Advisers HLS Fund, Inc. ("Hartford Advisers Fund")
Hartford Bond Fund Sub-Account -- shares of Class IA of Hartford Bond HLS Fund, Inc. ("Hartford Bond Fund")
Hartford Capital Appreciation Fund -- shares of Class IA of Hartford Capital Appreciation HLS Fund, Inc. ("Hartford
Sub-Account Capital Appreciation Fund")
Hartford Dividend and Growth Fund -- shares of Class IA of Hartford Dividend and Growth HLS Fund, Inc. ("Hartford
Sub-Account Dividend and Growth Fund")
Hartford Growth and Income Fund Sub-Account -- shares of Class IA of Hartford Growth and Income HLS Fund, Inc. ("Hartford Growth
and Income Fund")
Hartford Index Fund Sub-Account -- shares of Class IA of Hartford Index HLS Fund, Inc. ("Hartford Index Fund")
Hartford International Advisers Fund -- shares of Class IA of Hartford International Advisers HLS Fund, Inc. ("Hartford
Sub-Account International Advisers Fund")
Hartford International Opportunities Fund -- shares of Class IA of Hartford International Opportunities HLS Fund, Inc.
Sub-Account ("Hartford International Opportunities Fund")
Hartford MidCap Fund Sub-Account -- shares of Class IA of Hartford MidCap HLS Fund, Inc. ("Hartford MidCap Fund")
Hartford Money Market Fund Sub-Account -- shares of Class IA of Hartford Money Market HLS Fund, Inc. ("Hartford Money Market
Fund")
Hartford Mortgage Securities Fund -- shares of Class IA of Hartford Mortgage Securities HLS Fund, Inc. ("Hartford
Sub-Account Mortgage Securities Fund")
Hartford Small Company Fund Sub-Account -- shares of Class IA of Hartford Small Company HLS Fund, Inc. ("Hartford Small
Company Fund")
Hartford Stock Fund Sub-Account -- shares of Class IA of Hartford Stock HLS Fund, Inc. ("Hartford Stock Fund")
Putnam VT Asia Pacific Growth Fund -- shares of Class IA of Putnam VT Asia Pacific Growth Fund of Putnam Variable Trust
Sub-Account ("Putnam VT Asia Pacific Growth Fund")
Putnam VT Diversified Income Fund -- shares of Class IA of Putnam VT Diversified Income Fund of Putnam Variable Trust
Sub-Account ("Putnam VT Diversified Income Fund")
Putnam VT Global Asset Allocation Fund -- shares of Class IA of Putnam VT Global Asset Allocation Fund of Putnam Variable
Sub-Account Trust ("Putnam VT Global Asset Allocation Fund")
Putnam VT Global Growth Fund Sub-Account -- shares of Class IA of Putnam VT Global Growth Fund of Putnam Variable Trust
("Putnam VT Global Growth Fund")
Putnam VT Growth and Income Fund Sub-Account -- shares of Class IA of Putnam VT Growth and Income Fund of Putnam Variable Trust
("Putnam VT Growth and Income Fund")
Putnam VT Health Sciences Fund Sub-Account -- shares of Class IA of Putnam VT Health Sciences Fund of Putnam Variable Trust
("Putnam VT Health Sciences Fund")
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Putnam VT High Yield Fund Sub-Account -- shares of Class IA of Putnam VT High Yield Fund of Putnam Variable Trust ("Putnam
VT High Yield Fund")
Putnam VT International Growth Fund -- shares of Class IA of Putnam VT International Growth Fund of Putnam Variable Trust
Sub-Account ("Putnam VT International Growth Fund")
Putnam VT International Growth and Income -- shares of Class IA of Putnam VT International Growth and Income Fund of Putnam
Fund Sub-Account Variable Trust ("Putnam VT International Growth and Income Fund")
Putnam VT International New Opportunities -- shares of Class IA of Putnam VT International New Opportunities Fund of Putnam
Fund Sub-Account Variable Trust ("Putnam VT International New Opportunities Fund")
Putnam VT Investors Fund Sub-Account -- shares of Class IA of Putnam VT Investors Fund of Putnam Variable Trust ("Putnam
VT Investors Fund")
Putnam VT Money Market Fund Sub-Account -- shares of Class IA of Putnam VT Money Market Fund of Putnam Variable Trust
("Putnam VT Money Market Fund")
Putnam VT New Opportunities Fund Sub-Account -- shares of Class IA of Putnam VT New Opportunities Fund of Putnam Variable Trust
("Putnam VT New Opportunities Fund")
Putnam VT New Value Fund Sub-Account -- shares of Class IA of Putnam VT New Value Fund of Putnam Variable Trust ("Putnam
VT New Value Fund")
Putnam VT OTC & Emerging Growth Fund -- shares of Class IA of Putnam VT OTC & Emerging Growth Fund of Putnam Variable
Sub-Account Trust ("Putnam VT OTC & Emerging Growth Fund")
Putnam VT The George Putnam Fund of Boston -- shares of Class IA of Putnam VT The George Putnam Fund of Boston of Putnam
Sub-Account Variable Trust ("Putnam VT The George Putnam Fund of Boston")
Putnam VT U.S. Government and High Quality -- shares of Class IA of Putnam VT U.S. Government and High Quality Bond Fund of
Bond Fund Sub-Account Putnam Variable Trust ("Putnam VT U.S. Government and High Quality Bond Fund")
Putnam VT Utilities Growth and Income Fund -- shares of Class IA of Putnam VT Utilities Growth and Income Fund of Putnam
Sub-Account Variable Trust ("Putnam VT Utilities Growth and Income Fund")
Putnam VT Vista Fund Sub-Account -- shares of Class IA of Putnam VT Vista Fund of Putnam Variable Trust ("Putnam VT
Vista Fund")
Putnam VT Voyager Fund Sub-Account -- shares of Class IA of Putnam VT Voyager Fund of Putnam Variable Trust ("Putnam VT
Voyager Fund")
Fidelity VIP Equity-Income Portfolio -- shares of Fidelity VIP Equity-Income Portfolio of the Variable Insurance Products
Sub-Account Fund ("Fidelity VIP Equity-Income Portfolio")
Fidelity VIP Overseas Portfolio Sub-Account -- shares of Fidelity VIP Overseas Portfolio of the Variable Insurance Products Fund
("Fidelity VIP Overseas Portfolio")
Fidelity VIP II Asset Manager Portfolio -- shares of Fidelity VIP II Asset Manager Portfolio of the Variable Insurance
Sub-Account Products Fund ("Fidelity VIP II Asset Manager Portfolio")
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IT MAY NOT BE ADVANTAGEOUS TO PURCHASE FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
AS A REPLACEMENT FOR YOUR CURRENT LIFE INSURANCE OR IF YOU ALREADY OWN A
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY.
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THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED BY THE CURRENT PROSPECTUSES OF THE
APPLICABLE ELIGIBLE FUNDS WHICH CONTAIN A FULL DESCRIPTION OF THOSE FUNDS. ALL
PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS AUGUST 3, 1998.
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HARTFORD LIFE INSURANCE COMPANY 3
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TABLE OF CONTENTS
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SPECIAL TERMS......................................................... 5
SUMMARY............................................................... 7
DETAILED DESCRIPTION OF POLICY BENEFITS AND PROVISIONS................ 11
General............................................................. 11
Premiums............................................................ 11
Premium Payment Flexibility....................................... 11
Allocation of Premium Payments.................................... 11
Accumulation Units................................................ 11
Accumulation Unit Values.......................................... 11
Premium Limitation................................................ 12
Account Values.................................................... 12
Amount Payable on Surrender of the Policy......................... 12
Load Refund....................................................... 12
Partial Withdrawals............................................... 12
Transfers of Account Value.......................................... 12
Amount and Frequency of Transfers................................. 12
Transfers of Account Values to or from Sub-Accounts............... 13
Transfers from the Fixed Account.................................. 13
Dollar Cost Averaging Option...................................... 13
Policy Loans........................................................ 13
Loan Interest..................................................... 13
Credited Interest................................................. 14
Preferred Loan.................................................... 14
Loan Repayments................................................... 14
Termination Due to Excessive Indebtedness......................... 14
Effect of Loans on Account Value.................................. 14
Death Benefit....................................................... 14
Death Benefit Options............................................. 14
Option Change..................................................... 14
Death Benefit Guarantee........................................... 14
Minimum Death Benefit............................................. 15
Unscheduled Increases and Decreases in Face Amount................ 15
Benefits at Maturity................................................ 15
Lapse and Reinstatement............................................. 15
Policy Lapse and Grace Period..................................... 15
Death Benefit Guarantee Default and Grace Period.................. 15
Reinstatement..................................................... 16
The Right to Examine or Exchange a Policy........................... 16
Surrender........................................................... 16
Valuation of Payments and Transfers................................. 16
Application for a Policy............................................ 16
Reduced Charges for Eligible Groups................................. 17
Deductions from the Premium......................................... 17
Premium Processing Charge......................................... 17
Premium Tax Charge and Federal Tax Charge......................... 17
Front-End Sales Load.............................................. 17
Deductions and Charges from the Account Value....................... 18
Monthly Deduction Amounts......................................... 18
Charges Against the Funds......................................... 19
Taxes............................................................. 19
HARTFORD.............................................................. 19
SEPARATE ACCOUNT VL II................................................ 19
General............................................................. 19
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4 HARTFORD LIFE INSURANCE COMPANY
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Funds............................................................... 19
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Hartford Funds.................................................... 20
Putnam Funds...................................................... 20
Fidelity VIP Funds................................................ 22
Investment Adviser.................................................. 23
Hartford Funds.................................................... 23
Putnam Funds...................................................... 23
Fidelity VIP Funds................................................ 23
THE FIXED ACCOUNT..................................................... 23
OTHER MATTERS......................................................... 24
Voting Rights....................................................... 24
Statements to Policy Owners......................................... 24
Limit on Right to Contest........................................... 24
Misstatement as to Age.............................................. 24
Payment Options..................................................... 24
Beneficiary......................................................... 25
Assignment.......................................................... 25
Dividends........................................................... 25
SUPPLEMENTAL BENEFITS................................................. 25
Last Survivor Exchange Option Rider................................. 25
Estate Protection Rider............................................. 25
Maturity Date Extension Rider....................................... 25
Yearly Renewable Term Life Insurance Rider.......................... 25
EXECUTIVE OFFICERS AND DIRECTORS...................................... 26
DISTRIBUTION OF THE POLICIES.......................................... 30
SAFEKEEPING OF SEPARATE ACCOUNT VL II'S ASSETS........................ 30
FEDERAL TAX CONSIDERATIONS............................................ 30
General............................................................. 30
Taxation of Hartford and the Separate Account....................... 30
Income Taxation of Policy Benefits -- Generally..................... 31
Diversification Requirements........................................ 31
Ownership of the Assets in the Separate Account..................... 32
Tax Deferral During Accumulation Period............................. 32
Modified Endowment Contracts........................................ 32
Estate and Generation Skipping Taxes................................ 33
Life Insurance Purchased for Use in Split Dollar Arrangements....... 33
Federal Income Tax Withholding...................................... 33
Non-Individual Ownership of Policies................................ 33
Other............................................................... 33
Life Insurance Purchases by Nonresident Aliens and Foreign
Corporations....................................................... 34
LEGAL PROCEEDINGS..................................................... 34
LEGAL MATTERS......................................................... 34
EXPERTS............................................................... 34
REGISTRATION STATEMENT................................................ 34
APPENDIX A -- ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES AND CASH
SURRENDER VALUES.................................................... 35
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THE POLICIES MAY NOT BE AVAILABLE IN ALL STATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER OR OTHER PERSON IS AUTHORIZED
TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON.
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HARTFORD LIFE INSURANCE COMPANY 5
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SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
ACCOUNT VALUE: The value used to determine certain Policy benefits and charges.
ACCUMULATION UNIT: An accounting unit of measure used to calculate the value of
a Sub-Account.
ANNUAL DEATH BENEFIT GUARANTEE PREMIUM: An annual amount of premium shown in a
Policy's specifications page required to keep the Death Benefit guarantee in
effect and used to calculate the Cumulative Death Benefit Guarantee Premium.
CASH SURRENDER VALUE: The Account Value less all Indebtedness.
CODE: The Internal Revenue Code of 1986, as amended.
COMMISSION: U.S. Securities and Exchange Commission.
COST OF INSURANCE: An amount deducted as part of the Monthly Deduction Amount to
help cover Hartford's anticipated mortality costs and other expenses.
CUMULATIVE DEATH BENEFIT GUARANTEE PREMIUM: The sum of the number of completed
Policy Years plus the completed portion of the current Policy Year (expressed as
the number of completed months divided by 12), multiplied by the Annual Death
Benefit Guarantee Premium.
DATE OF ISSUE: The date from which the Policy's suicide and incontestability
provisions are measured.
DEATH BENEFIT: On the Policy Date, the Death Benefit equals the Face Amount.
Thereafter, it may change in accordance with the terms of the Policy.
DEATH BENEFIT OPTION: The Death Benefit Option in effect determines how the
Death Benefit is calculated. For a description of the three Death Benefit
Options provided, see "Detailed Description of Policy Benefits and Provisions --
Death Benefit," page 14.
DEATH PROCEEDS: The amount which We will pay on the death of the last surviving
Insured. This amount equals the Death Benefit less any Indebtedness and less any
due and unpaid Monthly Deduction Amount occurring during a grace period.
FACE AMOUNT: On the Policy Date, the Face Amount equals the initial face amount
of a Policy. Thereafter, the Face Amount may be increased or decreased, in
accordance with the terms of the Policy.
FIXED ACCOUNT: The portion of the Account Value invested in the General Account.
FUNDS: The registered open-end management investment companies in which assets
of the Separate Account may be invested.
GENERAL ACCOUNT: All assets of Hartford other than those allocated to its
separate accounts, including the Separate Account.
GUIDELINE ANNUAL PREMIUM: The level annual premium payment necessary to provide
the future benefits under a Policy through maturity, based on certain
assumptions specified under federal securities laws. These assumptions include
mortality charges based on the 1980 Commissioners' Standard Ordinary Mortality
Smoker or Nonsmoker Table, age last birthday, an assumed annual net rate of
return of 5% per year, and deduction of the guaranteed fees and charges
specified in a Policy. For purposes of the Policy, the Guideline Annual Premium
is used only in limiting front-end sales loads.
HARTFORD (ALSO "WE," "US," "OUR"): Hartford Life Insurance Company.
IN WRITING: In a written form satisfactory to Us.
INDEBTEDNESS: The outstanding loan on a Policy, including any interest due or
accrued.
INSUREDS: The two persons on whose lives a Policy is issued.
ISSUE AGE: As of the Policy Date, the age of each Insured on his/her last
birthday.
LOAN ACCOUNT: An account established for any amounts transferred from the Fixed
Account and the Sub-Accounts as a result of Policy loans. Amounts are held as
collateral and are credited with interest. Amounts held in the Loan Account are
not subject to the investment experience of the Separate Account.
MATURITY DATE: The date on which a Policy matures.
MONTHLY ACTIVITY DATE: The Policy Date and the same date in each succeeding
month as the Policy Date, except that whenever the Monthly Activity Date falls
on a date other than a Valuation Day, the Monthly Activity Date will be deemed
the next Valuation Day.
MONTHLY DEDUCTION AMOUNT: The fees and charges deducted from the Account Value
on the Monthly Activity Date.
NATIONAL SERVICE CENTER: Located in Minneapolis, Minnesota.
NET PREMIUM: The amount of each premium actually allocated to the Account Value,
after a deduction, as a percentage of premium, is made for the premium
processing charge, premium tax and federal tax charges and front-end sales load
attributable to a Policy.
PLANNED PREMIUMS: The amount of premiums that You intend to pay, as indicated on
your Policy application and shown on the Policy's specifications page.
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6 HARTFORD LIFE INSURANCE COMPANY
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POLICY: A last survivor flexible premium variable life insurance contract issued
by Hartford and described in this Prospectus.
POLICY ANNIVERSARY: An anniversary of the Policy Date.
POLICY DATE: The date from which Policy Anniversaries and Policy Years are
determined.
POLICY OWNER (ALSO "YOU," "YOUR"): The person having rights to benefits under a
Policy during the lifetime of the two Insureds. A Policy Owner may or may not be
one of the Insureds.
POLICY YEAR: An annual period computed from the Policy Date.
PRO RATA BASIS: An allocation method based on the proportion of the Account
Value in the Fixed Account and in each Sub-Account.
SEPARATE ACCOUNT (ALSO "SEPARATE ACCOUNT VL II"): An account established by
Hartford to separate the assets funding the Policies from other assets of
Hartford.
SUB-ACCOUNT: A subdivision of the Separate Account.
TARGET PREMIUM: The amount of level premium required to support a whole life
insurance policy with a net interest rate of 5% and a Face Amount equal to the
initial Face Amount. The Policy charges used in determining the level premium
amount are maximum guaranteed cost of insurance rates for standard risks, actual
premium tax rates, a 1.25% premium charge for processing, a 1.25% premium charge
for federal tax and other maximum policy deductions or charges, exclusive of any
additional rider charges.
VALUATION DAY: Every day the New York Stock Exchange is open for trading. The
value of the Separate Account is determined at the close of the New York Stock
Exchange (generally, 4:00 p.m. Eastern Time) on such days.
VALUATION PERIOD: The period between the close of business on successive
Valuation Days.
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HARTFORD LIFE INSURANCE COMPANY 7
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SUMMARY
THE POLICY
This Prospectus has been designed to provide You with the necessary
information to make a decision on purchasing the last survivor flexible premium
variable life insurance Policy. The Policy is primarily a life insurance policy
with death benefits, cash values, and other features traditionally associated
with life insurance. The Policy is called "last survivor" because the Death
Proceeds are paid on the death of the last surviving Insured. The Policy is
called "flexible premium" because, once the desired level and pattern of death
benefits have been determined, a Policy Owner has considerable flexibility in
choosing the timing and amount of premium to be paid. The Policy is called
"variable" because, unlike the fixed benefits of an ordinary whole life
insurance policy, the Account Value will, and the Death Benefit may, increase or
decrease depending on the investment experience of the Funds to which the Net
Premium(s) has been allocated.
The Policy is funded by a Fixed Account and Separate Account VL II. Separate
Account VL II is presently comprised of 36 Sub-Accounts, each of which invests
exclusively in one of the underlying Funds. If an initial premium is submitted
with an application for a Policy, the Net Premium will be allocated to the
Hartford Money Market Sub-Account. At a later date, the values in the Hartford
Money Market Sub-Account will be allocated to one or more of the Sub-Accounts or
to the Fixed Account, as specified in the Policy Owner's application. This later
date is the latest of (1) 45 days after the Policy application is signed, (2)
ten days after We mail or personally deliver a Notice of Withdrawal Right, or
(3) ten days after the Policy Owner receives the issued Policy. The Policy is
credited with Accumulation Units in each selected Sub-Account, the assets of
which are invested in the applicable Fund. A Policy Owner may transfer the
assets among the Sub-Accounts and the Fixed Account, subject to a transfer
charge. See "Detailed Description of Policy Benefits and Provisions -- Transfers
of Account Value," page 12.
POLICY OPTIONS
Available Policy options are structured to give a prospective Policy Owner
and his or her sales agent the ability to select a Policy tailored to the
prospective Policy Owner's specific life insurance needs.
The Policy options fall into three major categories:
1. Death Benefit Options -- The Policy Owner is able to select various
levels and patterns of Death Benefits.
2. Investment Options -- Currently, the Policy Owner has the choice of
allocating the Account Value among a maximum of nine of the Policy's 36
available Sub-Accounts or a maximum of eight of the Policy's 36 Sub-Accounts and
the Fixed Account.
3. Premium Options -- The Policy Owner has the flexibility to choose,
within limits, the amount of the initial premium and the amount and frequency of
subsequent premiums.
DEATH BENEFIT
The Policies provide for three Death Benefit Options: (1) a level Death
Benefit equal to the Face Amount ("Option A"); (2) the Face Amount plus Return
of Account Value Death Benefit ("Option B"); or (3) the Face Amount plus Return
of Premium Death Benefit ("Option C"). At the death of the last surviving
Insured, We will pay the Death Proceeds to the beneficiary. The Death Proceeds
equal the Death Benefit less any Indebtedness and less any due and unpaid
Monthly Deduction Amount occurring during a grace period. Scheduled and
unscheduled increases in Face Amount may be requested. See "Detailed Description
of Policy Benefits and Provisions -- Death Benefit," page 14.
SEPARATE ACCOUNT VL II
Separate Account VL II is a separate account established by Hartford
pursuant to the insurance laws of the State of Connecticut and organized as a
registered unit investment trust under the Investment Company Act of 1940, as
amended (the "1940 Act"). Separate Account VL II meets the definition of
"separate account" under federal securities law. Separate Account VL II
currently is comprised of 36 Sub-Accounts, each of which invests exclusively in
shares of one of the Funds.
Currently, the Policy Owner has the choice of allocating the Account Value
among a maximum of nine of the Policy's 37 investment choices (36 Sub-Accounts
and the Fixed Account). Currently, the Funds are Hartford Advisers Fund,
Hartford Bond Fund, Hartford Capital Appreciation Fund, Hartford Dividend and
Growth Fund, Hartford Growth and Income Fund, Hartford Index Fund, Hartford
International Advisers Fund, Hartford International Opportunities Fund, Hartford
MidCap Fund, Hartford Money Market Fund, Hartford Mortgage Securities Fund,
Hartford Small Company Fund and Hartford Stock Fund; Putnam VT Asia Pacific
Growth Fund, Putnam VT Diversified Income Fund, Putnam VT Global Asset
Allocation Fund, Putnam VT Global Growth Fund, Putnam VT Growth and Income Fund,
Putnam VT Health Sciences Fund, Putnam VT High Yield Fund, Putnam VT
International Growth Fund, Putnam VT International Growth and Income Fund,
Putnam VT International New Opportunities Fund, Putnam VT Investors Fund, Putnam
VT Money Market Fund, Putnam VT New Opportunities Fund, Putnam VT New Value
Fund, Putnam VT OTC & Emerging Growth Fund, Putnam VT The George Putnam Fund of
Boston, Putnam
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8 HARTFORD LIFE INSURANCE COMPANY
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VT U.S. Government and High Quality Bond Fund, Putnam VT Utilities Growth and
Income Fund, Putnam VT Vista Fund and Putnam VT Voyager Fund; and Fidelity VIP
Equity-Income Portfolio, Fidelity VIP Overseas Portfolio and Fidelity VIP II
Asset Manager Portfolio. Prospective purchasers should read the prospectuses for
the Funds accompanying this Prospectus in connection with the purchase of a
Policy. For a discussion of the investment objectives of each of the Funds, see
"Separate Account VL I," page 19.
The investment adviser for the Hartford Funds is HL Investment Advisors,
Inc. ("HL Advisors"), a wholly-owned subsidiary of Hartford. HL Advisors retains
Wellington Management Company LLP ("Wellington Management") and The Hartford
Investment Management Company, Inc. ("HIMCO") as investment sub-advisers with
respect to the Hartford Funds. The Putnam Funds are advised by Putnam Investment
Management, Inc., a subsidiary of Putnam Investments, Inc. The Fidelity VIP
Funds are managed by Fidelity Management & Research Company. For more details,
see "Separate Account VL II -- Investment Adviser," page 23.
FIXED ACCOUNT
Premium payments and Account Values may be allocated to the Fixed Account.
Amounts allocated to the Fixed Account become part of the general assets of
Hartford. Hartford invests the assets of the General Account in accordance with
applicable laws governing the investments of insurance company general accounts.
ACCOUNT VALUE
As with many other types of insurance policies, each Policy will have an
Account Value. The Account Value will increase or decrease to reflect the
interest credited to the Fixed Account and the Loan Account, the investment
experience of the Sub-Accounts applicable to the Policy and deductions for the
Monthly Deduction Amount. There is no minimum guaranteed Account Value and the
Policy Owner bears the risk of the investment in the Funds. However, if the
Death Benefit guarantee is in effect, the Policy will not lapse due to poor
investment performance. See "Detailed Description of Policy Benefits and
Provisions -- Premiums -- Account Values," page 12.
PREMIUM
You have considerable flexibility as to when and in what amounts You pay
premiums.
Prior to Policy issue, You can choose a Planned Premium, within a range
determined by Hartford based on the Face Amount and each Insured's sex (except
where unisex rates apply), Issue Age and risk classification.
The Policy will not lapse as long as the Cash Surrender Value is sufficient
to cover the Monthly Deduction Amounts or the Death Benefit guarantee is in
effect. See "Detailed Description of Policy Benefits and Provisions -- Lapse and
Reinstatement," page 15.
The minimum premium subsequent to the initial premium is $50. We reserve the
right to refund any excess premium that would cause a Policy not to meet the tax
qualification guidelines for life insurance under the Code.
There are circumstances (usually if a Policy Owner wants to prefund future
benefits in seven years or less) when a Policy may become a Modified Endowment
Contract under federal tax law. If these circumstances were to occur, loans and
other predeath distributions are includable in gross income on an income-first
basis. A 10% penalty tax may be imposed on income distributed before the Policy
Owner attains age 59 1/2. Prospective purchasers and Policy Owners are advised
to consult a qualified tax adviser before taking steps that may affect whether a
Policy becomes a Modified Endowment Contract. See "Federal Tax Considerations --
Modified Endowment Contracts," page 32, for a discussion of the "seven-pay
test."
DEDUCTIONS FROM THE PREMIUM
Before the premium is allocated to the Account Value, a deduction as a
percentage of premium is made for the premium processing charge, premium tax and
federal tax charge and front-end sales load. The amount of each premium (after
such deductions) allocated to the Account Value is Your Net Premium.
PREMIUM PROCESSING CHARGE
A 1.25% charge is deducted from each premium payment for premium collection
costs and premium and processing costs with respect to a Policy.
PREMIUM TAX CHARGE AND FEDERAL TAX CHARGE
We deduct, as a percentage of each premium, a premium tax charge to cover
premium-based taxes assessed against Hartford by a state or other governmental
entity. Such percentage will vary by jurisdiction, depending on the tax rates in
effect when a Policy is issued. The range for such premium taxes generally is
between 0% and 4%.
We also deduct a current charge of 1.25% of each premium for federal taxes
imposed under Section 848 of the Code.
FRONT-END SALES LOAD
The front-end sales load is a charge deducted from each premium. The current
and maximum front-end sales
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HARTFORD LIFE INSURANCE COMPANY 9
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load for premiums paid up to the Target Premium is 50% in the first Policy Year,
15% in Policy Years 2 through 5, 10% in Policy Years 6 through 10, and 2% in
Policy Years 11 through 20. After Policy Year 20, the current and maximum front-
end sales load is 0%.
The current and maximum front-end sales load for premiums paid in excess of
the Target Premium is 9% in Policy Year 1, 4% in Policy Years 2 through 10 and
2% in Policy Years 11 through 20. After Policy Year 20, the current and maximum
front-end sales load is 0%.
Front-end sales loads, which cover expenses relating to the sale and
distribution of the Policies, may be reduced for certain sales of Policies under
circumstances which may result in savings of such sales and distribution
expenses.
DEDUCTIONS AND CHARGES
FROM THE ACCOUNT VALUE
We will subtract amounts from Your Account Value to provide for the Monthly
Deduction Amount. Such deduc-
tions will be taken on a Pro Rata Basis from the Fixed Account and the
Sub-Accounts on each Monthly Activity Date.
The Monthly Deduction Amount equals the sum of:
(a) the Cost of Insurance;
(b) the charges for additional benefits provided by rider, if any;
(c) the charges for "special" insurance class rating, if any;
(d) the monthly administrative fee and issue charge;
(e) the mortality and expense risk charge, and
(f) any Face Amount increase fee.
Hartford may also set up a provision for income taxes against the assets of
Separate Account VL II. See "Detailed Description of Policy Benefits and
Provisions -- Deductions and Charges from the Account Value," page 18, and
"Federal Tax Considerations," page 30.
Applicants should review the prospectuses for the Funds which accompany this
Prospectus for a description of the charges assessed against the assets of each
of the Funds.
CHARGES AGAINST THE FUNDS
Separate Account VL II purchases shares of the Funds at net asset value. The
net asset value of Fund shares reflects investment advisory fees and
administrative and other expenses already deducted from the assets of the Funds.
See "Detailed Description of Policy Benefits and Provisions -- Deductions and
Charges From the Account Value -- Charges Against the Funds," page 19.
The following table shows annual Fund operating expenses for the year ended
December 31, 1997:
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF NET ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
OPERATING
EXPENSES
MANAGEMENT FEES OTHER EXPENSES (BEFORE
(BEFORE FEE (BEFORE EXPENSE WAIVERS/
WAIVERS) REIMBURSEMENTS) REIMBURSEMENTS)(1)
---------------- ---------------- -----------
<S> <C> <C> <C>
Hartford Advisers Fund....................... 0.610% 0.020% 0.630%
Hartford Bond Fund........................... 0.490% 0.020% 0.510%
Hartford Capital Appreciation Fund........... 0.620% 0.020% 0.640%
Hartford Dividend and Growth Fund............ 0.660% 0.020% 0.680%
Hartford Growth and Income Fund (2).......... 0.750% 0.150% 0.900%
Hartford Index Fund.......................... 0.375% 0.015% 0.390%
Hartford International Advisers Fund......... 0.750% 0.120% 0.870%
Hartford International Opportunities Fund.... 0.680% 0.090% 0.770%
Hartford MidCap Fund (2)..................... 0.750% 0.040% 0.790%
Hartford Money Market Fund................... 0.425% 0.015% 0.440%
Hartford Mortgage Securities Fund............ 0.425% 0.025% 0.450%
Hartford Small Company Fund.................. 0.750% 0.020% 0.770%
Hartford Stock Fund.......................... 0.430% 0.020% 0.450%
Putnam VT Asia Pacific Growth Fund........... 0.800% 0.270% 1.070%
Putnam VT Diversified Income Fund............ 0.690% 0.110% 0.800%
Putnam VT Global Asset Allocation Fund....... 0.660% 0.110% 0.770%
Putnam VT Global Growth Fund................. 0.600% 0.150% 0.750%
Putnam VT Growth and Income Fund............. 0.470% 0.040% 0.510%
Putnam VT Health Sciences Fund (3)........... 0.700% 0.340% 1.040%
</TABLE>
<PAGE>
10 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL FUND
OPERATING
EXPENSES
MANAGEMENT FEES OTHER EXPENSES (BEFORE
(BEFORE FEE (BEFORE EXPENSE WAIVERS/
WAIVERS) REIMBURSEMENTS) REIMBURSEMENTS)(1)
---------------- ---------------- -----------
<S> <C> <C> <C>
Putnam VT High Yield Fund.................... 0.660% 0.060% 0.720%
Putnam VT International Growth Fund (3)...... 0.800% 0.470% 1.270%
Putnam VT International Growth and Income
Fund........................................ 0.800% 0.320% 1.120%
Putnam VT International New Opportunities
Fund (3).................................... 1.200% 0.680% 1.880%
Putnam VT Investors Fund (3)................. 0.650% 0.330% 0.980%
Putnam VT Money Market Fund.................. 0.450% 0.090% 0.540%
Putnam VT New Opportunities Fund............. 0.580% 0.050% 0.630%
Putnam VT New Value Fund..................... 0.700% 0.150% 0.850%
Putnam VT OTC & Emerging Growth Fund (3)..... 0.700% 0.340% 1.040%
Putnam VT The George Putnam Fund of Boston
(3)......................................... 0.650% 0.360% 1.010%
Putnam VT U.S. Government and High Quality
Bond Fund................................... 0.610% 0.080% 0.690%
Putnam VT Utilities Growth and Income Fund... 0.670% 0.070% 0.740%
Putnam VT Vista Fund......................... 0.650% 0.220% 0.870%
Putnam VT Voyager Fund....................... 0.540% 0.050% 0.590%
Fidelity VIP Equity-Income Portfolio (4)..... 0.500% 0.080% 0.580%
Fidelity VIP Overseas Portfolio (4).......... 0.750% 0.170% 0.920%
Fidelity VIP II Asset Manager Portfolio
(4)......................................... 0.550% 0.100% 0.650%
</TABLE>
- ------------
(1) "Management Fees" generally represent the fees paid to the investment
adviser or its affiliate for investment and administrative services
provided. "Other Expenses" are expenses (other than "Management Fees") which
are deducted from the fund including legal, accounting and custodian fees.
For a complete description of the services provided in consideration of the
operating expenses deducted, please see the accompanying Funds prospectuses.
(2) Hartford MidCap Fund and Hartford Growth and Income Fund are new Funds.
"Total Fund Operating Expenses" are based on annualized estimates of such
expenses to be incurred in the current fiscal year. HL Investment Advisors,
Inc. has agreed to waive its fees for the Hartford Growth and Income Fund
until the assets of the Funds (excluding assets contributed by companies
affiliated with HL Investment Advisors, Inc.) reach $20 million. After this
waiver, the "Management Fees" would be 0.330%, the "Other Expenses" would be
0.150%, and "Total Fund Operating Expenses" ratio would be 0.480%
(annualized).
(3) The "Management Fees" and "Other Expenses" shown in the table above do not
reflect an expense limitation. After an expense limitation, "Management
Fees," "Other Expenses" and "Total Fund Operating Expenses" would have been:
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT OPERATING
FEES OTHER EXPENSES EXPENSES
---------- --------------- ---------------
<S> <C> <C> <C>
Putnam VT Health Sciences Fund*......... 0.560% 0.340% 0.900%
Putnam VT International Growth Fund..... 0.730% 0.470% 1.200%
Putnam VT International New
Opportunities Fund..................... 0.920% 0.680% 1.600%
Putnam VT Investors Fund*............... 0.520% 0.330% 0.850%
Putnam VT OTC & Emerging Growth Fund*... 0.560% 0.340% 0.900%
Putnam VT The George Putnam Fund of
Boston*................................ 0.490% 0.360% 0.850%
</TABLE>
* Estimated "Management Fees," "Other Expenses" and "Total Fund Operating
Expenses."
(4) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds have entered into
arrangements with their custodian whereby credits realized, as a result of
uninvested cash balances were used to reduce custodian expenses. Including
these reductions, the "Total Operating Expenses" presented in the table
would have been 0.570% for Fidelity VIP Equity-Income Portfolio, 0.900% for
Fidelity VIP Overseas Portfolio and 0.640% for Fidelity VIP II Asset Manager
Portfolio.
POLICY LOANS
A Policy Owner may obtain a cash loan from Hartford. The loan is secured by
the Policy. At the time such loan is requested, Indebtedness may not exceed 90%
of the Account Value. See "Detailed Description of Policy Benefits and
Provisions -- Policy Loans," page 14.
SURRENDER
At any time prior to the Maturity Date, You may surrender Your Policy,
provided Your Policy has a Cash Surrender Value. See "Detailed Description of
Policy Benefits and Provisions -- Surrender," page 16.
THE RIGHT TO EXAMINE OR EXCHANGE THE POLICY
Any person purchasing a Policy has a limited right to return such Policy for
cancellation. If a purchaser returns a Policy (a) within ten days after
receiving such Policy, (b) ten days after We mail or personally deliver a Notice
of Withdrawal Right, or (c) within 45 days after signing of the Policy
application, whichever is latest (subject to applicable state regulation),
Hartford, within seven business days thereafter, will return to such Policy
Owner the greater of (a) the premium paid minus any Indebtedness, or (b) the sum
of (1) the Account Value, minus any Indebtedness, on the date the returned
Policy is received by Hartford or by its agent, and (2) any deductions under
such Policy or by the Funds for taxes, charges or fees.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 11
- --------------------------------------------------------------------------------
Additionally, once a Policy is in effect and during the first 24 months
after its Date of Issue, a Policy may be exchanged, without submitting proof of
insurability, for a non-variable last survivor life insurance policy offered by
Us on the life of the Insureds.
DETAILED DESCRIPTION OF POLICY BENEFITS AND PROVISIONS
GENERAL
This Prospectus describes a last survivor flexible premium variable life
insurance Policy that offers a Policy Owner considerable flexibility in
selecting the timing and amount of premium payments.
PREMIUMS
PREMIUM PAYMENT FLEXIBILITY
You have considerable flexibility as to when and in what amounts You pay
premiums under Your Policy.
Prior to Policy issue, You can choose a Planned Premium, within a range
determined by Hartford, based on the Face Amount and each Insured's sex (except
where unisex rates apply), Issue Age and risk classification. We will send You
premium notices for Planned Premiums. Such notices may be sent on an annual,
semi-annual or quarterly basis. You may also have premiums automatically
deducted monthly from Your checking account. The Planned Premiums and payment
mode You select are shown on Your Policy's specifications page. You may change
the Planned Premiums, subject to Our minimum amount rules then in effect.
A Policy will not lapse as long as the Cash Surrender Value is sufficient to
cover the Monthly Deduction Amounts or the Death Benefit guarantee is in effect.
For more details, see, "Lapse and Reinstatement," page 15.
ALLOCATION OF PREMIUM PAYMENTS
The initial Net Premium will be allocated to the Hartford Money Market
Sub-Account on the later of the Policy Date or the date We receive Your initial
premium payment.
The Account Value in the Hartford Money Market Sub-Account will then be
allocated to the Fixed Account and the Sub-Accounts according to the premium
allocation specified in the Your Policy application on the latest of: (1) 45
days after the Policy application is signed, (2) ten days after We mail or
personally deliver a Notice of Withdrawal Right to You, or (3) ten days after
the Policy Owner receives the issued Policy.
Any additional Net Premiums received by Us prior to such date will be
allocated to the Hartford Money Market Sub-Account. The minimum premium
subsequent to the initial premium payment is $50.
You may change Your premium allocation upon request In Writing. Portions of
the premium allocated to the Fixed Account and the Sub-Accounts must be whole
percentages of 10% or more of the total premium. Subsequent Net Premiums will be
allocated to the Fixed Account and the Sub-Accounts according to Your most
recent written instructions; provided that, currently, Your Account Value may be
allocated to a maximum of nine Sub-Accounts or eight Sub-Accounts and the Fixed
Account. (Hartford reserves the right to increase the number of allocable
investment options to more than nine in the future.) If We receive a premium
payment and Your most recent premium allocation instructions would violate the
foregoing allocation limitation, We will allocate the Net Premium to the Fixed
Account and the Sub-Accounts on a Pro Rata Basis.
A Policy Owner receives several different types of notifications as to what
his or her current premium allocation is. The initial allocation chosen by a
Policy Owner is shown in his or her Policy. Each transaction confirmation
received after a premium payment is received by Hartford will show how a Net
Premium has been allocated. Additionally, each quarterly statement summarizes
the current premium allocation in effect for such Policy.
ACCUMULATION UNITS
Net Premiums allocated to the Sub-Accounts are used to credit Accumulation
Units to such Sub-Accounts.
The number of Accumulation Units in each Sub-Account to be credited to a
Policy (including the initial allocation to the Hartford Money Market
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 value of the Accumulation Units in that
particular Sub-Account next computed following receipt of such premium payment.
The resulting figure is the number of Accumulation Units to be credited to each
Sub-Account.
ACCUMULATION UNIT VALUES
The Accumulation Unit Value for each Sub-Account will vary to reflect the
investment experience of the applicable Fund and will be determined on each
Valuation Day by multiplying the Accumulation Unit Value of the particular
Sub-Account on the preceding Valuation Day by the Net Investment Factor for that
Sub-Account for the Valuation Period then ended. The Net Investment Factor for
each of the Sub-Accounts is equal to the net asset value per share of the
corresponding Fund at the end of the Valuation Period (plus the per share amount
of any dividend or
<PAGE>
12 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
capital gain distributions paid by that Fund in the Valuation Period then ended)
divided by the net asset value per share of the corresponding Fund at the
beginning of the Valuation Period.
All valuations in connection with a Policy, e.g., with respect to
determining Account Value, in connection with Policy loans, or in calculation of
Death Benefits, or with respect to determining the number of Accumulation Units
to be credited to a Policy with each premium payment other than the initial
premium payment will be made on the date the request or payment is received by
Hartford at the National Service Center, provided such date is a Valuation Day;
otherwise such determination will be made on the next succeeding date which is a
Valuation Day.
PREMIUM LIMITATION
If premiums are received which would cause a Policy to fail to meet the
definition of a life insurance policy in accordance with the Code, We reserve
the right to refund the excess premium payments and any interest thereon within
60 days after the end of a Policy Year.
A premium payment that results in an increase in the Death Benefit greater
than the amount of the premium will be accepted only after We approve evidence
of insurability.
ACCOUNT VALUES
As with traditional life insurance, each Policy will have an Account Value.
There is no minimum guaranteed Account Value.
The Account Value of a Policy changes on a daily basis and will be computed
on each Valuation Day. The Account Value will vary to reflect the investment
experience of the Sub-Accounts, the interest credited to the Fixed Account and
the Loan Account, and the Monthly Deduction Amounts.
A Policy's Account Value is related to the net asset value of the Funds
associated with the Sub-Accounts, if any, to which Net Premiums on the Policy
have been allocated. The Account Value in the Sub-Accounts on any Valuation Day
is calculated by, 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 Account Value with respect
to the Policy in all of the Sub-Accounts plus the value of the Fixed Account and
the Loan Account. A Policy's Cash Surrender Value, which is the net amount
available upon surrender of the Policy, is the Account Value less any
Indebtedness. See "-- Accumulation Unit Values," above.
AMOUNT PAYABLE ON SURRENDER OF A POLICY
As long as the Policy is in effect, a Policy Owner may elect, without the
consent of the beneficiary (provided the designation of beneficiary is not
irrevocable), to fully surrender the Policy. Upon surrender, the Policy Owner
will receive the Cash Surrender Value determined as of the later of (a) the date
Hartford receives the Policy Owner's request In Writing or (b) the date
requested by the Policy Owner. The Policy will terminate on the later of (a) the
date of receipt by Hartford of the request In Writing and (b) the date the
Policy Owner requests, In Writing, the surrender to be effective.
LOAD REFUND
If a Policy is surrendered during the first two Policy Years, the Policy
Owner may be entitled to payment of a refund in addition to the Cash Surrender
Value. The refund will be equal to the excess, if any, of the sum of the actual
front-end sales load charged to date, divided by the sum of:
1. 30% of payments in aggregate amount less than or equal to one Guideline
Annual Premium plus 10% of payments in aggregate amount greater than one
Guideline Annual Premium but not more than two Guideline Annual Premiums;
and
2. 9% of each payment made in excess of two Guideline Annual Premiums.
PARTIAL WITHDRAWALS
One partial withdrawal is allowed per month (i.e., between any successive
Monthly Activity Dates). The minimum partial withdrawal allowed is $500. The
maximum partial withdrawal is the Cash Surrender Value, minus $1,000. If the
Death Benefit Option then in effect is Option A or Option C (see "-- Death
Benefit -- Death Benefit Options," page 14), the Face Amount is reduced by the
amount of any partial withdrawal. The minimum Face Amount required after a
partial withdrawal is subject to Our rules then in effect. Unless specified
otherwise, the partial withdrawal will be deducted on a Pro Rata Basis from the
Fixed Account and the Sub-Accounts. Currently, Hartford does not impose a
partial withdrawal charge. However, Hartford reserves the right to impose in the
future a partial withdrawal charge of up to $50.
TRANSFERS OF ACCOUNT VALUE
AMOUNT AND FREQUENCY OF TRANSFERS
Upon request and as long as Your Policy is in effect, You may transfer
amounts among the Fixed Account and the Sub-Accounts. Transfers may be made by
request In Writing or by calling Our National Service Center at 1-800-231-5453.
Transfers by telephone may be made by the agent of record or by the
attorney-in-fact pursuant to a power of attorney. Telephone transfers may not be
permitted in some states. The policy of Hartford and its agents and affiliates
is that they will not be responsible for losses resulting from acting upon
telephone requests reasonably believed to be genuine. We will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine;
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 13
- --------------------------------------------------------------------------------
otherwise, We may be liable for any losses due to unauthorized or fraudulent
instructions. The procedures We follow for transactions initiated by telephone
include requiring callers to provide certain identifying information for
themselves (if such callers are not Policy Owners) and the Policy Owner. All
transfer instructions communicated to Us by telephone are tape recorded.
The amounts which may be transferred and the number of transfers will be
limited by Our rules then in effect.
Currently, the Policy Owner may make one transfer per calendar month free of
charge, excluding any transfers made pursuant to Your enrollment in the dollar
cost averaging option. Each subsequent transfer in excess of one per calendar
month will be subject to a transfer charge of up to $25.
We reserve the right to limit at a future date the size of transfers and
remaining balances and to limit the number and frequency of transfers of Account
Value.
TRANSFERS OF ACCOUNT VALUE TO OR FROM SUB-ACCOUNTS
In the event of a transfer of Account Value from a Sub-Account, the number
of Accumulation Units credited to such will be reduced. The reduction will be
determined by dividing (1) the amount transferred; by (2) the value of the
Accumulation Units in that Sub-Account determined as of the next Valuation Day
after We receive Your transfer request In Writing.
In the event of a transfer to a Sub-Account, We will increase the number of
Accumulation Units credited to the Sub-Account. Such increase will equal the
result of dividing (1) the amount transferred, by (2) value of the Accumulation
Units in the Sub-Account determined as of the next Valuation Day after We
receive Your request for transfer In Writing.
TRANSFERS FROM THE FIXED ACCOUNT
In addition to the conditions set forth above, transfers from the Fixed
Account are subject to the following:
(a) the transfer must occur during the 30-day period following each Policy
Anniversary; and;
(b) if Your accumulated value in the Fixed Account exceeds $1,000, the amount
transferred from the Fixed Account in any Policy Year may not exceed 25% of
the accumulated value in the Fixed Account on the transfer date.
DOLLAR COST AVERAGING OPTION
You may elect to allocate Your Net Premiums among the Sub-Accounts and the
Fixed Account pursuant to the dollar cost averaging (DCA) option. If You choose
the DCA option, Your Net Premiums will be deposited into the Hartford Money
Market Sub-Account. Amounts will be withdrawn monthly from the Hartford Money
Market Sub-Account and will be allocated to the other investment options, in
accordance with Your premium allocation instructions. The transfer date will be
the monthly anniversary of the first transfer under Your initial DCA election.
The first transfer will commence within five business days after Hartford
receives Your initial election, made either In Writing or by telephone, subject
to the telephone transfer procedures described above. The dollar amount will be
allocated to the investment options that You specify, in the proportions that
You specify. If, on any transfer date, Your Cash Value allocated to the Hartford
Money Market Account is less than the amount You have elected to transfer, Your
DCA program will terminate.
You may cancel Your DCA election by notice In Writing to Hartford or by
calling Our National Service Center at 1-800-231-5453.
The main objective of a DCA program is to minimize the impact of short-term
price fluctuations. The DCA program allows Policy Owners to take advantage of
market fluctuations. Since the same dollar amount is transferred to other
investment options at set intervals, the DCA program allows You to purchase more
Accumulation Units when prices are low and fewer Accumulation Units when prices
are high. Therefore, a lower average cost per Accumulation Unit may be achieved
over the long term. However, it is important to understand that the DCA program
does not assure a profit or protect against loss in a declining market. Policy
Owners who choose the DCA option should have the financial ability to continue
making investments through periods of low price levels.
POLICY LOANS
As long as the Policy is in effect, a Policy Owner may obtain, without the
consent of the beneficiary (provided the designation of beneficiary is not
irrevocable), a cash loan from Hartford. The total Indebtedness at the time of
the new loan (including the accrued interest on prior loans plus the currently
applied for loan) may not exceed 90% of the Account Value.
The amount of each loan will be transferred on a Pro Rata Basis from the
Fixed Account and each of the Sub-Accounts (unless the Policy Owner specifies
otherwise) to the Loan Account. The Loan Account is a mechanism used to ensure
that any outstanding Indebtedness remains fully secured by the Account Value.
LOAN INTEREST
Interest will accrue daily on the Indebtedness at the Policy Loan Rate,
which is the interest rate as shown in the Policy. The difference between the
value of the Loan Account and the Indebtedness will be transferred on a Pro Rata
Basis from the Fixed Account and Sub-Accounts to the Loan Account on each
Monthly Activity Date.
<PAGE>
14 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CREDITED INTEREST
A Loan Account, other than a Loan Account established pursuant to a
Preferred Loan as described in the subsection entitled "Policy Loans --
Preferred Loan," will be credited with interest in the following manner: During
the first ten Policy Years, any amounts in the Loan Accounts will be credited
with interest at the rate of 4%. For Policy Years 11 and beyond, a Loan Account
will be credited with interest at the rate of 5%.
PREFERRED LOAN
If, at any time after the tenth Policy Anniversary, the Account Value
exceeds the total of all premiums paid since issue, a Preferred Loan is
available. The amount available for a Preferred Loan is the amount by which the
Account Value exceeds total premiums paid. The amount of the Loan Account which
equals a Preferred Loan will be credited with interest at a rate equal to 6%.
The amount of Indebtedness that qualifies as a Preferred Loan is determined on
each Monthly Activity Date.
LOAN REPAYMENTS
You can repay any part of or the entire Indebtedness at any time while Your
Policy is in force and either of the Insureds is alive. The amount of the Policy
loan repayment will be deducted from the Loan Account and will be allocated
among the Fixed Account and the Sub-Accounts in the same percentage as premiums
are allocated.
TERMINATION DUE TO EXCESSIVE INDEBTEDNESS
If total Indebtedness equals or exceeds Account Value, Your Policy will
terminate 61 days after We have mailed notice to Your last known address and to
the last known address of any assignees of record. If sufficient loan repayment
is not made by the end of such 61 day period, Your Policy will terminate without
value.
EFFECT OF LOANS ON ACCOUNT VALUE
A Policy loan, whether or not repaid, will have a permanent effect on Your
Account Value because the investment results of each Sub-Account will apply only
to the amount remaining in such Sub-Accounts. In addition, the rate of interest
credited to the Fixed Account will usually be different than the rate credited
to the Loan Account. The longer a Policy loan is outstanding, the greater the
effect on Your Account Value likely to be. Such effect could be favorable or
unfavorable. If the Fixed Account and the Sub-Accounts earn more than the annual
interest rate for funds held in the Loan Account, a Policy Owner's Account Value
will not increase as rapidly as it would have had no Policy loan been made. If
the Fixed Account and the Sub-Accounts earn less than the Loan Account, the
Policy Owner's Account Value will be greater than it would have been had no
Policy loan been made. Additionally, if not repaid, the aggregate amount of the
outstanding Indebtedness will reduce the Death Proceeds and the Cash Surrender
Value otherwise payable.
DEATH BENEFIT
Each Policy provides for the payment of the Death Proceeds to the named
beneficiary upon the death of the last surviving Insured. The Death Proceeds
payable to the beneficiary equal the Death Benefit less any Indebtedness and
less any due and unpaid Monthly Deduction Amount occurring during a grace
period. The Death Benefit depends on the Death Benefit Option You select, the
minimum Death Benefit provision, and whether or not the Death Benefit guarantee
is in effect.
DEATH BENEFIT OPTIONS
There are three Death Benefit Options: 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:
1. Under Option A, the Face Amount.
2. Under Option B, the Face Amount plus the Account Value.
3. Under Option C, the Face Amount plus the sum of the premiums paid.
OPTION CHANGE
You may change Your Death Benefit Option to Option A or Option B without
evidence of insurability. If a change to Option A is elected, the Face Amount
will become that amount available as a Death Benefit immediately prior to the
option change. If a change to Option B is elected, the Face Amount will become
that amount available as a Death Benefit immediately prior to the option change,
reduced by the then-current Account Value. Changing Your Death Benefit Option
does not result in any fees or charges against Your Policy. However, you should
consult a competent tax adviser regarding the possible adverse tax consequences
resulting from a change in Your Death Benefit Option.
DEATH BENEFIT GUARANTEE
The Death Benefit guarantee is a Policy feature that is attached to every
Policy at issue. If the premiums paid during Policy Year 1 are less than the
Annual Death Benefit Guarantee Premium shown in the Policy, then the Death
Benefit guarantee will be removed the Policy.
After Policy Year 1 and through Policy Year 5, the Death Benefit guarantee
will be in effect as long as the cumulative premiums paid into the Policy, less
any withdrawals from the Policy, equal or exceed the Cumulative Death Benefit
Guarantee Premium. The Death Benefit guarantee period will expire at the end of
Policy Year 5.
If the Death Benefit guarantee is in effect, payment of the Face Amount upon
the death of the last surviving
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 15
- --------------------------------------------------------------------------------
Insured will be guaranteed regardless of a Policy's investment performance. The
Death Benefit guarantee is in effect if:
(a) the Death Benefit guarantee period has not expired; and
(b) on each Monthly Activity Date, the cumulative premiums paid into a Policy,
less withdrawals from such Policy, equal or exceed the Cumulative Death
Benefit Guarantee Premium.
MINIMUM DEATH BENEFIT
Notwithstanding the above, Your Policy has a minimum Death Benefit equal to
the Account Value multiplied by a percentage specified in Your Policy. This
percentage varies according to the Policy Year and each Insured's Issue Age, sex
(where unisex rates are not used) and insurance class, but may be increased by
You in Your Policy application.
EXAMPLES OF MINIMUM DEATH BENEFIT:
<TABLE>
<CAPTION>
A B
---------- ----------
<S> <C> <C>
Face Amount............................ $ 100,000 $ 100,000
Account Value on Date of Death......... 46,500 34,000
Specified Percentage................... 250% 250%
Death Benefit Option................... Level Level
</TABLE>
In Example A, the minimum Death Benefit equals $116,250, i.e., the greater
of $100,000 (the Face Amount) or $116,250 (the Account Value at the Date of
Death of $46,500, multiplied by the specified percentage of 250%). This amount,
less any outstanding Indebtedness, constitutes the Death Proceeds payable to the
beneficiary.
In Example B, the minimum Death Benefit is $100,000, i.e., the greater of
$100,000 (the Face Amount) or $85,000 (the Account Value of $34,000, multiplied
by the specified percentage of 250%).
All or part of the Death Proceeds may be paid in cash or applied under a
"Payment Option." See "Other Matters -- Payment Options," page 24.
UNSCHEDULED INCREASES AND DECREASES IN FACE AMOUNT
At any time after the first Policy Year, You may request In Writing a change
in the Face Amount.
The minimum amount by which the Face Amount can be increased or decreased is
based on Our rules then in effect.
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 effective 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 in Our minimum rules
then in effect.
We reserve the right to limit the number of increases or decreases made
under a Policy to no more than one in any 12 month period.
BENEFITS AT MATURITY
If either Insured is living on the Maturity Date, on surrender of Your
Policy to Hartford, Hartford will pay to You the Cash Surrender Value. On the
Maturity Date, Your Policy will terminate and Hartford will have no further
obligations under such Policy.
LAPSE AND REINSTATEMENT
POLICY LAPSE AND GRACE PERIOD
A Policy will be in default on any Monthly Activity Date on which its Cash
Surrender Value is not sufficient to cover the Monthly Deduction Amount. A
61-day period, called the "grace period," will begin from the date of default.
Hartford will mail the Policy Owner and any assignee written notice of the
amount of premium that will be required to continue the defaulting Policy in
force at least 30 days before the end of the grace period. The premiums required
will be no greater than the amount required to pay three Monthly Deduction
Amounts as of the day the grace period began. Unless the Death Benefit Guarantee
is in effect, such Policy will terminate without value if the required premium
is not paid by the end of the grace period. If the Death Benefit guarantee is in
effect and sufficient premium has not been paid by the end of the grace period,
the Death Benefit will be reduced to the 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.
<PAGE>
16 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
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 five 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.
REINSTATEMENT
Unless the Policy has been surrendered, the Policy may be reinstated prior
to the Maturity Date, provided:
(a) the Insureds alive at the end of the grace period are also alive on the date
of reinstatement;
(b) You make Your request In Writing within five years from the date the Policy
lapsed;
(c) You submit to Us satisfactory evidence of insurability;
(d) any Policy Indebtedness is repaid or carried over to the reinstated Policy;
and
(e) You pay sufficient premium to (1) cover all Monthly Deduction Amounts that
are due and unpaid during the Grace Period and (2) keep Your Policy in force
for three months after the date of reinstatement.
The Account Value on the reinstatement date will reflect:
(a) the Account Value at the time of termination; plus
(b) Net Premiums derived from premiums paid at the time of reinstatement. Upon
reinstatement, any Indebtedness at the time of termination must be repaid or
carried over to the reinstated Policy.
THE RIGHT TO EXAMINE OR EXCHANGE A POLICY
A Policy Owner has a limited right to return a Policy for cancellation. If a
Policy is returned, by mail or personal delivery to Hartford or to the agent who
sold such Policy, (a) to be canceled within ten calendar days after receipt of
the Policy by the Policy Owner, (b) within ten days of Hartford's mailing or
personal delivery of a Notice of Right to Withdraw, or (c) within 45 days of
signing of the Policy application (whichever is later, and subject to applicable
state regulation), Hartford will return to such Policy Owner, within seven days
thereafter, the greater of the premium paid, less any Indebtedness, or the sum
of (1) the Account Value, less any Indebtedness, on the date the returned Policy
is received by Hartford or its agent and (2) any deductions under such Policy or
by the Funds for taxes, charges or fees.
Once a Policy is in effect, it may be exchanged during the first 24 months
after its issuance for a non-variable last survivor life insurance policy
offered by Us or an affiliate on the life of the Insureds. No evidence of
insurability will be required. The new policy will have an amount at risk which
equals or is less than the amount at risk in effect on the date of exchange.
Premiums under the new policy will be based on the same risk classifications as
the Policy for which the policy was exchanged. An exchange of a Policy under
these circumstances should be a tax-free transaction under Section 1035 of the
Code.
SURRENDER
At any time prior to the Maturity Date, 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.
VALUATION OF PAYMENTS AND TRANSFERS
We value the Policy on every Valuation Day.
We will pay Death Proceeds, Cash Surrender Values, Partial Withdrawals, and
loan amounts allocable to the Sub-Accounts within seven days after We receive
all the information needed to process the payment, unless the New York Stock
Exchange is closed for other than a regular holiday or weekend, trading is
restricted by the Commission or the Commission declares that an emergency
exists.
Hartford may defer payment of any amounts not allocable to the Sub-Accounts
for up to six months from the date on which We receive the request In Writing.
APPLICATION FOR A POLICY
Individuals wishing to purchase a Policy must submit an application to
Hartford. Within limits, an applicant may choose the initial Face Amount.
Policies generally will be issued only on the lives of Insureds between the ages
of 20 and 80 who supply evidence of insurability satisfactory to Hartford.
(Hartford may extend the age 80 limit to higher ages for the older Insured, in
which case certain age and risk classification restrictions on the younger
Insured will apply.) Acceptance is subject to Hartford's underwriting rules and
Hartford reserves the right to reject an application for any reason. No change
in the terms or conditions of a Policy will be made without the consent of the
Policy Owner.
A Policy will be effective on the Policy Date only after Hartford has
received 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, e.g., Monthly Activity Date and Policy Years.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 17
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REDUCED CHARGES FOR ELIGIBLE GROUPS
Certain of the charges and deductions described below may be reduced for
Policies issued in connection with a specific plan, in accordance with Our rules
in effect as of the date the application for a Policy is approved. To qualify
for such a reduction, a plan must satisfy certain criteria, e.g., 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.
DEDUCTIONS FROM THE PREMIUM
Before the allocation of the premium to the Account Value, a deduction as a
percentage of premium is made for the premium processing charge, premium tax and
federal tax charge and front-end sales load. The amount of each premium
allocated to the Account Value is Your Net Premium.
PREMIUM PROCESSING CHARGE
A 1.25% charge is deducted from each premium payment for premium collection
costs and premium and Policy processing costs.
PREMIUM TAX CHARGE AND FEDERAL TAX CHARGE
We deduct a percentage of each premium as a premium tax charge to cover
premium-based taxes assessed against Us by a state or other governmental entity.
This percentage will vary by locale, depending on the tax rates in effect when
the Policy is issued. The range of such charge generally is between 0% and 4%.
We also deduct as a percentage of each premium a 1.25% charge to cover the
estimated costs to Us of the federal income tax treatment of the Policies'
deferred acquisition costs under Section 848 of the Code. We have determined
that this charge is reasonable in relation to Our increased federal income tax
burden resulting from the receipt of premiums.
FRONT-END SALES LOAD
The front-end sales load is a charge deducted from each premium based on the
amount of premium paid in relation to the Target Premium and the Policy Year in
which the premium is paid. For a definition of "Target Premium," see "Special
Terms," page 5.
Both the current and maximum front-end sales loads for premiums paid 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 and maximum front-end sales load is 0%.
Both the current and maximum front-end sales loads for premiums paid 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 and
maximum front-end sales load is 0%.
Front-end sales loads which cover expenses relating to the sale and
distribution of the Policies may be reduced for certain sales of the Policies
under circumstances which may result in savings of such sales and distribution
expenses.
EXAMPLE OF FRONT-END SALES LOADS/IMPACT OF REFUND OF LOAD
An example of the actual front-end sales loads and the impact of the load
refund, if any (see "Detailed Description of Policy Benefits and Provisions --
Premiums -- Load Refund," page 12), for a Policy is shown below. This example
uses the same specific information (i.e., Issue Age, Face Amount, premium level,
etc.) as the illustration on page 37 of this Prospectus.
<TABLE>
<S> <C>
Death Benefit Option: Level
Face Amount: $1,000,000
Issue Ages/Sex/Class: 65/Male/Preferred
65/Female/Preferred
Guideline Annual Premium: $36,042
Annual Planned Premium: $27,000
</TABLE>
IMPACT OF FRONT-END SALES LOAD/REFUND OF LOADS
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE CUMULATIVE AMOUNT OF
POLICY PREMIUM FRONT-END NON-REFUNDABLE REFUND UPON
YEAR PAID SALES LOAD SALES LOAD SURRENDER
- --------- ------------ ------------ --------------- -------------
<S> <C> <C> <C> <C>
1 $ 27,000.00 $ 12,771.00 $ 8,098.96 $ 4,672.04
2 54,000.00 16,602.30 12,548.31 4,053.99
</TABLE>
<PAGE>
18 HARTFORD LIFE INSURANCE COMPANY
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DEDUCTIONS AND CHARGES FROM
THE ACCOUNT VALUE
MONTHLY DEDUCTION AMOUNTS
On the Policy Date and on each subsequent Monthly Activity Date, Hartford
will deduct the Monthly Deduction Amount from the Account Value to cover certain
charges and expenses incurred in connection with a Policy. Each Monthly
Deduction Amount will be deducted on a Pro Rata Basis from the Fixed Account and
each of the Sub-Accounts. The Monthly Deduction Amount will vary from month to
month.
The Monthly Deduction Amount equals the sum of:
(a) the charge for the Cost of Insurance;
(b) the charges for additional benefits provided by rider, if any;
(c) the charges for "special" insurance class rating, if any;
(d) the monthly administrative fee and issue charge;
(e) the mortality and expense risk charge; and
(f) any Face Amount increase fee.
(A) Cost of Insurance Charge
The charge for the Cost of Insurance is equal to:
(i) the Cost of Insurance rate per $1,000, multiplied by
(ii) the amount at risk, divided by
(iii) 1,000.
The amount at risk equals the Death Benefit less the Account Value on that
date, prior to assessing the Monthly Deduction Amount.
The Cost of Insurance covers Hartford's anticipated mortality costs. For
standard risks, the Cost of Insurance rate will not exceed those based on
the 1980 Commissioners' Standard Ordinary Mortality Smoker or Nonsmoker
Table, age last birthday. A table of guaranteed Cost of Insurance rates per
$1,000 will be included in each Policy; however, Hartford reserves the right
to use rates less than those shown in the table. Substandard risks will be
charged a higher Cost of Insurance rate that will not exceed rates based on
a multiple of the 1980 Commissioners' Standard Ordinary Mortality Smoker or
Nonsmoker Table, age last birthday. The multiple will be based on the
Insureds' risk classes. Hartford will determine the Cost of Insurance rate
at the start of each Policy Year. Any changes in the Cost of Insurance rate
will be made uniformly for all Insureds of the same issue ages, sexes and
risk classes and whose coverage has been in force for the same length of
time. No change in insurance class or cost will occur on account of
deterioration of the Insureds' health.
Because a Policy Owner's Account Value and Death Benefit may vary from
month to month, the Cost of Insurance may also vary on each Monthly Activity
Date.
(B) Rider Charge
If a Policy includes riders, a charge applicable to the riders is made
from the Account Value on each Monthly Activity Date.
The charge applicable to these riders is to compensate Hartford for the
anticipated cost of providing these benefits and is specified on the
applicable rider.
For a description of the riders available, see "Supplemental Benefits,"
page 25.
(C) Special Insurance Class Charge
A charge for a special insurance class rating of an Insured may be made
against the Account Value, if applicable. This charge is to compensate
Hartford for the additional mortality risk associated with individuals in
these classes.
(D) Monthly Administrative Fee and Issue Charge
Hartford will assess a current monthly administrative fee to compensate
Hartford for administrative costs in connection with the Policies. The
current monthly administrative fee is the sum of $7.50 per month, plus $0.01
per month per $1,000 of Face Amount at issue, paid in Policy Years 1 through
10. The charge for all Policy Years is guaranteed never to exceed the sum of
$10.00 per month, plus $0.03 per month per $1,000 of Face Amount at issue.
Additionally, in the first five Policy Years, We assess a monthly issue
charge to compensate Hartford for the up-front costs to underwrite and issue
a Policy. The issue charge is the sum of $20.00 per month for the first five
Policy Years plus $.05 per $1,000 of Face Amount at Issue Date or
unscheduled Face Amount increase per month for the first five Policy Years
from the Issue Date or the date of increase.
The sum of the premium processing charges, the monthly administrative fee
and the issue charge will not exceed the cost Hartford incurs in providing
administrative services under the Policies.
(E) Mortality and Expense Risk Charge
A current charge is made for mortality and expense risks assumed by
Hartford. This charge is allocated to the General Account. Hartford may
profit from this charge. See also "Detailed Description of Policy Benefits
and Provisions -- Premiums -- Account Values," page 12.
The current mortality and expense risk charge for any Monthly Activity
Date is equal to:
(i) the current mortality and expense risk rate; multiplied by
(ii) the portion of the Account Value allocated to the Sub-Accounts on the
Monthly Activity Date prior to assessing the Monthly Deduction Amount.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 19
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The current and guaranteed mortality and expense risk rate for the first
ten Policy Years is 0.80%. For Policy Years 11 through 20, the current and
guaranteed maximum rate is 0.50% and is reduced to 0.25% after Policy Year
20.
The mortality risk assumed is that the actual Cost of Insurance charges
specified in the Policy will be insufficient to meet actual claims. The
expense risk assumed is that expenses incurred in issuing and administering
the Policies will exceed the administrative charges set in a Policy.
Hartford may profit from the mortality and expense risk charge and may use
any profits for any proper purpose, including any difference between the
cost it incurs in distributing the Policies and the proceeds of the
front-end sales load.
CHARGES AGAINST THE FUNDS
The investment performance of each Fund reflects the management fee that the
Fund pays to its investment manager as well as other operating expenses that the
Fund incurs. Investment management fees are generally daily fees computed as a
percentage of a Fund's average daily net assets as an annual rate. Please read
the prospectus for each Fund for complete details.
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.
HARTFORD
Hartford Life Insurance Company ("Hartford") is a stock life insurance
company engaged in the business of writing health and life insurance, both
individual and group, in all states of the United States and the District of
Columbia. Hartford was originally incorporated under the laws of Massachusetts
on June 5, 1902, and was subsequently redomiciled to Connecticut. Its offices
are located in Simsbury, Connecticut; however, its mailing address is P.O. Box
2999, Hartford, CT 06104-2999. Hartford is a subsidiary of Hartford Fire
Insurance Company, one of the largest multiple lines insurance carriers in the
United States. Hartford is ultimately owned by The Hartford Financial Services
Group, Inc., a Delaware corporation.
Hartford is rated A+ (superior) by A.M. Best and Company, Inc., on the basis
of its financial soundness and operating performance. Hartford is rated AA by
Standard & Poor's on the basis of insurer financial strength and AA+ by Duff and
Phelps, on the basis of its claims paying ability. These ratings do not apply to
the investment performance of the Sub-Accounts. The ratings apply to Hartford's
ability to meet its insurance obligations, including those described in this
Prospectus.
SEPARATE ACCOUNT VL II
GENERAL
Separate Account VL II is a separate account of Hartford established on
September 30, 1994 pursuant to the insurance laws of the State of Connecticut
and organized as a unit investment trust registered with the Commission under
the 1940 Act. The Separate Account meets the definition of "separate account"
under federal securities law. Under Connecticut law, the assets of the Separate
Account are held exclusively for the benefit of Policy Owners and persons
entitled to payments under the Policies. The assets of the Separate Account are
not chargeable with liabilities arising out of any other business which Hartford
may conduct.
FUNDS
The assets of each Sub-Account are invested exclusively in one of the Funds.
Each Hartford Fund is organized as a corporation under the laws of the State of
Maryland and is a diversified open-end management investment company registered
under the 1940 Act. The Putnam Funds are portfolios of Putnam Variable Trust
(formerly, Putnam Capital Manager Trust), a Massachusetts business trust
organized on September 24, 1987 as an open-end, series investment company with
multiple portfolios or funds registered under the 1940 Act. The Fidelity VIP
Funds are portfolios of VIP and VIP-II, two diversified open-end management
investment companies, each organized as a Massachusetts business trust with
multiple portfolios. The VIP Equity-Income Portfolio and VIP Overseas Portfolio
are portfolios of the Variable Insurance Products Fund, organized on November
13, 1981. The VIP II Asset Manager Portfolio is a portfolio of the Variable
Insurance Products Fund II, organized on March 21, 1988. Registration under the
1940 Act does not involve supervision of the Funds' management or investment
practices or policies by the Commission.
The shares of the Funds are sold to Separate Account VL II and to other
separate accounts of Hartford or its affiliates, which separate accounts fund
similar annuity or life insurance products. A Policy Owner may allocate premium
payments among the Sub-Accounts. Policy Owners should review the following brief
descriptions of the investment objectives of each of the Funds in connection
with that allocation. There is no assurance that any of the Funds will achieve
its stated objectives. All investment options may not be available in all
states. Policy Owners are also advised to read the prospectuses for the Funds
accompanying this Prospectus for more detailed information.
<PAGE>
20 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
HARTFORD FUNDS
HARTFORD ADVISERS FUND
Seeks maximum long-term total rate of return by investing in common stocks
and other equity securities, bonds and other debt securities and money market
instruments.
HARTFORD BOND FUND
Seeks maximum current income consistent with preservation of capital by
investing primarily in fixed-income securities. Up to 20% of the total assets of
this Fund may be invested in debt securities rated in the highest category below
investment grade ("Ba" by Moody's Investor Services, Inc. or "BB" by Standard &
Poor's*) or, if unrated, are determined to be of comparable quality by the
Fund's investment adviser. Securities rated below investment grade are commonly
referred to as "high yield-high risk securities" or "junk bonds." For more
information concerning the risks associated with investing in such securities,
please refer to the section entitled "Hartford Bond Fund, Inc. -- Investment
Policies" in the prospectus for the Hartford Funds accompanying this Prospectus.
HARTFORD CAPITAL APPRECIATION FUND
Seeks growth of capital by investing in equity securities selected solely on
the basis of potential for capital appreciation.
HARTFORD DIVIDEND AND GROWTH FUND
Seeks a high level of current income consistent with growth of capital and
reasonable investment risk.
HARTFORD GROWTH AND INCOME FUND
Seeks growth of capital and current income by investing primarily in equity
securities with earnings growth potential and steady or rising dividends.
HARTFORD INDEX FUND
Seeks to provide investment results which approximate the price and yield
performance of publicly-traded common stocks in the aggregate, as represented by
the Standard & Poor's 500 Composite Stock Price Index.*
HARTFORD INTERNATIONAL ADVISERS FUND
Seeks maximum long-term total return consistent with prudent investment risk
by investing in a portfolio of equity, debt and money market securities.
Securities in which the Fund invests primarily will be denominated in non-U.S.
currencies and will be traded in non-U.S. markets.
HARTFORD INTERNATIONAL OPPORTUNITIES FUND
Seeks growth of capital by investing primarily in equity securities issued
by non-U.S. companies.
HARTFORD MIDCAP FUND
Seeks to achieve long-term capital growth through capital appreciation by
investing primarily in equity securities.
HARTFORD MONEY MARKET FUND
Seeks maximum current income consistent with liquidity and preservation of
capital.
HARTFORD MORTGAGE SECURITIES FUND
Seeks maximum current income consistent with safety of principal and
maintenance of liquidity by investing primarily in mortgage-related securities,
including securities issued by the Government National Mortgage Association.
HARTFORD SMALL COMPANY FUND
Seeks growth of capital by investing primarily in equity securities selected
on the basis of potential for capital appreciation.
HARTFORD STOCK FUND
Seeks long-term capital growth primarily through capital appreciation, with
income a secondary consideration, by investing primarily in equity securities.
PUTNAM FUNDS
PUTNAM VT ASIA PACIFIC GROWTH FUND
Seeks capital appreciation by investing primarily in securities of companies
located in Asia and in the Pacific Basin. The fund's investments will normally
include common stocks, preferred stocks, securities convertible into common
stocks, and warrants to purchase common stocks or preferred stocks.
PUTNAM VT DIVERSIFIED INCOME FUND
Seeks high current income consistent with capital preservation by investing
in the following three sections of the fixed income securities markets: a U.S.
Government and Investment Grade Sector, a High Yield Sector (which invests
primarily in securities commonly known as "junk bonds"), and an International
Sector. See the special considerations for investments in high-yield securities
described in the Fund prospectus.
PUTNAM VT GLOBAL ASSET ALLOCATION FUND
Seeks a high level of long-term total return consistent with preservation of
capital by investing in U.S. equities, international equities, U.S. fixed income
securities and international fixed income securities.
PUTNAM VT GLOBAL GROWTH FUND
Seeks capital appreciation through a globally diversified portfolio of
common stocks.
* "STANDARD & POOR'S-REGISTERED TRADEMARK-," "S&P-REGISTERED TRADEMARK-," "S&P
500-REGISTERED TRADEMARK-," "STANDARD & POOR'S 500," AND "500" ARE TRADEMARKS
OF THE MCGRAW-HILL COMPANIES, INC. AND HAVE BEEN LICENSED FOR USE BY HARTFORD
LIFE INSURANCE COMPANY. THE HARTFORD INDEX FUND, INC. ("INDEX FUND") IS NOT
SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD & POOR'S AND STANDARD &
POOR'S MAKES NO REPRESENTATION REGARDING THE ADVISABILITY OF INVESTING IN THE
INDEX FUND.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 21
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PUTNAM VT GROWTH AND INCOME FUND
Seeks capital growth and current income by investing primarily in common
stocks that offer potential for capital growth, current income, or both.
PUTNAM VT HEALTH SCIENCES FUND
Seeks capital appreciation by investing at least 80% of its assets (other
than assets invested in U.S. government securities, short-term debt obligations,
and cash or money market instruments) in common stocks and other securities of
companies in the health sciences industries.
PUTNAM VT HIGH YIELD FUND
Seeks high current income and, when consistent with this objective, a
secondary objective of capital growth, by investing primarily in high-yielding,
lower-rated fixed income securities, constituting a portfolio which Putnam
Management believes does not involve undue risk to income or principal. See the
special considerations for investments in high-yield securities described in the
Fund prospectus.
PUTNAM VT INTERNATIONAL GROWTH FUND
Seeks capital appreciation by investing primarily in equity securities of
companies located in a country other than the United States.
PUTNAM VT INTERNATIONAL GROWTH AND INCOME FUND
Seeks capital growth, and a secondary objective of high current income by
investing primarily in common stocks that offer potential for capital growth and
may, when consistent with its investment objectives, invest in common stocks
that offer potential for current income. Under normal market conditions, the
fund expects to invest substantially all of its assets in securities principally
traded on markets outside of the United States.
PUTNAM VT INTERNATIONAL NEW OPPORTUNITIES FUND
Seeks long-term capital appreciation by investing in companies that have
above-average growth prospects due to fundamental growth of their market sector.
Under normal market conditions, the fund expects to invest substantially all of
its total assets, other than cash or short-term investments held pending
investment, in common stocks, preferred stocks, convertible preferred stocks,
convertible bonds and other equity securities principally traded in securities
markets outside the United States.
PUTNAM VT INVESTORS FUND
Seeks long-term growth of capital and any increased income that results from
this growth by investing primarily in common stocks that Putnam Management
believes afford the best opportunity for capital growth over the long term.
PUTNAM VT MONEY MARKET FUND
Seeks as high a rate of current income as Putnam Management believes is
consistent with preservation of capital and maintenance of liquidity by
investing in high-quality money market instruments.
PUTNAM VT NEW OPPORTUNITIES FUND
Seeks long-term capital appreciation by investing principally in common
stocks of companies in sectors of the economy which Putnam Management believes
possess above-average long-term growth potential.
PUTNAM VT NEW VALUE FUND
Seeks long-term capital appreciation by investing primarily in common stocks
that Putnam Management believes are undervalued at the time of purchase and have
the potential for long-term capital appreciation.
PUTNAM VT OTC & EMERGING GROWTH FUND
Seeks capital appreciation by investing primarily in common stocks that
Putnam Management believes have potential for capital appreciation significantly
greater than that of market averages.
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 will provide both capital growth and current
income.
PUTNAM VT U.S. GOVERNMENT AND HIGH QUALITY BOND FUND
Seeks current income consistent with preservation of capital by investing
primarily in securities issued or guaranteed as to principal and interest by the
U.S. Government or by its agencies or instrumentalities and in other debt
obligations rated at least A by a nationally recognized securities rating agency
such as Standard & Poor's or Moody's Investor Services, Inc. or, if not rated,
determined by Putnam Management to be of comparable quality.
PUTNAM VT UTILITIES GROWTH AND INCOME FUND
Seeks capital growth and current income by concentrating its investments in
debt and equity securities issued by companies in the public utilities
industries.
PUTNAM VT VISTA FUND
Seeks capital appreciation by investing in a diversified portfolio of common
stocks which Putnam Management believes have the potential for above-average
capital appreciation.
PUTNAM VT VOYAGER FUND
Seeks capital appreciation by investing primarily in common stocks of
companies that Putnam Management believes have potential for capital
appreciation that is significantly greater than that of market averages.
<PAGE>
22 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
FIDELITY VIP FUNDS
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Seeks reasonable income by investing primarily in income-producing equity
securities. In choosing these securities, the Portfolio manager will also
consider the potential for capital appreciation. The Portfolio's goal is to
achieve a yield which exceeds the composite yield on the securities comprising
the Standard & Poor's Index 500.
In addition, the Portfolio may invest in high-yield, lower-rated securities
(commonly referred to as "junk bonds") which are subject to greater risk than
investments in higher-rated securities. For a further discussion of lower-rated
securities, see "Risks of Lower-Rated Debt Securities" in the Fidelity
prospectus for this Portfolio.
FIDELITY VIP OVERSEAS PORTFOLIO
Seeks long-term growth of capital primarily through investments in foreign
securities and provides a means for aggressive investors to diversify their own
portfolios by participating in companies and economies outside of the United
States.
In addition, the Portfolio may invest in high-yield, lower-rated securities
(commonly referred to as "junk bonds") which are subject to greater risk than
investments in higher-rated securities. For a further discussion of lower-rated
securities, see "Risks of Lower-Rated Debt Securities" in the Fidelity
prospectus for this Portfolio. International funds have increased economic and
political risks as they are exposed to events and factors in the various world
markets. These risks may be greater for funds that invest in emerging markets.
FIDELITY VIP II ASSET MANAGER PORTFOLIO
Seeks high total return with reduced risk over the long-term by allocating
its assets among stocks, bonds and short-term money market instruments.
In addition, the Portfolio may invest in high-yield, lower-rated securities
(commonly referred to as "junk bonds") which are subject to greater risk than
investments in higher-rated securities. For a further discussion of lower-rated
securities, see "Risks of Lower-Rated Debt Securities" in the Fidelity
prospectus for this Portfolio.
The Hartford Funds are organized as corporations under the laws of the State
of Maryland and are registered as diversified open-end management companies
under the 1940 Act. The Putnam Funds are portfolios of the Putnam Variable
Trust, which is organized as a business trust under the laws of Massachusetts
and is an open-end series investment company under the 1940 Act. The Fidelity
VIP Funds are a series of two diversified open-end management investment
companies, each with multiple portfolios and organized as a Massachusetts
business trust. The VIP Equity-Income Portfolio and VIP Overseas Portfolio are
portfolios of the Variable Insurance Products Fund. The VIP II Asset Manager
Portfolio is a portfolio of the Variable Insurance Products Fund II.
Each Fund continually issues an unlimited number of full and fractional
shares of beneficial interest in such Fund.
Such shares are offered to separate accounts, including Separate Account VL II,
established by Hartford or one of its affiliated companies specifically to fund
the Policies and other policies issued by Hartford or its affiliates, as
permitted by the 1940 Act.
It is conceivable that in the future it may be disadvantageous for variable
life insurance separate accounts and variable annuity separate accounts to
invest in the Funds simultaneously. Although neither Hartford nor the Funds
currently foresee any such disadvantages either to variable life insurance
Policy Owners or to variable annuity Policy Owners, the Board of Directors for
the Hartford Funds, the Board of Trustees for the Putnam Funds and the Board of
Trustees for the Fidelity VIP Funds (collectively, the "Boards") intend to
monitor events in order to identify any material conflicts between the Policy
Owners and to determine what action, if any, should be taken in response
thereto. If the Boards were to conclude that separate funds should be
established for variable annuity and variable life insurance separate accounts,
Hartford will bear the attendant expenses.
All investment income of and other distributions to each Sub-Account arising
from the applicable Fund are reinvested in shares of that Fund at net asset
value. The income and realized gains and/or losses on the assets of each
Sub-Account are therefore separate and are credited to or charged against the
Sub-Account without regard to income, gains or losses from any other Sub-Account
or from any other business of Hartford. Hartford will purchase shares in the
Funds in connection with premium payments allocated to the applicable
Sub-Account in accordance with Policy Owners' directions and will redeem shares
in the Funds to meet Policy obligations or make adjustments in reserves, if any.
The Funds are required to redeem Fund shares at net asset value and generally to
make payment within seven days.
Hartford reserves the right, subject to compliance with the law as then in
effect, to make additions to, deletions from or substitutions for Separate
Account VL II and its Sub-Accounts which fund the Policies. If shares of any of
the Funds should no longer be available for investment, or if, in the judgment
of Hartford's management, further investment in shares of any Fund should become
inappropriate in view of the purposes of the Policies, Hartford may substitute
shares of another Fund for shares already purchased, or to be purchased in the
future, under the Policies. No substitution of securities will take place
without notice to and consent of Policy Owners and without prior approval of the
Commission to the extent required by the 1940 Act. Subject to Policy Owner
approval, if required, Hartford also reserves
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 23
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the right to end the registration under the 1940 Act of Separate Account VL II
or any other separate accounts of which it is the depositor and which may fund
the Policies.
Each Fund is subject to certain investment restrictions which may not be
changed without the approval of a majority of the shareholders of the Fund. See
the prospectus for each of the Funds accompanying this Prospectus.
INVESTMENT ADVISER
HARTFORD FUNDS
The investment adviser for the Hartford Funds is HL Investment Advisors,
Inc. ("HL Advisors"), Hartford Plaza, Hartford, CT 06115. HL Advisors provides
investment advice pursuant to an Investment Advisory Agreement entered into with
each of the Hartford Funds and, in general, supervises the management and
investment program of the Hartford Funds, for which HL Advisors receives a fee.
The Hartford Investment Management Company, Inc. ("HIMCO"), an affiliate of
Hartford organized under Connecticut law, is the investment sub-adviser to
Hartford Bond Fund, Hartford Index Fund, Hartford Mortgage Securities Fund and
Hartford Money Market Fund.
Wellington Management Company, LLP ("Wellington Management") serves as the
investment sub-adviser to Hartford Advisers Fund, Hartford Capital Appreciation
Fund, Hartford Dividend and Growth Fund, Hartford Growth and Income Fund,
Hartford International Advisers Fund, Hartford International Opportunities Fund,
Hartford MidCap Fund, Hartford Small Company Fund and Hartford Stock Fund.
Wellington Management is a professional investment counseling firm which
provides investment services to investment companies, other institutions and
individuals. Wellington Management is organized as a private Massachusetts
partnership and its predecessor organizations have provided investment advisory
services to investment companies since 1933 and to investment counseling clients
since 1960. See the prospectus for the Hartford Funds accompanying this
Prospectus for a more complete description of HL Advisors, HIMCO and Wellington
Management and their respective fees.
PUTNAM FUNDS
Putnam Management, One Post Office Square, Boston, MA 02109, serves as the
investment manager for the Putnam Funds. An affiliate, Putnam Advisory Company,
Inc., manages domestic and foreign institutional accounts and mutual funds.
Another affiliate, Putnam Fiduciary Trust Company, provides investment advice to
institutional clients under its banking and fiduciary policies. Putnam
Management and its affiliates are wholly-owned subsidiaries of Marsh & McLennan
Companies, Inc., a publicly owned holding company whose principal businesses are
international insurance brokerage and employee benefit consulting.
FIDELITY VIP FUNDS
The Fidelity VIP Funds are managed by Fidelity Management & Research Company
("FMR"), whose principal business address is 82 Devonshire Street, Boston,
Massachusetts 02109. FMR is one of America's largest investment management
organizations. It is composed of a number of different companies, which provide
a variety of financial services and products. FMR, founded in 1946, is the
original Fidelity company. It provides investment research and portfolio
management services to a number of mutual funds and other clients. Various
Fidelity companies perform certain activities required to operate VIP and VIP
II.
THE FIXED ACCOUNT
THAT PORTION OF THE POLICY RELATING TO THE FIXED ACCOUNT IS NOT REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("1933 ACT") AND THE FIXED ACCOUNT
IS NOT REGISTERED AS AN INVESTMENT COMPANY UNDER THE 1940 ACT. ACCORDINGLY,
NEITHER THE FIXED ACCOUNT NOR ANY INTERESTS THEREIN ARE SUBJECT TO THE
PROVISIONS OR RESTRICTIONS OF THE 1933 ACT OR THE 1940 ACT, AND THE DISCLOSURE
REGARDING THE FIXED ACCOUNT HAS NOT BEEN REVIEWED BY THE STAFF OF THE SECURITIES
AND EXCHANGE COMMISSION. THE FOLLOWING DISCLOSURE ABOUT THE FIXED ACCOUNT MAY BE
SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES
LAWS REGARDING THE ACCURACY AND COMPLETENESS OF DISCLOSURE.
Premium Payments and Account Values allocated to the Fixed Account become a
part of the general assets of Hartford. Hartford invests the assets of the
General Account in accordance with applicable law governing the investments of
insurance company general accounts.
The Fixed Account minimum credited rate is shown in the Contract. Currently,
Hartford guarantees that it will credit interest at a rate of not less than 4%
per year, compounded annually, to amounts allocated to the Fixed Account under
the Policies. Hartford may credit interest at a rate in excess of the Fixed
Account minimum credited rate; however, Hartford is not obligated to credit any
interest in excess of the Fixed Account minimum credited rate. There is no
specific formula for the determination of excess interest credits. Some of the
factors that Hartford may consider in determining whether to credit excess
interest to amounts allocated to the Fixed Account and the amount thereof, are
general economic trends, rates of return currently available and anticipated on
Hartford's
<PAGE>
24 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
investments, regulatory and tax requirements and competitive factors. ANY
INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF THE
FIXED ACCOUNT MINIMUM CREDITED RATE WILL BE DETERMINED IN THE SOLE DISCRETION OF
HARTFORD. THE POLICY OWNER ASSUMES THE RISK THAT INTEREST CREDITED TO FIXED
ACCOUNT ALLOCATIONS MAY NOT EXCEED THE FIXED ACCOUNT MINIMUM CREDITED RATE.
OTHER MATTERS
VOTING RIGHTS
In accordance with its view of presently applicable law, Hartford will vote
the shares of the Funds at regular and special meetings of the shareholders of
the Funds in accordance with instructions from Policy Owners (or the assignee of
a Policy, as the case may be) having a voting interest in Separate Account VL
II. The number of shares held in the Separate Account which are allocable to
each Policy Owner is determined by dividing the Policy Owner's interest in each
Sub-Account by the net asset value of the applicable shares of the Funds.
Hartford will vote shares for which no instructions have been given and shares
which are not allocable to Policy Owners (i.e., shares owned by Hartford) in the
same proportion as it votes shares for which it has received instructions.
However, if the 1940 Act or any rule promulgated thereunder should be amended or
if Hartford's present interpretation of the law should change and, as a result,
Hartford determines it is permitted to vote the shares of the Funds in its own
right, it may elect to do so.
The voting interests of a Policy Owner (or the assignee) in the Funds will
be determined as follows: A Policy Owner may cast one vote for each full or
fractional Accumulation Unit owned under a Policy and allocated to a
Sub-Account, the assets of which are invested in the particular Fund on the
record date for the shareholder meeting for that Fund. If, however, a Policy
Owner has taken a loan secured by a Policy, amounts transferred from the
Sub-Account(s) to the Loan Account(s) in connection with the loan (see "Detailed
Description of Policy Benefits and Provisions -- Policy Loans," page 14) will
not be considered in determining the voting interests of such Policy Owner.
Policy Owners should review the prospectuses for the Funds which accompany this
Prospectus to determine matters on which shareholders may vote.
Hartford may disregard voting instructions when required by state insurance
regulatory authorities if the instructions require that the shares be voted so
as to cause a change in the sub-classification or investment objective of one or
more of the Funds or to approve or disapprove an investment advisory policy for
the Funds. In addition, Hartford may disregard voting instructions in favor of
changes initiated by a Policy Owner in the investment policy or the investment
adviser of the Funds if Hartford reasonably disapproves of such changes. A
change would be disapproved only if the proposed change is contrary to state law
or prohibited by state regulatory authorities. In the event Hartford does
disregard voting instructions, a summary of that action and the reasons for such
action will be included in the next periodic report to Policy Owners.
STATEMENTS TO POLICY OWNERS
We will send You a statement at least once each Policy Year, showing:
(a) the current Account Value, Cash Surrender Value and Face Amount;
(b) the premiums paid, Monthly Deduction Amounts and any Policy loans since the
last such statement;
(c) the amount of any Indebtedness;
(d) any notifications required by the provisions of Your Policy; and
(e) any other information required by the Insurance Department of the state
where Your Policy was delivered.
LIMIT ON RIGHT TO CONTEST
Hartford may not contest the validity of a Policy after it has been in
effect during the lifetime of the Insureds for two years from the Issue Date. If
a Policy is reinstated, the two year period is measured from the date of
reinstatement. Any increase in the Face Amount for which evidence of
insurability was obtained is contestable during the lifetime of the Insureds for
two years from its effective date. In addition, if either Insured commits
suicide in the two year period, or such period as specified in state law, the
benefit payable will be limited to the premiums paid less any Indebtedness and
partial withdrawals.
MISSTATEMENT AS TO AGE
If the age of an Insured is incorrectly stated, the amount of Death Benefit
will be appropriately adjusted as specified in Your Policy.
PAYMENT OPTIONS
Proceeds under the Policies may be paid in a lump sum or may be applied to
one of Hartford's payment options. The minimum amount that may be placed under a
payment option is $5,000 (unless Hartford consents to a lesser amount), subject
to the then-current rules of Hartford. Once payments under the Second Option,
the Third Option or the Fourth Option commence, no surrender of a Policy may be
made for the purpose of receiving a lump sum
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 25
- --------------------------------------------------------------------------------
settlement in lieu of the life insurance payments. The following payment options
are available under the Policies. If a payment option is not selected, proceeds
will be paid in a lump sum.
FIRST OPTION -- Interest Income
Payments of interest at the rate We declare (but not less than 3 1/2% per
year) on the amount applied under this option.
SECOND OPTION -- Income of Fixed Amount
Equal payments of the amount chosen until the amount applied under this
option (with interest of not less than 3 1/2% per year) is exhausted. The final
payment will be for the balance remaining.
THIRD OPTION -- Payments for a Fixed Period
An amount payable monthly for the number of years selected, which may be
from one to 30 years.
FOURTH OPTION -- Life Income
LIFE ANNUITY -- An annuity payable monthly during the lifetime of the
annuitant and terminating with the last monthly payment due preceding the
death of the annuitant.
LIFE ANNUITY WITH 120 MONTHLY PAYMENTS CERTAIN -- An annuity providing
monthly income to the annuitant for a fixed period of 120 months and for as
long thereafter as the annuitant shall live.
The Policies provide for guaranteed dollar amounts of monthly payments for
each $1,000 applied under the four payment options. Under the Fourth Option, the
amount of each payment will depend upon the age of the Annuitant at the time the
first payment is due. If any periodic payment due any payee is less than $200,
Hartford may make payments less often.
The table for the Fourth Option is based on the 1983a Individual Annuity
Mortality Table, set back one year 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. Hartford 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.
Hartford will make any other arrangements for income payments as Hartford
and the Policy Owner may be agree on.
BENEFICIARY
A prospective purchaser of a Policy names the beneficiary in the application
for the Policy. A Policy Owner may change the beneficiary (unless irrevocably
named) during the lifetime of the Insureds by request In Writing to Hartford. If
no beneficiary is living when the last surviving Insured dies, the Death
Proceeds will be paid to the Policy Owner if living; or, otherwise, to the
Policy Owner's estate.
ASSIGNMENT
A Policy may be assigned as collateral for a loan or other obligation.
Hartford is not responsible for any payment made or action taken before receipt
of a notice In Writing of such assignment. Proof of interest must be filed with
any claim under a collateral assignment.
DIVIDENDS
No dividends will be paid under the Policies.
SUPPLEMENTAL BENEFITS
The following supplemental benefits are among the options that may be
included in a Policy by rider, subject to the restrictions and limitations set
forth therein.
LAST SURVIVOR EXCHANGE OPTION RIDER
We will exchange Your Policy for two individual policies on the life of each
Insured, subject to the conditions stated in the 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
Subject to certain Death Benefit and premium restrictions, We will extend
the Maturity Date to the date of the death of the second Insured to die,
regardless of the age of either Insured. See "Federal Tax Considerations --
Income Taxation of Policy Benefits -- Generally," page 31.
YEARLY RENEWABLE TERM LIFE INSURANCE RIDER
While a Policy and any rider thereto are in force, We will pay the term life
insurance amount upon receipt of due proof of death of the designated Insured,
subject to the conditions stated in the rider.
<PAGE>
26 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
POSITION WITH HARTFORD; OTHER BUSINESS PROFESSION, VOCATION OR EMPLOYMENT
NAME, AGE YEAR OF ELECTION FOR PAST 5 YEARS; OTHER DIRECTORSHIPS
- -------------------------------- ------------------------------------- ----------------------------------------------------------
<S> <C> <C>
Ahn, Dong H., 37 Vice President, 1998 Vice President (1998-Present), Hartford Life and Accident
Insurance Company.
Bossen, Wendell J., 64 Vice President, 1992** Vice President (1992-Present), Hartford Life and Accident
Insurance Company; President (1992-Present),
International Corporate Marketing Group, Inc.; Executive
Vice President (1984-1992), Mutual Benefit.
Boyko, Gregory A., 46 Senior Vice President, Vice President and Controller (1995-1997), Hartford;
Chief Financial Officer & Director (1997-Present); Senior Vice President, Chief
Treasurer, 1997 Financial Officer & Treasurer (1997-Present); Vice
Director, 1997 President & Controller (1995-1997), Hartford Life and
Accident Insurance Company; Senior Vice President, Chief
Financial Officer & Treasurer (1997-Present), Hartford
Life, Inc.; Chief Financial Officer (1994-1995), IMG
American Life; Senior Vice President (1992-1994),
Connecticut Mutual Life Insurance Company.
Cummins, Peter W., 60 Senior Vice President, 1997 Vice President (1989-1997); Director of Broker Dealer
Sales-ILAD (1989-1992), Hartford; Senior Vice President
(1997-Present); Vice President (1989-1997); Director of
Broker Dealer Sales-ILAD (1989-1991), Hartford Life and
Accident Insurance Company.
de Raismes, Ann M., 47 Senior Vice President, 1997 Vice President (1994-1997); Assistant Vice President
Director of Human Resources, (1992-1994); Hartford; Senior Vice President
1991 (1997-Present); Director of Human Resources
(1991-Present); Vice President (1994-1997); Assistant
Vice President (1992-1994); Hartford Life and Accident
Insurance Company; Vice President, Human Resources
(1997-Present), Hartford Life, Inc.
Fitch, Timothy M., 45 Vice President, 1995 Assistant Vice President (1992-1995), Hartford; Vice
Actuary, 1994 President (1995-Present); Actuary (1994-Present);
Assistant Vice President (1992-1995), Hartford Life and
Accident Insurance Company.
Foy, David T., 31 Vice President, 1998 Assistant Vice President (1995-1998), Hartford; Vice
President (1998-Present), Hartford Life and Acccident
Insurance Company.
Gardner, Bruce D., 47 Vice President, 1995 Director (1994-1997); General Counsel & Corporate
Secretary (1991-1995), Hartford; Vice President
(1995-1997); Director (1995-1997); General Counsel &
Corporate Secretary (1991-1995), Hartford Life and
Accident Insurance Company.
Garrett, J. Richard, 53 Assistant Treasurer, 1997 Treasurer (1986-1997), Hartford; Vice President
Vice President, 1993 (1993-Present); Assistant Treasurer (1997-Present);
Treasurer (1983-1997); Hartford Life and Accident
Insurance Company; Treasurer (1977), The Hartford
Financial Services Group.
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 27
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITION WITH HARTFORD; OTHER BUSINESS PROFESSION, VOCATION OR EMPLOYMENT
NAME, AGE YEAR OF ELECTION FOR PAST 5 YEARS; OTHER DIRECTORSHIPS
- -------------------------------- ------------------------------------- ----------------------------------------------------------
<S> <C> <C>
Ginnetti, John P., 52 Executive Vice President and Senior Vice President - Individual Life and Annuity
Director, Asset Management Division (1988-1994), Hartford; Director (1988-Present);
Services, 1994 Director (1988-Present); Executive Vice President &
Director, 1988 Director, Asset Management Services (1994-Present);
Senior Vice President - Individual Life and Annuity
Division (1988-1994), Hartford Life and Accident
Insurance Company; Executive Vice President, Asset
Management, Hartford Life, Inc. (1997-Present).
Godfrey III, William A., 41 Senior Vice President, 1997 Senior Vice President (1997-Present), Hartford; Senior
Vice President (1997-Present), Hartford Life and
Accident Insurance Company; Vice President Information
Technology (1997-Present), Hartford Life, Inc.
Godkin, Lynda, 44 Senior Vice President, 1997 Associate General Counsel (1995-1996); Assistant General
General Counsel, 1996 Counsel and Secretary (1994-1995); Counsel (1990-1994),
Corporate Secretary, 1995 Hartford; Director (1997-Present); Senior Vice President
Director, 1997 (1997-Present); General Counsel (1996-Present);
Corporate Secretary (1995-Present); Associate General
Counsel (1995-1996); Assistant General Counsel and
Secretary (1994-1995); Counsel (1990-1994), Hartford
Life and Accident Company; Vice President and General
Counsel (1997-Present), Hartford Life, Inc.
Grady, Lois W., 53 Senior Vice President, 1998 Vice President (1993-1998); Assistant Vice President
Vice President, 1993 (1987-1993), Hartford; Senior Vice President (1998);
Vice President (1993-1997); Assistant Vice President
(1987-1993), Hartford Life and Accident Insurance
Company.
Graham, Christopher, 47 Vice President, 1997
Hunt, Mark E., 37 Vice President, 1998 Assistant Vice President (1997-1998), Hartford; Vice
President (1998), Assistant Vice President (1997-1998),
Hartford Life and Accident Insurance Company.
Joyce, Stephen T., 39 Vice President, 1997 Assistant Vice President (1994-1997), Hartford; Assistant
Vice President (1994-1997), Hartford Life and Accident
Insurance Company.
Keeler, Michael D., 37 Vice President, 1998 Vice President (1998-Present), Hartford Life and Accident
Insurance Company.
Kerzner, Robert A., 46 Senior Vice President, 1998 Vice President, (1995-1998); Regional Vice President
Vice President, 1995 (1991-1994), Hartford; Vice President (1994-1997),
Hartford Life and Accident Insurance Company.
Levenson, David N., 31 Vice President, 1998 Assistant Vice President (1995-Present), Hartford.
Maher, Steven M., 43 Vice President, 1992 Assistant Vice President (1987-1992), Hartford; Vice
Actuary, 1987 President (1993-Present); Actuary (1987-Present);
Assistant Vice President (1987-1993), Hartford Life and
Accident Insurance Company.
Malchodi, Jr., William B., 50 Vice President, 1994 Director of Taxes, Hartford (1991-1998); Director of Taxes
(1992-1997), Hartford Life
and Accident Insurance Company.
Marra, Raymond J., 37 Vice President, 1998 Assistant Vice President (1997-Present), Hartford; Vice
President (1998-President), Assistant Vice President
(1994-1997), Hartford Life and Accident Insurance
Company.
</TABLE>
<PAGE>
28 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITION WITH HARTFORD; OTHER BUSINESS PROFESSION, VOCATION OR EMPLOYMENT
NAME, AGE YEAR OF ELECTION FOR PAST 5 YEARS; OTHER DIRECTORSHIPS
- -------------------------------- ------------------------------------- ----------------------------------------------------------
<S> <C> <C>
Marra, Thomas M., 39 Executive Vice President (1995) Senior Vice President (1994-1995); Vice President
Director, Individual Life (1989-1994); Actuary (1987-1995), Hartford; Director
and Annuity Division, 1994 (1994-Present); Executive Vice President (1995-Present);
Director, 1994* Senior Vice President (1994-1995); Director, Individual
Life and Annuity Division (1994-Present); Actuary
(1987-1997), Hartford Life and Accident Insurance
Company; Executive Vice President, Individual Life and
Annuities (1997-Present), Hartford Life, Inc.
Nolan, Robert F., 43 Senior Vice President, 1997 Vice President (1995-1997); Assistant Vice President
(1992-1995), Hartford; Vice President (1995-1997);
Assistant Vice President (1992-1995), Hartford Life and
Accident Insurance Company; Vice President, Corporate
Relations (1997-Present), Hartford Life, Inc.; Manager,
Public Relations (1986), Aetna Life and Casualty
Insurance Company.
Noto, Joseph J., 46 Vice President, 1989 Executive Vice President & Chief Operating Officer
(1997-Present); Director (1994-Present); President
(1994-1997), American Maturity Life Insurance Company;
Vice President (1989-1997), Hartford Life and Accident
Insurance Company.
O'Halloran, C. Michael, 51 Vice President, 1994 Senior Associate General Counsel (1988-1997), Hartford;
Vice President (1994-Present); Senior Associate General
Counsel (1988-1997), Hartford Life and Accident
Insurance Company; Corporate Secretary (1997-Present),
Hartford Life, Inc.; Vice President (1994-Present);
Senior Associate General Counsel (1988-Present);
Director of Corporate Law (1994-Present), The Hartford
Financial Services Group.
O'Rourke, Lawrence M., 44 Vice President, 1998 Vice President, (1998-Present), Hartford Life and Accident
Insurance Company.
O'Sullivan, Daniel E., 43 Vice President, 1998 Vice President (1998-Present), Hartford Life and Accident
Insurance Company.
Raymond, Craig D., 37 Senior Vice President, 1997 Vice President (1993-1997); Assistant Vice President
Chief Actuary, 1994 (1992-1993); Actuary (1990-1994), Hartford; Senior Vice
President (1997-Present); Chief Actuary (1995-Present);
Vice President (1993-1997); Actuary (1990-1995),
Hartford Life and Accident Insurance Company; Vice
President and Chief Actuary (1997-Present), Hartford
Life, Inc.
Robinson, Mary P., 38 Vice President, 1998 Assistant Vice President (1995-1998), Hartford; Assistant
Vice President (1995-1998), Hartford Life and Accident
Insurance Company.
Salama, Donald A., 50 Vice President, 1997 Vice President (1997-Present), Hartford Life and
Accident Insurance Company.
Schiltz, Timothy P., 37 Vice President, 1997 Assistant Vice President (1994-1997), Hartford; Vice
President (1997-Present); Assistant Vice President
(1994-1997), Hartford Life and Accident Insurance
Company; Consulting Actuary (1992-1993), Milliman &
Robertson, Inc.; Consulting Actuary (1988-1992), Chalke
Incorporated.
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 29
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITION WITH HARTFORD; OTHER BUSINESS PROFESSION, VOCATION OR EMPLOYMENT
NAME, AGE YEAR OF ELECTION FOR PAST 5 YEARS; OTHER DIRECTORSHIPS
- -------------------------------- ------------------------------------- ----------------------------------------------------------
<S> <C> <C>
Smith, Lowndes A., 58 Chief Executive Officer, 1997 Chief Operating Officer (1989-1997), Hartford; Director
President, 1989 (1981-Present); President (1989-Present); Chief
Director, 1981* Executive Officer (1997-Present); Chief Operating
Officer (1989-1997), Hartford Life and Accident
Insurance Company; Chief Executive Officer and President
and Director (1997-Present), Hartford Life, Inc.
Stevenson, Keith A., 44 Vice President, 1998
Sweeney, Edward A., 51 Vice President, 1993 Chicago Regional Manager (1985-1993), Hartford;
Vice President (1993-Present),
Hartford Life and Accident Insurance Company.
Tilbor, Judith V., 46 Vice President, 1998 Assistant Vice President (1994-1998), Hartford; Vice
President (1998-Present), Assistant Vice President
(1994-1998), Hartford Life and Accident Insurance
Company.
Welnicki, Raymond P., 49 Senior Vice President & Vice President (1993-1994), Hartford; Director
Director, Employee (1994-Present); Senior Vice President (1995-Present);
Benefit Division, 1994 Director, Director, Employee Benefit Division (1997-Present); Vice
1994* President (1993-1995), Hartford Life and Accident
Insurance Company; Senior Vice President, Employee
Benefits (1997-Present), Hartford Life, Inc.; Board of
Directors, Ethix Corp.
Welsh, Walter C., 51 Senior Vice President, 1997 Vice President (1995-1997); Assistant Vice President
(1992-1995), Hartford; Senior Vice President
(1997-Present); Vice President (1995-1997); Assistant
Vice President (1992-1995), Hartford Life and Accident
Insurance Company; Vice President, Government Affairs
(1997-Present), Hartford Life, Inc.
Zlatkus, Lizabeth H., 39 Senior Vice President, 1997 Vice President (1994-1997); Assistant Vice President
Director, 1994* (1992-1994), Hartford; Director (1994-Present); Senior
Vice President (1997-Present); Vice President
(1994-1997); Assistant Vice President (1992-1994),
Hartford Life and Accident Insurance Company; Vice
President, Group Life and Disability (1997-Present),
Hartford Life, Inc.
Znamierowski, David, 38 Senior Vice President, 1997 Vice President (1997), Hartford; Senior Vice President
Director, Risk Management (1998-Present), Hartford Life and Accident Insurance
Strategy, 1996 Company; Vice President, Investment Strategy
(1997-Present), Hartford Life, Inc.; Vice President,
Investment Strategy & Policy, Aetna Life and Casualty.
- ---------
* Denotes year of election to Board of Directors of Hartford.
** Affiliated Company of The Hartford Financial Services Group, Inc.
</TABLE>
Unless otherwise indicated, the principal business address of each the above
individuals is P.O. Box 2999, Hartford, CT 06104-2999.
<PAGE>
30 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
DISTRIBUTION OF THE POLICIES
Hartford intends to sell the Policies in all jurisdictions where it is
licensed to do business. The Policies will be sold by life insurance sales
representatives who represent Hartford and who are registered representatives of
Hartford Equity Sales Company, Inc. ("HESCO"), 200 Hopmeadow Street, Simsbury,
Connecticut 06089, or certain other registered broker-dealers. Any sales
representative or employee selling the Policies will have been qualified to sell
variable life insurance policies under applicable federal and state laws. Each
broker-dealer selling the Policies is registered with the Commission under the
Securities Exchange Act of 1934 and all such broker-dealers are members of the
National Association of Securities Dealers, Inc.
HESCO is the principal underwriter for the Policies. HESCO is a wholly-owned
subsidiary of Hartford. During the first Policy Year, the maximum sales
commission payable to Hartford agents, independent registered insurance brokers,
and other registered broker-dealers is 45% of the premiums paid up to a Target
Premium and 5% of any excess. In Policy Years 2 through 10, sales commissions
will not exceed 5.5% of premiums paid. For Policy Years 11 and later, sales
commissions will not exceed 2% of premiums paid. From time to time, Hartford may
pay or permit other promotional incentives, in cash or credit or other
compensation. Additionally, expense allowances may be paid. A sales
representative may be required to return all or a portion of the commissions
paid if a Policy sold by such sales representative terminates prior to the
Policy's second Policy Anniversary.
Broker-dealers or financial institutions are compensated according to a
schedule set forth by HESCO and any applicable rules or regulations for variable
insurance compensation. Compensation is generally based on premium payments made
by policyholders or Policy Owners. This compensation is usually paid from the
sales charges described in this Prospectus.
In addition, a broker-dealer or financial institution may also receive
additional compensation for, among other things, training, marketing or other
services provided. HESCO, its affiliates or Hartford may also make compensation
arrangements with certain broker-dealers or financial institutions based on
total sales by the broker-dealer or financial institution of insurance products.
These payments, which may be different for broker-dealers or financial
institutions, will be made by HESCO, its affiliates or Hartford out of their own
assets and will not effect the amounts paid by the Policy Owners to purchase,
hold or surrender variable insurance products.
SAFEKEEPING OF SEPARATE
ACCOUNT VL II'S ASSETS
The assets of the Separate Account are held by Hartford and are kept
physically segregated and held separate and apart from the General Account.
Hartford maintains records of all purchases and redemptions of shares of the
Funds. Additional protection for the assets of the Separate Account is afforded
by Hartford's blanket fidelity bond issued by Aetna Casualty and Surety Company,
in the aggregate amount of $50 million, covering all of the officers and
employees of Hartford.
FEDERAL TAX CONSIDERATIONS
GENERAL
SINCE THE TAX LAW IS COMPLEX AND SINCE TAX CONSEQUENCES WILL VARY ACCORDING
TO THE ACTUAL STATUS OF THE POLICY OWNER INVOLVED AND THE TYPE OF PLAN UNDER
WHICH THE POLICY IS PURCHASED, LEGAL AND TAX ADVICE MAY BE NEEDED BY A PERSON,
TRUSTEE, OR OTHER ENTITY CONTEMPLATING THE PURCHASE OF A POLICY DESCRIBED
HEREIN.
It should be understood that any detailed description of the federal income
tax consequences regarding the purchase of these Policies cannot be made in this
Prospectus and that special tax rules may be applicable with respect to certain
purchase situations not discussed herein. In addition, no attempt is made here
to consider any applicable state or other tax laws. For detailed information, a
qualified tax adviser should always be consulted. This discussion of federal tax
considerations is based upon Hartford's understanding of existing federal income
tax laws as they are currently interpreted.
TAXATION OF HARTFORD AND
THE SEPARATE ACCOUNT
The Separate Account is taxed as a part of Hartford which is taxed as a life
insurance company under Subchapter L of the Code. Accordingly, the Separate
Account will not be taxed as a "regulated investment company" under Subchapter M
of the Code. Investment income and realized capital gains on the assets of the
Separate Account (the underlying Funds) are reinvested and are taken into
account in determining the value of the Accumulation Units. (See "Detailed
Description of Policy Benefits and Provisions -- Accumulation Unit Values," page
12). As a result, such investment income and realized capital gains are
automatically applied to increase reserves under the Policy.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 31
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Hartford does not expect to incur any federal income tax on the earnings or
realized capital gains attributable to the Separate Account. Based upon this
expectation, no charge is currently being made to the Separate Account for
federal income taxes. If Hartford incurs income taxes attributable to the
Separate Account or determines that such taxes will be incurred, it may assess a
charge for such taxes against the Separate Account.
INCOME TAXATION OF POLICY
BENEFITS -- GENERALLY
For federal income tax purposes, the Policies should be treated as life
insurance policies under Section 7702 of the Code. The death benefit under a
life insurance policy is generally excluded from the gross income of the
Beneficiary. Also, a life insurance policy owner is generally not taxed on
increments in the policy value until the policy is partially or completely
surrendered. Section 7702 limits the amount of premiums that may be invested in
a policy that is treated as life insurance. Hartford intends to monitor premium
levels to assure compliance with the Section 7702 requirements.
Although Hartford believes that the Last Survivor Policies are in compliance
with Section 7702 of the Code, the manner in which Section 7702 should be
applied to certain features of a joint survivorship life insurance contract is
not directly addressed by Section 7702. In the absence of final regulations or
other guidance issued under Section 7702, there is necessarily some uncertainty
whether a last survivor life insurance policy will meet the Section 7702
definition of a life insurance contract.
Hartford also believes that any loan received under a Policy will be treated
as Indebtedness of the Policy Owner, and that no part of any loan under a Policy
will constitute income to the Policy Owner. A surrender or assignment of the
Policy may have tax consequences depending upon the circumstances. Policy Owners
should consult a qualified tax adviser concerning the effect of such changes.
During the first fifteen Policy Years, an "income first" rule generally
applies to distributions of cash required to be made under Code Section 7702
because of a reduction in benefits under the Policy.
The Last Survivor Exchange Option Rider permits, under limited
circumstances, a Policy to be split into two individual policies on the life of
each of the Insureds. A Policy split may have adverse tax consequences. It is
not clear whether a Policy split will be treated as a nontaxable exchange or
transfer under the Code. Unless a Policy split is so treated, among other
things, the split or transfer will result in the recognition of taxable income
on the gain in the Policy. In addition, it is not clear whether, in all
circumstances, the individual policies that result from a Policy split would be
treated as life insurance policies under Section 7702 of the Code or would be
classified as modified endowment contracts. The Policy Owner should consult a
qualified tax adviser regarding the possible adverse tax consequences of a
Policy split.
The Maturity Date Extension Rider allows a Policy Owner to extend the
Maturity Date to the date of the death of the last surviving insured. If the
Maturity Date of the Policy is extended by rider, Hartford believes the Policy
will continue to be treated as a life insurance contract for Federal income tax
purposes after the scheduled Maturity Date. However, due to the lack of specific
guidance on this issue, the result is not certain. If the Policy is not treated
as a life insurance contract for federal income tax purposes after the scheduled
Maturity Date, among other things, the Death Proceeds may be taxable to the
recipient. The Policy Owner should consult a qualified tax adviser regarding the
possible adverse tax consequences resulting from an extension of the scheduled
Maturity Date.
DIVERSIFICATION REQUIREMENTS
Section 817 of the Code provides that a variable life insurance contract
(other than a pension plan policy) will not be treated as a life insurance
contract for any period during which the investments made by the separate
account or underlying fund are not adequately diversified in accordance with
regulations prescribed by the Treasury Department. If a Policy is not treated as
a life insurance contract, the Policy Owner will be subject to income tax on the
annual increases in cash value.
The Treasury Department has issued diversification regulations which
generally require, among other things, that no more than 55% of the value of the
total assets of the segregated asset account underlying a variable contract is
represented by any one investment, no more than 70% is represented by any two
investments, no more than 80% is represented by any three investments, and no
more than 90% is represented by any four investments. In determining whether the
diversification standards are met, all securities of the same issuer, all
interests in the same real property project, and all interests in the same
commodity are each treated as a single investment. In addition, in the case of
government securities, each government agency or instrumentality shall be
treated as a separate issuer.
A separate account must be in compliance with the diversification standards
on the last day of each calendar quarter or within 30 days after the quarter
ends. If an insurance company inadvertently fails to meet the diversification
requirements, the company may comply within a reasonable period and avoid the
taxation of policy 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.
<PAGE>
32 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Hartford monitors the diversification of investments in the separate
accounts and tests for diversification as required by the Code. Hartford intends
to administer all contracts subject to the diversification requirements in a
manner that will maintain adequate diversification.
OWNERSHIP OF THE ASSETS IN
THE SEPARATE ACCOUNT
In certain circumstances, variable life insurance contract owners may be
considered the owners, for federal income tax purposes, of the assets of a
segregated asset account, such as the Separate Account, used to support their
contracts. In those circumstances, income and gains from the segregated asset
account would be includible in the contract owners' gross income. The Internal
Revenue Service (the "IRS") has stated in published rulings that a variable
contract owner will be considered the owner of the assets of a segregated asset
account if the owner possesses certain incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. In addition,
the Treasury Department announced, in connection with the issuance of
regulations concerning investment diversification, that those regulations "do
not provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor, rather
than the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular sub-accounts [of a segregated asset account] without
being treated as owners of the underlying assets." As of the date of this
Prospectus, no such guidance has been issued.
The ownership rights under the contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of the assets of a segregated
asset account. For example, a Policy Owner of this Policy has the choice of more
investment options to which to allocate premium payments and Separate Account
values, and may be able to transfer among investment options more frequently,
than in such rulings. These differences could result in the Policy Owner being
treated as the owner of a portion of the assets of the Separate Account. In
addition, Hartford does not know what standards will be set forth in the
regulations or rulings that the Treasury Department has stated it expects to
issue. Hartford therefore reserves the right to modify the contract as necessary
to attempt to prevent Policy Owners from being considered the owners of the
assets of the Separate Account. However, there is no assurance that such efforts
would be successful.
TAX DEFERRAL DURING ACCUMULATION PERIOD
Under existing provisions of the Code, except as described below, any
increase in a Policy Owner's contract value is generally not taxable to the
Owner unless amounts are received (or are deemed to be received) under the
contract prior to the Insured's death. If there is a total withdrawal from the
contract, then the surrender value will be includible in the Policy Owner's
income to the extent that the amount received exceeds the "investment in the
contract." (If there is any debt at the time of a total withdrawal, then such
debt will be treated as an amount distributed to the Policy Owner.) The
"investment in the contract" is the aggregate amount of premium payments and
other consideration paid for the contract, less the aggregate amount received
under the contract previously to the extent such amounts received were
excludable from gross income. Whether partial withdrawals (or such other amounts
deemed to be distributed) from the contract constitute income to the Policy
Owner depends, in part, upon whether the contract is considered a modified
endowment contract for federal income tax purposes.
MODIFIED ENDOWMENT CONTRACTS
Code Section 7702A applies an additional test, the "seven-pay" test, to life
insurance contracts. The seven-pay test provides that premiums cannot be paid at
a rate more rapidly than that allowed by the payment of seven annual premiums
using specified computational rules described in Section 7702A(c). A modified
endowment contract ("MEC") is a life insurance policy that either: (i) satisfies
the Section 7702 definition of life insurance, but fails the seven-pay test of
Section 7702A or (ii) is exchanged for a MEC. A policy fails the seven-pay test
if the accumulated amount paid into the Policy at any time during the first
seven Policy Years exceeds the sum of the net level premiums that would have
been paid up to that point if the Policy provided for paid-up future benefits
after the payment of seven level annual premiums. Computational rules for the
seven-pay test are described in Section 7702A(c).
If the Policy satisfies the seven-pay test at issuance, distributions and
loans made thereafter will not be subject to the MEC rules, unless the Policy is
changed materially. The seven-pay test will be applied anew at any time the
Policy undergoes a material change, which includes an increase in the Face
Amount. In addition, if there is a reduction in benefits under the Policy, the
seven-pay test is applied as if the Policy had initially been issued at the
reduced benefit level. Any reduction in benefits attributable to the nonpayment
of premiums will not be taken into account for purposes of the seven-pay test if
the benefits are reinstated within 90 days after the reduction.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 33
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A Policy that is classified as a MEC is eligible for certain aspects of the
beneficial tax treatment accorded to life insurance. That is, the Death Benefit
is excluded from income and increments in value are not subject to current
taxation. However, if the Policy is classified as a MEC, then withdrawals from
the Policy will be considered first as withdrawals of income and then as a
recovery of premium payments. Thus, withdrawals will be includible in income to
the extent the contract value exceeds the investment in the Policy. The amount
of any loan (including unpaid interest thereon) under the Policy will be treated
as a withdrawal from the contract for tax purposes. In addition, if the Policy
Owner assigns or pledges any portion of the value of a Policy (or agrees to
assign or pledge any portion), then such portion will be treated as a withdrawal
from the contract for tax purposes. Taxable withdrawals are subject to an
additional 10% tax, with certain exceptions. The Policy Owner's investment in
the contract is increased by the amount includible in income with respect to
such assignment, pledge, or loan, though it is not affected by any other aspect
of the assignment, pledge, or loan (including its release or repayment).
Generally, only distributions and loans made in the first year in which a
Policy becomes a MEC, and in subsequent years, are taxable. However,
distributions and loans made in the two years prior to a Policy's failing the
seven-pay test are deemed to be in anticipation of failure and are subject to
tax.
Before assigning, pledging, or requesting a loan under a contract that is a
MEC, 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 $625,000 (1998)
from the estate and gift tax. The Taxpayer Relief Act of 1997 gradually raises
the credit over the next eight years to $1,000,000. In addition, an unlimited
marital deduction may be available for federal estate and gift tax purposes. The
unlimited marital deduction permits the deferral of taxes until the death of the
surviving spouse.
If the Policy Owner (whether or not he or she is an Insured) transfers
ownership of the Policy to someone two or more generations younger, the transfer
may be subject to the generation skipping transfer tax, the taxable amount being
the value of the Policy. The generation-skipping transfer tax provisions
generally apply to transfers which would be subject to the gift and estate tax
rules. Individuals are generally allowed an aggregate generation skipping
transfer exemption of $1 million. Because these rules are complex, the Policy
Owner should consult with a qualified tax adviser for specific information if
ownership is passing to younger generations.
LIFE INSURANCE PURCHASED FOR USE IN
SPLIT DOLLAR ARRANGEMENTS
On January 26, 1996, the IRS released a technical advice memorandum ("TAM") on
the taxability of life insurance policies used in certain split dollar
arrangements. A TAM, issued by the National Office of the IRS, provides advice
as to the internal revenue laws, regulations, and related statutes with respect
to a specific set of facts and a specific taxpayer. In the TAM, among other
things, the IRS concluded that an employee was subject to current taxation on
the excess of the cash surrender value of the policy over the premiums to be
returned to the employer. Purchasers of life insurance policies to be used in
split dollar arrangements are strongly advised to consult with a qualified tax
adviser to determine the tax treatment resulting from such an arrangement.
FEDERAL INCOME TAX WITHHOLDING
If any amounts are deemed to be current taxable income to the Policy Owner,
such amounts will be subject to federal income tax withholding and reporting,
pursuant to the Code.
NON-INDIVIDUAL OWNERSHIP OF POLICIES
In certain circumstances, the Code limits the application of specific tax
advantages to individual owners of life insurance contracts. Prospective Policy
Owners which are not individuals should consult a qualified tax adviser to
determine the potential impact on the purchaser.
<PAGE>
34 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
OTHER
Federal estate tax, state and local estate, inheritance and other tax
consequences of ownership, or receipt of Policy proceeds depend on the
circumstances of each Policy Owner or beneficiary. A qualified tax adviser
should be consulted to determine the impact of these taxes.
LIFE INSURANCE PURCHASES BY NONRESIDENT
ALIENS AND FOREIGN CORPORATIONS
The discussion above provides general information regarding U.S. federal
income tax consequences to life insurance purchasers that are U.S. citizens or
residents. Purchasers that are not U.S. citizens or residents will generally be
subject to U.S. federal income tax and withholding on taxable distributions from
life insurance policies at a 30% rate, unless a lower treaty rate applies. In
addition, purchasers may be subject to state and/or municipal taxes and taxes
that may be imposed by the purchaser's country of citizenship or residence.
Prospective purchasers are advised to consult with a qualified tax adviser
regarding U.S., state and foreign taxation with respect to a life insurance
policy purchase.
LEGAL PROCEEDINGS
There are no pending material legal proceedings to which the Separate
Account is a party.
LEGAL MATTERS
Legal matters in connection with the issue and sale of the last survivor
flexible premium variable life insurance Policies described in this Prospectus
and the organization of Hartford, its authority to issue the Policies under
Connecticut law and the validity of the forms of the Policies under Connecticut
law and legal matters relating to the federal securities and income tax laws
have been passed on by Lynda Godkin, General Counsel of Hartford.
EXPERTS
The audited financial statements and financial statement schedules 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. The principal business address of Arthur
Andersen LLP is One Financial Plaza, Hartford, Connecticut 06103.
The hypothetical Policy illustrations have been approved by Kenneth A.
McCullum, FSA, MAAA, Director of Individual Life Product Development, and are
included in this Prospectus in reliance upon his opinion as to their
reasonableness.
REGISTRATION STATEMENT
A registration statement has been filed with the Commission under the 1933
Act. This Prospectus does not contain all information set forth in the
registration statement, its amendments and exhibits, to all of which reference
is made for further information concerning the Separate Account, Hartford, and
the Policies.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 35
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APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES
AND CASH SURRENDER VALUES
The tables in Appendix A illustrate the way in which a Policy operates. The
illustrations show how the Death Benefit and Account Value could vary over an
extended period of time assuming hypothetical gross rates of return equal to
constant after tax annual rates of 0%, 6% and 12%. The illustrations assume the
following: (a) A male, preferred, age 55, and a female, preferred, age 50, with
$1,000,000 of Face Amount and a premium of $15,500 paid in all years; and (b) a
male, preferred, age 65, and a female, preferred, age 65, with $1,000,000 of
Face Amount and a premium of $27,000 paid in all years.
The Death Benefit and Account Value for a Policy would be different from
those shown if the rates of return averaged 0%, 6% and 12% over a period of
years, but also fluctuated above or below those averages for individual Policy
Years. They would also differ if any Policy loan was made during the period of
time illustrated.
The illustrations reflect the deductions of guaranteed Policy charges for a
single gross interest rate. The amounts shown for the Death Benefit and Account
Value as of the end of each Policy Year take into account an average daily
charge equal to an annual charge of 0.70% of the average daily net assets of the
Funds for investment advisory and administrative services fees. The gross annual
investment return rates of 0%, 6% and 12% on the Fund's assets are equal to net
annual investment return rates (net of the 0.70% average daily charge) of -.70%,
5.30% and 11.30%, respectively.
In addition, the Death Benefit and Policy Account Values as of the end of
each Policy Year take into account the front-end sales load, premium processing
charge, federal tax charge, premium tax charge (assumed to be 2.0% in these
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%, and 12%, respectively, to cover
any tax charges (see "Detailed Description of Policy Benefits and Provisions --
Deductions and Charges From the Account Value -- Taxes," page 19).
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 the 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>
36 HARTFORD LIFE INSURANCE COMPANY
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FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
DEATH BENEFIT OPTION: LEVEL
$1,000,000 FACE AMOUNT
ISSUE AGE 55 MALE PREFERRED
ISSUE AGE 50 FEMALE PREFERRED
$15,500 PLANNED PREMIUM
ASSUMING THE HYPOTHETICAL GROSS ANNUAL INVESTEMENT RETURNS SHOWN
AND GUARANTEED CHARGES*
<TABLE>
<CAPTION>
PREMIUMS 12% (11.30% NET) 6% (5.30% NET) 0% (-0.70% NET)
END OF ACCUMULATED ----------------------- --------------------- ---------------------
POLICY AT 5% INTEREST ACCOUNT DEATH ACCOUNT DEATH ACCOUNT DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------ -------------- ----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 16,275 6,398** 1,000,000 6,018** 1,000,000 5,640** 1,000,000
2 33,364 19,366** 1,000,000 17,889** 1,000,000 16,459** 1,000,000
3 51,307 33,580 1,000,000 30,187 1,000,000 27,018 1,000,000
4 70,147 49,148 1,000,000 42,911 1,000,000 37,298 1,000,000
5 89,930 66,186 1,000,000 56,053 1,000,000 47,280 1,000,000
6 110,701 86,566 1,000,000 71,277 1,000,000 58,536 1,000,000
7 132,511 108,864 1,000,000 86,974 1,000,000 69,418 1,000,000
8 155,412 133,254 1,000,000 103,134 1,000,000 79,898 1,000,000
9 179,457 159,925 1,000,000 119,740 1,000,000 89,940 1,000,000
10 204,705 189,081 1,000,000 136,768 1,000,000 99,499 1,000,000
11 231,215 222,992 1,000,000 155,956 1,000,000 110,083 1,000,000
12 259,051 260,192 1,000,000 175,635 1,000,000 120,078 1,000,000
13 288,279 301,000 1,000,000 195,753 1,000,000 129,400 1,000,000
14 318,968 345,773 1,000,000 216,246 1,000,000 137,942 1,000,000
15 351,191 394,930 1,000,000 237,040 1,000,000 145,590 1,000,000
16 385,026 448,957 1,000,000 258,052 1,000,000 152,208 1,000,000
17 420,552 508,438 1,000,000 279,199 1,000,000 157,655 1,000,000
18 457,855 574,073 1,000,000 300,387 1,000,000 161,766 1,000,000
19 497,022 646,709 1,000,000 321,518 1,000,000 164,359 1,000,000
20 538,148 727,376 1,000,000 342,477 1,000,000 165,212 1,000,000
25 724,270 1,308,124 1,399,693 446,496 1,000,000 134,624 1,000,000
30 1,014,302 2,278,556 2,392,483 517,668 1,000,000 -- --
* THESE VALUES REFLECT INVESTMENT RESULTS USING GUARANTEED COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
** IF YOU SURRENDER YOUR POLICY DURING THE FIRST TWO POLICY YEARS, YOU WILL
RECEIVE A REFUND IN ADDITION TO THE ACCOUNT VALUES SHOWN. THE REFUND WOULD
BE $3,100.00 IN POLICY YEAR ONE AND $3,691.28 IN POLICY YEAR TWO.
THE DEATH BENEFIT MAY AND THE ACCOUNT VALUES WILL DIFFER IF PREMIUMS ARE
PAID IN DIFFERENT AMOUNTS OR FREQUENCIES.
</TABLE>
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS
THAN THOSE SHOWN. THE DEATH BENEFIT AND ACCOUNT VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN APPLICABLE TO THE POLICY
AVERAGED THE RATE SHOWN OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT AND ACCOUNT
VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE
INVESTMENT ALLOCATIONS MADE TO THE SEPARATE ACCOUNT AND THE RATES OF RETURN OF
THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE
POLICY AVERAGED THE RATE SHOWN, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR THE
SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 37
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FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
DEATH BENEFIT OPTION: LEVEL
$1,000,000 FACE AMOUNT
ISSUE AGE 65 MALE PREFERRED
ISSUE AGE 65 FEMALE PREFERRED
$27,000 PLANNED PREMIUM
ASSUMING THE HYPOTHETICAL GROSS ANNUAL INVESTEMENT RETURNS SHOWN
AND GUARANTEED CHARGES*
<TABLE>
<CAPTION>
PREMIUMS 12% (11.30% NET) 6% (5.30% NET) 0% (-0.70% NET)
END OF ACCUMULATED ----------------------- --------------------- ---------------------
POLICY AT 5% INTEREST ACCOUNT DEATH ACCOUNT DEATH ACCOUNT DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------ -------------- ----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 28,350 12,716** 1,000,000 11,989** 1,000,000 11,263** 1,000,000
2 58,118 35,880** 1,000,000 33,125** 1,000,000 30,459** 1,000,000
3 89,373 60,575 1,000,000 54,342 1,000,000 48,528 1,000,000
4 122,192 86,829 1,000,000 75,506 1,000,000 65,343 1,000,000
5 156,652 114,666 1,000,000 96,459 1,000,000 80,757 1,000,000
6 192,834 146,388 1,000,000 119,199 1,000,000 96,675 1,000,000
7 230,826 179,911 1,000,000 141,368 1,000,000 110,726 1,000,000
8 270,717 215,184 1,000,000 162,626 1,000,000 122,573 1,000,000
9 312,603 252,142 1,000,000 182,555 1,000,000 131,802 1,000,000
10 356,583 290,746 1,000,000 200,693 1,000,000 137,945 1,000,000
11 402,762 334,367 1,000,000 219,411 1,000,000 143,007 1,000,000
12 451,251 380,403 1,000,000 235,583 1,000,000 143,967 1,000,000
13 502,163 429,263 1,000,000 248,683 1,000,000 140,228 1,000,000
14 555,621 481,540 1,000,000 258,090 1,000,000 131,068 1,000,000
15 611,752 538,032 1,000,000 262,988 1,000,000 115,526 1,000,000
16 670,690 599,809 1,000,000 262,259 1,000,000 92,271 1,000,000
17 732,574 668,371 1,000,000 254,383 1,000,000 59,489 1,000,000
18 797,553 745,875 1,000,000 237,294 1,000,000 14,716 1,000,000
19 865,781 835,524 1,000,000 208,292 1,000,000 -- --
20 937,420 942,043 1,000,000 163,852 1,000,000 -- --
25 1,261,632 1,703,654 1,788,837 -- -- -- --
30 1,766,849 2,950,020 2,979,520 -- -- -- --
</TABLE>
<TABLE>
<C> <S>
* THESE VALUES REFLECT INVESTMENT RESULTS USING GUARANTEED COST OF INSURANCE
RATES, ADMINISTRATIVE FEES, AND MORTALITY AND EXPENSE RISK RATES.
** IF YOU SURRENDER YOUR POLICY DURING THE FIRST TWO POLICY YEARS, YOU WILL
RECEIVE A REFUND IN ADDITION TO THE ACCOUNT VALUES SHOWN. THE REFUND WOULD
BE $4,673.31 IN POLICY YEAR ONE AND $4089.59 IN POLICY YEAR TWO.
THE DEATH BENEFIT MAY AND THE ACCOUNT VALUES WILL DIFFER IF PREMIUMS ARE
PAID IN DIFFERENT AMOUNTS OR FREQUENCIES.
</TABLE>
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS
THAN THOSE SHOWN. THE DEATH BENEFIT AND ACCOUNT VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN APPLICABLE TO THE POLICY
AVERAGED THE RATE SHOWN OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT AND ACCOUNT
VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE
INVESTMENT ALLOCATIONS MADE TO THE SEPARATE ACCOUNT AND THE RATES OF RETURN OF
THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE
POLICY AVERAGED THE RATE SHOWN, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR THE
SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE>
38
- --------------------------------------------------------------------------------
Separate Account Variable Life Two
Hartford Life Insurance Company
Statement of Assets & Liabilities
March 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
MONEY
BOND FUND STOCK FUND MARKET FUND ADVISERS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investments:
Hartford Bond Fund, Inc.
Shares 2,084,520
Cost $ 2,169,704
Market Value............................. $2,221,573 -- -- --
Hartford Stock Fund, Inc.
Shares 1,911,969
Cost $ 9,036,363
Market Value............................. -- $10,891,835 -- --
HVA Money Market Fund, Inc.
Shares 11,354,968
Cost $11,354,968
Market Value............................. -- -- $11,354,968 --
Hartford Advisers Fund, Inc.
Shares 1,794,915
Cost $ 4,073,676
Market Value............................. -- -- -- $4,842,652
Hartford Capital Appreciation Fund, Inc.
Shares 2,356,562
Cost $ 9,555,507
Market Value............................. -- -- -- --
Hartford Mortgage Securities Fund, Inc.
Shares 184,138
Cost $ 195,919
Market Value............................. -- -- -- --
Hartford Index Fund, Inc.
Shares 2,963,864
Cost $ 7,734,906
Market Value............................. -- -- -- --
Hartford International Opportunities Fund,
Inc.
Shares 3,321,898
Cost $ 4,452,135
Market Value............................. -- -- -- --
Hartford Dividend and Growth Fund, Inc.
Shares 3,165,752
Cost $ 5,762,839
Market Value............................. -- -- -- --
Fidelity VIP Equity Income Fund
Shares 217,618
Cost $ 4,634,703
Market Value............................. -- -- -- --
Fidelity VIP Overseas Fund
Shares 67,647
Cost $ 1,288,137
Market Value............................. -- -- -- --
Fidelity VIP II Asset Manager Fund
Shares 63,048
Cost $ 1,049,971
Market Value............................. -- -- -- --
Due from Hartford Life Insurance Company... -- 11,158 20,669 5,605
Receivable from fund shares sold........... -- -- -- --
------------- ----------- ----------- -------------
Total Assets............................... 2,221,573 10,902,993 11,375,637 4,848,257
------------- ----------- ----------- -------------
LIABILITIES:
Due to Hartford Life Insurance Company..... 53 -- -- --
Payable for fund shares purchased.......... -- 11,812 20,620 5,564
------------- ----------- ----------- -------------
Total Liabilities.......................... 53 11,812 20,620 5,564
------------- ----------- ----------- -------------
Net Assets (variable life contract
liabilities).............................. $2,221,520 $10,891,181 $11,355,017 $4,842,693
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
39
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL MORTGAGE INTERNATIONAL DIVIDEND AND
APPRECIATION FUND SECURITIES FUND INDEX FUND OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- --------------- ----------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Hartford Bond Fund, Inc.
Shares 2,084,520
Cost $ 2,169,704
Market Value............................. -- -- -- -- --
Hartford Stock Fund, Inc.
Shares 1,911,969
Cost $ 9,036,363
Market Value............................. -- -- -- -- --
HVA Money Market Fund, Inc.
Shares 11,354,968
Cost $11,354,968
Market Value............................. -- -- -- -- --
Hartford Advisers Fund, Inc.
Shares 1,794,915
Cost $ 4,073,676
Market Value............................. -- -- -- -- --
Hartford Capital Appreciation Fund, Inc.
Shares 2,356,562
Cost $ 9,555,507
Market Value............................. $11,007,229 -- -- -- --
Hartford Mortgage Securities Fund, Inc.
Shares 184,138
Cost $ 195,919
Market Value............................. -- $ 201,244 -- -- --
Hartford Index Fund, Inc.
Shares 2,963,864
Cost $ 7,734,906
Market Value............................. -- -- $9,477,317 -- --
Hartford International Opportunities Fund,
Inc.
Shares 3,321,898
Cost $ 4,452,135
Market Value............................. -- -- -- $4,557,262 --
Hartford Dividend and Growth Fund, Inc.
Shares 3,165,752
Cost $ 5,762,839
Market Value............................. -- -- -- -- $6,660,350
Fidelity VIP Equity Income Fund
Shares 217,618
Cost $ 4,634,703
Market Value............................. -- -- -- -- --
Fidelity VIP Overseas Fund
Shares 67,647
Cost $ 1,288,137
Market Value............................. -- -- -- -- --
Fidelity VIP II Asset Manager Fund
Shares 63,048
Cost $ 1,049,971
Market Value............................. -- -- -- -- --
Due from Hartford Life Insurance Company... 10,943 -- 6,845 14 --
Receivable from fund shares sold........... -- -- -- -- 291
----------------- --------------- ----------- ------------------ ------------
Total Assets............................... 11,018,172 201,244 9,484,162 4,557,276 6,660,641
----------------- --------------- ----------- ------------------ ------------
LIABILITIES:
Due to Hartford Life Insurance Company..... -- -- -- -- 162
Payable for fund shares purchased.......... 11,625 -- 9,320 -- --
----------------- --------------- ----------- ------------------ ------------
Total Liabilities.......................... 11,625 -- 9,320 -- 162
----------------- --------------- ----------- ------------------ ------------
Net Assets (variable life contract
liabilities).............................. $11,006,547 $ 201,244 $9,474,842 $4,557,276 $6,660,479
----------------- --------------- ----------- ------------------ ------------
----------------- --------------- ----------- ------------------ ------------
<CAPTION>
FIDELITY VIP
FIDELITY VIP FIDELITY VIP II
EQUITY OVERSEAS ASSET
INCOME FUND FUND MANAGER FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS:
Investments:
Hartford Bond Fund, Inc.
Shares 2,084,520
Cost $ 2,169,704
Market Value............................. -- -- --
Hartford Stock Fund, Inc.
Shares 1,911,969
Cost $ 9,036,363
Market Value............................. -- -- --
HVA Money Market Fund, Inc.
Shares 11,354,968
Cost $11,354,968
Market Value............................. -- -- --
Hartford Advisers Fund, Inc.
Shares 1,794,915
Cost $ 4,073,676
Market Value............................. -- -- --
Hartford Capital Appreciation Fund, Inc.
Shares 2,356,562
Cost $ 9,555,507
Market Value............................. -- -- --
Hartford Mortgage Securities Fund, Inc.
Shares 184,138
Cost $ 195,919
Market Value............................. -- -- --
Hartford Index Fund, Inc.
Shares 2,963,864
Cost $ 7,734,906
Market Value............................. -- -- --
Hartford International Opportunities Fund,
Inc.
Shares 3,321,898
Cost $ 4,452,135
Market Value............................. -- -- --
Hartford Dividend and Growth Fund, Inc.
Shares 3,165,752
Cost $ 5,762,839
Market Value............................. -- -- --
Fidelity VIP Equity Income Fund
Shares 217,618
Cost $ 4,634,703
Market Value............................. $5,505,745 -- --
Fidelity VIP Overseas Fund
Shares 67,647
Cost $ 1,288,137
Market Value............................. -- $1,371,881 --
Fidelity VIP II Asset Manager Fund
Shares 63,048
Cost $ 1,049,971
Market Value............................. -- -- $1,073,707
Due from Hartford Life Insurance Company... -- -- --
Receivable from fund shares sold........... -- -- --
------------ ------------ ------------
Total Assets............................... 5,505,745 1,371,881 1,073,707
------------ ------------ ------------
LIABILITIES:
Due to Hartford Life Insurance Company..... 1,784 9 5,917
Payable for fund shares purchased.......... 487 62 --
------------ ------------ ------------
Total Liabilities.......................... 2,271 71 5,917
------------ ------------ ------------
Net Assets (variable life contract
liabilities).............................. $5,503,474 $1,371,810 $1,067,790
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<PAGE>
40
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT VARIABLE LIFE TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
MONEY
BOND FUND STOCK FUND MARKET FUND ADVISERS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.................................. $ 4,475 $ 2,668 $175,696 $ 2,397
------------- ----------- ----------- -------------
Net investment income.................... 4,475 2,668 175,696 2,397
------------- ----------- ----------- -------------
CAPITAL GAINS INCOME......................... -- 289,691 97 148,349
------------- ----------- ----------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on security
transactions.............................. (143) 2,891 -- 4,911
Net unrealized appreciation (depreciation)
of investments during the period.......... 26,501 925,391 -- 292,625
------------- ----------- ----------- -------------
Net gains (losses) on investments........ 26,358 928,282 -- 297,536
------------- ----------- ----------- -------------
Net increase (decrease) in net assets
resulting
from operations......................... $30,833 $1,220,641 $175,793 $448,282
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
41
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL MORTGAGE INTERNATIONAL DIVIDEND AND
APPRECIATION FUND SECURITIES FUND INDEX FUND OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- --------------- ----------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.................................. $ 1,793 $ 1,561 $ 5,980 $ 2,119 $9,737
----------------- ------ ----------- -------- ------------
Net investment income.................... 1,793 1,561 5,980 2,119 9,737
----------------- ------ ----------- -------- ------------
CAPITAL GAINS INCOME......................... 573,895 -- 176,994 235,374 182,157
----------------- ------ ----------- -------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on security
transactions.............................. 6,794 (423) 5,643 282 971
Net unrealized appreciation (depreciation)
of investments during the period.......... 570,222 2,634 831,003 216,061 412,200
----------------- ------ ----------- -------- ------------
Net gains (losses) on investments........ 577,016 2,211 836,646 216,343 413,171
----------------- ------ ----------- -------- ------------
Net increase (decrease) in net assets
resulting
from operations......................... $1,152,704 $ 3,772 $1,019,620 $453,836 6$05,065
----------------- ------ ----------- -------- ------------
----------------- ------ ----------- -------- ------------
<CAPTION>
FIDELITY VIP
FIDELITY VIP FIDELITY VIP II
EQUITY OVERSEAS ASSET
INCOME FUND FUND MANAGER FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends.................................. $ 64,760 $ 22,698 $ 29,183
------------ ------------ ------------
Net investment income.................... 64,760 22,698 29,183
------------ ------------ ------------
CAPITAL GAINS INCOME......................... 230,469 66,900 87,549
------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on security
transactions.............................. 3,600 896 63
Net unrealized appreciation (depreciation)
of investments during the period.......... 236,184 76,326 (42,677)
------------ ------------ ------------
Net gains (losses) on investments........ 239,784 77,222 (42,614)
------------ ------------ ------------
Net increase (decrease) in net assets
resulting
from operations......................... $ 535,013 $ 166,820 $ 74,118
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<PAGE>
42
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT VARIABLE LIFE TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
MONEY
BOND FUND STOCK FUND MARKET FUND ADVISERS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)............... $ 4,475 $ 2,668 $ 175,696 $ 2,397
Capital gains income....................... -- 289,691 97 148,349
Net realized gain (loss) on security
transactions.............................. (143) 2,891 -- 4,911
Net unrealized appreciation (depreciation)
of investments during the period.......... 26,501 925,391 -- 292,625
----------- ----------- -------------- -------------
Net increase (decrease) in net assets
resulting from operations................. 30,833 1,220,641 175,793 448,282
----------- ----------- -------------- -------------
UNIT TRANSACTIONS:
Purchases.................................. 95,513 352,080 12,215,309 242,747
Net transfers.............................. 574,465 3,106,479 (14,352,975) 407,907
Surrenders................................. (12,097) (252,398) (389,465) (217,349)
Loan withdrawals........................... (125) (100,516) 16,968 (327)
Cost of insurance.......................... (20,326) (84,037) (172,653) (54,199)
----------- ----------- -------------- -------------
Total increase (decrease) in net assets
resulting from unit transactions.......... 637,430 3,021,608 (2,682,816) 378,779
----------- ----------- -------------- -------------
Total increase (decrease) in net assets.... 668,263 4,242,249 (2,507,023) 827,061
NET ASSETS:
Beginning of period........................ 1,553,257 6,648,932 13,862,040 4,015,632
----------- ----------- -------------- -------------
End of period.............................. $2,221,520 $10,891,181 $ 11,355,017 $4,842,693
----------- ----------- -------------- -------------
----------- ----------- -------------- -------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED)
MONEY
BOND FUND STOCK FUND MARKET FUND ADVISERS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
---------- ---------- ----------- ------------
OPERATIONS:
Net investment income (loss)............... $ 60,722 $ 50,976 $ 380,235 $ 72,777
Capital gains income....................... -- 103,392 -- 75,982
Net realized gain (loss) on security
transactions.............................. 344 4,792 -- 2,197
Net unrealized appreciation (depreciation)
of investments during the period.......... 23,137 785,883 -- 382,569
----------- ----------- -------------- -------------
Net increase (decrease) in net assets
resulting from operations................. 84,203 945,043 380,235 533,525
----------- ----------- -------------- -------------
UNIT TRANSACTIONS:
Purchases.................................. 224,575 691,357 43,540,050 899,022
Net transfers.............................. 1,114,603 3,645,966 (32,385,194) 1,480,789
Surrenders................................. (20,975) (141,324) (504,402) (123,087)
Loan withdrawals........................... (25,999) (85,662) (685,736) (78,047)
Cost of insurance.......................... (33,000) (141,765) (494,906) (108,782)
----------- ----------- -------------- -------------
Total increase (decrease) in net assets
resulting from unit transactions.......... 1,259,204 3,968,572 9,469,812 2,069,895
----------- ----------- -------------- -------------
Total increase (decrease) in net assets.... 1,343,407 4,913,615 9,850,047 2,603,420
NET ASSETS:
Beginning of period........................ 209,850 1,735,317 4,011,993 1,412,212
----------- ----------- -------------- -------------
End of period.............................. $1,553,257 $ 6,648,932 $ 13,862,040 $4,015,632
----------- ----------- -------------- -------------
----------- ----------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
43
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL MORTGAGE INTERNATIONAL DIVIDEND AND
APPRECIATION FUND SECURITIES FUND INDEX FUND OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- --------------- ----------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)............... $ 1,793 $ 1,561 $ 5,980 $ 2,119 $ 9,737
Capital gains income....................... 573,895 -- 176,994 235,374 182,157
Net realized gain (loss) on security
transactions.............................. 6,794 (423) 5,643 282 971
Net unrealized appreciation (depreciation)
of investments during the period.......... 570,222 2,634 831,003 216,061 412,200
----------------- --------------- ----------- ------------------ ------------
Net increase (decrease) in net assets
resulting from operations................. 1,152,704 3,772 1,019,620 453,836 605,065
----------------- --------------- ----------- ------------------ ------------
UNIT TRANSACTIONS:
Purchases.................................. 445,635 3,452 324,704 153,419 219,770
Net transfers.............................. 1,466,548 (50,429) 1,627,968 974,578 1,809,357
Surrenders................................. (242,328) (2,008) (52,005) (93,356) (195,945)
Loan withdrawals........................... 21,263 -- 21,339 (400) 21,457
Cost of insurance.......................... (115,273) (2,424) (62,862) (26,282) (60,730)
----------------- --------------- ----------- ------------------ ------------
Total increase (decrease) in net assets
resulting from unit transactions.......... 1,575,845 (51,409) 1,859,144 1,007,959 1,793,909
----------------- --------------- ----------- ------------------ ------------
Total increase (decrease) in net assets.... 2,728,549 (47,637) 2,878,764 1,461,795 2,398,974
NET ASSETS:
Beginning of period........................ 8,277,998 248,881 6,596,078 3,095,481 4,261,505
----------------- --------------- ----------- ------------------ ------------
End of period.............................. $11,006,547 $ 201,244 $9,474,842 $4,557,276 $6,660,479
----------------- --------------- ----------- ------------------ ------------
----------------- --------------- ----------- ------------------ ------------
CAPITAL MORTGAGE INTERNATIONAL DIVIDEND AND
APPRECIATION FUND SECURITIES FUND INDEX FUND OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
---------------- ------------- ---------- ----------------- -----------
OPERATIONS:
Net investment income (loss)............... $ 34,129 $ 10,759 $ 61,758 $ 27,817 $ 50,755
Capital gains income....................... 219,489 -- 128,080 128,065 33,614
Net realized gain (loss) on security
transactions.............................. 2,152 288 (284) 2,089 (751)
Net unrealized appreciation (depreciation)
of investments during the period.......... 705,479 2,161 799,655 (168,332) 446,847
----------------- --------------- ----------- ------------------ ------------
Net increase (decrease) in net assets
resulting from operations................. 961,249 13,208 989,209 (10,361) 530,465
----------------- --------------- ----------- ------------------ ------------
UNIT TRANSACTIONS:
Purchases.................................. 1,340,476 41,748 1,525,193 948,086 360,484
Net transfers.............................. 4,197,271 159,978 3,225,273 1,088,413 3,059,353
Surrenders................................. (203,529) (4,181) (120,518) (78,919) (71,909)
Loan withdrawals........................... (112,292) -- (84,328) (61,840) (74,405)
Cost of insurance.......................... (225,833) (5,854) (138,997) (77,690) (91,491)
----------------- --------------- ----------- ------------------ ------------
Total increase (decrease) in net assets
resulting from unit transactions.......... 4,996,093 191,691 4,406,623 1,818,050 3,182,032
----------------- --------------- ----------- ------------------ ------------
Total increase (decrease) in net assets.... 5,957,342 204,899 5,395,832 1,807,689 3,712,497
NET ASSETS:
Beginning of period........................ 2,320,656 43,982 1,200,246 1,287,792 549,008
----------------- --------------- ----------- ------------------ ------------
End of period.............................. $8,277,998 $ 248,881 $6,596,078 $3,095,481 $4,261,505
----------------- --------------- ----------- ------------------ ------------
----------------- --------------- ----------- ------------------ ------------
<CAPTION>
FIDELITY VIP FIDELITY VIP II
EQUITY FIDELITY VIP ASSET MANAGER
INCOME FUND OVERSEAS FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------- -----------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss)............... $ 64,760 $22,698 $ 29,183
Capital gains income....................... 230,469 66,900 87,549
Net realized gain (loss) on security
transactions.............................. 3,600 896 63
Net unrealized appreciation (depreciation)
of investments during the period.......... 236,184 76,326 (42,677)
------------ ------------- -----------------
Net increase (decrease) in net assets
resulting from operations................. 535,013 166,820 74,118
------------ ------------- -----------------
UNIT TRANSACTIONS:
Purchases.................................. 228,789 55,960 14,974
Net transfers.............................. 454,417 197,199 90,989
Surrenders................................. (35,828) (9,905) (8,524)
Loan withdrawals........................... (157) (107) --
Cost of insurance.......................... (36,713) (7,516) (8,263)
------------ ------------- -----------------
Total increase (decrease) in net assets
resulting from unit transactions.......... 610,508 235,631 89,176
------------ ------------- -----------------
Total increase (decrease) in net assets.... 1,145,521 402,451 163,294
NET ASSETS:
Beginning of period........................ 4,357,953 969,359 904,496
------------ ------------- -----------------
End of period.............................. $5,503,474 1,$371,810 $1,067,790
------------ ------------- -----------------
------------ ------------- -----------------
FIDELITY VIP FIDELITY VIP II
EQUITY FIDELITY VIP ASSET MANAGER
INCOME FUND OVERSEAS FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
---------------- ------------- ---------- ----------------
------------ ------------- -----------------
OPERATIONS:
Net investment income (loss)............... $ 28,391 $ 3,585 $ 12,026
Capital gains income....................... 142,745 14,231 30,166
Net realized gain (loss) on security
transactions.............................. 2,925 (2,477) 4,849
Net unrealized appreciation (depreciation)
of investments during the period.......... 514,150 (1,284) 45,529
------------ ------------- -----------------
Net increase (decrease) in net assets
resulting from operations................. 688,211 14,055 92,570
------------ ------------- -----------------
UNIT TRANSACTIONS:
Purchases.................................. 626,240 80,330 187,210
Net transfers.............................. 1,691,959 754,893 350,249
Surrenders................................. (115,305) (17,526) (19,442)
Loan withdrawals........................... (620) (18,863) --
Cost of insurance.......................... (98,277) (10,590) (18,932)
------------ ------------- -----------------
Total increase (decrease) in net assets
resulting from unit transactions.......... 2,103,997 788,244 499,085
------------ ------------- -----------------
Total increase (decrease) in net assets.... 2,792,208 802,299 591,655
NET ASSETS:
Beginning of period........................ 1,565,745 167,060 312,841
------------ ------------- -----------------
End of period.............................. $4,357,953 $969,359 $ 904,496
------------ ------------- -----------------
------------ ------------- -----------------
</TABLE>
<PAGE>
This page intentionally left blank.
<PAGE>
45
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hartford Life Insurance Company
Separate Account Variable Life Two and to the
Owners of Units of Interest Therein:
We have audited the accompanying statement of assets and liabilities of the Bond
Fund Sub-Account, Stock Fund Sub-Account, Money Market Fund Sub-Account,
Advisers Fund Sub-Account, Capital Appreciation Fund Sub-Account, Mortgage
Securities Fund Sub-Account, Index Fund Sub-Account, International Opportunities
Fund Sub-Account, Dividend and Growth Fund Sub-Account, Fidelity VIP Equity
Income Portfolio Sub-Account, Fidelity VIP Overseas Portfolio Sub-Account and
Fidelity VIP II Asset Manager Portfolio Sub-Account (constituting Hartford Life
Insurance Company Separate Account Variable Life Two) (the Accounts) as of
December 31, 1997, and the related statement of operations for the year then
ended and statements of changes in net assets for each of the two years in the
period then ended. These financial statements are the responsibility of the
Accounts' 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 Bond Fund Sub-Account,
Stock Fund Sub-Account, Money Market Fund Sub-Account, Advisers Fund
Sub-Account, Capital Appreciation Fund Sub-Account, Mortgage Securities Fund
Sub-Account, Index Fund Sub-Account, International Opportunities Fund
Sub-Account, Dividend and Growth Fund Sub-Account, Fidelity VIP Equity Income
Portfolio Sub-Account, Fidelity VIP Overseas Portfolio Sub-Account and Fidelity
VIP II Asset Manager Portfolio Sub-Account (constituting Hartford Life Insurance
Company Separate Account Variable Life Two) as of December 31, 1997, the results
of its operations for the year then ended and the changes in its net assets for
each of the two years in the period then ended, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 16, 1998
<PAGE>
46
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT VARIABLE LIFE TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY
BOND FUND STOCK FUND MARKET FUND ADVISERS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investments:
Hartford Bond Fund, Inc.
Shares 1,479,693
Cost $ 1,527,945
Market Value............................. $1,553,313 -- -- --
Hartford Stock Fund, Inc.
Shares 1,297,881
Cost $ 5,719,386
Market Value............................. -- $6,649,467 -- --
HVA Money Market Fund, Inc.
Shares 13,861,822
Cost $13,861,822
Market Value............................. -- -- $13,861,822 --
Hartford Advisers Fund, Inc.
Shares 1,589,222
Cost $ 3,539,208
Market Value............................. -- -- -- $4,015,560
Hartford Capital Appreciation Fund, Inc.
Shares 1,877,432
Cost $ 7,397,445
Market Value............................. -- -- -- --
Hartford Mortgage Securities Fund, Inc.
Shares 229,641
Cost $ 246,189
Market Value............................. -- -- -- --
Hartford Index Fund, Inc.
Shares 2,292,828
Cost $ 5,686,684
Market Value............................. -- -- -- --
Hartford International Opportunities Fund,
Inc.
Shares 2,391,343
Cost $ 3,206,426
Market Value............................. -- -- -- --
Hartford Dividend and Growth Fund, Inc.
Shares 2,182,879
Cost $ 3,776,384
Market Value............................. -- -- -- --
Fidelity VIP Equity Income Fund
Shares 179,572
Cost $ 3,725,161
Market Value............................. -- -- -- --
Fidelity VIP Overseas Fund
Shares 50,494
Cost $ 962,062
Market Value............................. -- -- -- --
Fidelity VIP II Asset Manager Fund
Shares 50,526
Cost $ 843,566
Market Value............................. -- -- -- --
Due from Hartford Life Insurance Company... -- -- 1,803,768 72
Receivable from fund shares sold........... -- 2,912 -- --
----------- ----------- ----------- -------------
Total Assets............................... 1,553,313 6,652,379 15,665,590 4,015,632
----------- ----------- ----------- -------------
LIABILITIES:
Due to Hartford Life Insurance Company..... 56 3,447 -- --
Payable for fund shares purchased.......... -- -- 1,803,550 --
----------- ----------- ----------- -------------
Total Liabilities.......................... 56 3,447 1,803,550 --
----------- ----------- ----------- -------------
Net Assets (variable life contract
liabilities).............................. $1,553,257 $6,648,932 $13,862,040 $4,015,632
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
Units Owned by Participants.................. 1,130,958 2,828,101 11,191,520 2,062,373
Unit Values.................................. $ 1.373400 $ 2.351023 $ 1.238620 $ 1.947093
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
47
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL MORTGAGE INTERNATIONAL
APPRECIATION FUND SECURITIES FUND INDEX FUND OPPORTUNITIES FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- --------------- ----------- ------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments:
Hartford Bond Fund, Inc.
Shares 1,479,693
Cost $ 1,527,945
Market Value............................. -- -- -- --
Hartford Stock Fund, Inc.
Shares 1,297,881
Cost $ 5,719,386
Market Value............................. -- -- -- --
HVA Money Market Fund, Inc.
Shares 13,861,822
Cost $13,861,822
Market Value............................. -- -- -- --
Hartford Advisers Fund, Inc.
Shares 1,589,222
Cost $ 3,539,208
Market Value............................. -- -- -- --
Hartford Capital Appreciation Fund, Inc.
Shares 1,877,432
Cost $ 7,397,445
Market Value............................. $8,278,944 -- -- --
Hartford Mortgage Securities Fund, Inc.
Shares 229,641
Cost $ 246,189
Market Value............................. -- $ 248,880 -- --
Hartford Index Fund, Inc.
Shares 2,292,828
Cost $ 5,686,684
Market Value............................. -- -- $6,598,092 --
Hartford International Opportunities Fund,
Inc.
Shares 2,391,343
Cost $ 3,206,426
Market Value............................. -- -- -- $3,095,492
Hartford Dividend and Growth Fund, Inc.
Shares 2,182,879
Cost $ 3,776,384
Market Value............................. -- -- -- --
Fidelity VIP Equity Income Fund
Shares 179,572
Cost $ 3,725,161
Market Value............................. -- -- -- --
Fidelity VIP Overseas Fund
Shares 50,494
Cost $ 962,062
Market Value............................. -- -- -- --
Fidelity VIP II Asset Manager Fund
Shares 50,526
Cost $ 843,566
Market Value............................. -- -- -- --
Due from Hartford Life Insurance Company... 2,924 1 6,904 --
Receivable from fund shares sold........... -- -- -- 8
----------------- --------------- ----------- ------------------
Total Assets............................... 8,281,868 248,881 6,604,996 3,095,500
----------------- --------------- ----------- ------------------
LIABILITIES:
Due to Hartford Life Insurance Company..... -- -- -- 19
Payable for fund shares purchased.......... 3,870 -- 8,918 --
----------------- --------------- ----------- ------------------
Total Liabilities.......................... 3,870 -- 8,918 19
----------------- --------------- ----------- ------------------
Net Assets (variable life contract
liabilities).............................. $8,277,998 $ 248,881 $6,596,078 $3,095,481
----------------- --------------- ----------- ------------------
----------------- --------------- ----------- ------------------
Units Owned by Participants.................. 3,875,508 184,436 2,839,491 2,061,507
Unit Values.................................. $ 2.135978 $ 1.349414 $ 2.322979 $ 1.501562
<CAPTION>
DIVIDEND AND FIDELITY VIP FIDELITY VIP
GROWTH FUND EQUITY-INCOME PORTFOLIO OVERSEAS PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ------------------------ -------------------
<S> <C>
ASSETS:
Investments:
Hartford Bond Fund, Inc.
Shares 1,479,693
Cost $ 1,527,945
Market Value............................. -- -- --
Hartford Stock Fund, Inc.
Shares 1,297,881
Cost $ 5,719,386
Market Value............................. -- -- --
HVA Money Market Fund, Inc.
Shares 13,861,822
Cost $13,861,822
Market Value............................. -- -- --
Hartford Advisers Fund, Inc.
Shares 1,589,222
Cost $ 3,539,208
Market Value............................. -- -- --
Hartford Capital Appreciation Fund, Inc.
Shares 1,877,432
Cost $ 7,397,445
Market Value............................. -- -- --
Hartford Mortgage Securities Fund, Inc.
Shares 229,641
Cost $ 246,189
Market Value............................. -- -- --
Hartford Index Fund, Inc.
Shares 2,292,828
Cost $ 5,686,684
Market Value............................. -- -- --
Hartford International Opportunities Fund,
Inc.
Shares 2,391,343
Cost $ 3,206,426
Market Value............................. -- -- --
Hartford Dividend and Growth Fund, Inc.
Shares 2,182,879
Cost $ 3,776,384
Market Value............................. $4,261,695 -- --
Fidelity VIP Equity Income Fund
Shares 179,572
Cost $ 3,725,161
Market Value............................. -- $4,360,020 --
Fidelity VIP Overseas Fund
Shares 50,494
Cost $ 962,062
Market Value............................. -- -- $ 969,480
Fidelity VIP II Asset Manager Fund
Shares 50,526
Cost $ 843,566
Market Value............................. -- -- --
Due from Hartford Life Insurance Company... -- 550 --
Receivable from fund shares sold........... -- -- --
------------- ----------- ----------
Total Assets............................... 4,261,695 4,360,570 969,480
------------- ----------- ----------
LIABILITIES:
Due to Hartford Life Insurance Company..... 189 -- 121
Payable for fund shares purchased.......... 1 2,617 --
------------- ----------- ----------
Total Liabilities.......................... 190 2,617 121
------------- ----------- ----------
Net Assets (variable life contract
liabilities).............................. $4,261,505 $4,357,953 $ 969,359
------------- ----------- ----------
------------- ----------- ----------
Units Owned by Participants.................. 2,132,157 2,482,896 714,812
Unit Values.................................. $ 1.998682 $ 1.755189 $ 1.356104
<CAPTION>
FIDELITY VIP II
ASSET MANAGER PORTFOLIO
SUB-ACCOUNT
------------------------
ASSETS:
Investments:
Hartford Bond Fund, Inc.
Shares 1,479,693
Cost $ 1,527,945
Market Value............................. --
Hartford Stock Fund, Inc.
Shares 1,297,881
Cost $ 5,719,386
Market Value............................. --
HVA Money Market Fund, Inc.
Shares 13,861,822
Cost $13,861,822
Market Value............................. --
Hartford Advisers Fund, Inc.
Shares 1,589,222
Cost $ 3,539,208
Market Value............................. --
Hartford Capital Appreciation Fund, Inc.
Shares 1,877,432
Cost $ 7,397,445
Market Value............................. --
Hartford Mortgage Securities Fund, Inc.
Shares 229,641
Cost $ 246,189
Market Value............................. --
Hartford Index Fund, Inc.
Shares 2,292,828
Cost $ 5,686,684
Market Value............................. --
Hartford International Opportunities Fund,
Inc.
Shares 2,391,343
Cost $ 3,206,426
Market Value............................. --
Hartford Dividend and Growth Fund, Inc.
Shares 2,182,879
Cost $ 3,776,384
Market Value............................. --
Fidelity VIP Equity Income Fund
Shares 179,572
Cost $ 3,725,161
Market Value............................. --
Fidelity VIP Overseas Fund
Shares 50,494
Cost $ 962,062
Market Value............................. --
Fidelity VIP II Asset Manager Fund
Shares 50,526
Cost $ 843,566
Market Value............................. $ 909,979
Due from Hartford Life Insurance Company... --
Receivable from fund shares sold........... --
----------
Total Assets............................... 909,979
----------
LIABILITIES:
Due to Hartford Life Insurance Company..... 5,483
Payable for fund shares purchased.......... --
----------
Total Liabilities.......................... 5,483
----------
Net Assets (variable life contract
liabilities).............................. $ 904,496
----------
----------
Units Owned by Participants.................. 594,178
Unit Values.................................. $ 1.522265
</TABLE>
<PAGE>
48
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT VARIABLE LIFE TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY
BOND FUND STOCK FUND MARKET FUND ADVISERS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.................................. $60,722 $ 50,976 $380,235 $ 72,777
----------- ----------- ----------- -------------
Net investment income.................... 60,722 50,976 380,235 72,777
----------- ----------- ----------- -------------
CAPITAL GAINS INCOME......................... -- 103,392 -- 75,982
----------- ----------- ----------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on security
transactions.............................. 344 4,792 -- 2,197
Net unrealized appreciation (depreciation)
of investments during the period.......... 23,137 785,883 -- 382,569
----------- ----------- ----------- -------------
Net gain (loss) on investments........... 23,481 790,675 -- 384,766
----------- ----------- ----------- -------------
Net increase (decrease) in net assets
resulting from operations............... $84,203 $945,043 $380,235 $533,525
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
49
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL MORTGAGE INTERNATIONAL DIVIDEND AND
APPRECIATION FUND SECURITIES FUND INDEX FUND OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- --------------- ----------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.................................. $ 34,129 $ 10,759 $61,758 $ 27,817 $ 50,755
-------- ------- ----------- ---------- ------------
Net investment income.................... 34,129 10,759 61,758 27,817 50,755
-------- ------- ----------- ---------- ------------
CAPITAL GAINS INCOME......................... 219,489 -- 128,080 128,065 33,614
-------- ------- ----------- ---------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on security
transactions.............................. 2,152 288 (284) 2,089 (751)
Net unrealized appreciation (depreciation)
of investments during the period.......... 705,479 2,161 799,655 (168,332) 446,847
-------- ------- ----------- ---------- ------------
Net gain (loss) on investments........... 707,631 2,449 799,371 (166,243) 446,096
-------- ------- ----------- ---------- ------------
Net increase (decrease) in net assets
resulting from operations............... $961,249 $ 13,208 $989,209 $(10,361) $530,465
-------- ------- ----------- ---------- ------------
-------- ------- ----------- ---------- ------------
<CAPTION>
FIDELITY VIP FIDELITY VIP FIDELITY VIP II
EQUITY-INCOME OVERSEAS ASSET MANAGER
PORTFOLIO PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------ ------------- ------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends.................................. $ 28,391 $ 3,585 $12,026
-------- ------------- -------
Net investment income.................... 28,391 3,585 12,026
-------- ------------- -------
CAPITAL GAINS INCOME......................... 142,745 14,231 30,166
-------- ------------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on security
transactions.............................. 2,925 (2,477) 4,849
Net unrealized appreciation (depreciation)
of investments during the period.......... 514,150 (1,284) 45,529
-------- ------------- -------
Net gain (loss) on investments........... 517,075 (3,761) 50,378
-------- ------------- -------
Net increase (decrease) in net assets
resulting from operations............... $688,211 $14,055 $92,570
-------- ------------- -------
-------- ------------- -------
</TABLE>
<PAGE>
50
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT VARIABLE LIFE TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY
BOND FUND STOCK FUND MARKET FUND ADVISERS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income...................... $ 60,722 $ 50,976 $ 380,235 $ 72,777
Capital gains income....................... -- 103,392 -- 75,982
Net realized gain (loss) on security
transactions.............................. 344 4,792 -- 2,197
Net unrealized appreciation (depreciation)
of investments during the period.......... 23,137 785,883 -- 382,569
----------- ----------- ------------ -------------
Net increase (decrease) in net assets
resulting from operations................. 84,203 945,043 380,235 533,525
----------- ----------- ------------ -------------
UNIT TRANSACTIONS:
Purchases.................................. 224,575 691,357 43,540,050 899,022
Net transfers.............................. 1,114,603 3,645,966 (32,385,194) 1,480,789
Surrenders................................. (20,975) (141,324) (504,402) (123,087)
Loan withdrawals........................... (25,999) (85,662) (685,736) (78,047)
Cost of insurance.......................... (33,000) (141,765) (494,906) (108,782)
----------- ----------- ------------ -------------
Net increase in net assets resulting from
unit transactions......................... 1,259,204 3,968,572 9,469,812 2,069,895
----------- ----------- ------------ -------------
Total increase in net assets............... 1,343,407 4,913,615 9,850,047 2,603,420
NET ASSETS:
Beginning of period........................ 209,850 1,735,317 4,011,993 1,412,212
----------- ----------- ------------ -------------
End of period.............................. $1,553,257 $6,648,932 $ 13,862,040 $4,015,632
----------- ----------- ------------ -------------
----------- ----------- ------------ -------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
MONEY
BOND FUND STOCK FUND MARKET FUND ADVISERS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ------------ -------------
OPERATIONS:
Net investment income...................... $ 4,617 $ 9,981 $ 56,534 $ 16,365
Net realized gain (loss) on security
transactions.............................. 9 (88) -- 975
Net unrealized appreciation of investments
during the period......................... 2,231 144,184 -- 93,783
----------- ----------- ------------ -------------
Net increase in net assets resulting from
operations................................ 6,857 154,077 56,534 111,123
----------- ----------- ------------ -------------
UNIT TRANSACTIONS:
Purchases.................................. 24,540 128,400 21,595,898 163,384
Net transfers.............................. 184,962 1,479,101 (17,911,483) 1,195,723
Surrenders................................. (2,166) (4,782) (350,401) (21,798)
Loan withdrawals........................... -- (22,053) (23,407) (21,530)
Cost of insurance.......................... (4,343) (21,092) (286,663) (14,690)
----------- ----------- ------------ -------------
Net increase in net assets resulting from
unit transactions......................... 202,993 1,559,574 3,023,944 1,301,089
----------- ----------- ------------ -------------
Total increase in net assets............... 209,850 1,713,651 3,080,478 1,412,212
NET ASSETS:
Beginning of period........................ -- 21,666 931,515 --
----------- ----------- ------------ -------------
End of period.............................. $ 209,850 $1,735,317 $ 4,011,993 $1,412,212
----------- ----------- ------------ -------------
----------- ----------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
51
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPTIAL MORTGAGE INTERNATIONAL DIVIDEND AND
APPRECIATION FUND SECURITIES FUND INDEX FUND OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- --------------- ----------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income...................... $ 34,129 $ 10,759 $ 61,758 $ 27,817 $ 50,755
Capital gains income....................... 219,489 -- 128,080 128,065 33,614
Net realized gain (loss) on security
transactions.............................. 2,152 288 (284) 2,089 (751)
Net unrealized appreciation (depreciation)
of investments during the period.......... 705,479 2,161 799,655 (168,332) 446,847
----------------- --------------- ----------- ------------------ ------------
Net increase (decrease) in net assets
resulting from operations................. 961,249 13,208 989,209 (10,361) 530,465
----------------- --------------- ----------- ------------------ ------------
UNIT TRANSACTIONS:
Purchases.................................. 1,340,476 41,748 1,525,193 948,086 360,484
Net transfers.............................. 4,197,271 159,978 3,225,273 1,088,413 3,059,353
Surrenders................................. (203,529) (4,181) (120,518) (78,919) (71,909)
Loan withdrawals........................... (112,292) -- (84,328) (61,840) (74,405)
Cost of insurance.......................... (225,833) (5,854) (138,997) (77,690) (91,491)
----------------- --------------- ----------- ------------------ ------------
Net increase in net assets resulting from
unit transactions......................... 4,996,093 191,691 4,406,623 1,818,050 3,182,032
----------------- --------------- ----------- ------------------ ------------
Total increase in net assets............... 5,957,342 204,899 5,395,832 1,807,689 3,712,497
NET ASSETS:
Beginning of period........................ 2,320,656 43,982 1,200,246 1,287,792 549,008
----------------- --------------- ----------- ------------------ ------------
End of period.............................. $8,277,998 $248,881 $6,596,078 $3,095,481 $4,261,505
----------------- --------------- ----------- ------------------ ------------
----------------- --------------- ----------- ------------------ ------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
CAPTIAL MORTGAGE INTERNATIONAL DIVIDEND AND
APPRECIATION FUND SECURITIES FUND INDEX FUND OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- --------------- ----------- ------------------ ------------
OPERATIONS:
Net investment income...................... $ 5,970 $ 1,084 $ 9,179 $ 9,122 $ 4,704
Net realized gain (loss) on security
transactions.............................. 512 -- 2,901 296 938
Net unrealized appreciation of investments
during the period......................... 176,020 530 111,747 57,397 38,465
----------------- --------------- ----------- ------------------ ------------
Net increase in net assets resulting from
operations................................ 182,502 1,614 123,827 66,815 44,107
----------------- --------------- ----------- ------------------ ------------
UNIT TRANSACTIONS:
Purchases.................................. 341,337 6,471 50,114 95,211 13,008
Net transfers.............................. 1,756,480 37,915 1,092,579 1,031,056 560,046
Surrenders................................. (21,886) (1,050) (92,837) (3,592) (47,416)
Loan withdrawals........................... (21,502) -- -- (8,130) (12,999)
Cost of insurance.......................... (38,858) (968) (21,363) (33,663) (7,738)
----------------- --------------- ----------- ------------------ ------------
Net increase in net assets resulting from
unit transactions......................... 2,015,571 42,368 1,028,493 1,080,882 504,901
----------------- --------------- ----------- ------------------ ------------
Total increase in net assets............... 2,198,073 43,982 1,152,320 1,147,697 549,008
NET ASSETS:
Beginning of period........................ 122,583 -- 47,926 140,095 --
----------------- --------------- ----------- ------------------ ------------
End of period.............................. $2,320,656 $ 43,982 $1,200,246 $1,287,792 $ 549,008
----------------- --------------- ----------- ------------------ ------------
----------------- --------------- ----------- ------------------ ------------
<CAPTION>
FIDELITY VIP FIDELITY VIP FIDELITY VIP II
EQUITY-INCOME OVERSEAS ASSET MANAGER
PORTFOLIO PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------ ------------- ------------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income...................... $ 28,391 $ 3,585 $ 12,026
Capital gains income....................... 142,745 14,231 30,166
Net realized gain (loss) on security
transactions.............................. 2,925 (2,477) 4,849
Net unrealized appreciation (depreciation)
of investments during the period.......... 514,150 (1,284) 45,529
------------------ ------------- --------
Net increase (decrease) in net assets
resulting from operations................. 688,211 14,055 92,570
------------------ ------------- --------
UNIT TRANSACTIONS:
Purchases.................................. 626,240 80,330 187,210
Net transfers.............................. 1,691,959 754,893 350,249
Surrenders................................. (115,305) (17,526) (19,442)
Loan withdrawals........................... (620) (18,863) --
Cost of insurance.......................... (98,277) (10,590) (18,932)
------------------ ------------- --------
Net increase in net assets resulting from
unit transactions......................... 2,103,997 788,244 499,085
------------------ ------------- --------
Total increase in net assets............... 2,792,208 802,299 591,655
NET ASSETS:
Beginning of period........................ 1,565,745 167,060 312,841
------------------ ------------- --------
End of period.............................. $4,357,953 $969,359 $904,496
------------------ ------------- --------
------------------ ------------- --------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
FIDELITY VIP FIDELITY VIP FIDELITY VIP II
EQUITY-INCOME OVERSEAS ASSET MANAGER
PORTFOLIO PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------ ------------- ------------------
OPERATIONS:
Net investment income...................... $ -- $ -- $--
Net realized gain (loss) on security
transactions.............................. 77 7 (450)
Net unrealized appreciation of investments
during the period......................... 120,671 8,702 20,884
------------------ ------------- --------
Net increase in net assets resulting from
operations................................ 120,748 8,709 20,434
------------------ ------------- --------
UNIT TRANSACTIONS:
Purchases.................................. 116,685 12,350 1,532
Net transfers.............................. 1,369,018 146,928 299,311
Surrenders................................. (27,120) 361 (5,819)
Loan withdrawals........................... (4) -- --
Cost of insurance.......................... (17,752) (1,288) (2,617)
------------------ ------------- --------
Net increase in net assets resulting from
unit transactions......................... 1,440,827 158,351 292,407
------------------ ------------- --------
Total increase in net assets............... 1,561,575 167,060 312,841
NET ASSETS:
Beginning of period........................ 4,170 -- --
------------------ ------------- --------
End of period.............................. $1,565,745 $167,060 $312,841
------------------ ------------- --------
------------------ ------------- --------
</TABLE>
<PAGE>
52
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT VARIABLE LIFE TWO
HARTFORD LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION:
Separate Account Variable Life Two (the Account) is a separate investment
account within Hartford Life Insurance Company (the Company) and is registered
with the Securities and Exchange Commission (SEC) as a unit investment trust
under the Investment Company Act of 1940, as amended. The Account consists of
twenty two sub-accounts. These financial statements include twelve sub-accounts
which invest solely in the Hartford and Fidelity Mutual Funds (the Funds). The
other ten sub-accounts, which invest in Putnam VT Funds, are presented in
separate financial statements. Both the company and the Account are subject to
supervision and regulation by the Department of Insurance of the State of
Connecticut and the SEC. The Account invests deposits by variable life
contractholders of the company in the Funds as directed by the contractholders.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies of the
Account, which are in accordance with generally accepted accounting principles
in the investment company industry:
a) SECURITY TRANSACTIONS -- Security transactions are recorded on the trade
date (date the order to buy or sell is executed). Cost of investments sold is
determined on the basis of identified cost. Dividend and capital gains income
are accrued as of the ex-dividend date. Capital gains income represents
dividends from the Funds which are characterized as capital gains under tax
regulations.
b) SECURITY VALUATION -- The investment in shares of the Hartford, and
Fidelity mutual funds are valued at the closing net asset value per share as
determined by the appropriate Fund as of December 31, 1997.
c) FEDERAL INCOME TAXES -- The operations of the Account form a part of, and
are taxed with, the total operations of the Company, which is taxed as an
insurance company under the Internal Revenue Code. Under current law, no federal
income taxes are payable with respect to the operations of the Account.
d) USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported amounts
of income and expenses during the period. Operating results in the future could
vary from the amounts derived from management's estimates.
3. ADMINISTRATION OF THE ACCOUNT
AND RELATED CHARGES:
In accordance with the terms of the contracts, the Company makes deductions
for mortality and expense undertakings, cost of insurance, administrative fees,
and state premium taxes. These charges are deducted through termination of units
of interest from applicable contract owners' accounts.
<PAGE>
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<PAGE>
54
- --------------------------------------------------------------------------------
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT VARIABLE LIFE TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF ASSETS & LIABILITIES
MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
GROWTH AND
VOYAGER FUND GLOBAL GROWTH FUND INCOME FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------------ -----------
<S> <C> <C> <C>
ASSETS:
Investments:
PCM Voyager Fund
Shares 245,343
Cost $8,572,043
Market Value............................. $10,387,823 -- --
PCM Global Growth Fund
Shares 287,664
Cost $5,022,429
Market Value............................. -- $5,186,580 --
PCM Growth and Income Fund
Shares 294,382
Cost $7,702,035
Market Value............................. -- -- $8,139,657
PCM Global Asset Allocation Fund
Shares 133,597
Cost $2,439,730
Market Value............................. -- -- --
PCM High Yield Fund
Shares 116,627
Cost $1,525,807
Market Value............................. -- -- --
PCM U.S. Government and High Quality Fund
Shares 230,662
Cost $2,949,288
Market Value............................. -- -- --
PCM New Opportunities Fund
Shares 252,185
Cost $4,697,934
Market Value............................. -- -- --
PCM Money Market Fund
Shares 637,835
Cost $ 637,835
Market Value............................. -- -- --
PCM Utilities Growth & Income Fund
Shares 41,757
Cost $ 646,027
Market Value............................. -- -- --
PCM Diversified Income Fund
Shares 19,679
Cost $ 216,842
Market Value............................. -- -- --
Due From Hartford Life Insurance Company... 182 3,531 2,005
Receivable from fund shares sold........... -- -- --
------------ ------------------ -----------
Total Assets............................... 10,388,005 5,190,111 8,141,662
------------ ------------------ -----------
LIABILITIES:
Due to Hartford Life Insurance Company..... -- -- --
Payable for fund shares purchased.......... 313 3,408 3,177
------------ ------------------ -----------
Total Liabilities.......................... 313 3,408 3,177
------------ ------------------ -----------
Net Assets (variable life contract
liabilities).............................. $10,387,692 $5,186,703 $8,138,485
------------ ------------------ -----------
------------ ------------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
55
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL ASSET U.S. GOVERNMENT AND
ALLOCATION FUND HIGH YIELD FUND HIGH QUALITY BOND FUND NEW OPPORTUNITIES FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- --------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments:
PCM Voyager Fund
Shares 245,343
Cost $8,572,043
Market Value............................. -- -- -- --
PCM Global Growth Fund
Shares 287,664
Cost $5,022,429
Market Value............................. -- -- -- --
PCM Growth and Income Fund
Shares 294,382
Cost $7,702,035
Market Value............................. -- -- -- --
PCM Global Asset Allocation Fund
Shares 133,597
Cost $2,439,730
Market Value............................. $2,455,522 -- -- --
PCM High Yield Fund
Shares 116,627
Cost $1,525,807
Market Value............................. -- $1,514,980 -- --
PCM U.S. Government and High Quality Fund
Shares 230,662
Cost $2,949,288
Market Value............................. -- -- $2,975,546 --
PCM New Opportunities Fund
Shares 252,185
Cost $4,697,934
Market Value............................. -- -- -- $6,077,664
PCM Money Market Fund
Shares 637,835
Cost $ 637,835
Market Value............................. -- -- -- --
PCM Utilities Growth & Income Fund
Shares 41,757
Cost $ 646,027
Market Value............................. -- -- -- --
PCM Diversified Income Fund
Shares 19,679
Cost $ 216,842
Market Value............................. -- -- -- --
Due From Hartford Life Insurance Company... 200 2 154 1,953
Receivable from fund shares sold........... -- -- -- --
--------------- --------------- ----------- -----------
Total Assets............................... 2,455,722 1,514,982 2,975,700 6,079,617
--------------- --------------- ----------- -----------
LIABILITIES:
Due to Hartford Life Insurance Company..... -- -- -- --
Payable for fund shares purchased.......... 4 -- 214 1,496
--------------- --------------- ----------- -----------
Total Liabilities.......................... 4 -- 214 1,496
--------------- --------------- ----------- -----------
Net Assets (variable life contract
liabilities).............................. $2,455,718 $1,514,982 $2,975,486 $6,078,121
--------------- --------------- ----------- -----------
--------------- --------------- ----------- -----------
<CAPTION>
UTILITIES GROWTH AND DIVERSIFIED
MONEY MARKET FUND INCOME FUND INCOME FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- -------------------- -----------
<S> <C> <C> <C>
ASSETS:
Investments:
PCM Voyager Fund
Shares 245,343
Cost $8,572,043
Market Value............................. -- -- --
PCM Global Growth Fund
Shares 287,664
Cost $5,022,429
Market Value............................. -- -- --
PCM Growth and Income Fund
Shares 294,382
Cost $7,702,035
Market Value............................. -- -- --
PCM Global Asset Allocation Fund
Shares 133,597
Cost $2,439,730
Market Value............................. -- -- --
PCM High Yield Fund
Shares 116,627
Cost $1,525,807
Market Value............................. -- -- --
PCM U.S. Government and High Quality Fund
Shares 230,662
Cost $2,949,288
Market Value............................. -- -- --
PCM New Opportunities Fund
Shares 252,185
Cost $4,697,934
Market Value............................. -- -- --
PCM Money Market Fund
Shares 637,835
Cost $ 637,835
Market Value............................. $ 637,835 -- --
PCM Utilities Growth & Income Fund
Shares 41,757
Cost $ 646,027
Market Value............................. -- $ 700,259 --
PCM Diversified Income Fund
Shares 19,679
Cost $ 216,842
Market Value............................. -- -- $ 214,503
Due From Hartford Life Insurance Company... -- 74 --
Receivable from fund shares sold........... -- -- --
-------- -------- -----------
Total Assets............................... 637,835 700,333 214,503
-------- -------- -----------
LIABILITIES:
Due to Hartford Life Insurance Company..... 2 -- --
Payable for fund shares purchased.......... -- -- --
-------- -------- -----------
Total Liabilities.......................... 2 -- --
-------- -------- -----------
Net Assets (variable life contract
liabilities).............................. $ 637,833 $ 700,333 $ 214,503
-------- -------- -----------
-------- -------- -----------
</TABLE>
<PAGE>
56
- --------------------------------------------------------------------------------
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT VARIABLE LIFE TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
GLOBAL GROWTH GROWTH AND
VOYAGER FUND FUND INCOME FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ----------------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................ $ 23,145 $ 127,435 $ 129,504
------------ ----------------- -----------
Net investment income.................... 23,145 127,435 129,504
------------ ----------------- -----------
CAPITAL GAINS INCOME......................... 564,740 637,175 845,402
------------ ----------------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on security
transactions.............................. 574 (753) 2,215
Net unrealized appreciation (depreciation)
of investments during the period.......... 682,814 (115,209) (239,292)
------------ ----------------- -----------
Net gain (losses) on investments......... 683,388 (115,962) (237,077)
------------ ----------------- -----------
Net increase (decrease) in net assets
resulting from operations................. $1,271,273 $ 648,648 $ 737,829
------------ ----------------- -----------
------------ ----------------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
57
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL ASSET
ALLOCATION U.S. GOVERNMENT AND
FUND HIGH YIELD FUND HIGH QUALITY BOND FUND NEW OPPORTUNITIES FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------- --------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................ $ 51,115 $114,613 $ 159,132 $--
-------------- --------------- ---------- ----------
Net investment income.................... 51,115 114,613 159,132 --
-------------- --------------- ---------- ----------
CAPITAL GAINS INCOME......................... 219,555 17,985 4,142 79,622
-------------- --------------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on security
transactions.............................. 54 49 (215) (1,211)
Net unrealized appreciation (depreciation)
of investments during the period.......... (81,499) (73,938) (113,115) 686,805
-------------- --------------- ---------- ----------
Net gain (losses) on investments......... (81,445) (73,889) (113,330) 685,594
-------------- --------------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations................. $ 189,225 $ 58,709 $ 49,944 $ 765,216
-------------- --------------- ---------- ----------
-------------- --------------- ---------- ----------
<CAPTION>
UTILITIES GROWTH AND DIVERSIFIED
MONEY MARKET FUND INCOME FUND INCOME FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- -------------------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................ $4,058 $19,667 $8,975
------ ------- -----------
Net investment income.................... 4,058 19,667 8,975
------ ------- -----------
CAPITAL GAINS INCOME......................... -- 33,897 3,812
------ ------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on security
transactions.............................. -- 98 36
Net unrealized appreciation (depreciation)
of investments during the period.......... -- (14,507) (7,927)
------ ------- -----------
Net gain (losses) on investments......... -- (14,409) (7,891)
------ ------- -----------
Net increase (decrease) in net assets
resulting from operations................. $4,058 $39,155 $4,896
------ ------- -----------
------ ------- -----------
</TABLE>
<PAGE>
58
- --------------------------------------------------------------------------------
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT VARIABLE LIFE TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
GROWTH AND
VOYAGER FUND GLOBAL GROWTH FUND INCOME FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------------ -----------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss)............... $ 23,145 $ 127,435 $ 129,504
Capital gains income....................... 564,740 637,175 845,402
Net realized gain (loss) on security
transactions.............................. 574 (753) 2,215
Net unrealized appreciation (depreciation)
of investments during the period.......... 682,814 (115,209) (239,292)
------------ ------------------ -----------
Net increase (decrease) in net assets
resulting from operations................. 1,271,273 648,648 737,829
------------ ------------------ -----------
UNIT TRANSACTIONS:
Purchases.................................. 520,163 255,300 463,177
Net transfers.............................. 1,051,550 334,105 1,085,586
Surrenders................................. (105,676) (62,885) (70,658)
Loan withdrawals........................... 32,485 (125) 31,279
Cost of insurance.......................... (85,494) (46,681) (83,854)
------------ ------------------ -----------
Total increase (decrease) in net assets
resulting from unit transactions.......... 1,413,028 479,714 1,425,530
------------ ------------------ -----------
Total increase (decrease) in net assets.... 2,684,301 1,128,362 2,163,359
NET ASSETS:
Beginning of period........................ 7,703,391 4,058,341 5,975,126
------------ ------------------ -----------
End of period.............................. $10,387,692 $5,186,703 $8,138,485
------------ ------------------ -----------
------------ ------------------ -----------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED)
GROWTH AND
VOYAGER FUND GLOBAL GROWTH FUND INCOME FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
---------- ------------------ -----------
OPERATIONS:
Net investment income (loss)............... $ 7,934 $ 54,214 $ 48,364
Capital gains income....................... 170,979 58,313 117,720
Net realized gain (loss) on security
transactions.............................. (10,475) 12,818 454
Net unrealized appreciation (depreciation)
of investments during the period.......... 1,072,966 185,156 549,596
------------ ------------------ -----------
Net increase (decrease) in net assets
resulting from operations................. 1,241,404 310,501 716,134
------------ ------------------ -----------
UNIT TRANSACTIONS:
Purchases.................................. 1,401,137 933,794 1,047,062
Net transfers.............................. 2,438,213 1,576,563 3,026,454
Surrenders................................. (228,692) (119,126) (169,710)
Loan withdrawals........................... (38,108) (26,693) (83,344)
Cost of insurance.......................... (203,142) (123,165) (176,607)
------------ ------------------ -----------
Total increase (decrease) in net assets
resulting from unit transactions.......... 3,369,408 2,241,373 3,643,855
------------ ------------------ -----------
Total increase (decrease) in net assets.... 4,610,812 2,551,874 4,359,989
NET ASSETS:
Beginning of period........................ 3,092,579 1,506,467 1,615,137
------------ ------------------ -----------
End of period.............................. $ 7,703,391 $4,058,341 $5,975,126
------------ ------------------ -----------
------------ ------------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
59
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL ASSET U.S. GOVERNMENT AND
ALLOCATION FUND HIGH YIELD FUND HIGH QUALITY BOND FUND NEW OPPORTUNITIES FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- --------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)............... $ 51,115 $ 114,613 $ 159,132 $--
Capital gains income....................... 219,555 17,985 4,142 79,622
Net realized gain (loss) on security
transactions.............................. 54 49 (215) (1,211)
Net unrealized appreciation (depreciation)
of investments during the period.......... (81,499) (73,938) (113,115) 686,805
--------------- --------------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations................. 189,225 58,709 49,944 765,216
--------------- --------------- ----------- -----------
UNIT TRANSACTIONS:
Purchases.................................. 47,071 118,912 163,039 358,709
Net transfers.............................. 625,799 362,576 (263,520) 249,431
Surrenders................................. (7,031) (13,914) (19,062) (72,177)
Loan withdrawals........................... 21,871 -- 76,139 (158)
Cost of insurance.......................... (16,172) (13,937) (36,542) (50,734)
--------------- --------------- ----------- -----------
Total increase (decrease) in net assets
resulting from unit transactions.......... 671,538 453,637 (79,946) 485,071
--------------- --------------- ----------- -----------
Total increase (decrease) in net assets.... 860,763 512,346 (30,002) 1,250,287
NET ASSETS:
Beginning of period........................ 1,594,955 1,002,636 3,005,488 4,827,834
--------------- --------------- ----------- -----------
End of period.............................. $2,455,718 $1,514,982 $2,975,486 $6,078,121
--------------- --------------- ----------- -----------
--------------- --------------- ----------- -----------
GLOBAL ASSET U.S. GOVERNMENT AND
ALLOCATION FUND HIGH YIELD FUND HIGH QUALITY BOND FUND NEW OPPORTUNITIES FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------- -------------- ---------------------- ----------------------
OPERATIONS:
Net investment income (loss)............... $ 16,282 $ 25,054 $ 84,427 $--
Capital gains income....................... 27,830 2,905 -- --
Net realized gain (loss) on security
transactions.............................. 1,904 2,088 3,412 (2,744)
Net unrealized appreciation (depreciation)
of investments during the period.......... 73,875 44,616 105,411 705,146
--------------- --------------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations................. 119,891 74,663 193,250 702,402
--------------- --------------- ----------- -----------
UNIT TRANSACTIONS:
Purchases.................................. 216,473 202,481 905,167 880,486
Net transfers.............................. 951,228 435,717 1,214,258 1,743,133
Surrenders................................. (32,107) (28,512) (57,683) (141,142)
Loan withdrawals........................... (895) -- (69,040) (12,422)
Cost of insurance.......................... (44,664) (30,461) (111,805) (114,029)
--------------- --------------- ----------- -----------
Total increase (decrease) in net assets
resulting from unit transactions.......... 1,090,035 579,225 1,880,897 2,356,026
--------------- --------------- ----------- -----------
Total increase (decrease) in net assets.... 1,209,926 653,888 2,074,147 3,058,428
NET ASSETS:
Beginning of period........................ 385,029 348,748 931,341 1,769,406
--------------- --------------- ----------- -----------
End of period.............................. $1,594,955 $1,002,636 $3,005,488 $4,827,834
--------------- --------------- ----------- -----------
--------------- --------------- ----------- -----------
<CAPTION>
UTILITIES GROWTH AND DIVERSIFIED
MONEY MARKET FUND INCOME FUND INCOME FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- -------------------- -----------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss)............... $ 4,058 $ 19,667 $ 8,975
Capital gains income....................... -- 33,897 3,812
Net realized gain (loss) on security
transactions.............................. -- 98 36
Net unrealized appreciation (depreciation)
of investments during the period.......... -- (14,507) (7,927)
-------- -------- -----------
Net increase (decrease) in net assets
resulting from operations................. 4,058 39,155 4,896
-------- -------- -----------
UNIT TRANSACTIONS:
Purchases.................................. 404,271 11,690 11,021
Net transfers.............................. (1,955) 227,523 16,536
Surrenders................................. (2,723) (4,774) (3,196)
Loan withdrawals........................... -- 21,910 --
Cost of insurance.......................... (1,329) (4,714) (3,941)
-------- -------- -----------
Total increase (decrease) in net assets
resulting from unit transactions.......... 398,264 251,635 20,420
-------- -------- -----------
Total increase (decrease) in net assets.... 402,322 290,790 25,316
NET ASSETS:
Beginning of period........................ 235,511 409,543 189,187
-------- -------- -----------
End of period.............................. $ 637,833 $ 700,333 $ 214,503
-------- -------- -----------
-------- -------- -----------
UTILITIES GROWTH AND DIVERSIFIED
MONEY MARKET FUND INCOME FUND INCOME FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------- -------------- ---------------------- ----
----------------- ------------------ -----------
OPERATIONS:
Net investment income (loss)............... $ 8,816 $ 6,195 $ 3,548
Capital gains income....................... -- 8,447 559
Net realized gain (loss) on security
transactions.............................. -- 41 72
Net unrealized appreciation (depreciation)
of investments during the period.......... -- 58,141 3,772
-------- -------- -----------
Net increase (decrease) in net assets
resulting from operations................. 8,816 72,824 7,951
-------- -------- -----------
UNIT TRANSACTIONS:
Purchases.................................. 46,630 56,076 69,865
Net transfers.............................. (7,827) 158,063 66,718
Surrenders................................. (8,065) (9,042) (7,735)
Loan withdrawals........................... -- -- --
Cost of insurance.......................... (4,477) (10,227) (7,523)
-------- -------- -----------
Total increase (decrease) in net assets
resulting from unit transactions.......... 26,261 194,870 121,325
-------- -------- -----------
Total increase (decrease) in net assets.... 35,077 267,694 129,276
NET ASSETS:
Beginning of period........................ 200,434 141,849 59,911
-------- -------- -----------
End of period.............................. $ 235,511 $ 409,543 $ 189,187
-------- -------- -----------
-------- -------- -----------
</TABLE>
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<PAGE>
61
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hartford Life Insurance Company Putnam Capital Manager Trust
Separate Account Variable Life Two and to
the Owners of Units of Interest therein:
We have audited the accompanying statement of assets and liabilities of
Diversified Income Fund Sub-Account, Global Asset Allocation Fund Sub-Account,
Global Growth Fund Sub-Account, Growth and Income Fund Sub-Account, High Yield
Fund Sub-Account, Money Market Fund Sub-Account, New Opportunities Fund
Sub-Account, U.S. Government and High Quality Bond Fund Sub-Account, Utilities
Growth and Income Fund Sub-Account and Voyager Fund Sub-Account (constituting
Hartford Life Insurance Company Putnam Capital Manager Trust Separate Account
Variable Life Two) (the Account) as of December 31, 1997, and the related
statement of operations for the year then ended and statements of changes in net
assets for each of the two years in the period ended. These financial statements
are the responsibility of the Account's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Diversified Income Fund
Sub-Account, Global Asset Allocation Fund Sub-Account, Global Growth Fund
Sub-Account, Growth and Income Fund Sub-Account, High Yield Fund Sub-Account,
Money Market Fund Sub-Account, New Opportunities Fund Sub-Account, U.S.
Government and High Quality Bond Fund Sub-Account, Utilities Growth and Income
Fund Sub-Account and Voyager Fund Sub-Account (constituting Hartford Life
Insurance Company Putnam Capital Manager Trust Separate Account Variable Life
Two) as of December 31, 1997, the results of its operations for the year then
ended and changes in its net assets for each of the two years in the period then
ended, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 16, 1998
<PAGE>
62
- --------------------------------------------------------------------------------
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT VARIABLE LIFE TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
GLOBAL
ASSET
DIVERSIFIED ALLOCATION GLOBAL
INCOME FUND FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Investments:
Putnam VT Diversified Income Fund
Shares 16,727
Cost $183,599
Market Value............................. $ 189,187 -- --
Putnam VT Global Asset Allocation Fund
Shares 85,013
Cost $1,497,562
Market Value............................. -- $1,594,853 --
Putnam VT Global Growth Fund
Shares 221,279
Cost $3,778,904
Market Value............................. -- -- $4,058,264
Putnam VT Growth and Income Fund
Shares 211,021
Cost $5,299,187
Market Value............................. -- -- --
Putnam VT High Yield Fund
Shares 73,615
Cost $939,520
Market Value............................. -- -- --
Putnam VT Money Market Fund
Shares 235,512
Cost $235,512
Market Value............................. -- -- --
Putnam VT New Opportunities Fund
Shares 227,394
Cost $4,134,639
Market Value............................. -- -- --
Putnam VT U.S. Government and High Quality
Fund
Shares 223,961
Cost $2,866,178
Market Value............................. -- -- --
Putnam VT Utilities Growth & Income Fund
Shares 23,890
Cost $340,742
Market Value............................. -- -- --
Putnam VT Voyager Fund
Shares 197,124
Cost $6,570,638
Market Value............................. -- -- --
Due to Hartford Life Insurance Company..... 1,611 -- 1,192
Receivable for fund shares purchased....... -- 2,490 --
------------- ----------- -----------
Total Assets............................... 190,798 1,597,343 4,059,456
------------- ----------- -----------
LIABILITIES
Due to Hartford Life Insurance Company..... -- 2,388 --
Payable for fund shares purchased.......... 1,611 -- 1,115
------------- ----------- -----------
Total Liabilities.......................... 1,611 2,388 1,115
------------- ----------- -----------
Net Assets (variable life contract
liabilities).............................. $ 189,187 $1,594,955 $4,058,341
------------- ----------- -----------
------------- ----------- -----------
Units Owned by Participants.................. 14,604 87,086 223,285
Unit Price................................... $12.954542 $18.314650 $18.175599
Contract Liability........................... $ 189,187 $1,594,955 $4,058,341
GRAND TOTAL CONTRACT LIABILITY (ALL
SUB-ACCOUNTS)..............................
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
63
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW
GROWTH AND HIGH MONEY OPPORTUNITIES
INCOME FUND YIELD FUND MARKET FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ----------------- --------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investments:
Putnam VT Diversified Income Fund
Shares 16,727
Cost $183,599
Market Value............................. -- -- -- --
Putnam VT Global Asset Allocation Fund
Shares 85,013
Cost $1,497,562
Market Value............................. -- -- -- --
Putnam VT Global Growth Fund
Shares 221,279
Cost $3,778,904
Market Value............................. -- -- -- --
Putnam VT Growth and Income Fund
Shares 211,021
Cost $5,299,187
Market Value............................. $5,976,101 -- -- --
Putnam VT High Yield Fund
Shares 73,615
Cost $939,520
Market Value............................. -- $1,002,631 -- --
Putnam VT Money Market Fund
Shares 235,512
Cost $235,512
Market Value............................. -- -- $ 235,512 --
Putnam VT New Opportunities Fund
Shares 227,394
Cost $4,134,639
Market Value............................. -- -- -- $4,827,564
Putnam VT U.S. Government and High Quality
Fund
Shares 223,961
Cost $2,866,178
Market Value............................. -- -- -- --
Putnam VT Utilities Growth & Income Fund
Shares 23,890
Cost $340,742
Market Value............................. -- -- -- --
Putnam VT Voyager Fund
Shares 197,124
Cost $6,570,638
Market Value............................. -- -- -- --
Due to Hartford Life Insurance Company..... -- 6 -- --
Receivable for fund shares purchased....... -- -- -- 2,121
------------- ----------------- --------------- -----------
Total Assets............................... 5,976,101 1,002,637 235,512 4,829,685
------------- ----------------- --------------- -----------
LIABILITIES
Due to Hartford Life Insurance Company..... 937 -- 1 1,851
Payable for fund shares purchased.......... 38 1 -- --
------------- ----------------- --------------- -----------
Total Liabilities.......................... 975 1 1 1,851
------------- ----------------- --------------- -----------
Net Assets (variable life contract
liabilities).............................. $5,975,126 $1,002,636 $ 235,511 $4,827,834
------------- ----------------- --------------- -----------
------------- ----------------- --------------- -----------
Units Owned by Participants.................. 270,249 60,600 191,259 264,035
Unit Price................................... $22.109731 $16.545266 $ 1.231375 $18.284859
Contract Liability........................... $5,975,126 $1,002,636 $ 235,511 $4,827,834
GRAND TOTAL CONTRACT LIABILITY (ALL
SUB-ACCOUNTS)..............................
<CAPTION>
U.S. GOVERNMENT UTILITIES
AND HIGH QUALITY GROWTH AND
BOND FUND INCOME FUND VOYAGER FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Investments:
Putnam VT Diversified Income Fund
Shares 16,727
Cost $183,599
Market Value............................. -- -- --
Putnam VT Global Asset Allocation Fund
Shares 85,013
Cost $1,497,562
Market Value............................. -- -- --
Putnam VT Global Growth Fund
Shares 221,279
Cost $3,778,904
Market Value............................. -- -- --
Putnam VT Growth and Income Fund
Shares 211,021
Cost $5,299,187
Market Value............................. -- -- --
Putnam VT High Yield Fund
Shares 73,615
Cost $939,520
Market Value............................. -- -- --
Putnam VT Money Market Fund
Shares 235,512
Cost $235,512
Market Value............................. -- -- --
Putnam VT New Opportunities Fund
Shares 227,394
Cost $4,134,639
Market Value............................. -- -- --
Putnam VT U.S. Government and High Quality
Fund
Shares 223,961
Cost $2,866,178
Market Value............................. $3,005,551 -- --
Putnam VT Utilities Growth & Income Fund
Shares 23,890
Cost $340,742
Market Value............................. -- $ 409,481 --
Putnam VT Voyager Fund
Shares 197,124
Cost $6,570,638
Market Value............................. -- -- $ 7,703,604
Due to Hartford Life Insurance Company..... -- 62 --
Receivable for fund shares purchased....... -- -- 2,223
------------------ ------------ ------------
Total Assets............................... 3,005,551 409,543 7,705,827
------------------ ------------ ------------
LIABILITIES
Due to Hartford Life Insurance Company..... 56 -- 2,436
Payable for fund shares purchased.......... 7 -- --
------------------ ------------ ------------
Total Liabilities.......................... 63 -- 2,436
------------------ ------------ ------------
Net Assets (variable life contract
liabilities).............................. $3,005,488 $ 409,543 $ 7,703,391
------------------ ------------ ------------
------------------ ------------ ------------
Units Owned by Participants.................. 221,236 21,752 332,229
Unit Price................................... $13.584990 $18.827631 $ 23.187025
Contract Liability........................... $3,005,488 $ 409,543 $ 7,703,391
GRAND TOTAL CONTRACT LIABILITY (ALL
SUB-ACCOUNTS).............................. $29,002,012
</TABLE>
<PAGE>
64
- --------------------------------------------------------------------------------
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT VARIABLE LIFE TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DIVERSIFIED GLOBAL ASSET GLOBAL
INCOME FUND ALLOCATION FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- --------------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends.................................. $3,548 $ 16,282 $ 54,214
----------- --------------- -----------
CAPITAL GAINS INCOME......................... 559 27,830 58,313
----------- --------------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on security
transactions.............................. 72 1,904 12,818
Net unrealized appreciation (depreciation)
of investments during the period.......... 3,772 73,875 185,156
----------- --------------- -----------
Net gain (loss) on investments........... 3,844 75,779 197,974
----------- --------------- -----------
Net increase (decrease) in net assets
resulting from operations............... $7,951 $119,891 $310,501
----------- --------------- -----------
----------- --------------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
65
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT
GROWTH AND HIGH MONEY NEW AND HIGH QUALITY
INCOME FUND YIELD FUND MARKET FUND OPPORTUNITIES FUND BOND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.................................. $ 48,364 $25,054 $8,816 $-- $ 84,427
----------- ----------- ----------- -------- --------
CAPITAL GAINS INCOME......................... 117,720 2,905 -- -- --
----------- ----------- ----------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on security
transactions.............................. 454 2,088 -- (2,744) 3,412
Net unrealized appreciation (depreciation)
of investments during the period.......... 549,596 44,616 -- 705,146 105,411
----------- ----------- ----------- -------- --------
Net gain (loss) on investments........... 550,050 46,704 -- 702,402 108,823
----------- ----------- ----------- -------- --------
Net increase (decrease) in net assets
resulting from operations............... $716,134 $74,663 $8,816 $702,402 $193,250
----------- ----------- ----------- -------- --------
----------- ----------- ----------- -------- --------
<CAPTION>
UTILITIES
GROWTH AND
INCOME FUND VOYAGER FUND
SUB-ACCOUNT SUB-ACCOUNT
----------- ------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.................................. $ 6,195 $ 7,934
----------- ------------
CAPITAL GAINS INCOME......................... 8,447 170,979
----------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on security
transactions.............................. 41 (10,475)
Net unrealized appreciation (depreciation)
of investments during the period.......... 58,141 1,072,966
----------- ------------
Net gain (loss) on investments........... 58,182 1,062,491
----------- ------------
Net increase (decrease) in net assets
resulting from operations............... $72,824 $1,241,404
----------- ------------
----------- ------------
</TABLE>
<PAGE>
66
- --------------------------------------------------------------------------------
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT VARIABLE LIFE TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DIVERSIFIED GLOBAL ASSET GLOBAL
INCOME FUND ALLOCATION FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- --------------- -----------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss)............... $ 3,548 $ 16,282 $ 54,214
Capital gains income....................... 559 27,830 58,313
Net realized gain (loss) on security
transactions.............................. 72 1,904 12,818
Net unrealized appreciation (depreciation)
of investments during the period.......... 3,772 73,875 185,156
----------- --------------- -----------
Net increase (decrease) in net assets
resulting from operations................. 7,951 119,891 310,501
----------- --------------- -----------
UNIT TRANSACTIONS:
Purchases.................................. 69,865 216,473 933,794
Net transfers.............................. 66,718 951,228 1,576,563
Surrenders................................. (7,735) (32,107) (119,126)
Loan withdrawals........................... -- (895) (26,693)
Cost of insurance.......................... (7,523) (44,664) (123,165)
----------- --------------- -----------
Net increase (decrease) in net assets
resulting from unit transactions.......... 121,325 1,090,035 2,241,373
----------- --------------- -----------
Total increase (decrease) in net assets.... 129,276 1,209,926 2,551,874
NET ASSETS:
Beginning of period........................ 59,911 385,029 1,506,467
----------- --------------- -----------
End of period.............................. $189,187 $1,594,955 $4,058,341
----------- --------------- -----------
----------- --------------- -----------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
DIVERSIFIED GLOBAL ASSET GLOBAL
INCOME FUND ALLOCATION FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- --------------- -----------
OPERATIONS:
Net investment income (loss)............... $ -- $ -- $ --
Capital gains income....................... -- -- --
Net realized gain (loss) on security
transactions.............................. 23 23 22
Net unrealized appreciation (depreciation)
of investments during the period.......... 1,816 23,416 94,204
----------- --------------- -----------
Net increase (decrease) in net assets
resulting from operations................. 1,839 23,439 94,226
----------- --------------- -----------
UNIT TRANSACTIONS:
Purchases.................................. 5,545 46,464 157,447
Net transfers.............................. 53,826 314,944 1,150,116
Surrenders................................. (900) (3,964) (4,642)
Loan withdrawals........................... -- -- --
Cost of insurance.......................... (399) (13,366) (39,530)
----------- --------------- -----------
Net increase (decrease) in net assets
resulting from unit transactions.......... 58,072 344,078 1,263,391
----------- --------------- -----------
Total increase (decrease) in net assets.... 59,911 367,517 1,357,617
NET ASSETS
Beginning of period........................ -- 17,512 148,850
----------- --------------- -----------
End of Period.............................. $ 59,911 $ 385,029 $1,506,467
----------- --------------- -----------
----------- --------------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
67
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT
GROWTH AND HIGH MONEY NEW AND HIGH QUALITY
INCOME FUND YIELD FUND MARKET FUND OPPORTUNITIES FUND BOND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)............... $ 48,364 $ 25,054 $ 8,816 $ -- $ 84,427
Capital gains income....................... 117,720 2,905 -- -- --
Net realized gain (loss) on security
transactions.............................. 454 2,088 -- (2,744) 3,412
Net unrealized appreciation (depreciation)
of investments during the period.......... 549,596 44,616 -- 705,146 105,411
----------- ----------- ----------- ------------------ ----------------
Net increase (decrease) in net assets
resulting from operations................. 716,134 74,663 8,816 702,402 193,250
----------- ----------- ----------- ------------------ ----------------
UNIT TRANSACTIONS:
Purchases.................................. 1,047,062 202,481 46,630 880,486 905,167
Net transfers.............................. 3,026,454 435,717 (7,827) 1,743,133 1,214,258
Surrenders................................. (169,710) (28,512) (8,065) (141,142) (57,683)
Loan withdrawals........................... (83,344) -- -- (12,422) (69,040)
Cost of insurance.......................... (176,607) (30,461) (4,477) (114,029) (111,805)
----------- ----------- ----------- ------------------ ----------------
Net increase (decrease) in net assets
resulting from unit transactions.......... 3,643,855 579,225 26,261 2,356,026 1,880,897
----------- ----------- ----------- ------------------ ----------------
Total increase (decrease) in net assets.... 4,359,989 653,888 35,077 3,058,428 2,074,147
NET ASSETS:
Beginning of period........................ 1,615,137 348,748 200,434 1,769,406 931,341
----------- ----------- ----------- ------------------ ----------------
End of period.............................. $5,975,126 $1,002,636 $ 235,511 $4,827,834 $3,005,488
----------- ----------- ----------- ------------------ ----------------
----------- ----------- ----------- ------------------ ----------------
U.S. GOVERNMENT
GROWTH AND HIGH MONEY NEW AND HIGH QUALITY
INCOME FUND YIELD FUND MARKET FUND OPPORTUNITIES FUND BOND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ------------------ ----------------
OPERATIONS:
Net investment income (loss)............... $ -- $ -- $ 2,362 $ -- $ --
Capital gains income....................... -- -- -- -- --
Net realized gain (loss) on security
transactions.............................. 1,065 284 -- 387 184
Net unrealized appreciation (depreciation)
of investments during the period.......... 127,318 18,495 -- (12,221) 33,963
----------- ----------- ----------- ------------------ ----------------
Net increase (decrease) in net assets
resulting from operations................. 128,383 18,779 2,362 (11,834) 34,147
----------- ----------- ----------- ------------------ ----------------
UNIT TRANSACTIONS:
Purchases.................................. 71,075 46,744 9,632 181,821 97,098
Net transfers.............................. 1,496,949 365,622 189,742 1,648,281 580,013
Surrenders................................. (63,304) (73,491) (2,732) (23,865) (22,449)
Loan withdrawals........................... -- -- -- (4) --
Cost of insurance.......................... (17,966) (8,906) (968) (24,993) (37,657)
----------- ----------- ----------- ------------------ ----------------
Net increase (decrease) in net assets
resulting from unit transactions.......... 1,486,754 329,969 195,674 1,781,240 617,005
----------- ----------- ----------- ------------------ ----------------
Total increase (decrease) in net assets.... 1,615,137 348,748 198,036 1,769,406 651,152
NET ASSETS
Beginning of period........................ -- -- 2,398 -- 280,189
----------- ----------- ----------- ------------------ ----------------
End of Period.............................. $1,615,137 $ 348,748 $ 200,434 $1,769,406 $ 931,341
----------- ----------- ----------- ------------------ ----------------
----------- ----------- ----------- ------------------ ----------------
<CAPTION>
UTILITIES
GROWTH AND
INCOME FUND VOYAGER FUND
SUB-ACCOUNT SUB-ACCOUNT
----------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)............... $ 6,195 $ 7,934
Capital gains income....................... 8,447 170,979
Net realized gain (loss) on security
transactions.............................. 41 (10,475)
Net unrealized appreciation (depreciation)
of investments during the period.......... 58,141 1,072,966
----------- ------------
Net increase (decrease) in net assets
resulting from operations................. 72,824 1,241,404
----------- ------------
UNIT TRANSACTIONS:
Purchases.................................. 56,076 1,401,137
Net transfers.............................. 158,063 2,438,213
Surrenders................................. (9,042) (228,692)
Loan withdrawals........................... -- (38,108)
Cost of insurance.......................... (10,227) (203,142)
----------- ------------
Net increase (decrease) in net assets
resulting from unit transactions.......... 194,870 3,369,408
----------- ------------
Total increase (decrease) in net assets.... 267,694 4,610,812
NET ASSETS:
Beginning of period........................ 141,849 3,092,579
----------- ------------
End of period.............................. $409,543 $7,703,391
----------- ------------
----------- ------------
UTILITIES
GROWTH AND
INCOME FUND VOYAGER FUND
SUB-ACCOUNT SUB-ACCOUNT
----------- ------------
OPERATIONS:
Net investment income (loss)............... $ -- $ --
Capital gains income....................... -- --
Net realized gain (loss) on security
transactions.............................. (545) 9
Net unrealized appreciation (depreciation)
of investments during the period.......... 10,598 59,940
----------- ------------
Net increase (decrease) in net assets
resulting from operations................. 10,053 59,949
----------- ------------
UNIT TRANSACTIONS:
Purchases.................................. 30,724 326,269
Net transfers.............................. 101,621 2,756,875
Surrenders................................. 686 (47,111)
Loan withdrawals........................... -- (4)
Cost of insurance.......................... (1,235) (42,616)
----------- ------------
Net increase (decrease) in net assets
resulting from unit transactions.......... 131,796 2,993,413
----------- ------------
Total increase (decrease) in net assets.... 141,849 3,053,362
NET ASSETS
Beginning of period........................ -- 39,217
----------- ------------
End of Period.............................. $141,849 $3,092,579
----------- ------------
----------- ------------
</TABLE>
<PAGE>
68
- --------------------------------------------------------------------------------
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT VARIABLE LIFE TWO
HARTFORD LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION:
Separate Account Variable Life Two (the Account) is a separate investment
account within Hartford Life Insurance Company (the Company) and is registered
with the Securities and Exchange Commission (SEC) as a unit investment trust
under the Investment Company Act of 1940, as amended. The Account consists of
twenty two sub-accounts. These financial statements include ten sub-accounts
which invest solely in the Putnam VT funds (the Funds ). The other twelve
sub-accounts, which invest in the Hartford and Fidelity Mutual Funds, are
presented in separate financial statements. Both the Company and the Account are
subject to supervision and regulation by the Department of Insurance of the
State of Connecticut and the SEC. The Account invests deposits by variable life
contractholders of the Company in the various mutual funds as directed by the
contractholders.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies of the
Account, which are in accordance with generally accepted accounting principles
in the investment company industry:
A) SECURITY TRANSACTIONS -- Security transactions are recorded on the trade
date (date the order to buy or sell is executed). Cost of investments sold is
determined on the basis of identified cost. Dividend and capital gains income
are accrued as of the ex-dividend date. Capital gains income represents
dividends from the Funds which are characterized as capital gains under tax
regulations.
B) SECURITY VALUATION -- The investments in shares of the Funds are valued
at the closing net asset value per share as determined by the appropriate Fund
as of December 31, 1997.
C) FEDERAL INCOME TAXES -- The operations of the Account form a part of, and
are taxed with, the total operations of the Company, which is taxed as an
insurance company under the Internal Revenue Code. Under current law, no federal
income taxes are payable with respect to the operations of the Account.
D) USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported amounts
of income and expenses during the period. Operating results in the future could
vary from the amounts derived from management's estimates.
3. ADMINISTRATION OF THE ACCOUNT AND RELATED CHARGES:
In accordance with the terms of the contracts, the Company makes deductions
for mortality and expense undertakings, cost of insurance, administrative fees,
and state premium taxes. These charges are deducted through termination of units
of interest from applicable contract owners' accounts, in accordance with the
terms of the contracts.
<PAGE>
This page intentionally left blank.
<PAGE>
70
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
---------------
1998 1997
------ ------
(IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
Revenues
Premiums and other considerations............... $ 563 $ 310
Net investment income........................... 352 337
Net realized capital gains...................... -- 4
------ ------
Total revenues................................ 915 651
------ ------
Benefits, claims and expenses
Benefits, claims and claim adjustment
expenses....................................... 398 342
Amortization of deferred policy acquisition
costs.......................................... 94 81
Dividends to policyholders...................... 107 54
Other insurance expenses........................ 188 73
------ ------
Total benefits, claims and expenses........... 787 550
------ ------
Income before income tax expense................ 128 101
Income tax expense.............................. 45 38
------ ------
Net income...................................... $ 83 $ 63
------ ------
------ ------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
71
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH DECEMBER
31, 31,
1998 1997
------- -------
(IN MILLIONS,
EXCEPT FOR SHARE
DATA)
<S> <C> <C>
(UNAUDITED)
Assets
Investments
Fixed maturities, available for sale, at fair
value (amortized cost of $14,336 and
$13,885)....................................... $14,609 $14,176
Equity securities, available for sale, at fair
value.......................................... 188 180
Policy loans, at outstanding balance............ 3,760 3,756
Other investments, at cost...................... 235 47
------- -------
Total investments............................. 18,792 18,159
Cash............................................ 52 54
Premiums and amounts receivable................. 23 18
Accrued investment income....................... 353 330
Reinsurance recoverable......................... 6,040 6,325
Deferred policy acquisition costs............... 3,430 3,315
Deferred income tax............................. 454 348
Other assets.................................... 207 352
Separate account assets......................... 77,457 69,055
------- -------
Total assets.................................. $106,808 $97,956
------- -------
------- -------
Liabilities
Future policy benefits.......................... $ 3,325 $3,270
Other policyholder funds........................ 20,980 21,034
Other liabilities............................... 2,622 2,254
Separate account liabilities.................... 77,457 69,055
------- -------
Total liabilities............................. 104,384 95,613
------- -------
Stockholder's Equity
Common stock - authorized 1,000; issued and
outstanding, par value $5,690.................. 6 6
Capital surplus................................. 1,045 1,045
Accumulated other comprehensive income
Net unrealized capital gains on securities, net
of tax......................................... 177 179
Total accumulated other comprehensive income... 177 179
Retained earnings.............................. 1,196 1,113
------- -------
Total stockholder's equity.................... 2,424 2,343
------- -------
Total liabilities and stockholder's equity...... $106,808 $97,956
------- -------
------- -------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
72
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDER'S EQUITY
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE
INCOME
----------------------------------------------------------------------
NET UNREALIZED
CAPITAL GAINS
(LOSSES) ON TOTAL
COMMON CAPITAL SECURITIES, NET RETAINED STOCKHOLDERS'
STOCK SURPLUS OF TAX EARNINGS EQUITY
------ -------------- --------------- ----------- -------------
(IN MILLIONS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997.............. $6 $1,045 $179 $1,113 $2,343
Comprehensive Income
Net income............................ -- -- -- 83 83
Other comprehensive income, net of
tax:
Change in unrealized capital gains
(losses) on securities (1)(2)....... -- -- (2) -- (2)
Total other comprehensive income...... -- -- -- -- (2)
Total Comprehensive Income.............. 81
--
------ ------ ----------- ------
Balance, March 31, 1998................. $6 $1,045 $177 $1,196 $2,424
--
--
------ ------ ----------- ------
------ ------ ----------- ------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE
INCOME
----------------------------------------------------------------------
NET UNREALIZED
CAPITAL GAINS
(LOSSES) ON TOTAL
COMMON CAPITAL SECURITIES, NET RETAINED STOCKHOLDERS'
STOCK SURPLUS OF TAX EARNINGS EQUITY
------ -------------- --------------- ----------- -------------
(IN MILLIONS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996.............. $6 $1,045 $ 30 $ 811 $1,892
Comprehensive Income
Net income............................ -- -- -- 63 63
Other comprehensive income, net of
tax:
Change in unrealized capital gains
(losses) on securities (1)(2)....... -- -- (87) -- (87)
Total other comprehensive income...... -- -- -- -- (87)
Total Comprehensive Income.............. -- -- -- -- 24
--
------ ------ ----------- ------
Balance March 31, 1997.................. $6 $1,045 $(57) $ 874 $1,868
--
--
------ ------ ----------- ------
------ ------ ----------- ------
</TABLE>
- ---------
(1) Unrealized gain (loss) on securities is net of tax expense (benefit) of $95
and $(34) for March 31, 1998 and 1997, respectively.
(2) Net of reclassification adjustment for gains realized in net income of $0
and $4 for March 31, 1998 and 1997, respectively.
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
73
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1997
-------- --------
(IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
Operating Activities
Net income............................ $ 83 $ 63
Adjustments to Net Income:
Depreciation and amortization......... (5) 5
Net realized capital gains............ -- (4)
(Increase) decrease in deferred income
taxes................................ (102) 21
Increase in deferred policy
acquisition costs.................... (115) (128)
(Increase) decrease in premiums
receivable and agents' balances...... (5) 32
(Increase) decrease in accrued
investment income.................... (23) 57
Decrease in other assets.............. 104 25
Decrease (increase) in reinsurance
recoverables......................... 23 (112)
Increase in liabilities for future
policy benefits...................... 55 158
Increase in other liabilities......... 74 227
-------- --------
Cash provided by operating
activities......................... 89 344
-------- --------
Investing Activities
Purchases of fixed maturity
investments.......................... (2,014) (1,525)
Sales of fixed maturity investments... 1,162 985
Maturities and principal paydowns of
fixed maturity investments........... 459 664
Net (purchases) sales of other
investments.......................... (118) 111
Net sales (purchases) of short-term
investments.......................... 211 (102)
-------- --------
Cash (used for) provided by
investing activities............... (300) 133
-------- --------
Financing Activities
Net receipts from (disbursements for)
investment and universal life-type
contracts credited to (charged
against) policyholder accounts....... 209 (447)
-------- --------
Cash provided by (used for) financing
activities........................... 209 (447)
-------- --------
(Decrease) increase in cash........... (2) 30
Cash -- beginning of period........... 54 43
-------- --------
Cash -- end of period................. $ 52 $ 73
-------- --------
-------- --------
Supplemental Disclosure of Cash Flow
Information:
Net Cash Paid During the Period for:
Income taxes.......................... $ 56 $ 41
-------- --------
-------- --------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
74 HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN MILLIONS EXCEPT FOR SHARE DATA UNLESS OTHERWISE STATED)
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Hartford Life Insurance Company (the "Company") have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures which are normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. In the opinion of management, these
statements include all adjustments which were normal recurring adjustments
necessary to present fairly the financial position, results of operations and
cash flows for the periods presented.
For a description of accounting policies, see Note 2 of Notes to
Consolidated Financial Statements in the Company's 1997 Form 10-K Annual Report.
Certain reclassifications have been made to prior year financial information
to conform to the current year classification of transactions and accounts.
(B) CHANGES IN ACCOUNTING PRINCIPLES
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". The SOP provides guidance on
accounting for the costs of internal use software and in determining whether the
software is for internal use. The SOP defines internal use software as software
that is acquired, internally developed, or modified solely to meet internal
needs and identifies stages of software development and accounting for the
related costs incurred during the stages. This statement is effective for fiscal
years beginning after December 15, 1998 and is not expected to have a material
impact on the Company's financial condition or results of operations.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income", which
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. The objective
of this statement is to report a measure of all changes in equity of an
enterprise that result from transactions and other economic events of the period
other than transactions with owners. Comprehensive income is the total of net
income and all other nonowner changes in equity. Accordingly, the Company has
reported comprehensive income in the Condensed Consolidated Statement of Changes
in Stockholder's Equity.
2. INITIAL PUBLIC OFFERING ("IPO")
On February 10, 1997, the Company's indirect parent, Hartford Life, Inc.
("Hartford Life"), filed a registration statement, as amended, with the
Securities and Exchange Commission, relating to the IPO of Hartford Life's Class
A Common Stock. Pursuant to the IPO on May 22, 1997, Hartford Life sold to the
public 26 million shares at $28.25 per share and received proceeds, net of
offering expenses, of $687. Of the proceeds, $527 was used to retire debt
related to Hartford Life's promissory notes outstanding and line of credit. The
remaining $160 was contributed by Hartford Life to Hartford Life and Accident
Insurance Company, the Company's direct parent, to support growth in its core
businesses.
The 26 million shares sold in the IPO represent approximately 18.6% of the
equity ownership in Hartford Life and approximately 4.4% of the combined voting
power of Hartford Life's Class A and Class B Common Stock. The Hartford owns all
of the 114 million outstanding shares of Class B Common Stock of Hartford Life,
representing approximately 81.4% of the equity ownership in Hartford Life and
approximately 95.6% of the combined voting power of Hartford Life's Class A and
Class B Common Stock. Holders of Class A Common Stock generally have identical
rights to the holders of Class B Common Stock except that the holders of Class A
Common Stock are entitled to one vote per share while holders of Class B Common
Stock are entitled to five votes per share on all matters submitted to a vote of
Hartford Life's stockholders.
3. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is involved in pending and threatened litigation in the normal
course of its business in which claims for monetary and punitive damages have
been asserted. Although there can be no assurances, management, at the present
time, does not anticipate that the ultimate liability arising from such pending
or threatened litigation will have a material effect on the financial condition
or operating results of the Company.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES 75
- --------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLAR AMOUNTS IN MILLIONS EXCEPT FOR PER SHARE DATA UNLESS OTHERWISE
STATED)
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") addresses the financial condition of the Company as of March
31, 1998, compared with December 31, 1997, and its results of operations for the
three months ended March 31, 1998 compared with the equivalent 1997 period. This
discussion should be read in conjunction with the MD&A in the Company's 1997
Form 10-K Annual Report.
Certain statements contained in this discussion, other than statements of
historical fact, are forward-looking statements. These statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and include estimates and assumptions related to economic,
competitive and legislative developments. These forward-looking statements are
subject to change and uncertainty which are, in many instances, beyond the
Company's control and have been made based upon management's expectations and
beliefs concerning future developments and their potential effect on Hartford
Life Insurance Company and subsidiaries (the "Company"). There can be no
assurance that future developments will be in accordance with management's
expectations or that the effect of future developments on the Company will be
those anticipated by management. Actual results could differ materially from
those expected by the Company, depending on the outcome of certain factors,
including those described in the forward-looking statements.
Certain reclassifications have been made to prior year financial information
to conform to the current year presentation.
INDEX
<TABLE>
<S> <C>
Consolidated Results of
Operations:....................
Operating Summary............... 8
Annuity......................... 9
Individual Life Insurance....... 10
Employee Benefits............... 10
Guaranteed Investment
Contracts...................... 11
Accounting Standards............ 11
</TABLE>
CONSOLIDATED RESULTS OF OPERATIONS:
OPERATING SUMMARY
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenues......................................... $ 915 $ 651
Expenses......................................... 832 588
--------- ---------
Net Income..................................... $ 83 $ 63
--------- ---------
--------- ---------
</TABLE>
The Company's insurance business operates in three principal segments:
Annuity, Individual Life Insurance, and Employee Benefits as well as a
Guaranteed Investments Contracts segment, which is primarily comprised of
business written prior to 1995. The Company also maintains a Corporate operation
through which it reports items that are not directly allocable to any of its
business segments.
The Annuity segment focuses on the savings and retirement needs of the
growing number of individuals who are preparing for retirement or have already
retired. This segment consists of two areas of operation: Individual Annuity and
Group Annuity. The variety of products sold within this segment reflects the
diverse nature of the market. These include, in the Individual Annuity area,
individual variable annuities, fixed market value adjusted ("MVA") annuities,
and mutual funds; and in the Group Annuity area, deferred compensation and
retirement plan services for municipal governments and corporations, structured
settlement contracts and other special purpose annuity contracts, and investment
management contracts. The Individual Life Insurance segment, which focuses on
the high end estate and business planning markets, sells a variety of life
insurance products, including variable life and universal life insurance. The
Employee Benefits segment consists of two areas of operation: Group Insurance
and Specialty Insurance. Through Group Insurance, the Company offers products
such as group life insurance, group short- and long-term disability and
accidental death and dismemberment. Substantially all of the Group Insurance
business directly written by the Company is ceded to its direct parent, Hartford
Life and Accident Insurance Company. Specialty Insurance primarily consists of
the Company's corporate owned life insurance ("COLI") business. The Guaranteed
Investment Contracts segment consists of guaranteed rate contract ("GRC")
business that is supported by assets held in either the Company's general
account or a guaranteed separate account and includes a closed block of
guaranteed rate contracts ("Closed Book GRC"). The Company decided in 1995,
after a thorough review of its GRC business, that it would significantly de-
emphasize general account GRC, choosing to focus its distribution efforts on
other products sold through other divisions. Management expects no material
income or loss from the Guaranteed Investment Contracts segment in the future.
Revenues increased $264, or 41%, to $915 for the first quarter of 1998 from
$651 for the comparable period in 1997. This was partially due to COLI revenues
which increased $161 due to renewal premium on leveraged COLI and increased fees
associated with variable COLI sales. Excluding COLI, revenues increased $103, or
22%, over the first quarter of 1997. This increase was driven by the Annuity
segment whose revenues increased $101, or 36%, for the first quarter of 1998 as
compared to the first quarter of 1997. This increase was due to higher fee
income earned on growing annuity account values where the average account
<PAGE>
76 HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
value grew $18.9 billion, or 37%, to $70.6 billion at March 31, 1998 from $51.7
billion at March 31, 1997 due to market appreciation and new sales. Also,
Individual Life Insurance revenues increased $17, or 15%, for the first quarter
of 1998 as compared to the first quarter of 1997 due to increased cost of
insurance charges and other fee income on the Company's growing block of
variable life business. Partially offsetting the increases discussed above was a
$20 decline in revenues related to Closed Book GRC.
Expenses increased $244, or 41%, to $832 for the first quarter of 1998 from
$588 for the comparable period in 1997. The increase was partially driven by
COLI, whose expenses increased $160 as a result of increased operating expenses
associated with significant renewal premium and variable COLI sales for the
quarter ended March 31, 1998. Excluding COLI, expenses increased $84, or 20%,
over the first quarter of 1997. Annuity expenses grew $81 primarily due to
higher amortization of deferred policy acquisition costs and operating expenses.
Individual Life Insurance expenses increased $15 primarily due to higher
benefits, claims, and claim adjustment expenses, which is consistent with the
growth in this blocks of business. Partially offsetting the increases discussed
above was a $20 decline in expenses related to Closed Book GRC.
Net income increased $20, or 32%, to $83 for the first quarter of 1998 from
$63 for the first quarter of 1997 primarily due to growth in the Annuity and the
Individual Life Insurance segments. Annuity earnings increased $20, or 47%, due
to increasing account values resulting from significant stock market
appreciation and new sales, particularly in Individual Annuity. Individual Life
Insurance earnings increased $2, or 18%, as a result of strong sales and growing
account values. Guaranteed Investment Contracts had no net income in the first
quarter of 1998 or 1997, consistent with management's expectations.
SEGMENT RESULTS
The Company's reporting segments, which reflect the management structure of
the Company, consist of Annuity, Individual Life Insurance, Employee Benefits,
Guaranteed Investment Contracts and a Corporate Operation.
Below is a summary of net income by segment.
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Annuity............................................ $63 $43
Individual Life Insurance.......................... 13 11
Employee Benefits.................................. 6 6
Guaranteed Investment Contracts.................... -- --
Corporate Operation................................ 1 3
--- ---
Net Income....................................... $83 $63
--- ---
--- ---
</TABLE>
The sections that follow analyze each segment's results.
ANNUITY
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenues......................................... $ 381 $ 280
Expenses......................................... 318 237
--------- ---------
Net Income..................................... $ 63 $ 43
--------- ---------
--------- ---------
</TABLE>
Revenues increased $101, or 36%, to $381 as of March 31, 1998 from $280 as
of March 31, 1997. Individual Annuity revenues increased $90, or 50%, over the
first quarter of 1997 primarily due to higher fee income earned on growth in
individual variable annuity account values. Average individual variable annuity
account values grew $16.9 billion, or 51%, to $50.2 billion as of March 31, 1998
from $33.3 billion as of March 31, 1997. This growth was the result of
significant market appreciation as well as strong sales of $2.4 billion in the
first quarter of 1998. Also, Group Annuity revenues increased $11, or 11%, as of
March 31, 1998 as compared to March 31, 1997 due to higher net investment income
resulting from growth in assets under management. Group Annuity average account
values grew $2.0 billion, or 22%, to $11.1 billion as March 31, 1998 from $9.1
billion as of March 31, 1997 due to market appreciation and new deposits.
Expenses increased $81, or 34%, to $318 as of March 31, 1998 from $237 as of
March 31, 1997. Benefits, claims and claim adjustment expenses increased $14
primarily due to increased interest credited on Individual Annuity general
account values, which increased $1.3 billion, or 43%, to $4.2 billion at March
31, 1998 from $2.9 billion at March 31, 1997. Amortization of DPAC increased $20
as prior and current year sales remained strong. Also, other business expenses
increased $37 as a result of the growth in this segment. However, operating
expenses as a percentage of average account value declined from 1997 levels.
Annuity net income increased $20, or 47%, to $63 as of March 31, 1998 from
$43 as of March 31, 1997 as a result of growing average account values discussed
above and operating expense efficiencies.
INDIVIDUAL LIFE INSURANCE
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenues......................................... $ 128 $ 111
Expenses......................................... 115 100
--------- ---------
Net Income..................................... $ 13 $ 11
--------- ---------
--------- ---------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES 77
- --------------------------------------------------------------------------------
Revenues increased $17, or 15%, to $128 as of March 31, 1998 from $111 as of
March 31, 1997. This increase was primarily due to higher cost of insurance
charges and other fee income earned on the Company's growing block of variable
life insurance. Variable life average account values increased $540, or 84%, to
$1.2 billion as of March 31, 1998 from $640 as of March 31, 1997 due to market
appreciation and strong sales. Variable life product sales constituted 75%, or
$24, of total Individual Life Insurance new sales in the first quarter of 1998,
an increased of $9, or 60%, compared to the same period in 1997.
Expenses increased $15, or 15%, to $115 as of March 31, 1998 from $100 as of
March 31, 1997. This increase was primarily the result of higher benefits,
claims, and claim adjustment expenses of $20 due to the growth in this segment
as well as increased mortality experience in the first quarter of 1998. Net
income increased $2, or 18%, to $13 as of March 31, 1998 from $11 as of March
31, 1997.
EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenues......................................... $ 348 $ 179
Expenses......................................... 342 173
--------- ---------
Net Income..................................... $ 6 $ 6
--------- ---------
--------- ---------
</TABLE>
Revenues increased $169, or 94%, to $348 as of March 31, 1998 from $179 as
of March 31, 1997. This was primarily due to COLI whose revenues increased $161,
or 90%, for the first quarter of 1998 as compared to the first quarter of 1997.
This increase was due to $80 of renewal premium on leveraged COLI as well as
increase in fee income of $78 related to new sales of variable COLI.
Expenses increased $169, or 98%, to $342 as of March 31, 1998 from $173 as
of March 31, 1997. COLI expenses increased $160 primarily due to higher expenses
associated with the first quarter 1998 increased variable COLI sales and
leveraged COLI renewal premium. Net income was consistent with the prior year
results.
GUARANTEED INVESTMENT CONTRACTS
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
MARCH 31,
----------------------
1998 1997
----- -----
<S> <C> <C>
Revenues........................................... $52 $72
Expenses........................................... 52 72
--- ---
Net Income....................................... $-- $--
--- ---
--- ---
</TABLE>
This segment reported no net income for the first quarter of 1998 and 1997
consistent with management's expectations that net income (loss) from Closed
Book GRC in the years subsequent to 1996 will be immaterial based on the
Company's current projections for the performance of the assets and liabilities
associated with Closed Book GRC. However, no assurance can be given that, under
certain unanticipated economic circumstances which result in the Company's
assumptions being proven inaccurate, further losses in respect of Closed Book
GRC will not occur in the future.
ACCOUNTING STANDARDS
For a discussion of accounting standards, see Note 1 of Notes to Condensed
Consolidated Financial Statements.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in pending and threatened litigation in the normal
course of its business in which claims for monetary and punitive damages have
been asserted. Although there can be no assurances, management, at the present
time, does not anticipate that the ultimate liability arising from such pending
or threatened litigation will have a material effect on the financial condition
or operating results of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -- See Exhibits Index
(b) Reports on Form 8-K -- None
<PAGE>
This page intentionally left blank.
<PAGE>
79
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hartford Life Insurance Company:
We have audited the accompanying Consolidated Balance Sheets of Hartford Life
Insurance Company (the "Company") and subsidiaries as of December 31, 1997 and
1996, and the related Consolidated Statements of Income, Stockholder's Equity
and Cash Flows for each of the three years in the period ended December 31,
1997. These consolidated financial statements and the schedules referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Hartford Life
Insurance Company and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in Index to
Consolidated Financial Statements and Schedules are presented for the purpose of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. These schedules have been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
January 27, 1998
<PAGE>
80
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Premiums and other considerations............... $1,637 $1,705 $1,487
Net investment income........................... 1,368 1,397 1,328
Net realized capital gains (losses)............. 4 (213) (11)
------ ------ ------
Total revenues................................ 3,009 2,889 2,804
------ ------ ------
Benefits, claims and expenses
Benefits, claims and claim adjustment
expenses....................................... 1,379 1,535 1,422
Amortization of deferred policy acquisition
costs.......................................... 335 234 199
Dividends to policyholders...................... 240 635 675
Other expenses.................................. 586 427 317
------ ------ ------
Total benefits, claims and expenses........... 2,540 2,831 2,613
------ ------ ------
Income before income tax expense................ 469 58 191
Income tax expense.............................. 167 20 62
------ ------ ------
Net income........................................ $ 302 $ 38 $ 129
------ ------ ------
------ ------ ------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
81
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER
31,
-----------------
1997 1996
------- -------
<S> <C> <C>
(IN MILLIONS,
EXCEPT FOR SHARE
DATA)
Assets
Investments
Fixed maturities, available for sale, at fair
value (amortized cost of $13,885 and
$13,579)....................................... $14,176 $13,624
Equity securities, at fair value................ 180 119
Policy loans, at outstanding balance............ 3,756 3,836
Other investments, at cost...................... 47 56
------- -------
Total investments............................. 18,159 17,635
Cash............................................ 54 43
Premiums receivable and agents' balances........ 18 137
Accrued investment income....................... 330 407
Reinsurance recoverables........................ 6,325 6,259
Deferred policy acquisition costs............... 3,315 2,760
Deferred income tax............................. 348 474
Other assets.................................... 352 357
Separate account assets......................... 69,055 49,690
------- -------
Total assets.................................. $97,956 $77,762
------- -------
------- -------
Liabilities
Future policy benefits.......................... $ 3,270 $ 2,474
Other policyholder funds........................ 21,034 22,134
Other liabilities............................... 2,254 1,572
Separate account liabilities.................... 69,055 49,690
------- -------
Total liabilities............................. 95,613 75,870
------- -------
Stockholder's Equity
Common stock -- 1,000 shares authorized, issued
and outstanding, par value $5,690.............. 6 6
Additional paid in capital...................... 1,045 1,045
Net unrealized capital gains on securities, net
of tax......................................... 179 30
Retained earnings............................... 1,113 811
------- -------
Total stockholder's equity.................... 2,343 1,892
------- -------
Total liabilities and stockholder's equity...... $97,956 $77,762
------- -------
------- -------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
82
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
NET UNREALIZED
CAPITAL GAINS
ADDITIONAL (LOSSES) ON TOTAL
COMMON PAID IN SECURITIES, RETAINED STOCKHOLDER'S
STOCK CAPITAL NET OF TAX EARNINGS EQUITY
------ -------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS)
Balance, December 31, 1994.............. $6 $ 826 $(654) $ 644 $ 822
Net income............................ -- -- -- 129 129
Capital contribution.................. -- 181 -- -- 181
Change in net unrealized capital gains
(losses) on securities, net of tax... -- -- 597 -- 597
--
------ ------ ----------- ------
Balance, December 31, 1995.............. 6 1,007 (57) 773 1,729
Net income............................ -- -- -- 38 38
Capital contribution.................. -- 38 -- -- 38
Change in net unrealized capital gains
(losses) on securities, net of tax... -- -- 87 -- 87
--
------ ------ ----------- ------
Balance, December 31, 1996.............. 6 1,045 30 811 1,892
Net income............................ -- -- -- 302 302
Change in net unrealized capital gains
(losses) on securities, net of tax... -- -- 149 -- 149
--
------ ------ ----------- ------
Balance, December 31, 1997.............. $6 $1,045 $179 $1,113 $2,343
--
--
------ ------ ----------- ------
------ ------ ----------- ------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
83
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
------------------------------
1997 1996 1995
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Operating Activities
Net income............................ $ 302 $ 38 $ 129
Adjustments to reconcile net income to
cash provided by operating activities
Depreciation and amortization......... 8 14 21
Net realized capital (gains) losses... (4) 213 11
Decrease (increase) in deferred income
taxes................................ 40 (102) (172)
Increase in deferred policy
acquisition costs.................... (555) (572) (379)
Decrease (increase) in premiums
receivable and agents' balances...... 119 10 (81)
Decrease (increase) in accrued
investment income.................... 77 (13) (16)
Decrease (increase) in other assets... 52 (132) (177)
(Increase) decrease in reinsurance
recoverables......................... (416) 179 (35)
Increase (decrease) in liabilities for
future policy benefits............... 796 (92) 483
Increase in other liabilities......... 379 477 281
-------- -------- --------
Cash provided by operating
activities......................... 798 20 65
-------- -------- --------
Investing Activities
Purchases of fixed maturity
investments.......................... (6,231) (5,747) (6,228)
Sales of fixed maturity investments... 4,232 3,459 4,845
Maturities and principal paydowns of
fixed maturity investments........... 2,329 2,693 1,741
Net sales (purchases) of other
investments.......................... 24 (107) (871)
Net (purchases) sales of short-term
investments.......................... (638) 84 (24)
-------- -------- --------
Cash (used for) provided by
investing activities............... (284) 382 (537)
-------- -------- --------
Financing Activities
Capital contribution.................. -- 38 --
Net (disbursements for) receipts from
investment and universal life-type
contracts (charged against) credited
to policyholder accounts............. (503) (443) 498
-------- -------- --------
Cash (used for) provided by
financing activities............... (503) (405) 498
-------- -------- --------
Increase (decrease) in cash........... 11 (3) 26
Cash -- beginning of year............. 43 46 20
-------- -------- --------
Cash -- end of year................... $ 54 $ 43 $ 46
-------- -------- --------
-------- -------- --------
Supplemental Disclosure of Cash Flow
Information:
Net Cash Paid During the Year for:
Income taxes.......................... $ 9 $ 189 $ 162
Noncash Financing Activities:
Capital contribution.................. $ -- $ -- $ 181
-------- -------- --------
-------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
84
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE DATA UNLESS OTHERWISE STATED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
These consolidated financial statements include Hartford Life Insurance
Company and its wholly-owned subsidiaries (the "Company"), ITT Hartford Life and
Annuity Insurance Company ("ILA") and ITT Hartford International Life
Reassurance Corporation ("HLRe"), formerly American Skandia Life Reinsurance
Corporation. The Company is a wholly-owned subsidiary of Hartford Life and
Accident Insurance Company ("HLA"), a wholly-owned subsidiary of Hartford Life,
Inc. ("Hartford Life"). Hartford Life is a direct subsidiary of Hartford
Accident and Indemnity Company ("HA&I"), an indirect subsidiary of The Hartford
Financial Services Group, Inc. ("The Hartford"). On February 10, 1997, Hartford
Life filed a registration statement, as amended, with the Securities and
Exchange Commission relating to an Initial Public Offering ("IPO") of the
Hartford Life's Class A Common Stock. Pursuant to the IPO on May 22, 1997,
Hartford Life sold to the public 26 million shares at $28.25 per share and
received net proceeds of $687. Of the proceeds, $527 was used to retire debt
related to Hartford Life's outstanding promissory notes and line of credit with
the remaining $160 contributed by Hartford Life to HLA to support growth in its
core businesses.
On December 19, 1995, ITT Industries, Inc. (formerly ITT Corporation)
("ITT") distributed all the outstanding shares of capital stock of The Hartford
to ITT stockholders of record on such date. As a result, The Hartford became an
independent, publicly traded company.
Along with its parent, the Company is a leading insurance and financial
services company which provides (a) investment products such as individual
variable annuities and fixed market value adjusted annuities, deferred
compensation and retirement plan services and mutual funds for savings and
retirement needs; (b) life insurance for income protection and estate planning;
and (c) employee benefits products such as group life and group disability
insurance and corporate owned life insurance.
2. SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
These consolidated financial statements present the financial position,
results of operations and cash flows of the Company. All material intercompany
transactions and balances between the Company, its subsidiaries and affiliates
have been eliminated. The consolidated financial statements are prepared on the
basis of generally accepted accounting principles which differ materially from
the statutory accounting practices prescribed by various insurance regulatory
authorities.
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The most
significant estimates include those used in determining deferred policy
acquisition costs and the liability for future policy benefits and other
policyholder funds. Although some variability is inherent in these estimates,
management believes the amounts provided are adequate.
Certain reclassifications have been made to prior year financial information
to conform to the current year presentation.
(B) CHANGES IN ACCOUNTING PRINCIPLES
In December 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 97-3 "Accounting by Insurance
and Other Enterprises for Insurance Related Assessments". This SOP provides
guidance on accounting by insurance and other enterprises for assessments
related to insurance activities. Specifically, the SOP provides guidance on when
a guaranty fund or other assessment should be recognized, how to measure the
liability, and what information should be disclosed. This SOP will be effective
for fiscal years beginning after December 15, 1998. Adoption of SOP 97-3 is not
expected to have a material impact on the Company's financial condition or
results of operations.
On November 14, 1996, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 96-12, "Recognition of Interest Income and Balance Sheet
Classification of Structured Notes". This EITF issue requires companies to
record income on certain structured securities on a retrospective interest
method. The Company adopted EITF No. 96-12 for structured securities acquired
after November 14, 1996. Adoption of EITF No. 96-12 did not have a material
effect on the Company's financial condition or results of operations.
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities"
which is effective for transfers and servicing of financial
<PAGE>
85
- --------------------------------------------------------------------------------
assets and extinguishments of liabilities occurring after December 31, 1996.
This statement established criteria for determining whether transferred assets
should be accounted for as sales or secured borrowings. Subsequently, in
December 1996, the FASB issued SFAS No. 127, "Deferral of Effective Date of
Certain Provisions of FASB Statement No. 125", which defers the effective date
of certain provisions of SFAS No. 125 for one year. Adoption of SFAS No. 125 is
not expected to have a material effect on the Company's financial condition or
results of operations.
Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". This statement establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. Adoption of SFAS No. 121 did not
have a material effect on the Company's financial condition or results of
operations.
The Company's cash flows were not impacted by these changes in accounting
principles.
(C) REVENUE RECOGNITION
Revenues for universal life-type policies and investment products consist of
policy charges for the cost of insurance, policy administration and surrender
charges assessed to policy account balances and are recognized in the period in
which services are provided. Premiums for traditional life insurance and
disability policies are recognized as revenues when they are due from
policyholders.
(D) FUTURE POLICY BENEFITS AND OTHER POLICYHOLDER FUNDS
Liabilities for future policy benefits are computed by the net level premium
method using interest rate assumptions varying from 3% to 11% and withdrawal and
mortality assumptions appropriate at the time the policies were issued. Health
reserves, which are the result of sales of group long-term and short-term
disability, stop loss, Medicare Supplement and individual disability products,
are stated at amounts determined by estimates on individual cases and estimates
of unreported claims based on past experience. Liabilities for universal
life-type and investment contracts are stated at policyholder account values
before surrender charges.
(E) POLICYHOLDER REALIZED CAPITAL GAINS AND LOSSES
Realized capital gains and losses on security transactions associated with
the Company's immediate participation guaranteed contracts are excluded from
revenues and deferred over the expected maturity of the securities, since under
the terms of the contracts the realized gains and losses will be credited to
policyholders in future years as they are entitled to receive them.
(F) INVESTMENTS
The Company's investments in fixed maturities include bonds and commercial
paper which are considered "available for sale" and accordingly are carried at
fair value with the after-tax difference from cost reflected as a component of
Stockholder's Equity designated "Net unrealized capital gains (losses) on
securities, net of tax". Equity securities, which include common and
non-redeemable preferred stocks, are carried at fair values with the after-tax
difference from cost reflected in Stockholder's Equity. Policy loans are carried
at outstanding balance which approximates fair value. Net realized capital gains
and losses, after deducting pension policyholders' share, are reported as a
component of revenue and are determined on a specific identification basis.
The Company's accounting policy for impairment requires recognition of an
other than temporary impairment charge on a security if it is determined that
the Company is unable to recover all amounts due under the contractual
obligations of the security. In addition, for securities expected to be sold, an
other than temporary impairment charge is recognized if the Company does not
expect the fair value of a security to recover to cost or amortized cost prior
to the expected date of sale. Once an impairment charge has been recorded, the
Company then continues to review the other than temporarily impaired securities
for appropriate valuation on an on-going basis.
During 1996, it was determined that certain individual securities within the
investment portfolio supporting the Company's block of guaranteed rate contract
business written prior to 1995 ("Closed Book GRC") could not recover to
amortized cost prior to sale. Therefore, an other than temporary impairment loss
of $88, after-tax, was recorded.
(G) DERIVATIVE INSTRUMENTS
The Company uses a variety of derivative instruments including swaps, caps,
floors, forwards and exchange traded financial futures and options as part of an
overall risk management strategy. These instruments are used as a means of
hedging exposure to price, foreign currency and/ or interest rate risk on
planned investment purchases or existing assets and liabilities. The Company
does not hold or issue derivative instruments for trading purposes. The
Company's accounting for derivative instruments used to manage risk is in
accordance with the concepts established in SFAS No. 80, "Accounting for Futures
Contracts", SFAS No. 52, "Foreign Currency Translation", AICPA SOP 86-2,
"Accounting for Options" and various EITF pronouncements. Written options are
used, in all cases in conjunction with other assets and derivatives, as part of
the Company's asset and liability management strategy. Derivative instruments
are carried at values consistent with the asset or liability being hedged.
Derivative instruments used to hedge fixed maturities or equity securities are
carried at fair value
<PAGE>
86
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with the after-tax difference from cost reflected in Stockholder's Equity.
Derivative instruments used to hedge other invested assets or liabilities are
carried at cost.
Derivative instruments must be designated at inception as a hedge and
measured for effectiveness both at inception and on an on-going basis. The
Company's minimum correlation threshold for hedge designation is 80%. If
correlation, which is assessed monthly and measured based on a rolling three
month average, falls below 80%, hedge accounting will be terminated. Derivative
instruments used to create a synthetic asset must meet synthetic accounting
criteria including designation at inception and consistency of terms between the
synthetic and the instrument being replicated. Consistent with industry
practice, synthetic instruments are accounted for like the financial instrument
it is intended to replicate. Derivative instruments which fail to meet risk
management criteria, subsequent to acquisition, are marked to market with the
impact reflected in the Consolidated Statements of Income.
Gains or losses on financial futures contracts entered into in anticipation
of the investment of future receipt of product cash flows are deferred and, at
the time of the ultimate investment purchase, reflected as an adjustment to the
cost basis of the purchased asset. Gains or losses on futures used in invested
asset risk management are deferred and adjusted into the cost basis of the
hedged asset when the contract futures are closed, except for futures used in
duration hedging which are deferred and basis adjusted on a quarterly basis. The
basis adjustments are amortized into net investment income over the remaining
asset life.
Open forward commitment contracts are marked to market through Stockholder's
Equity. Such contracts are accounted for at settlement by recording the purchase
of the specified securities at the previously committed price. Gains or losses
resulting from the termination of forward commitment contracts before the
delivery of the securities are recognized immediately in the Consolidated
Statements of Income as a component of net investment income.
The cost of options entered into as part of a risk management strategy are
basis adjusted to the underlying asset or liability and amortized over the
remaining life of the option. Gains or losses on expiration or termination are
adjusted into the basis of the underlying asset or liability and amortized over
the remaining asset life.
Interest rate swaps involve the periodic exchange of payments without the
exchange of underlying principal or notional amounts. Net receipts or payments
are accrued and recognized over the life of the swap agreement as an adjustment
to investment income. Should the swap be terminated, the gain or loss is
adjusted into the basis of the asset or liability and amortized over the
remaining life. Should the hedged asset be sold or liability terminated without
terminating the swap position, any swap gains or losses are immediately
recognized in net investment income. Interest rate swaps purchased in
anticipation of an asset purchase ("anticipatory transaction") are recognized
consistent with the underlying asset components such that the settlement
component is recognized in the Consolidated Statements of Income while the
change in market value is recognized as an unrealized capital gain or loss.
Premiums paid on purchased floor or cap agreements and the premium received
on issued cap or floor agreements (used for risk management) are adjusted into
the basis of the applicable asset and amortized over the asset life. Gains or
losses on termination of such positions are adjusted into the basis of the asset
or liability and amortized over the remaining asset life. Net payments are
recognized as an adjustment to income or basis adjusted and amortized depending
on the specific hedge strategy.
Forward exchange contracts and foreign currency swaps are accounted for in
accordance with SFAS No. 52. Changes in the spot rate of instruments designated
as hedges of the net investment in a foreign subsidiary are reflected in the
cumulative translation adjustments component of Stockholder's Equity. Cash flows
from futures, options, and swaps, accounted for as hedges, are included with the
cash flows of the item being hedged.
(H) SEPARATE ACCOUNTS
The Company maintains separate account assets and liabilities which are
reported at fair value. Separate account assets are segregated from other
investments, and investment income and gains and losses accrue directly to the
policyholders. Separate accounts reflect two categories of risk assumption:
non-guaranteed separate accounts, wherein the policyholder assumes the
investment risk, and guaranteed separate account assets, wherein the Company
contractually guarantees either a minimum return or account value to the
policyholder.
(I) DEFERRED POLICY ACQUISITION COSTS
Policy acquisition costs, which include commissions and certain underwriting
expenses associated with acquiring business, are deferred and amortized over the
estimated lives of the contracts, generally 20 years. Generally, acquisition
costs are deferred and amortized using the retrospective deposit method. Under
the retrospective deposit method, acquisition costs are amortized in proportion
to the present value of expected gross profits from surrender charges,
investment, mortality and expense margins. Actual gross profits can vary from
management's estimates resulting in increases or decreases in the rate of
amortization. Management periodically updates these estimates, when appropriate,
and evaluates the recoverability of the deferred acquisition cost asset. When
appropriate, management revises its assumptions on the estimated gross profits
of these contracts and the cumulative amortization
<PAGE>
87
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for the books of business are reestimated and adjusted by a cumulative charge or
credit to income.
The Company's other expenses include the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Commissions........................... $ 976 $ 848 $ 619
Deferred acquisition costs............ (862) (823) (618)
Other................................. 472 402 316
--------- --------- ---------
Total other expenses.............. $ 586 $ 427 $ 317
--------- --------- ---------
--------- --------- ---------
</TABLE>
(J) DIVIDENDS TO POLICYHOLDERS
Certain life insurance policies contain dividend payment provisions that
enable the policyholder to participate in the earnings of the life insurance
subsidiaries of the Company. The participating insurance in force accounted for
55%, 44%, and 41% in 1997, 1996, and 1995, respectively, of total insurance in
force.
3. INITIAL PUBLIC OFFERING
On February 10, 1997, Hartford Life filed a registration statement, as
amended, with the Securities and Exchange Commission, relating to the IPO of
Hartford Life's Class A Common Stock. Pursuant to the IPO on May 22, 1997,
Hartford Life sold to the public 26 million shares at $28.25 per share and
received proceeds, net of offering expenses, of $687. Of the proceeds, $527 was
used to retire debt related to Hartford Life's promissory notes outstanding and
line of credit. The remaining $160 was contributed by Hartford Life to HLA to
support growth in its core businesses. The 26 million shares sold in the
Offering represent approximately 18.6% of the equity ownership in Hartford Life
and approximately 4.4% of the combined voting power of Hartford Life's Class A
and Class B Common Stock. The Hartford owns all of the 114 million outstanding
shares of Class B Common Stock of Hartford Life, representing approximately
81.4% of the equity ownership in Hartford Life and approximately 95.6% of the
combined voting power of Hartford Life's Class A and Class B Common Stock.
Holders of Class A Common Stock generally have identical rights to the holders
of Class B Common Stock except that the holders of Class A Common Stock are
entitled to one vote per share while holders of Class B Common Stock are
entitled to five votes per share on all matters submitted to a vote of Hartford
Life's stockholders.
4. INVESTMENTS AND DERIVATIVE INSTRUMENTS
(A) COMPONENTS OF NET INVESTMENT INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest income from fixed
maturities......................... $ 932 $ 918 $ 996
Interest income from policy loans... 425 477 342
Income from other investments....... 26 15 1
--------- --------- ---------
Gross investment income............. 1,383 1,410 1,339
Less: Investment expenses........... 15 13 11
--------- --------- ---------
Net investment income............... $ 1,368 $ 1,397 $ 1,328
--------- --------- ---------
--------- --------- ---------
</TABLE>
(B) COMPONENTS OF NET REALIZED CAPITAL GAINS (LOSSES)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------
1997 1996 1995
----- --------- ---------
<S> <C> <C> <C>
Fixed maturities......................... $ (7) $ (201) $ 23
Equity securities........................ 12 2 (6)
Real estate and other.................... (1) (4) (25)
Less: Increase in liability to
policyholders for realized capital
gains................................... -- (10) (3)
--- --------- ---------
Net realized capital gains (losses) $ 4 $ (213) $ (11)
--- --------- ---------
--- --------- ---------
</TABLE>
(C) NET UNREALIZED CAPITAL GAINS (LOSSES) ON EQUITY SECURITIES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Gross unrealized capital gains.............. $ 14 $ 13 $ 4
Gross unrealized capital losses............. -- (1) (2)
--- --- ---
Net unrealized capital gains................ 14 12 2
Deferred income tax expense................. 5 4 1
--- --- ---
Net unrealized capital gains, net of tax.... 9 8 1
Balance -- beginning of year................ 8 1 (6)
--- --- ---
Net change in unrealized capital gains
(losses) on equity securities.............. $ 1 $ 7 $ 7
--- --- ---
--- --- ---
</TABLE>
<PAGE>
88
- --------------------------------------------------------------------------------
(D) NET UNREALIZED CAPITAL GAINS (LOSSES) ON FIXED MATURITIES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Gross unrealized capital gains................................... $ 371 $ 386 $ 529
Gross unrealized capital losses.................................. (80) (341) (569)
Unrealized capital (gains) losses credited to policyholders...... (30) (11) (52)
----- ----- -----
Net unrealized capital gains (losses)............................ 261 34 (92)
Deferred income tax expense (benefit)............................ 91 12 (34)
----- ----- -----
Net unrealized capital gains (losses), net of tax................ 170 22 (58)
Balance -- beginning of year..................................... 22 (58) (648)
----- ----- -----
Net change in unrealized capital gains (losses) on fixed
maturities...................................................... $ 148 $ 80 $ 590
----- ----- -----
----- ----- -----
</TABLE>
(E) FIXED MATURITY INVESTMENTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
U.S. gov't and gov't agencies and authorities
(guaranteed and sponsored)...................................... $ 217 $ 3 $ (1) $ 219
U.S. gov't and gov't agencies and authorities
(guaranteed and sponsored) -- asset backed...................... 1,175 64 (35) 1,204
States, municipalities and political subdivisions................ 211 7 (1) 217
International governments........................................ 376 20 (3) 393
Public utilities................................................. 871 26 (3) 894
All other corporate including international...................... 5,033 200 (25) 5,208
All other corporate -- asset backed.............................. 4,091 41 (8) 4,124
Short-term investments........................................... 1,318 -- -- 1,318
Certificates of deposit.......................................... 593 10 (4) 599
---------- ----- ----- ----------
Total fixed maturities....................................... $13,885 $371 $(80) $14,176
---------- ----- ----- ----------
---------- ----- ----- ----------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
U.S. gov't and gov't agencies and authorities
(guaranteed and sponsored)...................................... $ 166 $ 12 $ (3) $ 175
U.S. gov't and gov't agencies and authorities
(guaranteed and sponsored) -- asset backed...................... 1,970 161 (128) 2,003
States, municipalities and political subdivisions................ 373 6 (11) 368
International governments........................................ 281 12 (4) 289
Public utilities................................................. 877 12 (8) 881
All other corporate including international...................... 4,656 120 (107) 4,669
All other corporate -- asset backed.............................. 3,601 49 (59) 3,591
Short-term investments........................................... 1,655 14 (21) 1,648
---------- ----- ----------- ----------
Total fixed maturities....................................... $13,579 $386 $(341) $13,624
---------- ----- ----------- ----------
---------- ----- ----------- ----------
</TABLE>
The amortized cost and estimated fair value of fixed maturity investments at
December 31, 1997 by estimated maturity year are shown below. Expected
maturities differ from contractual maturities due to call or prepayment
provisions. Asset backed securities, including MBS and CMO's, are distributed to
maturity year based on the Company's estimates of the rate of future prepayments
of principal over the remaining lives of the securities. These estimates are
developed using prepayment speeds provided in broker consensus data. Such
estimates are derived from prepayment speeds experienced at the interest rate
levels projected for the applicable underlying collateral and can be expected to
vary from actual experience.
MATURITY
<TABLE>
<CAPTION>
AMORTIZED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
One year or less......................... $ 2,838 $ 2,867
Over one year through five years......... 5,528 5,595
Over five years through ten years........ 3,094 3,156
Over ten years........................... 2,425 2,558
----------- -----------
Total................................ $ 13,885 $ 14,176
----------- -----------
----------- -----------
</TABLE>
<PAGE>
89
- --------------------------------------------------------------------------------
Sales of fixed maturities, excluding short-term fixed maturities, for the
years ended December 31, 1997, 1996 and 1995 resulted in proceeds of $4.2
billion, $3.5 billion and $4.8 billion, gross realized capital gains of $169,
$87 and $91, gross realized capital losses (including writedowns) of $176, $298
and $72, respectively. Sales of equity security investments for the years ended
December 31, 1997, 1996 and 1995 resulted in proceeds of $132, $74 and $64,
gross realized capital gains of $12, $2 and $28 and gross realized capital
losses of $0, $0 and $59, respectively.
(F) CONCENTRATION OF CREDIT RISK
Excluding investments in U.S. government and agencies, the Company has not
invested in the securities of a single issuer in amounts greater than 10% of
stockholder's equity at December 31, 1997.
(G) DERIVATIVE INSTRUMENTS
The Company utilizes a variety of derivative instruments, including swaps,
caps, floors, forwards and exchange traded futures and options, in accordance
with Company policy and in order to achieve one of three Company approved
objectives: to hedge risk arising from interest rate, price or currency exchange
rate volatility; to manage liquidity; or, to control transactions costs. The
Company utilizes derivative instruments to manage market risk through four
principal risk management strategies: hedging anticipated transactions, hedging
liability instruments, hedging invested assets and hedging portfolios of assets
and/or liabilities. The Company does not trade in these instruments for the
express purpose of earning trading profits.
The Company maintains a derivatives counterparty exposure policy which
establishes market-based credit limits, favors long-term financial stability and
creditworthiness, and typically requires credit enhancement/credit risk reducing
agreements. Credit risk is measured as the amount owed to the Company based on
current market conditions and potential payment obligations between the Company
and its counterparties. Credit exposures are quantified weekly and netted, and
collateral is pledged to or held by the Company to the extent the current value
of derivatives exceed exposure policy thresholds.
The Company's derivative program is monitored by an internal compliance unit
and is reviewed by senior management and Hartford Life's Finance Committee.
Notional amounts, which represent the basis upon which pay or receive amounts
are calculated and are not reflective of credit risk, pertaining to derivative
financial instruments (excluding the Company's guaranteed separate account
derivative investments), totaled $6.5 billion and $9.9 billion ($4.6 billion and
$7.4 billion related to the Company's investments, $1.9 billion and $2.5 billion
on the Company's liabilities) at December 31, 1997 and 1996, respectively.
The table below provides a summary of derivative instruments held by the
Company at December 31, 1997 and 1996, segregated by major investment and
liability category:
<TABLE>
<CAPTION>
1997 -- AMOUNT HEDGED (NOTIONAL AMOUNTS)
----------------------------------------------------------------------------------
PURCHASED
CAPS, FOREIGN
TOTAL ISSUED FLOORS INTEREST CURRENCY TOTAL
CARRYING CAPS & AND FUTURES RATE SWAPS NOTIONAL
ASSETS HEDGED VALUE FLOORS OPTIONS (2) SWAPS (3) AMOUNT
- ----------------------------------- -------- -------- ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Asset backed securities (excluding
inverse floaters and
anticipatory)..................... $ 5,253 $ 500 $ 1,404 $ 28 $ 221 $-- $ 2,153
Inverse floaters (1)............... 75 47 80 -- 25 -- 152
Anticipatory (4)................... -- -- -- -- -- -- --
Other bonds and notes.............. 7,531 462 460 22 1,258 91 2,293
Short-term investments............. 1,317 -- -- -- -- -- --
-------- -------- ---------- --- ---------- --- ----------
Total fixed maturities......... 14,176 1,009 1,944 50 1,504 91 4,598
Equity securities, policy loans and
other investments................. 3,983 -- -- -- -- -- --
-------- -------- ---------- --- ---------- --- ----------
Total investments.............. $ 18,159 $ 1,009 $ 1,944 $ 50 $ 1,504 $91 $ 4,598
Long term debt................. -- -- -- -- -- -- --
Other policy claims............ -- 10 150 -- 1,747 -- 1,907
-------- -------- ---------- --- ---------- --- ----------
Total derivatives -- notional
value........................... $ -- $ 1,019 $ 2,094 $ 50 $ 3,251 $91 $ 6,505
-------- -------- ---------- --- ---------- --- ----------
Total derivatives -- fair value.... $ -- $ (8) $ 23 $ -- $ 19 $(6) $ 28
-------- -------- ---------- --- ---------- --- ----------
-------- -------- ---------- --- ---------- --- ----------
</TABLE>
<PAGE>
90
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 --AMOUNT HEDGED (NOTIONAL AMOUNTS)
--------------------------------------------------------------------------
FOREIGN
TOTAL ISSUED PURCHASED INTEREST CURRENCY TOTAL
CARRYING CAPS & CAPS, FLOORS RATE SWAPS NOTIONAL
ASSETS HEDGED VALUE FLOORS AND OPTIONS FUTURES (2) SWAPS (3) AMOUNT
- ----------------------------------- -------- ------- ------------ ----------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Asset backed securities (excluding
inverse floaters and
anticipatory)..................... $ 5,242 $ 500 $ 2,454 $ -- $ 941 $ -- $3,895
Inverse floaters (1)............... 352 98 856 -- 346 -- 1,300
Anticipatory (4)................... -- -- -- 132 -- -- 132
Other bonds and notes.............. 7,369 425 440 5 1,079 125 2,074
Short-term investments............. 661 -- -- -- -- -- --
-------- ------- ------------ ----- --------- -------- -------
Total fixed maturities......... 13,624 1,023 3,750 137 2,366 125 7,401
Equity securities, policy loans and
other investments................. 4,011 -- -- -- 19 -- 19
-------- ------- ------------ ----- --------- -------- -------
Total investments.............. $ 17,635 $ 1,023 $ 3,750 $ 137 $ 2,385 $ 125 $7,420
Long term debt................. -- -- -- -- -- -- --
Other policy claims............ -- 10 150 -- 2,351 -- 2,511
-------- ------- ------------ ----- --------- -------- -------
Total derivatives -- notional
value......................... $ -- $ 1,033 $ 3,900 $ 137 $ 4,736 $ 125 $9,931
-------- ------- ------------ ----- --------- -------- -------
Total derivatives -- fair
value......................... $ -- $ (10) $ 38 $ -- $ 2 $ (9 ) $ 21
-------- ------- ------------ ----- --------- -------- -------
-------- ------- ------------ ----- --------- -------- -------
</TABLE>
- ---------
(1) Inverse floaters are variations of collateralized mortgage obligations
("CMO's") for which the coupon rates move inversely with an index rate such as
the London interbank offered rate ("LIBOR"). The risk to principal is considered
negligible as the underlying collateral for the securities is guaranteed or
sponsored by government agencies. To address the volatility risk created by the
coupon variability, the Company uses a variety of derivative instruments,
primarily interest rate swaps, caps and floors.
(2) As of December 31, 1997 and 1996, over 44% and 39% , respectively, of
the notional futures contracts expire within one year.
(3) As of December 31, 1997 and 1996, over 16% and 42%, respectively, of
foreign currency swaps expire within one year; the balance matures over the
succeeding 9 years.
(4) Deferred gains and losses on anticipatory transactions are included in
the carrying value of fixed maturities in the Consolidated Balance Sheets. At
the time of the ultimate purchase, they are reflected as a basis adjustment to
the purchased asset. At December 31, 1997, the Company had $0 deferred gains and
losses. At December 31, 1996, the Company had $0.9 in net deferred gains for
futures, interest rate swaps and purchased options of which $2.0 was basis
adjusted in 1997.
The following is a reconciliation of notional amounts by derivative type and
strategy as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MATURITIES/ DECEMBER 31, 1997
NOTIONAL AMOUNT ADDITIONS TERMINATIONS (1) NOTIONAL AMOUNT
----------------- -------- ----------------- -----------------
<S> <C> <C> <C> <C>
BY DERIVATIVE TYPE
Caps......................................... $1,755 $ 14 $ 530 $1,239
Floors....................................... 3,168 28 1,332 1,864
Swaps/Forwards............................... 4,861 941 2,460 3,342
Futures...................................... 137 131 218 50
Options...................................... 10 -- -- 10
------- -------- ------- -------
Total.................................... $9,931 $1,114 $4,540 $6,505
------- -------- ------- -------
BY STRATEGY
Liability.................................... $2,511 $ 191 $ 795 $1,907
Anticipatory................................. 132 4 136 --
Asset........................................ 2,112 739 1,046 1,805
Portfolio.................................... 5,176 180 2,563 2,793
------- -------- ------- -------
Total.................................... $9,931 $1,114 $4,540 $6,505
------- -------- ------- -------
------- -------- ------- -------
</TABLE>
- ---------
(1) During 1997, the Company had no significant gains or losses on terminations
of hedge positions using derivative financial instruments.
<PAGE>
91
- --------------------------------------------------------------------------------
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 "Disclosure about Fair
Value of Financial Instruments" requires disclosure of fair value information of
financial instruments. For certain financial instruments where quoted market
prices are not available, other independent valuation techniques and assumptions
are used. Because considerable judgment is used, these estimates are not
necessarily indicative of amounts that could be realized in a current market
exchange. SFAS No. 107 excludes certain financial instruments from disclosure,
including insurance contracts.
For cash, short-term investments, accounts receivable, policy loans,
mortgage loans and other liabilities, carrying amounts on the Consolidated
Balance Sheets approximate fair value.
Fair value for fixed maturities and marketable equity securities are based
upon quoted market prices. Fair value for securities that are not publicly
traded are analytically determined. These amounts are disclosed in Note 4 of
Notes to Consolidated Financial Statements.
The fair value of derivative financial instruments, including swaps, caps,
floors, futures, options and forward commitments, is determined using a pricing
model which is validated through quarterly comparison to dealer quoted prices.
Amounts are disclosed in Note 4 of Notes to Consolidated Financial Statements.
Fair value for partnerships and trusts are based on external market
valuations from partnership and trust management.
Other policy claims and benefits payable fair value information is
determined by estimating future cash flows, discounted at the current market
rate.
The carrying amount and fair values of the Company's financial instruments
at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- ------- --------- -------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities..................................... $ 14,176 $14,176 $ 13,624 $13,624
Equity securities.................................... 180 180 119 119
Policy loans......................................... 3,756 3,756 3,836 3,836
Mortgage loans....................................... -- -- 2 2
Investments in partnerships, trusts and other........ 47 91 54 104
LIABILITIES
Other policy benefits................................ $ 11,769 $11,755 $ 11,707 $11,469
</TABLE>
6. SEPARATE ACCOUNTS
The Company maintained separate account assets and liabilities totaling
$69.1 billion and $49.7 billion at December 31, 1997 and 1996, respectively,
which are reported at fair value. Separate account assets are segregated from
other investments and net investment income and net realized capital gains and
losses accrue directly to the policyholder. Separate accounts reflect two
categories of risk assumption: non-guaranteed separate accounts totaling $58.6
billion and $39.4 billion at December 31, 1997 and 1996, respectively, wherein
the policyholder assumes the investment risk, and guaranteed separate accounts
totaling $10.5 and $10.3 billion at December 31, 1997 and 1996, respectively,
wherein the Company contractually guarantees either a minimum return or account
value to the policyholder. Included in the non-guaranteed category were policy
loans totaling $1.9 billion and $2.0 billion at December 31, 1997 and 1996,
respectively. Net investment income (including net realized capital gains and
losses) and interest credited to policyholders on separate account assets are
not reflected in the Consolidated Statements of Income.
Separate account management fees were $699, $538 and $387 in 1997, 1996 and
1995, respectively. The guaranteed separate accounts include fixed market value
adjusted individual annuity and modified guaranteed life insurance. The average
credited interest rate on these contracts was 6.52% at December 31, 1997. The
assets that support these liabilities were comprised of $10.2 billion in fixed
maturities as of December 31, 1997. The portfolios are segregated from other
investments and are managed to minimize liquidity and interest rate risk. In
order to minimize the risk of disintermediation associated with early
withdrawals, fixed MVA annuity and modified guaranteed life insurance contracts
carry a graded surrender charge as well as a market value adjustment. Additional
investment risk is hedged using a variety of derivatives which totaled $119 in
carrying value and $3.0 billion in notional amounts as of December 31, 1997.
<PAGE>
92
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7. INCOME TAX
Hartford Life 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 beneficially own, directly or
indirectly, at least 80% of the combined voting power and 80% of the value of
the outstanding capital stock of Hartford Life, the Company will be included for
Federal income tax purposes in the affiliated group of which The Hartford is the
common parent. To the extent allowed by law, it is the intention of The Hartford
and its subsidiaries to continue to file a single consolidated Federal income
tax return. The Company will continue to remit (receive from) The Hartford a
current income tax provision (benefit) computed in accordance with such tax
sharing agreement. The Company's effective tax rate was 36%, 35% and 32% in
1997, 1996 and 1995, respectively.
Income tax expense is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------
1997 1996 1995
---- ------ ------
<S> <C> <C> <C>
Current...................................... $119 $ 122 $ 211
Deferred..................................... 48 (102) (149)
---- ------ ------
Income tax expense......................... $167 $ 20 $ 62
---- ------ ------
---- ------ ------
</TABLE>
A reconciliation of the tax provision at the U.S. Federal statutory rate to
the provision for income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- ----- -----
<S> <C> <C> <C>
Tax provision at the U.S. Federal statutory
rate...................................... $ 164 $ 20 $ 67
Tax-exempt income.......................... -- -- (3)
Foreign tax credit......................... -- -- (4)
Other...................................... 3 -- 2
--------- --- ---
Total.................................... $ 167 $ 20 $ 62
--------- --- ---
--------- --- ---
</TABLE>
Deferred tax assets include the following at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Tax return deferred acquisition costs............ $ 639 $ 514
Financial statement deferred acquisition costs
and reserves.................................... (366) (242)
Employee benefits................................ 5 8
Net unrealized capital gains on securities....... (96) (16)
Investments and other............................ 166 210
--------- ---------
Total.......................................... $ 348 $ 474
--------- ---------
--------- ---------
</TABLE>
Income taxes paid were $9, $189 and $162 in 1997, 1996 and 1995,
respectively. The Company had a current tax payment of $27 due to The Hartford
at December 31, 1997 and a tax refund due from The Hartford of $72 at December
31, 1996.
Prior to the Tax Reform Act of 1984, the Life Insurance Company Income Tax
Act of 1959 permitted the deferral from taxation of a portion of statutory
income under certain circumstances. In these situations, the deferred income was
accumulated in a "Policyholders' Surplus Account" and will be taxable in the
future only under conditions which management considers to be remote; therefore,
no Federal income taxes have been provided on this deferred income. The balance
for tax return purposes of the Policyholders' Surplus Account as of December 31,
1997 was $37.
8. POSTRETIREMENT BENEFIT AND SAVINGS PLANS
(A) PENSION PLANS
The Company's employees are included in The Hartford's noncontributory
defined benefit pension plans. These plans provide pension benefits that are
based on years of service and the employee's compensation during the last ten
years of employment. The Company's funding policy is to contribute annually an
amount between the minimum funding requirements set forth in the Employee
Retirement Income Security Act of 1974, as amended, and the maximum amount that
can be deducted for U.S. Federal income tax purposes. Generally, pension costs
are funded through the purchase of the Company's group pension contracts. The
cost to the Company was approximately $5, $5 and $2 in 1997, 1996 and 1995,
respectively.
The Company also provides, through The Hartford, certain health care and
life insurance benefits for eligible retired employees. A substantial portion of
the Company's employees may become eligible for these benefits upon retirement.
The Company's contribution for health care benefits will depend on the retiree's
date of retirement and years of service. In addition, the plan has a defined
dollar cap which limits average Company contributions. The Company has prefunded
a portion of the health care and life insurance obligations through trust funds
where such prefunding can be accomplished on a tax effective basis.
Postretirement health care and life insurance benefits expense, allocated by The
Hartford, was immaterial to the results of operations for 1997, 1996 and 1995,
respectively.
The assumed rate in the per capita cost of health care (the health care
trend rate) was 8.5% for 1997, decreasing ratably to 6.0% in the year 2001.
Increasing the health care trend rates by one percent per year would have an
immaterial impact on the accumulated postretirement benefit obligation and the
annual expense. To the extent that the actual experience differs from the
inherent assumptions,
<PAGE>
93
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the effect will be amortized over the average future service of covered
employees.
(B) INVESTMENT AND SAVINGS PLAN
Substantially all employees of the Company 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 Hartford Life or
certain other investments, are matched, up to 3% of compensation, by the
Company. The cost to the Company for the above-mentioned plans was approximately
$2 in 1997.
9. STOCK COMPENSATION PLANS
During the second quarter of 1997, Hartford Life adopted the 1997 HLI
Incentive Stock Plan (the "Plan"). Under the Plan, options granted may be either
non-qualified options or incentive stock options qualifying under Section 422A
of the Internal Revenue Code. The aggregate number of shares of Class A Common
Stock which may be awarded in any one year shall be subject to an annual limit.
The maximum number of shares of Class A Common Stock which may be granted under
the Plan in each year shall be 1.5% of the total issued and outstanding shares
of Hartford Life Class A Common Stock and treasury stock as reported in the
Annual Report on Hartford Life's Form 10-K for the preceding year plus unused
portions of such limit from prior years. In addition, no more than 5,000,000
shares of Class A Common Stock shall be cumulatively available for awards of
incentive stock options under the Plan, and no more than 20% of the total number
of shares on a cumulative basis shall be available for restricted stock and
performance shares.
All options granted have an exercise price equal to the market price of
Hartford Life's stock on the date of grant and an option's maximum term is ten
years. Certain nonperformance based options become exercisable upon the
attainment of specified market price appreciation of Hartford Life's common
shares or at seven years after the date of grant, while the remaining
nonperformance based options become exercisable over a three year period
commencing with the date of grant.
Also included in the Plan are long term performance awards which become
payable upon the attainment of specific performance goals achieved over a three
year period.
During the second quarter of 1997, Hartford Life established the HLI
Employee Stock Purchase Plan ("ESPP"). Under this plan, eligible employees of
Hartford Life and the Company may purchase Class A Common Stock of Hartford Life
at a 15% discount from the lower of the market price at the beginning or end of
the quarterly offering period. Hartford Life may sell up to 2,700,000 shares of
stock to eligible employees. Hartford Life sold 54,316 shares under the ESPP in
1997.
10. REINSURANCE
The Company cedes insurance to other insurers, including its parent HLA, in
order to limit its maximum loss. Such transfer does not relieve the Company of
its primary liability. The Company also assumes insurance from other insurers.
Failure of reinsurers to honor their obligations could result in losses to the
Company. The Company evaluates the financial condition of its reinsurers and
monitors concentration of credit risk.
Net premiums and other considerations were comprised of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Gross premiums............................... $ 2,164 $ 2,138 $ 1,545
Assumed...................................... 159 190 591
Ceded........................................ (686) (623) (649)
--------- --------- ---------
Net premiums and other considerations...... $ 1,637 $ 1,705 $ 1,487
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company ceded approximately $76, $100 and $101 of group life premium in
1997, 1996 and 1995, respectively, representing $33.6 billion, $33.3 billion and
$32.3 billion of insurance in force, respectively. The Company ceded $339, $318
and $320 of accident and health premium to HLA in 1997, 1996 and 1995,
respectively. The Company assumed $89, $101 and $103 of premium in 1997, 1996
and 1995, respectively, representing $8.2 billion, $8.5 billion and $8.5 billion
of individual life insurance in force, respectively, from HLA.
Life reinsurance recoveries, which reduce death and other benefits,
approximated $158, $140 and $220 for the years ended December 31, 1997, 1996 and
1995, respectively.
As of December 31, 1997, the Company had reinsurance recoverables of $5.0
billion from Mutual Benefit Life Assurance Corporation ("Mutual Benefit"),
supported by assets in a security trust of $5.0 billion (including policy loans
and accrued interest of $4.5 billion). The risk of Mutual Benefit becoming
insolvent is mitigated by the reinsurance agreement's requirement that the
assets be kept in a security trust with the Company as sole beneficiary. The
Company has no other significant reinsurance-related concentrations of credit
risk.
11. RELATED PARTY TRANSACTIONS
Transactions of the Company with HA&I and its affiliates relate principally
to tax settlements, reinsurance, insurance coverage, rental and service fees,
payment of dividends and capital contributions. In addition, certain affiliated
insurance companies purchased group annuity contracts from the Company to fund
pension costs and claim annuities to settle casualty claims. Substantially all
general insurance expenses related to the Company, including rent and employee
benefit plan expenses, are initially paid by The Hartford. Direct expenses are
allocated to the Company using specific identification, and indirect expenses
are allocated using other applicable methods. Indirect expenses include those
for corporate areas which,
<PAGE>
94
- --------------------------------------------------------------------------------
depending on type, are allocated based on either a percentage of direct expenses
or on utilization. Indirect expenses allocated to the Company by The Hartford
were $34, $40, and $45 in 1997, 1996 and 1995, respectively. Management believes
that the methods used are reasonable.
The rent paid to Hartford Fire for space occupied by the Company was $7 in
1997, and $3 in 1996 and 1995. The Company expects to pay annual rent of $7 in
1998 and 1999, respectively, $12 in 2000 and 2001, respectively, $13 in 2002 and
$87 thereafter, over the remaining term of the sublease, which expires on
December 31, 2009. Rental expense is recognized over a level basis over the term
of the sublease and amounted to approximately $9 in 1997 and $8 in 1996 and
1995.
12. STATUTORY RESULTS
The domestic insurance subsidiaries of Hartford Life prepare their statutory
financial statements in accordance with accounting practices prescribed by the
State of Connecticut Insurance Department. Prescribed statutory accounting
practices include publications of the National Association of Insurance
Commissioners ("NAIC"), as well as state laws, regulations, and general
administrative rules.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Statutory net income......................... $ 214 $ 144 $ 112
------ ------ ------
Statutory surplus............................ $1,441 $1,207 $1,125
------ ------ ------
------ ------ ------
</TABLE>
A significant percentage of the consolidated statutory surplus is
permanently reinvested or is subject to various state regulatory restrictions
which limit the payment of dividends without prior approval. The total amount of
statutory dividends which may be paid by the insurance subsidiaries of the
Company in 1998 is estimated to be $144.
13. 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 monetary and punitive damages have
been asserted. Although there can be no assurances, management, at the present
time, does not anticipate that the ultimate liability arising from such pending
or threatened litigation will have a material effect on the financial condition
or operating results 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. A large part of the
assessments paid by the Company's insurance subsidiaries pursuant to these laws
may be used as credits for a portion of the Company's insurance subsidiaries'
premium taxes. The Company paid guaranty fund assessments of approximately $15,
$11 and $10 in 1997, 1996 and 1995, respectively, of which $4, $5, and $6 were
estimated to be creditable against premium taxes.
14. BUSINESS SEGMENT INFORMATION
The Company, along with its parent, sells financial products such as fixed
and variable annuities, retirement plan services, and life and disability
insurance on both an individual and a group basis. The Company divides its core
businesses into three segments: Annuity, Individual Life Insurance, and Employee
Benefits. The Company also maintains a Guaranteed Investment Contracts segment,
which is primarily comprised of guaranteed rate contract business written prior
to 1995 and a Corporate Operation. The Annuity segment offers individual
variable annuities and fixed market value adjusted annuities, deferred
compensation and retirement plan services, mutual funds, investment management
services and other financial products. The Individual Life Insurance segment
sells a variety of individual life insurance products, including variable life,
universal life, interest-sensitive whole life, and term life policies. The
Employee Benefits segment sells group insurance products, including group life,
group short and long-term disability and corporate owned life insurance, and
engages in certain international operations. The Guaranteed Investment Contracts
segment sells a limited amount of guaranteed investment contracts and contains
Closed Book GRC. Through its Corporate Operation, the Company reports items that
are not directly allocable to any of its business segments. Included in the
Corporate Operation are unallocated income and expense and certain other items
not directly allocable to any segment. Net realized capital gains and losses are
recognized in the period of realization, but are allocated to the segments
utilizing durations of the segment portfolios.
<PAGE>
95
- --------------------------------------------------------------------------------
The following table outlines revenues, operating income and assets by
business segment:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Annuity.............................................. $ 1,269 $ 968 $ 759
Individual Life Insurance............................ 487 440 383
Employee Benefits.................................... 972 1,366 1,273
Guaranteed Investment Contracts...................... 241 34 337
Corporate Operation.................................. 40 81 52
-------- -------- --------
Total revenues..................................... $ 3,009 $ 2,889 $ 2,804
-------- -------- --------
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)
Annuity.............................................. $ 317 $ 226 $ 171
Individual Life Insurance............................ 85 68 56
Employee Benefits.................................... 53 44 37
Guaranteed Investment Contracts...................... -- (346) (103)
Corporate Operation.................................. 14 66 30
-------- -------- --------
Total income before income tax expense............. $ 469 $ 58 $ 191
-------- -------- --------
-------- -------- --------
ASSETS
Annuity $ 69,152 $ 52,877 $ 39,732
Individual Life Insurance............................ 4,918 3,753 3,173
Employee Benefits.................................... 18,196 14,708 13,494
Guaranteed Investment Contracts...................... 3,347 4,533 6,069
Corporate Operation.................................. 2,343 1,891 1,729
-------- -------- --------
Total assets....................................... $ 97,956 $ 77,762 $ 64,197
-------- -------- --------
-------- -------- --------
</TABLE>
<PAGE>
96
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SCHEDULE I -- SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN AFFILIATES
AS OF DECEMBER 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
AMOUNT AT
WHICH
FAIR SHOWN ON
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- --------------------------------------------- ------- ------- --------------
<S> <C> <C> <C>
Fixed Maturities
Bonds and Notes
U. S. gov't and gov't agencies and
authorities (guaranteed and sponsored) $ 217 $ 219 $ 219
U. S. gov't and gov't agencies and
authorities (guaranteed and sponsored) --
asset-backed.............................. 1,175 1,204 1,204
States, municipalities and political
subdivisions.............................. 211 217 217
International governments.................. 376 393 393
Public utilities........................... 871 894 894
All other corporate including
international............................. 5,033 5,208 5,208
All other corporate -- asset-backed........ 4,091 4,124 4,124
Short-term investments..................... 1,318 1,318 1,318
Certificates of deposit...................... 593 599 599
------- ------- -------
Total fixed maturities....................... 13,885 14,176 14,176
------- ------- -------
Equity Securities
Common Stocks
Public utilities........................... -- -- --
Banks, trusts and insurance companies...... -- -- --
Industrial and miscellaneous............... 166 180 180
Nonredeemable preferred stocks............. -- -- --
------- ------- -------
Total equity securities...................... 166 180 180
------- ------- -------
Total fixed maturities and equity
securities.................................. 14,051 14,356 14,356
------- ------- -------
Real Estate.................................. -- -- --
Other Investments
Mortgage loans on real estate.............. -- -- --
Policy loans............................... 3,756 3,756 3,756
Investments in partnerships, trusts and
other..................................... 47 91 47
------- ------- -------
Total other investments...................... 3,803 3,847 3,803
------- ------- -------
Total investments............................ $17,854 $18,203 $18,159
------- ------- -------
------- ------- -------
</TABLE>
<PAGE>
97
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SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
FUTURE
POLICY
BENEFITS,
UNPAID OTHER
DEFERRED CLAIMS POLICY
POLICY AND CLAIM CLAIMS AND PREMIUMS NET
ACQUISITION ADJUSTMENT BENEFITS AND OTHER INVESTMENT
SEGMENT COSTS EXPENSES PAYABLE CONSIDERATIONS INCOME
- --------------------------------------------- ----------- --------- ---------- --------------- ---------
<S> <C> <C> <C> <C> <C>
1997
Annuity...................................... $2,478 $2,070 $ 6,838 $ 769 $ 500
Individual Life Insurance.................... 837 392 2,182 323 164
Employee Benefits............................ -- 780 9,232 541 431
Guaranteed Investment Contracts.............. -- -- 2,782 2 239
Corporate Operation.......................... -- 28 -- 2 34
----------- --------- ---------- ------ ---------
Consolidated operations...................... $3,315 $3,270 $21,034 $1,637 $1,368
----------- --------- ---------- ------ ---------
----------- --------- ---------- ------ ---------
1996
Annuity...................................... $2,030 $1,526 $ 6,016 $ 535 $ 433
Individual Life Insurance.................... 730 346 2,160 287 153
Employee Benefits............................ -- 574 9,834 881 485
Guaranteed Investment Contracts.............. -- -- 4,124 2 251
Corporate Operation.......................... -- 28 -- -- 75
----------- --------- ---------- ------ ---------
Consolidated operations...................... $2,760 $2,474 $22,134 $1,705 $1,397
----------- --------- ---------- ------ ---------
----------- --------- ---------- ------ ---------
1995
Annuity...................................... $1,561 $1,314 $ 5,661 $ 319 $ 400
Individual Life Insurance.................... 615 706 1,932 246 137
Employee Benefits............................ 12 325 9,285 922 351
Guaranteed Investment Contracts.............. -- 28 5,720 -- 377
Corporate Operation.......................... -- -- -- -- 63
----------- --------- ---------- ------ ---------
Consolidated operations...................... $2,188 $2,373 $22,598 $1,487 $1,328
----------- --------- ---------- ------ ---------
----------- --------- ---------- ------ ---------
<CAPTION>
NET BENEFITS, AMORTIZATION
REALIZED CLAIMS AND OF DEFERRED
CAPITAL CLAIM POLICY
GAINS ADJUSTMENT ACQUISITION DIVIDENDS TO OTHER
SEGMENT (LOSSES) EXPENSES COSTS POLICYHOLDERS EXPENSES
- --------------------------------------------- ----------- ----------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
1997
Annuity...................................... $ -- $ 445 $250 $ -- $ 257
Individual Life Insurance.................... -- 242 83 -- 77
Employee Benefits............................ -- 425 2 240 252
Guaranteed Investment Contracts.............. -- 232 -- -- 9
Corporate Operation.......................... 4 35 -- -- (9)
----------- ----------- ----- ----- -----
Consolidated operations...................... $ 4 $1,379 $335 $240 $ 586
----------- ----------- ----- ----- -----
----------- ----------- ----- ----- -----
1996
Annuity...................................... $ -- $ 412 $174 $ -- $ 156
Individual Life Insurance.................... -- 245 59 -- 68
Employee Benefits............................ -- 546 -- 635 141
Guaranteed Investment Contracts.............. (219) 332 1 -- 47
Corporate Operation.......................... 6 -- -- -- 15
----------- ----------- ----- ----- -----
Consolidated operations...................... $(213) $1,535 $234 $635 $ 427
----------- ----------- ----- ----- -----
----------- ----------- ----- ----- -----
1995
Annuity...................................... $ -- $ 317 $117 $ -- $ 114
Individual Life Insurance.................... -- 203 70 -- 54
Employee Benefits............................ -- 424 -- 675 137
Guaranteed Investment Contracts.............. -- 453 12 -- 15
Corporate Operation.......................... (11) 25 -- -- (3)
----------- ----------- ----- ----- -----
Consolidated operations...................... $ (11) $1,422 $199 $675 $ 317
----------- ----------- ----- ----- -----
----------- ----------- ----- ----- -----
</TABLE>
<PAGE>
98
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SCHEDULE IV -- REINSURANCE
(IN MILLIONS)
<TABLE>
<CAPTION>
CEDED TO ASSUMED FROM PERCENTAGE
GROSS OTHER OTHER NET OF AMOUNT
AMOUNT COMPANIES COMPANIES AMOUNT ASSUMED TO NET
-------- -------------- -------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1997
Life insurance in force........................... $245,487 $ 178,771 $ 33,156 $ 99,872 33.2%
Insurance revenues
Life insurance and annuities.................... 1,818 340 157 1,635 9.6%
Accident and health insurance................... 346 346 2 2 100.0%
-------- -------------- ------- --------
Total insurance revenues.......................... $ 2,164 $ 686 $ 159 $ 1,637 9.7%
-------- -------------- ------- --------
-------- -------------- ------- --------
For the year ended December 31, 1996
Life insurance in force......................... $177,094 $ 106,146 $ 31,957 $102,905 31.1%
Insurance revenues
Life insurance and annuities.................... 1,801 298 169 1,672 10.1%
Accident and health insurance................... 337 325 21 33 63.6%
-------- -------------- ------- --------
Total insurance revenues.......................... $ 2,138 $ 623 $ 190 $ 1,705 11.1%
-------- -------------- ------- --------
-------- -------------- ------- --------
For the year ended December 31, 1995
Life insurance in force......................... $182,716 $ 112,774 $ 26,996 $ 96,938 27.8%
Insurance revenues
Life insurance and annuities.................... 1,232 325 574 1,481 38.8%
Accident and health insurance................... 313 324 17 6 283.3%
-------- -------------- ------- --------
Total insurance revenues.......................... $ 1,545 $ 649 $ 591 $ 1,487 39.7%
-------- -------------- ------- --------
-------- -------------- ------- --------
</TABLE>
<PAGE>
The following prospectuses contain information related to all of the funds
offered by the Hartford Funds, Putnam Variable Trust, and Fidelity's Variable
Insurance Products Fund and Variable Insurance Products Fund II. Not all of the
funds are available to Stag Last Survivor Policy Owners. Please review the Stag
Last Survivor product Prospectus for details regarding available funds. See
"Separate Account VL I -- Funds."
