497 1 a06-2553_4497.txt DEFINITIVE MATERIALS STAG VARIABLE LIFE LAST SURVIVOR II SEPARATE ACCOUNT VL II HARTFORD LIFE INSURANCE COMPANY P.O. BOX 2999 HARTFORD, CONNECTICUT 06104-2999 TELEPHONE: (800) 231-5453 PROSPECTUS DATED May 1, 2006 [THE HARTFORD LOGO] ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ This Prospectus describes information you should know before you purchase Series II of the Stag Variable Life Last Survivor II variable life insurance policy (policy). Please read it carefully before you purchase your variable life insurance policy. Although this prospectus is primarily designed for potential purchasers of the policy, you may have previously purchased a policy and be receiving this prospectus as a current policy owner. If you are a current policy owner, you should note that the options, features and charges of the policy may have varied over time. For more information about the particular options, features and charges applicable to you, please contact your financial professional and/or refer to your policy. Some policy features may not be available in some states. Stag Variable Life Last Survivor II is a contract between you and Hartford Life Insurance Company. You agree to make sufficient premium payments to us, and we agree to pay a death benefit to your beneficiary. The policy is a last survivor flexible premium variable life insurance policy. It is: X Last survivor, because we pay a death benefit after the death of the last surviving insured. X Flexible premium, because you may add payments to your policy after the first payment. X Variable, because the value of your life insurance policy will fluctuate with the performance of the investment options you select and the Fixed Account. The following Sub-Accounts are available under the policy: AIM VARIABLE INSURANCE FUNDS AIM V.I. Capital Appreciation Fund (Series I) AIM V.I. Capital Development Fund (Series I) AIM V.I. Mid Cap Core Equity Fund (Series I) AIM V.I. Small Cap Equity Fund (Series I) ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. AllianceBernstein VP International Value Portfolio (Class B) AllianceBernstein VP Small/Mid Cap Value Portfolio (Class B) AMERICAN FUNDS INSURANCE SERIES American Funds Asset Allocation Fund (Class 2) American Funds Blue Chip Income and Growth Fund (Class 2) American Funds Bond Fund (Class 2) American Funds Global Growth Fund (Class 2) American Funds Global Small Capitalization Fund (Class 2) American Funds Growth Fund (Class 2) American Funds Growth-Income Fund (Class 2) American Funds International Fund (Class 2) American Funds New World Fund (Class 2) FIDELITY VARIABLE INSURANCE PRODUCTS Fidelity VIP Contrafund Portfolio (Service Class II) Fidelity VIP Equity-Income Portfolio (Service Class II) Fidelity VIP Mid Cap Portfolio (Service Class II) FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST Franklin Income Securities Fund (Class 2) Franklin Small Cap Value Securities Fund (Class 2) Mutual Discovery Securities Fund (Class 2) Mutual Shares Securities Fund (Class 2) Templeton Growth Securities Fund (Class 2) HARTFORD SERIES FUND, INC. AND HARTFORD SERIES HLS FUND II, INC. (SERIES II DENOTED BY ASTERISK) Hartford Advisers HLS Fund (Class IA) Hartford Disciplined Equity HLS Fund (Class IA) Hartford Dividend and Growth HLS Fund (Class IA) Hartford Growth Opportunities HLS Fund*(Class IA) Hartford Index HLS Fund (Class IA) Hartford International Opportunities HLS Fund (Class IA) Hartford International Small Company HLS Fund (Class IA) Hartford Money Market HLS Fund (Class IA) Hartford Mortgage Securities HLS Fund (Class IA) Hartford Stock HLS Fund (Class IA) Hartford Total Return Bond HLS Fund (Class IA) Hartford Value Opportunities HLS Fund* (Class IA) LORD ABBETT SERIES FUND, INC. Lord Abbett America's Value Portfolio (Class VC) Lord Abbett Growth and Income Portfolio (Class VC) MFS VARIABLE INSURANCE TRUST MFS Investors Trust Series (Initial Class) MFS New Discovery Series (Initial Class) MFS Total Return Series (Initial Class) OPPENHEIMER VARIABLE ACCOUNT FUNDS Oppenheimer Capital Appreciation Fund/VA (Service Shares) Oppenheimer Global Securities Fund/VA (Service) Oppenheimer Main Street Fund/VA (Service) PUTNAM VARIABLE TRUST Putnam VT Capital Opportunities Fund (Class IB) Putnam VT Equity Income Fund (Class IB) Putnam VT Growth and Income Fund (Class IB) Putnam VT High Yield Fund (Class IB) Putnam VT Income Fund (Class IB) Putnam VT International Equity Fund (Class IB) Putnam VT New Opportunities Fund (Class IB) Putnam VT Small Cap Value Fund (Class IB) Putnam VT Voyager Fund (Class IB) VAN KAMPEN LIFE INVESTMENT TRUST Van Kampen LIT Comstock Portfolio (Class II) Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities, or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The policy and its features may not be available for sale in all states. This Prospectus can also be obtained from the Securities and Exchange Commission's website (http://www.sec.gov). This life insurance policy IS NOT: - a bank deposit or obligation; - federally insured; or - endorsed by any bank or governmental agency. HARTFORD LIFE INSURANCE COMPANY 3 ---------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ----------------------------------------------------------------------------------------------------------------------------------- SUMMARY OF BENEFITS AND RISKS 4 FEE TABLES 6 ABOUT US 13 Hartford Life Insurance Company 13 Separate Account VL II 13 The Funds 13 The Fixed Account 20 CHARGES AND DEDUCTIONS 20 YOUR POLICY 22 PREMIUMS 28 DEATH BENEFITS AND POLICY VALUES 30 MAKING WITHDRAWALS FROM YOUR POLICY 31 LOANS 31 LAPSE AND REINSTATEMENT 32 FEDERAL TAX CONSIDERATIONS 33 LEGAL PROCEEDINGS 37 RESTRICTIONS ON FINANCIAL TRANSACTIONS 38 ILLUSTRATIONS OF POLICY BENEFITS 38 FINANCIAL STATEMENTS 38 GLOSSARY OF SPECIAL TERMS 39 APPENDIX A -- ILLUSTRATIONS OF DEATH BENEFIT, ACCOUNT VALUES AND CASH SURRENDER VALUES 40 WHERE YOU CAN FIND MORE INFORMATION 43
4 HARTFORD LIFE INSURANCE COMPANY ---------------------------------------------------------------------------- SUMMARY OF BENEFITS AND RISKS This section contains a summary of the benefits available under the policy and the principal risks of purchasing the policy. It is only a summary and you should read the entire prospectus. BENEFITS OF YOUR POLICY FLEXIBILITY -- The policy is designed to be flexible to meet your specific life insurance needs. You have the flexibility to choose death benefit options, investment options, and premiums you pay. DEATH BENEFIT -- While the policy is in force and when the last surviving insured dies, we pay a death benefit to your beneficiary. You select one of three death benefit options: - LEVEL OPTION: The death benefit equals the current Face Amount. - RETURN OF ACCOUNT VALUE OPTION: The death benefit is the current Face Amount plus the Account Value of your policy; - RETURN OF PREMIUM OPTION: The death benefit is the current Face Amount plus the total of your premium payments, however, it will be no more than the current Face Amount plus $5 million. The death benefit is reduced by any money you owe us, such as outstanding loans, loan interest, or unpaid charges. You may change your death benefit option under certain circumstances. You may increase or decrease the Face Amount on your policy under certain circumstances. DEATH BENEFIT GUARANTEE -- Generally, your death benefit coverage will last as long as there is enough value in your policy to pay for the monthly charges we deduct. Since this is a variable life policy, values of your policy will fluctuate based on the performance of the underlying investment options you have chosen. Without the Death Benefit Guarantee, your policy will lapse if the value of your policy is insufficient to pay your monthly charges. However, when the Death Benefit Guarantee feature is in effect, the policy will not lapse, regardless of the investment performance of the underlying funds. When you apply for the policy you choose what percentage of the total face amount will be covered by the Death Benefit Guarantee. The Death Benefit Guarantee period is the maximum number of policy years that the Death Benefit Guarantee is available on the policy. The Death Benefit Guarantee period is individualized based on the issue ages, sexes and risk classes of the insureds and is specified in the policy. The Death Benefit Guarantee Premium is not a charge but a funding level that is required to keep the Death Benefit Guarantee available. In order to maintain the Death Benefit Guarantee feature, the cumulative premiums paid into the policy, less withdrawals and indebtedness, must exceed the Cumulative Death Benefit Guarantee Premium. INVESTMENT OPTIONS -- You may invest in up to 20 different investment choices within your policy, from the available investment options and a Fixed Account. You may transfer money among your investment choices, subject to restrictions. PREMIUM PAYMENTS -- You have the flexibility to choose how you pay premiums. You choose a planned premium when you purchase the policy. You may change your planned premium, or pay additional premium any time, subject to certain limitations. RIGHT TO EXAMINE YOUR POLICY -- You have a limited right to return the policy for cancellation after purchase. See "Your Policy and Contract Rights -- Right to Examine a Policy.". WITHDRAWALS -- You may take money out of your policy once a month, subject to certain minimums. (See "Risks of Your Policy," below). LOANS -- You may take a loan on the policy. The policy secures the loan. SETTLEMENT OPTIONS -- You or your beneficiary may choose to receive the proceeds of the policy over a period of time by using one of several settlement options. OPTIONAL COVERAGE -- You may add other coverages to your policy. See "Your Policy -- Other Benefits." SURRENDER -- You may surrender your policy at any time prior to the maturity date for its Cash Surrender Value. (See "Risks of your Policy," below). Surrenders may also be subject to a Surrender Charge. TAX BENEFITS -- In most cases, you are not taxed on earnings until you take earnings out of the policy (commonly known as "tax-deferral"). The death benefit may be subject to Federal and state estate taxes but your beneficiary will generally not be subject to income tax on the death benefit. RIDERS -- You may select from a variety of riders. RISKS OF YOUR POLICY This is a brief description of the principal risks of the policy. INVESTMENT PERFORMANCE -- The value of your policy will fluctuate with the performance of the investment options you choose. Your investment options may decline in value, or they may not perform to your expectations. Your policy values in the Sub-Accounts are not guaranteed. Charges and fees may have a significant impact on policy Account Value and the investment performance of the Sub-Accounts (particularly with policies with lower Account Value). A comprehensive discussion of the risks of the underlying Funds held by each Sub- Account may be found in the underlying Fund's prospectus. You should read the prospectus of each Fund before investing. UNSUITABLE FOR SHORT-TERM SAVINGS -- The policy is designed for long term financial planning. You should not purchase the policy if you will need the premium payment in a short time period. RISK OF LAPSE -- Your policy could terminate if the value of the policy becomes too low to support the policy's monthly HARTFORD LIFE INSURANCE COMPANY 5 ---------------------------------------------------------------------------- charges. If this occurs, we will notify you in writing. You will then have a 61-day grace period to pay additional amounts to prevent the policy from terminating. WITHDRAWAL LIMITATIONS -- You are limited to one withdrawal per month. Withdrawals will reduce your Policy's death benefit, may increase the risk of policy lapse, may result in a partial surrender charge and may be subject to a withdrawal charge. TRANSFER LIMITATIONS -- We reserve the right to limit the size of transfers and remaining balances, and to limit the number and frequency of transfers among your investment options and the Fixed Account. LOANS -- Taking a loan from your policy may increase the risk that your policy will lapse, will have a permanent effect on the policy's Account Value, and will reduce the death proceeds. ADVERSE TAX CONSEQUENCES -- You may be subject to income tax if you receive any loans, withdrawals or other amounts from the policy, and you may be subject to a 10% penalty tax. Under certain circumstances (usually if you prefund future benefits in seven years or less), your policy may become a modified endowment policy under federal tax law. If these circumstances were to occur, loans and other pre-death distributions are includable in gross income on an income first basis, and may be subject to a 10% penalty (unless you have attained age 59 1/2). There could be significant adverse tax consequences if the policy should lapse or be surrendered when there are loans outstanding. You should consult with a tax adviser before taking steps that may affect whether your policy becomes a modified endowment policy. See "Federal Tax Considerations." TAX LAW CHANGES -- Tax laws, regulations, and interpretations are subject to change. Such changes may impact the expected benefits of purchasing this policy. CREDIT RISK -- Any Death Benefit guarantee provided by the policy or any rider and the Fixed Account obligations depend on the Company's financial ability to fulfill its obligations. You should review the Company's financial statements which are available upon request and are attached to the Statement of Additional Information (SAI). INCREASE IN CURRENT FEES AND EXPENSES -- Certain policy fees and expenses may be currently charged at less than their maximum amounts. We may increase these current fees and expenses up to the guaranteed maximum levels. 6 HARTFORD LIFE INSURANCE COMPANY ---------------------------------------------------------------------------- FEE TABLES The following tables describe the fees and expenses that you will pay when buying, owning, and surrendering the policy. The first table describes the maximum fees and expenses that you will pay at the time that you buy the policy, surrender the policy, take a withdrawal or transfer cash value between investment options. Your specific fees and charges are described on the specification page of your policy. TRANSACTION FEES
CHARGE WHEN CHARGE IS DEDUCTED AMOUNT DEDUCTED ----------------------------------------------------------------------------------------------------------------------------------- Front-end Sales Load When you pay premium. 8% of each premium payment (1) Tax Charge on When you pay premium. A percent of premium which varies by your state and Premium Payments municipality of residence. The range of tax charge is generally between 0% and 4%. This rate will change if your state or municipality changes its premium tax charges. It may change if you change your state or municipality of residence. Surrender Charge (2) When you surrender your policy during the first Minimum Charge nine policy years. $3.115 per $1,000 of the initial Face Amount in the When you make certain Face Amount decreases during first year for two 20-year-old female preferred the first nine policy years. non-nicotine. When you take certain withdrawals during the first Maximum Charge nine policy years. $111.3595 per $1,000 of the initial Face Amount in the first year for two 85-year-old male standard nicotine. Charge for a representative insured $15.7864 per $1,000 of the initial Face Amount in the first year for a 59-year-old male standard non-nicotine and a 65-year-old female standard non-nicotine. Face Amount Increase Each month for 12 months beginning on the effective $1 per $1,000 of unscheduled increase in the Face Fee (3) date of any unscheduled increase in Face Amount you Amount (deducted on a monthly basis at a rate of request. 1/12 of $1 per month per $1,000 of unscheduled increase in the Face Amount). Transfer Fees When you make a transfer after the first transfer $25 per transfer.* in any month. Withdrawal Charge When you take a withdrawal. $10 per withdrawal.
(1) The maximum Front-end Sales Load is 8.0% of each premium payment in Policy Years 1 through 3 and 4.0% of each premium payment in Policy Years 4 and later. (2) This charge varies based on individual characteristics. The charge shown in the table may not be representative of the charge that you will pay. You may obtain more information about the charge that would apply to you by contacting your financial adviser for a personalized illustration. (3) This fee will not be less than $500 or more than $3,000. * Not currently being deducted. HARTFORD LIFE INSURANCE COMPANY 7 ---------------------------------------------------------------------------- The next table describes the fees and expenses that you will pay periodically during the time that you own the policy, not including Fund fees and expenses. PERIODIC CHARGES OTHER THAN FUND OPERATING EXPENSES
CHARGE WHEN CHARGE IS DEDUCTED AMOUNT DEDUCTED ----------------------------------------------------------------------------------------------------------------------------------- Cost of Insurance Monthly. Minimum Charge Charges (1) $0.0001 per $1,000 of the net amount at risk for two 20-year-old female preferred non-nicotine in the first year. Maximum Charge $2.6833 per $1,000 of the net amount at risk for two 85-year-old male nicotine in the first year. Charge for a representative insured $0.0068 per $1,000 of the net amount at risk for a 59-year-old male standard non-nicotine and a 56-year-old female standard non-nicotine in the first year. Mortality and Monthly. Minimum Charge Expense Risk Charge (a) 0.75% per year of the Sub-Account accumulated (which is the sum of value in the first year (deducted on a monthly basis both (a) and (b)) (1) at a rate of 1/12 of 0.75%); plus (b) $2.172 per $1,000 of initial Face Amount (deducted on a monthly basis at a rate of $0.181 per month) during the first year for two 20-year old female preferred non-nicotine. Maximum Charge (a) 0.75% per year of the Sub-Account accumulated value in the first year (deducted on a monthly basis at a rate of 1/12 of 0.75%); plus (b) $13.26 per $1,000 of initial Face Amount (deducted on a monthly basis at a rate of $1.105 per month) during the first year for two 85-year old male nicotine. Charge for a representative insured (a) 0.75% per year of the Sub-Account accumulated value in the first year (deducted on a monthly basis at a rate of 1/12 of 0.75%); plus. (b) $3.552 per $1,000 of initial Face Amount (deducted on a monthly basis at a rate of $0.296 per month) during the first year for a 59-year-old male standard non-nicotine and a 56-year old female standard non-nicotine. Administrative Charge Monthly. $24.16 per month in Year 1 $7.50 per month in Years 2+ Loan Interest Rate Monthly if you have taken a loan on your policy 5.5% (2)
RIDER CHARGES WHEN CHARGE IS DEDUCTED AMOUNT DEDUCTED ----------------------------------------------------------------------------------------------------------------------------------- Estate Protection Monthly. Minimum Charge Rider (2) $0.0209 per $1000 of Face Amount for two 20-year-old female preferred non-nicotine in the first year. Maximum Charge $1.47101 per $1000 of Face Amount for two 85-year-old male nicotine in the first year. Charge for a representative insured $0.0277 per $1000 of Face Amount for a 59-year-old male standard non-nicotine and a 56-year-old female standard non-nicotine in the first year. Single Life Yearly Monthly. Minimum Charge Renewable Term Life $0.084167 per $1,000 of Face Amount for a Insurance Rider (1) 20-year-old female preferred non-nicotine in the first year. Maximum Charge $14.953333 per $1,000 of Face Amount for an 85-year-old male nicotine in the first year. Charge for a representative insured $1.004167 per $1,000 of Face Amount for a 59-year-old male standard non-nicotine in the first year.
(1) This charge varies based on individual characteristics. The charge shown in the table may not be representative of the charge that you will pay. You may obtain more information about the charge that would apply to you by contacting your financial adviser for a personalized illustration. (2) During policy years 1 - 10 the Loan Interest Rate is 5.5% for all Indebtedness. During policy years 11 and later the Loan Interest Rate is 3.5% for Preferred Indebtedness and 4.5% for Non-Preferred Indebtedness. Any Account Value in the Loan Account will be credited with interest at an annual rate of 3.5%. 8 HARTFORD LIFE INSURANCE COMPANY ---------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES Each Subaccount purchases shares of the corresponding underlying Fund at net asset value. The net asset value of an underlying Fund reflects the investment advisory fees and other expenses of the underlying Fund that are deducted from the assets in that underlying fund. These underlying Fund expenses may vary from year to year and are more fully described in each underlying Fund's prospectus. The first table shows the minimum and maximum total operating expenses charged by the underlying Funds expressed as a percentage of average daily net assets, for the year ended December 31, 2005.
Minimum Maximum ----------------------------------------------------------------------------------------------------------------------------------- Total Annual Fund Operating Expenses [expenses that are deducted from underlying Fund assets, including management fees, distribution, and/or service (12b-1) fees and other expenses.] 0.42% 1.57%
INVESTMENT MANAGEMENT FEES AND OTHER EXPENSES The next table shows the Total Annual Fund Operating Expenses for each underlying Fund. The fees and expenses are expressed as a percentage of average net assets for the year ended December 31, 2005. Actual fees and expenses for the underlying Fund vary daily. As a result, the fees and expenses for any given day may be greater or less than the Total Annual Fund Operating Expenses listed below. More detail concerning each underlying Fund's fees and expenses is contained in the prospectus for each Fund. The information presented, including any expense reimbursement arrangements, is based on publicly available information and is qualified in its entirety by the then current prospectus for each underlying Fund. Not all of the funds listed below are available to new investments or transfers of contract value. Please refer to the fund objective table for more details. ANNUAL FUND OPERATING EXPENSES AS OF THE FUND'S YEAR END (As a percentage of net assets)
12b-1 TOTAL NET DISTRIBUTION TOTAL ANNUAL CONTRACTUAL ANNUAL AND/OR FUND FEE WAIVERS OR FUND MANAGEMENT SERVICING OTHER OPERATING EXPENSE OPERATING FUND FEES FEES EXPENSES EXPENSES REIMBURSEMENTS EXPENSES ----------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund (Series I) 0.61% N/A 0.29% 0.90% N/A 0.90%(1)(2) AIM V.I. Capital Development Fund (Series I) 0.75% N/A 0.34% 1.09% N/A 1.09%(1)(3) AIM V.I. Core Equity Fund (Series I) 0.60% N/A 0.27% 0.87% N/A 0.87%(1)(2)(4) AIM V.I. Mid Cap Core Equity Fund (Series I) 0.72% N/A 0.31% 1.03% N/A 1.03%(1) AIM V.I. Small Cap Equity Fund (Series I) 0.85% N/A 0.72% 1.57% 0.42% 1.15%(3)(5) AllianceBernstein VPS International Value Portfolio -- Class B 0.75% 0.25% 0.12% 1.12% -0.01% 1.11%(18) AllianceBernstein VPS Small/Mid Cap Value Portfolio -- Class B 0.75% 0.25% 0.12% 1.12% -- 1.12% American Funds Asset Allocation Fund -- Class 2 0.34%(6) 0.25% 0.01% 0.60% 0.03% 0.57% American Funds Blue Chip Income and Growth Fund -- Class 2 0.44%(6) 0.25% 0.01% 0.70% 0.04% 0.66% American Funds Bond Fund -- Class 2 0.43%(6) 0.25% 0.01% 0.69% 0.04% 0.65%
HARTFORD LIFE INSURANCE COMPANY 9 ----------------------------------------------------------------------------
12b-1 TOTAL NET DISTRIBUTION TOTAL ANNUAL CONTRACTUAL ANNUAL AND/OR FUND FEE WAIVERS OR FUND MANAGEMENT SERVICING OTHER OPERATING EXPENSE OPERATING FUND FEES FEES EXPENSES EXPENSES REIMBURSEMENTS EXPENSES ----------------------------------------------------------------------------------------------------------------------------------- American Funds Global Growth Fund -- Class 2 0.58%(6) 0.25% 0.04% 0.87% 0.05% 0.82% American Funds Global Small Capitalization Fund -- Class 2 0.74%(6) 0.25% 0.05% 1.04% 0.07% 0.97% American Funds Growth Fund -- Class 2 0.33%(6) 0.25% 0.02% 0.60% 0.03% 0.57% American Funds Growth-Income Fund -- Class 2 0.28%(6) 0.25% 0.01% 0.54% 0.02% 0.52% American Funds International Fund -- Class 2 0.52%(6) 0.25% 0.05% 0.82% 0.05% 0.77% American Funds New World Fund -- Class 2 0.84%(6) 0.25% 0.08% 1.17% 0.07% 1.10% Fidelity VIP Contrafund Portfolio -- Service Class 2 0.57% 0.25% 0.09% 0.91% -- 0.91%(7) Fidelity VIP Equity-Income Portfolio -- Initial Class 0.47% N/A 0.09% 0.56% -- 0.56%(8) Fidelity VIP Equity-Income Portfolio -- Service Class 2 0.47% 0.25% 0.09% 0.81% -- 0.81%(8) Fidelity VIP Mid Cap Portfolio -- Service Class 2 0.57% 0.25% 0.12% 0.94% -- 0.94%(7) Franklin Income Securities Fund -- Class 2 0.46%(19) 0.25%(20) 0.02% 0.73% N/A 0.73% Franklin Small Cap Value Securities Fund -- Class 2 0.52% 0.25%(9) 0.17% 0.94% 0.05%(10) 0.89%(10) Hartford Advisers HLS Fund -- Class IA 0.60% N/A 0.06% 0.66% N/A 0.66% Hartford Capital Appreciation HLS Fund -- Class IA 0.63% N/A 0.07% 0.70% N/A 0.70% Hartford Disciplined Equity HLS Fund -- Class IA 0.70% N/A 0.04% 0.74% N/A 0.74% Hartford Dividend and Growth HLS Fund -- Class IA 0.64% N/A 0.03% 0.67% N/A 0.67% Hartford Growth Opportunities HLS Fund -- Class IA 0.61% N/A 0.03% 0.64% N/A 0.64% Hartford Index HLS Fund -- Class IA 0.40%(11) N/A 0.02% 0.42% N/A 0.42% Hartford International Opportunities HLS Fund -- Class IA 0.69% N/A 0.09% 0.78% N/A 0.78% Hartford International Small Company HLS Fund -- Class IA 0.85% N/A 0.15% 1.00% N/A 1.00% Hartford MidCap HLS Fund -- Class IA 0.66% N/A 0.04% 0.70% N/A 0.70% Hartford MidCap Value HLS Fund -- Class IA 0.75% N/A 0.04% 0.79% N/A 0.79% Hartford Money Market HLS Fund -- Class IA 0.45% N/A 0.04% 0.49% N/A 0.49%
10 HARTFORD LIFE INSURANCE COMPANY ----------------------------------------------------------------------------
12b-1 TOTAL NET DISTRIBUTION TOTAL ANNUAL CONTRACTUAL ANNUAL AND/OR FUND FEE WAIVERS OR FUND MANAGEMENT SERVICING OTHER OPERATING EXPENSE OPERATING FUND FEES FEES EXPENSES EXPENSES REIMBURSEMENTS EXPENSES ----------------------------------------------------------------------------------------------------------------------------------- Hartford Mortgage Securities HLS Fund -- Class IA 0.45% N/A 0.04% 0.49% N/A 0.49% Hartford Small Company HLS Fund -- Class IA 0.70% N/A 0.05% 0.75% N/A 0.75% Hartford Stock HLS Fund -- Class IA 0.46% N/A 0.04% 0.50% N/A 0.50% Hartford Total Return Bond HLS Fund -- Class IA 0.46% N/A 0.04% 0.50% N/A 0.50% Hartford Value Opportunities HLS Fund -- Class IA 0.62% N/A 0.03% 0.65% N/A 0.65% Lord Abbett America's Value Portfolio -- Class VC 0.75%(12) 0.00 0.58% 1.33% 0.18%(13) 1.15% Lord Abbett Growth & Income Portfolio -- Class VC 0.48%(14) 0.00 0.41% 0.89% 0.00 0.89% MFS(R) Investors Trust Series -- Initial Class 0.75% -- 0.13%(15) 0.88%(15) N/A 0.88%(15) MFS(R) New Discovery Series -- Initial Class 0.90% -- 0.16%(15) 1.06%(15) N/A 1.06%(15) MFS(R) Total Return Series -- Initial Class 0.75% -- 0.09%(15) 0.84%(15) N/A 0.84%(15) Mutual Discovery Securities Fund -- Class 2 0.80% 0.25%(20) 0.23% 1.28% N/A 1.28% Mutual Shares Securities Fund -- Class 2 0.60% 0.25%(9) 0.18% 1.03% -- 1.03% Oppenheimer Capital Appreciation Fund/VA -- Service Shares 0.64% 0.25% 0.02%(16) 0.91% -- 0.91% Oppenheimer Global Securities Fund/VA -- Service Shares 0.63% 0.25% 0.04%(16) 0.92% -- 0.92% Oppenheimer Main Street Fund/VA -- Service Shares 0.65% 0.25% 0.01%(16) 0.91% -- 0.91% Putnam VT Capital Opportunities Fund -- Class IB 0.65% 0.25% 0.51% 1.41% 0.24% 1.17%(17) Putnam VT Equity Income Fund -- Class IB 0.65% 0.25% 0.17% 1.07% 0.01% 1.06%(17) Putnam VT Global Equity Fund -- Class IB 0.78% 0.25% 0.14% 1.17% -- 1.17% Putnam VT Growth and Income Fund -- Class IB 0.49% 0.25% 0.05% 0.79% -- 0.79% Putnam VT High Yield Fund -- Class IB 0.68% 0.25% 0.10% 1.03% 0.01% 1.02%(17) Putnam VT Income Fund -- Class IB 0.61% 0.25% 0.10% 0.96% 0.07% 0.89%(17) Putnam VT International Equity Fund -- Class IB 0.75% 0.25% 0.18% 1.18% -- 1.18% Putnam VT New Opportunities Fund -- Class IB 0.61% 0.25% 0.05% 0.91% -- 0.91%
HARTFORD LIFE INSURANCE COMPANY 11 ----------------------------------------------------------------------------
12b-1 TOTAL NET DISTRIBUTION TOTAL ANNUAL CONTRACTUAL ANNUAL AND/OR FUND FEE WAIVERS OR FUND MANAGEMENT SERVICING OTHER OPERATING EXPENSE OPERATING FUND FEES FEES EXPENSES EXPENSES REIMBURSEMENTS EXPENSES ----------------------------------------------------------------------------------------------------------------------------------- Putnam VT Small Cap Value Fund -- Class IB 0.76% 0.25% 0.08% 1.09% -- 1.09% Putnam VT Voyager Fund -- Class IB 0.57% 0.25% 0.06% 0.88% -- 0.88% Templeton Growth Securities Fund -- Class 2 0.75%(19) 0.25%(20) 0.07% 1.07% N/A 1.07% Van Kampen LIT Comstock Portfolio -- Class II 0.56% 0.25% 0.03% 0.84% -- 0.84%
(1) The Fund's advisor has contractually agreed to waive advisory fees and/or reimburse expenses of Series I shares to the extent necessary to limit Total Annual Fund Operating Expenses of Series I shares to 1.30% of average daily net assets. In determining the advisor's obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the Total Annual Fund Operating Expenses to exceed the numbers reflected above: (i) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (v) expenses related to a merger or reorganization as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, the expense offset arrangements from which the Fund may benefit are in the form of credits that the Fund receives from banks where the Fund or its transfer agent has deposit accounts in which it holds uninvested cash. Those credits are used to pay certain expenses incurred by the Fund. The expense limitation agreement is in effect through April 30, 2007. (2) As a result of a reorganization of another Fund into the Fund, which will occur on or about May 1, 2006 for AIM V.I. Capital Appreciation Fund and AIM V.I. Core Equity Fund and June 12, 2006 for AIM V.I. Large Cap Growth Fund, the Fund's Total Annual Operating Expenses have been restated to reflect such reorganization. (3) Effective January 1, 2005 through June 30, 2006, the advisor has contractually agreed to waive a portion of its advisory fees. The fee waiver reflects this agreement. (4) Effective upon the closing of the Reorganization which will occur on or about May 1, 2006, the advisor for AIM V.I. Core Equity Fund has contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit Total Annual Fund Operating Expenses of Series I shares to 0.91% of average daily net assets. In determining the advisor's obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the Total Annual Fund Operating Expenses to exceed the numbers reflected above: (i) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (v) expenses related to a merger or reorganization as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, the expense offset arrangements from which the Fund may benefit are in the form of credits that the Fund receives from banks where the Fund or its transfer agent has deposit accounts in which it holds uninvested cash. Those credits are used to pay certain expenses incurred by the Fund. The expense limitation agreement is in effect through April 30, 2007. (5) Effective July 1, 2005, the Fund's advisor has contractually agreed to waive advisory fees and/or reimburse expenses of Series I shares to the extent necessary to limit Total Annual Fund Operating Expenses of Series I shares to 1.15% of aveage daily net assets. In determining the advisor's obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the Total Annual Fund Operating Expenses to exceed the numbers reflected above: (i) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (v) expenses related to a merger or reorganization as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, the expense offset arrangements from which the Fund may benefit are in the form of credits that the Fund receives from banks where the Fund or its transfer agent has deposit accounts in which it holds uninvested cash. Those credits are used to pay certain expenses incurred by the Fund. The Fee Waiver has been restated to reflect this agreement. This limitation agreement is in effect through April 30, 2007. (6) The fund's investment adviser began waiving 5% of its management fees on September 1, 2004. Beginning April 1, 2005, this waiver increased to 10% and will continue at this level until further review. (7) A portion of the brokerage commissions that the fund pays may be reimbursed and used to reduce the fund's expenses. In addition, through arrangements with the fund's custodian, credits realized as a result of uninvested cash balances are used to reduce the fund's custodian expenses. Including these reductions, the total class operating expenses would have been 0.89% for the Fidelity VIP Contrafund Portfolio -- Service Class 2 and 0.89% for the Fidelity VIP Mid Cap Portfolio -- Service Class 2. These offsets may be discontinued at any time. 12 HARTFORD LIFE INSURANCE COMPANY ---------------------------------------------------------------------------- (8) A portion of the brokerage commissions that the fund pays may be reimbursed and used to reduce the fund's expenses. Including this reduction, the total class operating expenses would have been 0.55% for the Fidelity VIP Equity- Income Portfolio -- Initial Class and 0.80% for the Fidelity VIP Equity- Income Portfolio -- Service Class 2. These offsets may be discontinued at any time. (9) While the maximum amount payable under the Fund's class rule 12b-1 plan is 0.35% per year of the Fund's class average annual net assets, the Board has set the current rate at 0.25% per year. (10) The Fund's manager has agreed in advance to reduce its fees with respect to assets invested by the Fund in a Franklin Templeton Money Market Fund (the Sweep Money Fund). This reduction is required by the Fund's Board of Trustees (Board) and an exemptive order by the Securities and Exchange Commission (SEC). (11) Effective November 1, 2005, HL Investment Advisors, LLC has voluntarily agreed to waive a portion of its management fees until October 31, 2006. While such waiver is in effect, the management fee is 0.30%. (12) Effective January 1, 2006, the annual management fee rate for the Fund was changed from a flat fee of .75% to the folowing annual rates: 0.75% of the first $1 billion of average daily net assets; 0.70% of the next $1 billion of average daily net assets; 0.65% of average daily net assets over $2 billion. (13) For the fiscal year ending December 31, 2006 through April 30, 2007, Lord Abbett has contractually agreed to reimburse a portion of the fund's other expenses to the extent necessary to maintain its Other Expenses at an aggregate rate of 0.40% of average daily net assets. (14) Effective January 1, 2006, the annual management fee rate for the Fund was changed from a flat fee of .50% to the folowing annual rates: 0.50% of the first $1 billion of average daily net assets; 0.45% of average daily net assets over $1 billion. (15) Each series has an expense offset arrangement that reduces the series' custodian fee based upon the amount of cash maintained by the series with its custodian and dividend disbursing agent, and may have entered into brokerage arrangements that reduced or recaptured series' expenses. Any such expense reductions are not reflected in the table. Had these expense reductions been taken into account, "Net Expenses" would be lower. (16) Expenses may vary in future years. "Other Expenses" include transfer agent fees, custodial fees, and accounting and legal expenses paid by the Fund. The Fund's transfer agent has voluntarily agreed to limit transfer and shareholder servicing fees to 0.35% per fiscal year. That undertaking may be amended or withdrawn at any time. For the Fund's fiscal year ended December 31, 2005, the transfer agent fees did not exceed the expense limitation described above. (17) Reflects Putnam Management's contractual agreement to limit fund expenses through December 31, 2006. (18) Represents a one time waiver of certain legal and accounting expenses paid to the Advisor. (19) The Fund administration fee is paid indirectly through the management fee. (20) While the maximum amount payable under the Fund's class rule 12b-1 plan is 0.35% per year of the Fund's class average annual net assets, the Board has set the current rate at 0.25% per year. HARTFORD LIFE INSURANCE COMPANY 13 ---------------------------------------------------------------------------- ABOUT US HARTFORD LIFE INSURANCE COMPANY We are a stock life insurance company engaged in the business of writing life insurance and annuities, both individual and group, in all states of the United States, as well as the District of Columbia. We were originally incorporated under the laws of Massachusetts on June 5, 1902, and subsequently redomiciled to Connecticut. Our offices are located in Simsbury, Connecticut; however, our mailing address is P.O. Box 2999, Hartford, CT 06104-2999. We are ultimately controlled by The Hartford Financial Services Group, Inc., one of the largest financial service providers in the United States. SEPARATE ACCOUNT VL II The Sub-Accounts are subdivisions of our separate account, called Separate Account VL II. Income, gains and losses credited to, or charged against, the Separate Account reflect the Separate Account's own investment experience an not the investment experience of the Company's other assets. The Company is obligated to pay all amounts promised to policy owners under the policy. Your assets in the Separate Account are held exclusively for your benefit and may not be used for any other liability of Hartford. THE FUNDS The Sub-Accounts of the Separate Account purchase shares of mutual funds set up exclusively for variable annuity and variable life insurance products. These funds are not the same mutual funds that you buy through your stockbroker or through a retail mutual fund, but they may have similar investment strategies and the same portfolio managers as retail mutual funds. You choose the Sub- Accounts that meet your investment style. We do not guarantee the investment results of any of the underlying Funds. Since each underlying Fund has different investment objectives, each is subject to different risks. In addition, in a low interest rate environment, yields for Money Market Sub-Accounts, after deduction of the Mortality and Expense Risk Charge and other policy charges, may be negative even though the underlying Fund's yield, before deducting for such charges, is positive. If you allocate a portion of your Account Value to a Money Market Sub-Account or participate in an Asset Allocation Program where Account Value is allocated to a Money Market Sub-Account under the applicable asset allocation model, that portion of your Account Value may decrease in value. The Funds may not be available in all states. You may also allocate some or all of your premium payments to the "Fixed Account," which pays a declared interest rate. See "The Fixed Account." Below is a table that lists the underlying Funds in which the Sub-accounts invest, each Fund's investment adviser and sub-adviser, if applicable, and each Fund's investment objective. More detailed information concerning a Fund's investment objective, investment strategies, risks and expenses is contained in each Fund's prospectus.
FUNDS ADVISOR OBJECTIVE SUMMARY ----------------------------------------------------------------------------------------------------------------------------------- AIM V.I. CAPITAL APPRECIATION FUND A I M Advisors, Inc. Growth of capital SUB-ACCOUNT which purchases Series I shares of the AIM V.I. Capital Appreciation Fund of the AIM Variable Insurance Funds AIM V.I. CAPITAL DEVELOPMENT FUND A I M Advisors, Inc. Long-term growth of capital SUB-ACCOUNT which purchases Series I of the AIM V.I. Capital Development Fund of the AIM Variable Insurance Funds. AIM V.I. CORE EQUITY FUND SUB-ACCOUNT A I M Advisors, Inc. Growth of capital which purchases Series I shares of the AIM V.I. Core Equity Fund of the AIM Variable Insurance Funds (Closed to all premium payments and transfers of Account Value for policies issued on or after May 1, 2006. Fund will remain available to investment for policies issued April 30, 2006 and before.) AIM V.I. MID CAP CORE EQUITY FUND A I M Advisors, Inc. Long-term growth of capital SUB-ACCOUNT which purchases Series I shares of the AIM V.I. Mid Cap Core Equity Fund of the AIM Variable Insurance Funds
14 HARTFORD LIFE INSURANCE COMPANY ----------------------------------------------------------------------------
FUNDS ADVISOR OBJECTIVE SUMMARY ----------------------------------------------------------------------------------------------------------------------------------- AIM V.I. SMALL CAP EQUITY FUND A I M Advisors, Inc. Long-term growth of capital Sub-Account which purchases Series I shares of the AIM V.I. Small Cap Equity Fund of the AIM Variable Insurance Funds ALLIANCEBERNSTEIN VPS INTERNATIONAL VALUE AllianceBernstein L.P. Long-term growth of capital PORTFOLIO SUB-ACCOUNT which purchases Class B shares of the International Value Portfolio of AllianceBernstein Variable Products Series Fund, Inc. ALLIANCEBERNSTEIN VPS SMALL/MID CAP VALUE AllianceBernstein L.P. Long-term growth of capital PORTFOLIO SUB-ACCOUNT which purchases Class B shares of the Small/Mid Cap Value Portfolio of AllianceBernstein Variable Products Series Fund, Inc. AMERICAN FUNDS ASSET ALLOCATION FUND Capital Research and Management Company High, total return, including income and SUB-ACCOUNT which purchases Class 2 capital gains, consistent with the shares of the Asset Allocation Fund of preservation of capital over the long American Funds Insurance Series (also term known as American Variable Insurance Series) AMERICAN FUNDS BLUE CHIP INCOME AND Capital Research and Management Company Produce income exceeding the average GROWTH FUND SUB-ACCOUNT which yield on U.S. stocks generally (as purchases Class 2 shares of the Blue represented by the average yield on the Chip Income and Growth Fund of Standard & Poor's 500 Composite Index) American Funds Insurance Series (also and to provide an opportunity for growth known as American Variable Insurance of principal consistent with sound Series) common stock investing AMERICAN FUNDS BOND FUND SUB-ACCOUNT Capital Research and Management Company High level of current income as is which purchases Class 2 shares of the consistent with the preservation of Bond Fund of American Funds Insurance capital Series (also known as American Variable Insurance Series) AMERICAN FUNDS GLOBAL GROWTH FUND Capital Research and Management Company Long-term growth of capital SUB-ACCOUNT which purchases Class 2 shares of the Global Growth Fund of American Funds Insurance Series (also known as American Variable Insurance Series) AMERICAN FUNDS GLOBAL SMALL Capital Research and Management Company Long-term growth of capital CAPITALIZATION FUND SUB-ACCOUNT which purchases Class 2 shares of the Global Small Capitalization Fund of American Funds Insurance Series (also known as American Variable Insurance Series) AMERICAN FUNDS GROWTH FUND SUB-ACCOUNT Capital Research and Management Company Long-term growth of capital which purchases Class 2 shares of the Growth Fund of American Funds Insurance Series (also known as American Variable Insurance Series)
HARTFORD LIFE INSURANCE COMPANY 15 ----------------------------------------------------------------------------
FUNDS ADVISOR OBJECTIVE SUMMARY ----------------------------------------------------------------------------------------------------------------------------------- AMERICAN FUNDS GROWTH-INCOME FUND Capital Research and Management Company Growth of capital and income SUB-ACCOUNT which purchases Class 2 shares of the Growth-Income Fund of American Funds Insurance Series (also known as American Variable Insurance Series) AMERICAN FUNDS INTERNATIONAL FUND Capital Research and Management Company Long-term growth of capital SUB-ACCOUNT which purchases Class 2 shares of the International Fund of American Funds Insurance Series (also known as American Variable Insurance Series) AMERICAN FUNDS NEW WORLD FUND SUB-ACCOUNT Capital Research and Management Company Long-term growth of capital which purchases Class 2 shares of the New World Fund of American Funds Insurance Series (also known as American Variable Insurance Series) FIDELITY VIP CONTRAFUND PORTFOLIO Fidelity Management & Research Company Long-term capital appreciation SUB-ACCOUNT which purchases Service Class 2 shares of Fidelity VIP Contrafund(R) Portfolio of Fidelity Variable Insurance Products Fund FIDELITY VIP EQUITY-INCOME PORTFOLIO Fidelity Management & Research Company Reasonable income. Fund will also SUB-ACCOUNT which purchases Initial consider potential for capital Class shares of Fidelity VIP appreciation Equity-Income Portfolio of Fidelity Variable Insurance Products Fund (Policies issued prior to 10/3/05 will receive Initial Class shares). FIDELITY VIP EQUITY-INCOME PORTFOLIO Fidelity Management & Research Company Reasonable income. Fund will also SUB-ACCOUNT which purchases Service consider potential for capital Class 2 shares of Fidelity VIP appreciation Equity-Income Portfolio of Fidelity Variable Insurance Products Fund FIDELITY VIP MID CAP PORTFOLIO Fidelity Management & Research Company Long-term growth of capital Sub-Account which purchases Service Class 2 shares of Fidelity VIP Mid Cap Portfolio of Fidelity Variable Insurance Products Fund FRANKLIN INCOME SECURITIES FUND Franklin Advisers, Inc. Maximize income while maintaining SUB-ACCOUNT which purchases Class 2 prospects for capital appreciation shares of the Franklin Income Securities Fund of the Franklin Templeton Variable Insurance Products Trust FRANKLIN SMALL CAP VALUE SECURITIES FUND Franklin Advisory Services, LLC Long-term total return SUB-ACCOUNT which purchases Class 2 shares of the Franklin Small Cap Value Securities Fund of the Franklin Templeton Variable Insurance Products Trust HARTFORD ADVISERS HLS FUND SUB-ACCOUNT HL Investment Advisors, LLC; sub-advised Maximum long-term total return which purchases Class IA shares of by Wellington Management Company, LLP Hartford Advisers HLS Fund of Hartford Series Fund, Inc.
16 HARTFORD LIFE INSURANCE COMPANY ----------------------------------------------------------------------------
FUNDS ADVISOR OBJECTIVE SUMMARY ----------------------------------------------------------------------------------------------------------------------------------- HARTFORD CAPITAL APPRECIATION HLS FUND HL Investment Advisors, LLC; sub-advised Growth of capital SUB-ACCOUNT which purchases Class IA by Wellington Management Company, LLP shares of Hartford Capital Appreciation HLS Fund of Hartford Series Fund, Inc. (Closed to all premium payments and transfers of Account Value for all policies issued on or after May 2, 2005. Fund will remain available for investment for policies issued May 1, 2005 and before.) HARTFORD DISCIPLINED EQUITY HLS FUND HL Investment Advisors, LLC; sub-advised Growth of capital SUB-ACCOUNT which purchases Class IA by Wellington Management Company, LLP shares of Hartford Disciplined Equity HLS Fund of Hartford Series Fund, Inc. HARTFORD DIVIDEND AND GROWTH HLS FUND HL Investment Advisors, LLC; sub-advised High level of current income consistent SUB-ACCOUNT which purchases Class IA by Wellington Management Company, LLP with growth of capital shares of Hartford Dividend and Growth HLS Fund of Hartford Series Fund, Inc. HARTFORD GROWTH OPPORTUNITIES HLS FUND HL Investment Advisors, LLC; sub-advised Short- and long-term capital appreciation SUB-ACCOUNT which purchases Class IA by Wellington Management Company, LLP shares of Hartford Growth Opportunities HLS Fund of Hartford HLS Series Fund II, Inc. HARTFORD INDEX HLS FUND SUB-ACCOUNT which HL Investment Advisors, LLC; sub-advised Seeks to provide investment results purchases Class IA shares of Hartford by Hartford Investment Management Company which approximate the price and yield Index HLS Fund of Hartford Series performance of publicly traded common Fund, Inc. stocks in the aggregate HARTFORD INTERNATIONAL OPPORTUNITIES HLS HL Investment Advisors, LLC; sub-advised Long-term growth of capital FUND SUB-ACCOUNT which purchases Class by Wellington Management Company, LLP IA shares of Hartford International Opportunities HLS Fund of Hartford Series Fund, Inc. HARTFORD INTERNATIONAL SMALL COMPANY HLS HL Investment Advisors, LLC; sub-advised Capital appreciation FUND SUB-ACCOUNT which purchases Class by Wellington Management Company, LLP IA shares of Hartford International Small Company HLS Fund of Hartford Series Fund, Inc. HARTFORD MIDCAP HLS FUND SUB-ACCOUNT HL Investment Advisors, LLC; sub-advised Long-term growth of capital which purchases Class IA shares of by Wellington Management Company, LLP Hartford MidCap HLS Fund of Hartford Series Fund, Inc. (Closed to all premium payments and transfers of Account Value for all policies issued on or after November 1, 2003. Fund will remain available for investment for policies issued October 31, 2003 and before.)
HARTFORD LIFE INSURANCE COMPANY 17 ----------------------------------------------------------------------------
FUNDS ADVISOR OBJECTIVE SUMMARY ----------------------------------------------------------------------------------------------------------------------------------- HARTFORD MIDCAP VALUE HLS FUND HL Investment Advisors, LLC; sub-advised Long-term capital appreciation Sub-Account which purchases Class IA by Wellington Management Company, LLP shares of Hartford MidCap Value HLS Fund of Hartford Series Fund, Inc. (Closed to all premium payments and transfers of Account Value for all policies issued on or after August 2, 2004. Fund will remain available for investment for policies issued August 1, 2004 and before.) HARTFORD MONEY MARKET HLS FUND HL Investment Advisors, LLC; sub-advised Maximum current income consistent with Sub-Account which purchases Class IA by Hartford Investment Management Company liquidity and preservation of capital shares of Hartford Money Market HLS Fund of Hartford Series Fund, Inc. HARTFORD MORTGAGE SECURITIES HLS FUND HL Investment Advisors, LLC; sub-advised Maximum current income consistent with SUB-ACCOUNT which purchases Class IA by Hartford Investment Management Company safety of principal and maintenance of shares of Hartford Mortgage Securities liquidity HLS Fund of Hartford Series Fund, Inc. HARTFORD SMALL COMPANY HLS FUND HL Investment Advisors, LLC; sub-advised Growth of capital SUB-ACCOUNT which purchases Class IA by Wellington Management Company, LLP shares of Hartford Small Company HLS Fund of Hartford Series Fund, Inc. (Closed to all premium payments and transfers of Account Value for all policies issued on or after August 2, 2004. Fund will remain available for investment for policies issued August 1, 2004 and before.) HARTFORD STOCK HLS FUND SUB-ACCOUNT which HL Investment Advisors, LLC; sub-advised Long-term growth of capital, with income purchases Class IA shares of Hartford by Wellington Management Company, LLP as a secondary consideration Stock HLS Fund of Hartford Series Fund, Inc. HARTFORD TOTAL RETURN BOND HLS FUND HL Investment Advisors, LLC; sub-advised Competitive total return, with income as SUB-ACCOUNT which purchases Class IA by Hartford Investment Management Company a secondary objective shares of Hartford Total Return Bond HLS Fund of Hartford Series Fund, Inc. HARTFORD VALUE OPPORTUNITIES HLS FUND HL Investment Advisors, LLC; sub-advised Short- and long-term capital appreciation SUB-ACCOUNT which purchases Class IA by Wellington Management Company, LLP shares of Hartford Value Opportunities HLS Fund of Hartford HLS Series Fund II, Inc. LORD ABBETT AMERICA'S VALUE PORTFOLIO Lord, Abbett & Co. LLC Current income and capital appreciation SUB-ACCOUNT which purchases Class VC shares of the Lord Abbett America's Value Portfolio of the Lord Abbett Series Fund, Inc. LORD ABBETT GROWTH AND INCOME PORTFOLIO Lord, Abbett & Co. LLC Long-term growth of capital and income SUB-ACCOUNT which purchases Class VC shares of the Lord Abbett Growth and Income Portfolio of the Lord Abbett Series Fund, Inc. MFS INVESTORS TRUST SERIES SUB-ACCOUNT MFS Investment Management(R) Long-term growth of capital and which purchases Initial Class shares of secondarily to provide reasonable the MFS(R) Investors Trust Series of current income the MFS(R) Variable Insurance Trust
18 HARTFORD LIFE INSURANCE COMPANY ----------------------------------------------------------------------------
FUNDS ADVISOR OBJECTIVE SUMMARY ----------------------------------------------------------------------------------------------------------------------------------- MFS NEW DISCOVERY SERIES SUB-ACCOUNT MFS Investment Management(R) Capital appreciation which purchases Initial Class shares of the MFS(R) New Discovery Series of the MFS(R) Variable Insurance Trust MFS TOTAL RETURN SERIES SUB-ACCOUNT which MFS Investment Management(R) Above-average income purchases Initial Class shares of the MFS(R) Total Return Series of the MFS(R) Variable Insurance Trust MUTUAL DISCOVERY SECURITIES FUND Franklin Mutual Advisors, LLC, Capital appreciation SUB-ACCOUNT which purchases Class 2 sub-advised by Franklin Templeton shares of the Mutual Discovery Investment Management Limited Securities Fund of the Franklin Templeton Variable Insurance Products Trust MUTUAL SHARES SECURITIES FUND SUB-ACCOUNT Franklin Mutual Advisors, LLC Capital appreciation, with income as a which purchases Class 2 shares of the secondary goal Mutual Shares Securities Fund of the Franklin Templeton Variable Insurance Products Trust OPPENHEIMER CAPITAL APPRECIATION FUND/VA OppenheimerFunds, Inc. Capital appreciation SUB-ACCOUNT which purchases Service Shares of the Oppenheimer Capital Appreciation Fund/VA of Oppenheimer Variable Account Funds OPPENHEIMER GLOBAL SECURITIES FUND/VA OppenheimerFunds, Inc. Long-term capital appreciation SUB-ACCOUNT which purchases Service Shares of the Oppenheimer Global Securities Fund/VA of Oppenheimer Variable Account Funds OPPENHEIMER MAIN STREET FUND/VA OppenheimerFunds, Inc. Total return SUB-ACCOUNT which purchases Service Shares of the Oppenheimer Main Street Fund(R)/VA of Oppenheimer Variable Account Funds PUTNAM VT CAPITAL OPPORTUNITIES FUND Putnam Investment Management, LLC Long-term growth of capital SUB-ACCOUNT which purchases Class IB shares of the Putnam VT Capital Opportunities Fund of Putnam Variable Trust PUTNAM VT EQUITY INCOME FUND SUB-ACCOUNT Putnam Investment Management, LLC Capital growth and current income which purchases Class IB shares of the Putnam VT Equity Income Fund of Putnam Variable Trust PUTNAM VT GLOBAL EQUITY FUND SUB-ACCOUNT Putnam Investment Management, LLC Capital appreciation which purchases Class IB shares of the Putnam VT Global Equity Fund of Putnam Variable Trust (Closed to all premium payments and transfers of Account Value for policies issued on or after May 1, 2006. Fund will remain available to investment for policies issued April 30, 2006 and before.)
HARTFORD LIFE INSURANCE COMPANY 19 ----------------------------------------------------------------------------
FUNDS ADVISOR OBJECTIVE SUMMARY ----------------------------------------------------------------------------------------------------------------------------------- PUTNAM VT GROWTH AND INCOME FUND Putnam Investment Management, LLC Capital growth and current income SUB-ACCOUNT which purchases Class IB shares of the Putnam VT Growth and Income Fund of Putnam Variable Trust PUTNAM VT HIGH YIELD FUND SUB-ACCOUNT Putnam Investment Management, LLC High current income. Capital growth is a which purchases Class IB shares of the Sub-advised by Putnam Investments Limited secondary goal when consistent with Putnam VT High Yield Fund of Putnam achieving high current income Variable Trust PUTNAM VT INCOME FUND SUB-ACCOUNT which Putnam Investment Management, LLC High current income consistent with what purchases Class IB shares of the Putnam Management believes to be prudent Putnam VT Income Fund of Putnam risk Variable Trust PUTNAM VT INTERNATIONAL EQUITY FUND Putnam Investment Management, LLC Capital appreciation SUB-ACCOUNT which purchases Class IB Sub-advised by Putnam Investments Limited shares of the Putnam VT International Equity Fund of Putnam Variable Trust PUTNAM VT NEW OPPORTUNITIES FUND Putnam Investment Management, LLC Long-term capital appreciation SUB-ACCOUNT which purchases Class IB shares of the Putnam VT New Opportunities Fund of Putnam Variable Trust PUTNAM VT SMALL CAP VALUE FUND Putnam Investment Management, LLC Capital appreciation Sub-Account which purchases Class IB shares of the Putnam VT Small Cap Value Fund of Putnam Variable Trust PUTNAM VT VOYAGER FUND SUB-ACCOUNT which Putnam Investment Management, LLC Capital appreciation purchases Class IB shares of the Putnam VT Voyager Fund of Putnam Variable Trust TEMPLETON GROWTH SECURITIES FUND Templeton Global Advisors Limited, Long-term capital growth SUB-ACCOUNT which purchases Class 2 sub-advised by Templeton Asset shares of the Templeton Growth Management Ltd. Securities Fund of the Franklin Templeton Variable Insurance Products Trust VAN KAMPEN LIT COMSTOCK SUB-ACCOUNT which Van Kampen Asset Management Capital growth and income purchases Class II shares of the Comstock Portfolio of the Van Kampen Life Investment Trust
MIXED AND SHARED FUNDING -- Shares of the Funds may be sold to our other separate accounts and our insurance company affiliates or other unaffiliated insurance companies to serve as the underlying investment for both variable annuity contracts and variable life insurance policies, a practice known as "mixed and shared funding." As a result, there is a possibility that a material conflict may arise between the interests of policy owners, and of owners of other contracts whose contract values are allocated to one or more of these other separate accounts investing in any one of the Funds. In the event of any such material conflicts, we will consider what action may be appropriate, including removing the Fund from the Separate Account or replacing the Fund with another underlying fund. There are certain risks associated with mixed and shared funding. These risks are disclosed in the Funds' prospectuses accompanying this prospectus. VOTING RIGHTS -- For Sub-Accounts in which you have invested, we will notify you of shareholder's meetings of the Funds purchased by those Sub-Accounts. We will send you proxy materials and instructions for you to vote the shares held for your benefit by those Sub-Accounts. We will arrange for the handling and tallying of proxies received from you or other policy owners. If you give no instructions, we will vote those shares in the same proportion as shares for which we received 20 HARTFORD LIFE INSURANCE COMPANY ---------------------------------------------------------------------------- instructions. We determine the number of Fund shares held in a Sub-Account attributable to each policy owner by applying a conversion factor to each policy owner's unit balance. The conversion factor is calculated by dividing the total number of shares attributed to each sub-account by the total number of units in each sub-account. Fractional votes will be counted. We determine the number of shares as to which the policy owner may give instructions as of the record date for a Fund's shareholder meeting. ADMINISTRATIVE AND DISTRIBUTION SERVICES -- Hartford has entered into agreements with the investment advisers or distributors of many of the Funds. Under the terms of these agreements, Hartford provides administrative and distribution services and the Funds pay fees to Hartford that are usually based on an annual percentage of the average daily net assets of the Funds. These agreements may be different for each Fund or each Fund family and may include fees paid under a distribution and/or servicing plan adopted by a fund pursuant to Rule 12b-1 under the Investment Company Act of 1940. THE FIXED ACCOUNT You may allocate amounts to the Fixed Account. The Fixed Account is not a part of the Separate Account, but is a part of our general assets. As such, the Fixed Account (and this description of the Fixed Account) is not subject to the same securities laws as the Separate Account. The Fixed Account credits at least 3.5% per year. We are not obligated to, but may, credit more than 3.5% per year. If we do, such rates are determined at our sole discretion. You assume the risk that, at any time, the Fixed Account may credit no more than 3.5%. The Fixed Account may not be available in all states. CHARGES AND DEDUCTIONS DEDUCTIONS FROM PREMIUM Before your premium is allocated to the Sub-Accounts and/or the Fixed Account, we deduct a percentage from your premium for a sales load and a premium tax charge. The amount allocated after the deductions is called your Net Premium. FRONT-END SALES LOAD -- We deduct a sales load from each premium you pay. The maximum sales load under the policy is 8% of premium in Policy Years 1 through 3 and 4% of premium in Policy Years 4 and beyond. PREMIUM TAX CHARGE -- We deduct a premium tax charge from each premium you pay. The premium tax charge covers taxes assessed against us by a state and/or other governmental entity. The range of such charge generally is between 0% and 4%. DEDUCTIONS FROM ACCOUNT VALUE MONTHLY DEDUCTION AMOUNTS -- Each month we will deduct an amount from your Account Value to pay for the benefits provided by your policy. This amount is called the Monthly Deduction Amount and equals the sum of: - the charge for the cost of insurance; - the monthly administrative charge; - the mortality and expense risk charge; - any Face Amount increase fee; - any charges for additional benefits provided by rider; Each Monthly Deduction Amount will be deducted pro rata from the Fixed Account and each of the Sub-Accounts. The Monthly Deduction Amount will vary from month to month. We will deduct the Monthly Deduction Amount on a pro rata basis from each available Sub-Account and the Fixed Account unless you choose the Allocation of Charges Option. ALLOCATION OF CHARGES OPTION -- You may provide us with written instructions to re-direct the deduction of your policy's Monthly Deduction Amount charges that are assessed on a monthly basis to specified Sub-Account(s) and/or the Fixed Account. If you do not provide us with written instructions, or if the assets in any of the specified Sub-Accounts or the Fixed Account are insufficient to pay the charge as requested, the Monthly Deduction Amount will then be deducted on a pro rata basis from each available Sub-Account and the Fixed Account. COST OF INSURANCE CHARGE -- The charge for the cost of insurance equals: - the cost of insurance rate per $1,000, multiplied by - the amount at risk, divided by - $1,000. On any Monthly Activity Date, the amount at risk equals the Death Benefit less the Account Value on that date, prior to assessing the Monthly Deduction Amount. Cost of insurance rates will be determined on each policy anniversary based on our future expectations of such factors as mortality, expenses, interest, persistency and taxes. The cost of insurance rates will not exceed those based on the 1980 Commissioners' Standard Ordinary Mortality Table (ALB), Male or Female, Nonsmoker or Smoker Table, age last birthday (unisex rates may be required in some states). A table of guaranteed cost of insurance rates per $1,000 will be included in your policy, however, we reserve the right to use rates less than those shown in the table. Substandard risks will be charged higher cost of insurance rates that will not exceed rates based on a multiple of 1980 Commissioners' Standard Ordinary Mortality Table (ALB), Male or Female, Nonsmoker or Smoker Table, age last birthday (unisex rates may be required in some states) plus any flat extra amount assessed. The multiple will be based on the insured's substandard rating. HARTFORD LIFE INSURANCE COMPANY 21 ---------------------------------------------------------------------------- Any changes in the cost of insurance rates will be made uniformly for all insureds of the same issue ages, sexes, risk classes and whose coverage has been in-force for the same length of time. No change in insurance class or cost will occur on account of deterioration of the insureds' health. Because your Account Value and death benefit may vary from month to month, the cost of insurance may also vary on each Monthly Activity Date. The cost of insurance depends on your policy's amount at risk. Items which may affect the amount at risk include the amount and timing of premium payments, investment performance, fees and charges assessed, rider charges, policy loans and changes to the Face Amount. MONTHLY ADMINISTRATIVE CHARGE -- We deduct a monthly administrative charge from your Account Value to compensate us for issue and administrative costs of the policy. During the first Policy Year the charge is $24.16 per month, each year after the first Policy Year the charge is $7.50 per month. MORTALITY AND EXPENSE RISK CHARGE -- We deduct a mortality and expense risk charge each month from your Account Value. There are two components to the mortality and expense risk charge. Part of the charge is assessed according to your Account Value attributable to the Sub-Accounts, and the other part is assessed based on the initial Face Amount of your policy. The mortality and expense risk charge each month is equal to the sum of (a) and (b) where (a) equals: - the monthly accumulated value mortality and expense risk rate; multiplied by - the sum of your accumulated values in the Sub-Accounts on the Monthly Activity Date, prior to assessing the Monthly Deduction Amount. and (b) equals: - the monthly mortality and expense risk rate per $1,000; multiplied by - the initial Face Amount; divided by - $1,000. During the first 10 years, the maximum accumulated value mortality and expense risk rate is 1/12 of 0.75% per month. During years 11-20 the maximum is 1/12 of 0.50% per month. Thereafter, the maximum is 0.00% per month. During the first 10 years, the Face Amount mortality and expense risk rate per $1,000 of initial Face Amount is individualized based on issue ages and death benefit guarantee, and is provided in the policy. Thereafter, there is no charge. The mortality and expense risk charge compensates us for mortality and expense risks assumed under the policies. The mortality risk assumed is that the cost of insurance charges are insufficient to meet actual claims. The expense risk assumed is that the expense incurred in issuing, distributing and administering the policies exceed the administrative charges and sales loads collected. Hartford may keep any difference between the cost it incurs and the charges it collects. FACE AMOUNT INCREASE FEE -- We deduct a dollar amount from your Account Value for an unscheduled increase of the Face Amount on your policy. We deduct the fee each month for twelve months after the increase. The fee is 1/12 of $1.00 per month per $1,000 of unscheduled increase in the Face Amount. The fee will not be less than 1/12 of $500 per month, but will not exceed 1/12 of $3,000 per month. This fee compensates us for underwriting and processing costs for such increases. RIDER CHARGE -- If your policy includes riders, a charge applicable to the riders is made from the Account Value each month. The charge applicable to these riders is to compensate Hartford for the anticipated cost of providing these benefits and is specified on the applicable rider. For a description of the riders available, see "Your Policy -- Optional Supplemental Benefits." SURRENDER CHARGE -- During the first 9 policy years, surrender charges will be deducted from your Account Value if: - you surrender your policy; - you decrease the Face Amount to an amount lower than it has ever been; or - you take a withdrawal that causes the Face Amount to fall below the lowest previous Face Amount. The amount of surrender charge is individualized based on your issue ages, sexes, insurance classes, duration, Face Amount and Death Benefit Guarantee Amount. The charge compensates us for expenses incurred in issuing the policy and the recovery of acquisition costs. Hartford may keep any difference between the cost it incurs and the charges it collects. For partial surrender charges applicable to a decrease in the Face Amount or withdrawal, see "Unscheduled Increases and Decreases in the Face Amount." The amount of surrender charge varies by policy year. We determine the surrender charge by taking the percentage from the table below and multiplying that percentage by the sum of two components: the sales surrender charge and the underwriting surrender charge. The sales surrender charge equals the Death Benefit Guarantee Premium. The underwriting surrender charge equals $1 per $1000 of initial face amount, but is at least $500 and no more than $3000. 22 HARTFORD LIFE INSURANCE COMPANY ---------------------------------------------------------------------------- The percentage by policy years is as follows:
POLICY YEAR PERCENTAGE ----------------------------------- 1 70% 2 70% 3 70% 4 60% 5 50% 6 40% 7 30% 8 20% 9 10% 10 and after 0%
CHARGES FOR THE FUNDS The investment performance of each Fund reflects the management fee that the Fund pays to its investment manager as well as other operating expenses that the Fund incurs. Investment management fees are generally daily fees computed as a percentage of a Fund's average daily net assets as an annual rate. Please read the prospectus for each Fund for complete details. YOUR POLICY CONTRACT RIGHTS POLICY OWNER, OR "YOU" -- As long as your policy is in force, you may exercise all rights under the policy while either of the insureds is alive and no beneficiary has been irrevocably named. BENEFICIARY -- The beneficiary is the person you name in the application to receive any death benefit. You may change the beneficiary (unless irrevocably named) while either of the insureds is alive by notifying us in writing. If no beneficiary is living when the last surviving insured dies, the death benefit will be paid to you, if living; otherwise, it will be paid to your estate. INSURED -- The insured is the person on whose life the policy is issued. You name the insured in the application of the policy. Through our underwriting process, we will determine whether the insured is insurable. ASSIGNMENT -- You may assign your policy. Until you notify us in writing, no assignment will be effective against your policy. We are not responsible for the validity of any assignment. STATEMENTS -- We will send you a statement at least once each year, showing: - the current Account Value, Cash Surrender Value and Face Amount; - the premiums paid, monthly deduction amounts and any loans since your last statement; - the amount of any Indebtedness; - any notifications required by the provisions of your policy; and - any other information required by the Insurance Department of the state where your policy was delivered. RIGHT TO EXAMINE A POLICY -- You have a limited right to return your policy for cancellation. You may deliver or mail the policy to us or to the agent from whom it was purchased any time during your free look period. Your free look period begins on the day you get your policy and ends ten days after you get it (or longer in some states). In such event, the policy will be rescinded and we will pay an amount equal to the greater of the premiums paid for the policy less any Indebtedness or the sum of: i) the Account Value less any Indebtedness, on the date the returned policy is received by us or the agent from whom it was purchased; and, ii) any deductions under the policy or charges associated with the Separate Account. If your policy is replacing another policy, your free look period and the amount paid to you upon the return of your policy vary by state. CONTRACT LIMITATIONS ALLOCATIONS TO SUB-ACCOUNTS AND THE FIXED ACCOUNT -- You may allocate amounts to a maximum of twenty (20) investment choices including the Sub-Accounts and Fixed Account. TRANSFERS OF ACCOUNT VALUE -- You may transfer amounts among the Fixed Account and the Sub-Accounts subject to a charge described below. You may request transfers in writing or by calling us at 1-800-231-5453. Transfers by telephone may also be made by your authorized agent of record or other authorized representative. Telephone transfers may not be permitted in some states. We will not be responsible for losses that result from acting upon telephone requests reasonably believed to be genuine. We will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. The procedures we follow for transactions initiated by telephone include requiring callers to provide certain identifying information. All transfer instructions communicated to us by telephone are tape recorded. You may make transfers between the Sub-Accounts offered in this policy according to our policies and procedures. WHAT IS A SUB-ACCOUNT TRANSFER? A Sub-Account Transfer is a transaction requested by you that involves reallocating part or all of your Policy Value among the underlying Sub-Accounts available in your policy. HARTFORD LIFE INSURANCE COMPANY 23 ---------------------------------------------------------------------------- WHAT HAPPENS WHEN I REQUEST A SUB-ACCOUNT TRANSFER? When you request a Sub-Account Transfer, Hartford sells shares of the underlying Fund that makes up the Sub-Account you are transferring from and buys shares of the underlying Fund that makes up the Sub-Account you want to transfer into. Each day, many Policy Owners request Sub-Account transfers. Some request transfers into a particular Sub-Account, and others request transfers out of a particular Sub-Account. In addition, each day some Policy Owners allocate new premium payments to Sub-Accounts, and others request surrenders. Further, when there is a pending death claim on a policy, all money invested in any of the Sub-Accounts is transferred to a Money Market Fund Sub-Account. Hartford combines all the Policy Owner requests to transfer out of a Sub-Account along with all transfers from that Sub-Account as a result of a surrender or pending death claim and determines how many shares of that Sub-Account's underlying Fund Hartford would need to sell to satisfy all Policy Owners' "transfer-out" requests. At the same time, Hartford also combines all the requests to transfer into a particular Sub-Account or new Premium Payments allocated to that Sub- Account and determines how many shares of that Sub-Account's underlying Fund Hartford would need to buy to satisfy all Policy Owners' "transfer-in" requests. In addition, many of the underlying Funds that are available as investment options in Hartford's variable life insurance policies are also available as investment options in variable annuity contracts ("Contracts"), retirement plans, group funding agreements and other products offered by Hartford or our affiliates. Each day, investors and participants in these other products engage in transactions similar to the Sub-Account transfers described for variable life Policy Owners. We take advantage of our size and available technology to combine the sales of a particular underlying Fund for many of the variable annuities, variable universal life insurance policies, retirement plans, group funding agreements or other products offered by Hartford and our affiliates. We also combine all the purchases of that particular underlying Fund for many of the products we offer. We then "net" those trades. This means that we sometimes reallocate shares of an underlying Fund within the accounts at Hartford rather than buy new shares or sell shares of the underlying Fund. For example, if we combine all transfer-out requests and Surrenders of a Stock Fund Sub-Account with all other sales of that underlying Fund from all the other products available at Hartford, we may have to sell $1 million dollars of that Fund on any particular day. However, if other Policy Owners and the owners of other products offered by Hartford, want to purchase or transfer-in an amount equal to $300,000 of that Fund, then Hartford would send a sell order to the underlying Fund for $700,000, which is a $1 million sell order minus the purchase order of $300,000. WHAT RESTRICTIONS ARE THERE ON MY ABILITY TO MAKE A SUB-ACCOUNT TRANSFER? You should be aware that there are several important restrictions on your ability to make a Sub-Account transfer. FIRST, YOU MAY MAKE ONLY ONE SUB-ACCOUNT TRANSFER EACH DAY. Hartford limits each Policy Owner to one Sub-Account Transfer each day. Hartford counts all Sub-Account transfer activity that occurs on any one day as one Sub-Account transfer, except you cannot transfer the same Policy Value more than once in a day. For example, if the only transfer you make on a day is a transfer of $10,000 from a Money Market Fund Sub-Account into another Sub-Account, it would count as one Sub-Account transfer. If, however, on a single day you transfer $10,000 out of a Money Market Fund Sub-Account into five other Sub-Accounts (dividing the $10,000 among the five other Sub-Accounts however you chose), that day's transfer activity would count as one Sub-Account transfer. Likewise, if on a single day you transferred $10,000 out of a Money Market Fund Sub-Account into five other Sub-Accounts (dividing the $10,000 among the other Sub-Accounts however you choose), that day's transfer activity would count as one Sub- Account transfer. Conversely, if you have $10,000 in Policy Value distributed among five different Sub-Accounts and you request to transfer the Policy Value in all those Sub-Accounts into one Sub-Account, that would also count as one Sub-Account transfer. However, you cannot transfer the same Policy Value more than once in one day. That means if you have $10,000 in a Market Fund Sub-Account and you transfer all $10,000 into a Stock Fund Sub-Account, on that same day you could not then transfer the $10,000 out of the Stock Fund Sub-Account into another Sub- Account. SECOND, HARTFORD HAS IMPLEMENTED POLICIES DESIGNED TO RESTRICT EXCESSIVE SUB- ACCOUNT TRANSFERS. You should not purchase this policy if you want to make frequent Sub-Account transfers for any reason. In particular, Hartford does not want you to purchase this policy if you plan to engage in "market timing," which includes frequent transfer activity into and out of the same underlying Fund, or engaging in frequent Sub-Account transfers in order to exploit inefficiencies in the pricing of the underlying Fund. Hartford attempts to curb frequent transfers in the following ways: X 20 Transfer Rule X Abusive Transfer Policy THE 20 TRANSFER RULE -- Hartford employs the "20 Transfer Rule" to help curb frequent Sub-Account transfers. Under this policy, you are allowed to submit a total of 20 Sub-Account transfer requests each policy year for each policy by any of the following methods: U.S. Mail, fax or telephone. Once these 20 Sub- Account transfers have been requested, you may submit any additional Sub- Account transfer requests only in writing by 24 HARTFORD LIFE INSURANCE COMPANY ---------------------------------------------------------------------------- U.S. Mail or overnight delivery service. Transfer requests that are made by telephone, fax or sent by same day mail or courier service will not be accepted. If you want to cancel a written Sub-Account transfer, you must also cancel it in writing by U.S. Mail or overnight delivery service. We will process the cancellation request as of the day we receive it in good order. We actively monitor Policy Owner's compliance with this policy. After your 20th transfer request, we will not allow you to do another Sub-Account transfer by telephone or fax. You will be instructed to send your Sub-Account transfer request by U.S. Mail or overnight delivery service. Each Policy Anniversary, you are allowed 20 new Sub-Account transfers by any means. We may make changes to this policy at any time. ABUSIVE TRANSFER POLICY -- Regardless of the number of Sub-Account transfers you have done under the 20 Transfer Rule, you still may have your Sub-Account transfer privileges restricted if you violate the Abusive Transfer Policy, which is designed to respond to market timing activity observed by the underlying Funds. Under the Abusive Transfer Policy, Hartford relies on the underlying Funds to identify a pattern or frequency of Sub-Account transfers that the underlying Fund wants Hartford to investigate. Most often, the underlying Fund will identify a particular day where it experienced a higher percentage of shares bought followed closely by a day where it experienced the almost identical percentage of shares sold. Once an underlying Fund contacts us, Hartford runs a report that identifies all Policy Owners who transferred in or out of that underlying Fund's Sub-Account on the day or days identified by the underlying Fund. We then review the policies on that list to determine whether transfer activity of each identified policy violates our written Abusive Transfer Policy. We do not reveal the precise details of this policy to make it more difficult for abusive traders to adjust their behavior to escape detection under this procedure. We can tell you that we consider some or all of the following factors in our review: - The dollar amount of the transfer; - The total assets of the Funds involved in the transfer; - The number of transfers completed in the current calendar quarter; - Whether the transfer is part of a pattern of transfers designed to take advantage of short term market fluctuations or market inefficiencies; or - The policies and procedures of a potentially affected underlying Fund regarding frequent trading. In addition we review large trades and apply our then current written Abusive Transfer procedures. We don't reveal exactly what these procedures are because the individuals or entities which frequently transfer may just adjust their behavior to defeat this procedure. We will tell you though, that we consider some or all of the following factors in our review: - The dollar amount of the transfer; - The total assets of the Funds involved in the transfer; - The number of transfers completed in the current calendar quarter; or - Whether the transfer is part of a pattern of transfers designed to take advantage of short term market fluctuations or market inefficiencies. Separate Account investors could be precluded from purchasing Fund shares if we reach an impasse on the execution of Fund abusive trading instructions. If you meet the criteria established in our Abusive Transfer procedures, we will terminate your Sub-Account transfer privileges until your next Policy Anniversary, at which point your transfer privileges will be reinstated. Since we combine all the purchases of a particular underlying Fund for all the products through net trades, the underlying Fund is unable to identify transfers of any specific Policy Owner. As a result, there is the risk that the underlying Fund may not be able to identify abusive traders. Upon request by an underlying Fund, and subject to applicable law, we may provide the underlying Fund with the Tax Identification Number, and other identifying information contained in our records, of Policy Owners that engaged in Sub-Account transfers that resulted in our purchase, redemption, transfer or exchange of the shares of that underlying Fund. ARE THERE ANY EXCEPTIONS TO THESE POLICIES? NO INDIVIDUAL EXCEPTIONS. Except for the exceptions listed below, Hartford does not make any exceptions to its policies restricting frequent trading. This means that if you request to be excused from any of the policies and to be permitted to engage in a Sub-Account transfer that would violate any of these policies, Hartford will refuse your request. SOME ESTABLISHED EXCEPTIONS. You should be aware, however, that the 20 Trade Rule and the Abusive Transfer Policy do not apply in all circumstances, which we describe here: - The 20 Transfer Rule does not apply to Sub-Account transfers that occur automatically as part of an established asset allocation program or asset rebalancing program that rebalances a Contract Owner or Policy Owner's holdings on a periodic, pre-established basis according to the prior written instructions of the Contract Owner or Policy Owner or as part of a dollar cost averaging program, including the DCA Plus program. That means that transfers that occur under these programs are not counted toward the 20 transfers allowed under the 20 Transfer Rule. We do not apply the 20 Transfer Rule to programs, like asset rebalancing, asset allocation and dollar-cost averaging programs, that allow Sub-Account transfers on a regularly scheduled basis because the underlying Funds expect these transfers and they usually do not represent the type of Sub-Account Transfers that the underlying Funds find problematic. HARTFORD LIFE INSURANCE COMPANY 25 ---------------------------------------------------------------------------- - Many of the group variable annuities or group funding agreements are offered to retirement plans, and Plan Sponsors administer their plan according to Plan documents and Administrative Services Agreements. If these retirement plan documents and Administrative Services Agreements have no restrictions on Sub-Account transfers, then Hartford cannot apply the 20 Trade Rule and may not be able to apply any other restriction on transfers. Hartford has been working with plan sponsors and plan administrators to ensure that any frequent transfer activity is identified and deterred. Hartford has had only limited success in this area. Frequent transfers by individuals or entities that occur in other investment or retirement products provided by Hartford could have the same abusive affect as frequent Sub-Account transfers done by Policy Owners of this policy. Other than these exceptions, the only other exception to the 20 Transfer Rule impose more restrictive limitations than the 20 Transfer Rule. POSSIBILITY OF UNDETECTED FREQUENT TRADING IN THE UNDERLYING FUNDS. In addition to the exceptions we have just described, you should also be aware that there may be frequent trading in the underlying Funds that Hartford is not able to detect and prevent, which we describe here: - There is also a variable annuity that we offer that has no contingent deferred sales charge. We are aware that frequent traders have used this annuity in the past to engage in frequent Sub-Account transfers that do not violate the precise terms of the 20 Transfer Rule. We believe that we have addressed this practice by closing all the international and global funds available in the annuity. However, we cannot always tell if there is frequent trading in this product. - These policies apply only to individuals and entities that own this policy and any subsequent or more recent versions of this policy. However, the underlying Funds that make up the Sub-Accounts of this policy are available for use with many different variable life insurance policies, variable annuity products and funding agreements, and they are offered directly to certain qualified retirement plans. Some of these products and plans may have less restrictive transfer rules or no transfer restrictions at all. HOW AM I AFFECTED BY FREQUENT SUB-ACCOUNT TRANSFERS? Frequent Sub-Account transfers often result in frequent purchases and redemptions of shares of the underlying Fund. Frequent purchases and redemptions of the shares of the underlying Funds may increase your costs under this policy and may also lower your policy's overall performance. Your costs may increase because the underlying Fund will pass on any increase in fees related to the frequent purchase and redemption of the underlying Fund's stocks. There would also be administrative costs associated with these transactions. Frequent transfers may also cause an underlying Fund to hold more cash than the underlying Fund would like to hold. A large cash position means that the underlying Fund will not be fully invested and may miss a rise in value of the securities that the Fund would have purchased. If the underlying Fund chooses not to hold a larger cash position, then it may have to sell securities that it would have otherwise like to have kept, in order to meet its redemption obligations. Both of these measures could result in lower performance of the underlying Fund, which in turn would result in lower overall performance of your Policy. Because frequent transfers may raise the costs associated with this policy and lower performance, the effect may be a lower Death Benefit paid to your Beneficiary or lower annuity payouts for your Payee. WHAT IF A PROSPECTUS FOR THE UNDERLYING FUNDS HAS DIFFERENT POLICIES AND PROCEDURES REGARDING FREQUENT TRADING? While the prospectuses for the underlying Funds may describe policies and procedures regarding frequent trading that may be different from those described in the Policy prospectus, the policies and procedures described in the Policy prospectus control how we administer Sub-Account transfers. We will continue to monitor transfer activity and Hartford may modify these restrictions at any time. TRANSFERS FROM THE FIXED ACCOUNT -- Except for transfers made under the Dollar Cost Averaging Program, any transfers from the Fixed Account must occur during the 30-day period following each policy anniversary, and, if your accumulated value in the Fixed Account exceeds $1,000, the amount transferred from the Fixed Account in any policy year may not exceed 25% of the accumulated value in the Fixed Account on the transfer date. DEFERRAL OF PAYMENTS -- State law allows us to defer payment of any Cash Surrender Values, withdrawals and loan amounts which are not attributable to the Sub-Accounts for up to six months from the date of the request. These laws were enacted many years ago to help insurance companies in the event of a liquidity crisis. If we defer payment for more than 30 days, we will pay you interest. For policies issued in New York, if we defer payment for more than 10 days, we will pay you interest. CHANGES TO CONTRACT OR SEPARATE ACCOUNT MODIFICATION OF POLICY -- The only way the policy may be modified is by a written agreement signed by our President, or one of our Vice Presidents, Secretaries, or Assistant Secretaries. SUBSTITUTION OF FUNDS -- We reserve the right to substitute the shares of any other registered investment company for the shares of any Fund already purchased or to be purchased in the future by the Separate Account provided that the substitution has been approved by the Securities and Exchange Commission. CHANGE IN OPERATION OF THE SEPARATE ACCOUNT -- The operation of the Separate Account may be modified to the extent permitted by law, including deregistration under the securities laws. 26 HARTFORD LIFE INSURANCE COMPANY ---------------------------------------------------------------------------- SEPARATE ACCOUNT TAXES -- Currently, no charge is made to the Separate Account for federal, state and local taxes that may be allocable to the Separate Account. A change in the applicable federal, state or local tax laws which impose tax on Hartford and/or the Separate Account may result in a charge against the policy in the future. Charges for other taxes, if any, allocable to the Separate Account may also be made. OTHER BENEFITS DOLLAR COST AVERAGING PROGRAM -- You may elect to allocate your Net Premiums among the Sub-Accounts and the Fixed Account pursuant to the Dollar Cost Averaging (DCA) program. The DCA program allows you to regularly transfer an amount you select from the Fixed Account or any Sub-Account into a different Sub-Account. Amounts will be transferred monthly to the other investment choices in accordance with your premium allocation instructions. The dollar amount will be allocated to the investment choices that you specify, in the proportions that you specify. If, on any transfer date, your Account Value allocated to the Dollar Cost Averaging program is less than the amount you have elected to transfer, your DCA program will terminate. You may cancel your DCA election by notice in writing or by calling us at 1- 800-231-5453. We reserve the right to change or discontinue the DCA program. The main objective of a DCA program is to minimize the impact of short-term price fluctuations. The DCA program allows you to take advantage of market fluctuations. Since the same dollar amount is transferred to your selected investment choices at set intervals, the DCA program allows you to purchase more accumulation units when prices are low and fewer accumulation units when prices are high. Therefore, a lower average cost per accumulation unit may be achieved over the long term. However, it is important to understand that the DCA program does not assure a profit or protect against investment loss. ASSET ALLOCATION PROGRAM -- Asset Allocation is a program that allows you to choose an allocation for your Sub-Accounts to help you reach your investment goals. The Policy offers static model allocations with pre-selected Sub- Accounts and percentages that have been established for each type of investor ranging from conservative to aggressive. Over time, Sub-Account performance may cause your Sub-Account allocation percentages to change, but under the Asset Allocation Program, your Sub-Account allocations are rebalanced to the percentages in the current model you have chosen. You may choose to have your Sub-Account allocations reallocated under this program either on a quarterly, semi-annual or annual basis, but you may only participate in one model at a time. ASSET REBALANCING -- Asset Rebalancing is another type of asset allocation program in which you customize your Sub-Accounts to meet your investment needs. You select the Sub-Accounts and the percentages you want allocated to each Sub- Account. Based on the frequency you select, your model will automatically rebalance to the original percentages chosen. You can only participate in one model at a time. OPTIONAL SUPPLEMENTAL BENEFITS -- The optional supplemental benefits discussed below are among the options that may be included in a policy by rider, subject to the restrictions and limitations set forth in the rider. The cost for any optional rider you select depends on the issue age, sex, and risk class of the person insured under the policy and the amount of benefit provided by the rider. The maximum cost for the rider will be stated in your policy on the policy specifications pages. - ESTATE TAX REPEAL BENEFIT RIDER -- This rider allows you to terminate the policy and receive the policy's Account Value without paying applicable Surrender Charges, if there is no federal Estate Tax law in effect during 2011 and we receive your surrender request during the month of January 2011. The amount you receive under this rider is reduced by any outstanding Indebtedness. There is no additional charge for this rider. - LAST SURVIVOR EXCHANGE OPTION RIDER -- We will exchange your policy for two individual policies on the life of each of the persons insured under the policy. This benefit is subject to the conditions stated in the rider and may be exercised only in the event of divorce or certain changes in the federal tax laws. There is no charge for this rider. - ESTATE PROTECTION RIDER -- We will pay a term insurance benefit on proof of the death of the last surviving insured. - SINGLE LIFE YEARLY RENEWABLE TERM LIFE INSURANCE RIDER -- We will pay the term life insurance benefit upon proof of death of the insured. Riders may not be available in all states. SETTLEMENT OPTIONS -- Proceeds under your policy may be paid in a lump sum or may be applied to one of our four settlement options. The minimum amount that may be placed under a settlement option is $5,000 (unless we consent to a lesser amount), subject to our then-current rules. Once payments under the Second Option, the Third Option or the Fourth Option begin, no surrender may be made for a lump sum settlement in lieu of the life insurance payments. The following payment options are available to you or your beneficiary. If a payment option is not selected, proceeds will be paid in a lump sum. Your beneficiary may choose a settlement. FIRST OPTION -- INTEREST INCOME Payments of interest at the rate we declare (but not less than 3 1/2% per year) on the amount applied under this option. You may request these payments to be made monthly, quarterly, semi-annually or annually. At any time you may request to receive the lump sum of the money that we are holding. 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. You may request these payments to be made HARTFORD LIFE INSURANCE COMPANY 27 ---------------------------------------------------------------------------- monthly, quarterly, semi-annually or annually. The final payment will be for the balance remaining. THIRD OPTION -- PAYMENTS FOR A FIXED PERIOD An amount payable monthly for the number of years selected, which may be from one to 30 years. FOURTH OPTION -- LIFE INCOME LIFE ANNUITY -- An annuity payable monthly during the lifetime of the annuitant and terminating with the last monthly payment due preceding the death of the annuitant. LIFE ANNUITY WITH 120 MONTHLY PAYMENTS CERTAIN -- An annuity providing monthly income to the annuitant for a fixed period of 120 months and for as long thereafter as the annuitant shall live. The policy provides for guaranteed dollar amounts of monthly payments for each $1,000 applied under the four payment options. Under the Fourth Option, the amount of each payment will depend upon the age of the Annuitant at the time the first payment is due. If any periodic payment due any payee is less than $200, we may make payments less often. The table for the Fourth Option is based on the 1983a Individual Annuity Mortality Table, set back one year and with a net investment rate of 3.5% per annum. The tables for the First, Second and Third Options are based on a net investment rate of 3.5% per annum. We may, however, from time to time, at our discretion if mortality appears more favorable and interest rates justify, apply other tables which will result in higher monthly payments for each $1,000 applied under one or more of the four payment options. Other arrangements for income payments may be agreed upon. BENEFITS AT MATURITY -- The scheduled maturity date is the last date on which you may elect to make premium payments. The policy will terminate on the scheduled maturity date and any Cash Surrender Value will be paid to you. CLASS OF PURCHASERS REDUCED CHARGES FOR ELIGIBLE GROUPS -- Certain charges and deductions described above may be reduced for policies issued in connection with a specific plan, group, or program ("Eligible Group") in accordance with our rules in effect as of the date the application for a policy is approved. An Eligible Group must satisfy certain criteria such as size, expected number of policy holders, or present or anticipated levels of aggregate premiums, administrative expenses or commissions. We may modify, from time to time on a uniform basis, both the amount of the reductions and the criteria for eligibility. Reductions in charges will not be unfairly discriminatory against any person, including the affected policy holders invested in the Separate Account. HOW POLICIES ARE SOLD Hartford Equity Sales Company, Inc. ("HESCO"), serves as principal underwriter for the policies which are of-fered on a continuous basis. HESCO is registered with the Securities and Exchange Commission under the 1934 Act as a broker- dealer and is a member of the NASD. The principal business address of HESCO is the same as ours. Policies will be sold by individuals who have been appointed by us as insurance agents and who are Sales Representatives (Registered Representatives) of broker-dealers that have entered into selling agreements with "HESCO." We generally bear the expenses of providing services pursuant to policies, including the payment of expenses relating to the distribution of prospectuses for sales purposes as well as any advertising or sales literature (provided, however, we may offset some or all of these expenses by, among other things, administrative service fees received from Fund complexes). We pay compensation, including commissions, to broker-dealers, financial institutions and other affiliated broker-dealers ("Financial Intermediaries") for the sale of the policies according to selling agreements with Financial Intermediaries. Commis-sions are based on a specified amount of Premium Payments or Policy Value. We pay commissions that vary with the selling agreements and are based on "Target Premiums" that we determine. "Target premium" is a hypothetical premium that is used only to calculate commissions. It varies with the death benefit option you choose and the issue age, gender and underwriting class of the insured. During the first Policy Year, the maximum commission we pay is 45% of the premium paid up to the Target Premium. The maximum commission for the amount in excess of the Target Premium in the first Policy Year is 5.27%. We also pay an Expense Reimbursement Allowance and an override payment during the first Policy Year. The maximum Expense Reimbursement Allowance and override payment in the first Policy Year is 45% and 9%, respectively of Target Premium. In Policy Years 2 and later, the maximum commission we pay is 13% of Target Premium and 2% on premiums above the Target Premium. Your Sales Representative typically receives a portion of the compensation paid to his or her Financial Intermediary in connection with the policy, depending on the particular arrangements between your Sales Representative and their Financial Intermediary. We are not involved in determining your Sales Representative's compensation. A Sales Representative may be required to return all or a portion of the commissions paid if the policy terminates within thirteen months of the policy's issuance. You are encouraged to ask your Sales Representative about the basis upon which he or she will be personally compensated for the advice or recommendations provided in connection with this transaction. Affiliated broker-dealers may also employ wholesalers in the sales process. Wholesalers typically receive commissions based on the type of policy sold. In addition to commissions and any Rule 12b 1 fees, we or our affiliates pay significant additional compensation ("Additional Payments") to some Financial Intermediaries (who may or may not be affiliates), in connection with the promotion, sale and 28 HARTFORD LIFE INSURANCE COMPANY ---------------------------------------------------------------------------- distribution of our policies. Additional Payments are generally based on reimbursement of sales, marketing and operational ex-penses and/or on sales, premiums or assets of policies attributable to a particular Financial Intermediary. Additional Payments may take the form of, among other things: (1) sponsorship of due diligence meetings to educate Financial Intermediaries about our variable products; (2) payments for providing training and information relating to our variable products; (3) expense allowances and reimbursements; (4) override payments and bonuses; and/or (5) marketing support fees (or allowances) for providing assistance in promoting the sale of our policies. We are among several insurance companies that pay Additional Payments to certain Financial Intermediaries to receive "preferred" or recommended status. These privileges include our ability to gain additional or special access to sales staff, provide and/or attend train-ing and other conferences; placement of our products on customer lists ("shelf-space arrangements"); and otherwise improve sales by featuring our products over others. Consistent with NASD Conduct Rules, we and/or our affiliates may contribute amounts to various non-cash and cash incentive arrangements to promote the sale of the policies, as well as (1) sponsor various educational programs, sales contests and/or promotions in which participants receive prizes such as travel awards, merchandise and educational information and related support materials including hardware and/or software; (2) pay for the travel expenses, meals, lodging and entertainment including tickets to sporting events of Financial Intermediaries and their Sales Representatives; and/or (3) provide nominal gifts. In addition to NASD rules governing limitations on these payments, we also follow our guidelines and those of Financial Intermediaries which may be more restrictive than NASD rules. Additional Payments may create a potential conflict of interest in the form of an additional financial incentive to the Sales Representative and/or Financial Intermediary to recommend the purchase of this policy over another variable life policy or another investment option. For the year ended December 31, 2005, Hartford and its affiliates paid approximately $12,900,000 in Additional Payments to Financial Intermediaries in conjunction with the promotion and support of life policies. Please refer to Fund prospectuses for any payments paid by Funds to Financial Intermediaries. In addition, for the year ended December 31, 2005, Hartford and its affiliates paid $5,400,000 in Additional Payments to an affiliated Financial Intermediary, Woodbury Financial Services, Inc. (an indirect wholly-owned subsidiary of Hartford) in conjunction with the promotion and support of life policies. As of April 1, 2006, we have arrangements where we may make Additional Payments to the following non-affiliated Financial Intermediaries: 412(i) Plans, Inc., A. G. Edwards & Sons, Inc., Affiliated Financial Partners, Associated Securities, Benefit Concepts, Inc., Best Practices of America, BISYS Group, Inc., Cadaret Grant & Co., Centaurus Financial, Inc., Citigroup Global Markets, Inc., Com-monwealth Financial Network, Economic Concepts, Inc., Edward D. Jones & Co., L.P., ELAR Partners, LLC, Financial Analysts, Inc., Financial Network Investment Company, First Market Corp., FSC Securities Corporation, HD Vest Investment Services, Investacorp, Inc., Hilliard Lyons, JJS Marketing, Jonathan Hind Financial Group, LPL Financial Services, Merrill Lynch Pierce Fenner & Smith, Morgan Stanley Dean Witter, Inc., National Planning Corp., NEXT Financial Group, Inc., New West Insurance Marketing, Oglivie Security Advisors Corp., Paradigm Equity Strategies, Piper Jaffray & Co., Potomac Group, Professional Investors Exchange, Prudential Securities, Raymond James & Associates, Royal Alliance, Securities America, Inc., Sentra Securities, Spelman & Co., Triad Advisors, Inc., Wachovia Securities, Windsor Insurance Group, and WM Financial Services. Inclusion on this list does not imply that these sums necessarily constitute "special cash compensation" as defined by NASD Conduct Rule 2830(l)(4). We will endeavor to update this listing annually and interim arrangements may not be reflected. We assume no duty to notify any investor whether their Sales Representative's firm is or should be included in any such listing. You are encouraged to review the prospectus for each Fund for any other compensation arrangements pertaining to the distribution of Fund shares. PREMIUMS APPLICATION FOR A POLICY -- To purchase a policy you must submit an application to us. Within limits, you may choose the initial Face Amount. Policies generally will be issued only on the lives of insureds between the ages of 28 and 85 who supply evidence of insurability satisfactory to us. Acceptance is subject to our underwriting rules and we reserve the right to reject an application for any reason. No change in the terms or conditions of a policy will be made without your consent. The minimum initial premium is the amount required to keep the policy in force for one month, but not less than $50. Your policy will be effective on the policy date only after we receive all outstanding delivery requirements and the initial premium payment. The policy date is the date used to determine all future cyclical transactions on the policy, such as Monthly Activity Date and policy years. PREMIUM PAYMENT FLEXIBILITY -- You have considerable flexibility as to when and in what amounts you pay premiums under your policy. Prior to policy issue, you choose a planned premium, within a range determined by us. We will send you premium notices for planned premiums. Such notices may be sent on an annual, semi-annual or quarterly basis. You may also have premiums automatically deducted monthly from your checking account. The planned premiums and payment mode you select are shown on your policy's specifications page. You may change the HARTFORD LIFE INSURANCE COMPANY 29 ---------------------------------------------------------------------------- planned premiums, subject to our minimum amount rules then in effect. After the first premium has been paid, your subsequent premium payments are flexible. The actual amount and frequency of payment will affect the Account Value and could affect the amount and duration of insurance provided by the policy. Your policy may lapse if the value of your policy becomes insufficient to cover the Monthly Deduction Amounts. In such case you may be required to pay additional premiums in order to prevent the policy from terminating. For details see, "Lapse and Reinstatement." You may pay additional premiums at any time prior to the scheduled maturity date, subject to the following limitations: - The minimum premium that we will accept is $50 or the amount required to keep the policy in force. - We reserve the right to refund any excess premiums that would cause the policy to fail to meet the definition of life insurance under the Internal Revenue Code. - We reserve the right to require evidence of insurability for any premium payment that results in an increase in the death benefit greater than the amount of the premium. - Any premium payment in excess of $1,000,000 is subject to our approval. ALLOCATION OF PREMIUM PAYMENTS -- The initial Net Premium (and any additional Net Premiums received by us before the end of the right to examine period) will be allocated to the Hartford Money Market Sub-Account on the Valuation Day that we receive the premium; however, premium payments received on any Valuation Day after the close of the NYSE or on a non-Valuation Day will be invested on the next Valuation Day. We will then allocate the Account Value in the Hartford Money Market Sub- Account to the Fixed Account and the Sub-Accounts according to the premium allocation specified in your policy application upon the expiration of the right to examine policy period. You may change your premium allocation upon request in writing. Subsequent Net Premiums will be allocated to the Fixed Account and the Sub-Accounts according to your most recent written instructions as long as the number of investment choices does not exceed twenty (20), and the percentage you allocate to each Sub-Account and/or the Fixed Account is in whole percentages. If we receive a premium payment with a premium allocation instruction that does not comply with the above rules, we will allocate the Net Premium based on the allocations of your existing investment choices. You will receive several different types of notifications as to what your current premium allocation is. Each transaction confirmation received after we receive a premium payment will show how a Net Premium has been allocated. Additionally, each quarterly statement summarizes the current premium allocation in effect for your policy. ACCUMULATION UNITS -- Net Premiums allocated to the Sub-Accounts are used to credit accumulation units to such Sub-Accounts. The number of accumulation units in each Sub-Account to be credited to a policy (including the initial allocation to the Hartford Money Market Sub-Account) and the amount to be credited to the Fixed Account will be determined, first, by multiplying the Net Premium by the appropriate allocation percentage in order to determine the portion of Net Premiums or transferred Account Value to be invested in the Fixed Account or the Sub-Account. Each portion of the Net Premium or transferred Account Value to be invested in a Sub-Account is then divided by the accumulation unit value in a particular Sub-Account next computed following its receipt. The resulting figure is the number of accumulation units to be credited to each Sub-Account. ACCUMULATION UNIT VALUES -- The accumulation unit value for each Sub-Account will vary to reflect the investment experience of the applicable Fund and will be determined on each Valuation Day by multiplying the accumulation unit value of the particular Sub-Account on the preceding Valuation Day by the net investment factor for that Sub-Account for the Valuation Period then ended. The net investment factor for each of the Sub-Accounts is equal to the net asset value per share of the corresponding Fund at the end of the Valuation Period (plus the per share amount of any dividend or capital gain distributions paid by that Fund in the Valuation Period then ended) divided by the net asset value per share of the corresponding Fund at the beginning of the Valuation Period. All valuations in connection with a policy, (i.e, with respect to determining Account Value, in connection with policy loans, or in calculation of death benefits, or with respect to determining the number of accumulation units to be credited to a policy with each premium payment other than the initial premium payment) will be made on the date the request or payment is received by us at the Individual Life Operations Center, provided such date is a Valuation Day; otherwise such determination will be made on the next succeeding date which is a Valuation Day. Requests for Sub-Account transfers or premium payments received on any Valuation Day after the close of the NYSE or a non-Valuation Day will be invested on the next Valuation Day. ACCOUNT VALUES -- Each policy will have an Account Value. There is no minimum guaranteed Account Value. The Account Value of a policy changes on a daily basis and will be computed on each Valuation Day. The Account Value will vary to reflect the investment experience of the Sub-Accounts, the interest credited to the Fixed Account and the Loan Account, and the Monthly Deduction Amounts, Net Premiums paid, and any withdrawals taken. 30 HARTFORD LIFE INSURANCE COMPANY ---------------------------------------------------------------------------- A policy's Account Value is related to the net asset value of the Funds associated with the Sub-Accounts, if any, to which Net Premiums on the policy have been allocated. The Account Value in the Sub-Accounts on any Valuation Day is calculated by, first, multiplying the number of accumulation units in each Sub-Account as of the Valuation Day by the then current value of the accumulation units in that Sub-Account and then totaling the result for all of the Sub-Accounts. A policy's Account Value equals the policy's value in all of the Sub-Accounts, the Fixed Account, and the Loan Account. A policy's Cash Value is equal to the Account Value less any applicable surrender charges. A policy's Cash Surrender Value, which is the net amount available upon surrender of the policy, is the Cash Value less any Indebtedness. See "Accumulation Unit Values," above. We will pay death proceeds, Cash Surrender Values, partial withdrawals, and loan amounts allocable to the Sub-Accounts within seven calendar days after we receive all the information needed to process the payment, unless the New York Stock Exchange is closed for other than a regular holiday or weekend, trading is restricted by the Commission or the Commission declares that an emergency exists. DEATH BENEFITS AND POLICY VALUES DEATH BENEFIT -- Your policy provides for the payment of the death proceeds to the named beneficiary upon receipt of due proof of the death of the last surviving insured. Your policy will be effective on the policy Date only after we receive all outstanding delivery requirements and the initial premium payment. You must notify us in writing as soon as possible after the death of either insured. The death proceeds payable to the beneficiary equal the death benefit less any Indebtedness and less any due and unpaid Monthly Deduction Amount occurring during a grace period. The death benefit depends on the death benefit option you select, the minimum death benefit provision, and whether or not the Death Benefit Guarantee is in effect. DEATH BENEFIT OPTIONS -- There are three death benefit options: the Level Death Benefit Option ("Option A"), the Return of Account Value Death Benefit Option ("Option B") and the Return of Premium Death Benefit Option ("Option C"). Subject to the minimum death benefit described below, the death benefit under each option is as follows: - Under Option A, the current Face Amount. - Under Option B, the current Face Amount plus the Account Value on the date we receive due proof of the last surviving insured's death. - Under Option C, the current Face Amount plus the lesser of: (a) the sum of the premiums paid; or (b) $5 million. DEATH BENEFIT OPTION CHANGES -- You may change your death benefit option. You must notify us of the change in writing. You may change Option C or Option B to Option A. If you do, the Face Amount will become that amount available as a death benefit immediately prior to the option change. You may change Option A to Option B. If you do, 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. Any resulting decrease in the Face Amount may be subject to a partial surrender charge. MINIMUM DEATH BENEFIT -- The policy must satisfy a death benefit compliance test to qualify as life insurance under section 7702 of the Internal Revenue Code. The test effectively requires that the death benefit always be equal to or greater than the Account Value multiplied by a certain percentage. Your policy has a minimum death benefit. We will automatically increase the death benefit so that it will never be less than the Account Value multiplied by the minimum death benefit percentage for the then current year. This percentage varies according to the policy year and each insured's issue age, sex (where unisex rates are not used) and insurance class. This percentage will never be less than 100% or greater than 1400%. The specified percentage applicable to you is listed on the specifications page of your policy. EXAMPLES OF MINIMUM DEATH BENEFIT:
A B ----------------------------------------------------------------- Face Amount $ 100,000 $ 100,000 Account Value 46,500 34,000 Specified Percentage 250% 250% Death Benefit Option Level Level
In Example A, the death benefit equals $116,250, i.e., the greater of $100,000 (the Face Amount) or $116,250 (the Account Value at the date of death of $46,500, multiplied by the specified percentage of 250%). This amount, less any outstanding Indebtedness, constitutes the death proceeds payable to the beneficiary. In Example B, the death benefit is $100,000, i.e., the greater of $100,000 (the Face Amount) or $85,000 (the Account Value of $34,000, multiplied by the specified percentage of 250%). UNSCHEDULED INCREASES AND DECREASES IN FACE AMOUNT -- At any time after the first policy year, you may request in writing to change the Face Amount. The minimum amount by which the Face Amount can be increased or decreased is based on our 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. 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 Monthly Activity Date shown on the new policy specifications page, provided that the Monthly Deduction Amount for the first month after the effective date of the increase is made. Each HARTFORD LIFE INSURANCE COMPANY 31 ---------------------------------------------------------------------------- unscheduled increase in Face Amount is subject to an increase fee of 1/12 of $1 per $1,000 of each increase per month for the first twelve months from the effective date of each increase. This amount will not be less than 1/12 of $500 but not greater than 1/12 of $3,000. A decrease in the Face Amount will be effective on the Monthly Activity Date following the date we receive your request in writing. The remaining Face Amount must not be less than that specified in our minimum rules then in effect. If during the surrender charge period, you decrease your Face Amount to an amount lower than it has ever been, a partial surrender charge will be assessed. The surrender charge assessed will be: - the surrender charge applicable to the then current policy year, if any; multiplied by - the percentage described below. The percentage will be determined by: - subtracting the new Face Amount from the lowest previous Face Amount; and - dividing that difference by the lowest previous Face Amount. The surrender charge assessed will be deducted from your Account Value on the Monthly Activity Date on which the decrease becomes effective. We will also reduce the surrender charges applicable to future policy years and provide you a revised schedule of surrender charges. CHARGES AND POLICY VALUES -- Your policy values decrease due to the deduction of policy charges. Policy values may increase or decrease depending on investment performance; investment expenses and fees reduce the investment performance of the Sub-Accounts. Fluctuations in your account value may have an effect on your death benefit. If your policy lapses, the policy terminates and no death benefit will be paid. MAKING WITHDRAWALS FROM YOUR POLICY SURRENDER -- Provided your policy has a Cash Surrender Value, you may surrender your policy to us. In such case you may be subject to a surrender charge, see "Surrender Charge." We will pay you the Cash Surrender Value. Our liability under the policy will cease as of the date of your request for surrender, or the date you request to have your policy surrendered, if later. WITHDRAWALS -- One withdrawal is allowed per calendar month. Withdrawals may be subject to a surrender charge, see "Surrender Charge." You may request a withdrawal in writing. The minimum withdrawal allowed is $500. The maximum partial withdrawal is the Cash Surrender Value, minus $1000. If the death benefit option then in effect is Option A or Option C, the Face Amount will be reduced by the amount of any partial withdrawal. Unless specified, the withdrawal will be deducted on a pro rata basis from the Fixed Account and the Sub-Accounts. You may be assessed a charge of up to $10 for each partial withdrawal. LOANS AVAILABILITY OF LOANS -- At any time while the policy is in force, you may borrow against the policy by assigning it as sole security to us. Any new loan taken together with any existing Indebtedness may not exceed 90% of the Cash Value on the date we grant a loan. The minimum loan amount that we will allow is $500. When you take a loan, an amount equal to the loan is transferred from your investment choices to the Loan Account as collateral. Unless you specify otherwise, all loan amounts will be transferred on a pro rata basis from the Fixed Account and each of the Sub-Accounts to the Loan Account. If total Indebtedness equals or exceeds the Cash Value on any Monthly Activity Date, the policy will then go into default. See "Lapse and Reinstatement." PREFERRED INDEBTEDNESS -- If, at any time after the tenth (10th) policy anniversary, your Account Value exceeds the total of all premiums paid since issue, a portion of your Indebtedness may qualify as preferred. Preferred Indebtedness is charged a lower interest rate than non-preferred Indebtedness, if any. The maximum amount of preferred Indebtedness is the amount by which the Account Value exceeds the total premiums paid and is determined on each Monthly Activity Date. LOAN REPAYMENTS -- You can repay all or any part of a loan at any time while your policy is in force and either of the insureds' is alive. The amount of your policy loan repayment will be deducted from the Loan Account. It will be allocated among the Fixed Account and Sub-Accounts in the same percentage as premiums are allocated. All loan repayments must be clearly marked as such. Any payment not clearly marked as a loan repayment will be considered to be a premium payment. EFFECT OF LOANS ON ACCOUNT VALUE -- A loan, whether or not repaid, will have a permanent effect on your Account Value and Death Benefit. This effect occurs because the investment results of each Sub-Account will apply only to the amount remaining in such Sub-Accounts. In addition, the rate of interest credited to the Fixed Account will usually be different than the rate credited to the Loan Account. The longer a loan is outstanding, the greater the effect on your Account Value is likely to be. Such effect could be favorable or unfavorable. If the Fixed Account and the Sub-Accounts earn more than the annual 32 HARTFORD LIFE INSURANCE COMPANY ---------------------------------------------------------------------------- interest rate for funds held in the Loan Account, your Account Value will not increase as rapidly as it would have had no loan been made. If the Fixed Account and the Sub-Accounts earn less than the Loan Account, then your Account Value will be greater than it would have been had no loan been made. Additionally, if not repaid, the aggregate amount of the outstanding Indebtedness will reduce the death proceeds and the Cash Surrender Value otherwise payable. CREDITED INTEREST -- Any amounts in the Loan Account will be credited with interest at an annual rate of 3.5%. INTEREST CHARGED ON INDEBTEDNESS -- Interest will accrue daily on the Indebtedness at the policy loan rate. Because the interest charged on Indebtedness may exceed the rate credited to the Loan Account, the Indebtedness may grow faster than the Loan Account. If this happens, additional collateral will be transferred to the Loan Account. The additional collateral equals the difference between the Indebtedness and the value of the Loan Account. The additional collateral, if any, will be transferred on each Monthly Activity Date from the Fixed Account and the Sub-Accounts to the Loan Account on a pro rata basis. POLICY LOAN RATES -- The table below shows the interest rates we will charge on your Indebtedness.
INTEREST RATE PORTION OF CHARGED DURING POLICY YEARS INDEBTEDNESS EQUALS 3.5% PLUS: ---------------------------------------------------------------- 1-10 All 2% 11 and later Preferred 0% Non-Preferred 1%
LAPSE AND REINSTATEMENT POLICY DEFAULT AND LAPSE -- Your Policy will be in default on any Monthly Activity Date on which either: - The Account Value is not sufficient to cover the Monthly Deduction Amount; or - The Indebtedness exceeds the Cash Value. If the policy goes into default, we will send you a lapse notice warning you that the policy is in danger of terminating. That lapse notice will tell you the minimum premium required to keep the policy from terminating. The minimum premium will be no greater than an amount that results in a Cash Surrender Value equal to the three Monthly Deduction Amounts as of the date your policy goes into default. That notice will be mailed both to you, and any assignee, on the first day the policy goes into default, at your last known address. GRACE PERIOD -- We will keep your policy inforce for the 61 day period following the date your policy goes into default. We call that period the policy Grace Period. However, if we have not received the required premiums (specified in your lapse notice) by the end of the policy Grace Period, the policy will terminate unless the Death Benefit Guarantee is in effect. If the last surviving insured dies during the Grace Period, we will pay the death benefit. DEATH BENEFIT GUARANTEE -- The policy will remain in force at the end of the policy Grace Period as long as the Death Benefit Guarantee is available, as described below. The Death Benefit Guarantee is available so long as: - the policy is in the Death Benefit Guarantee Period; and - on each Monthly Activity Date during that period, the cumulative premiums paid into the policy, less Indebtedness and less withdrawals from the policy, equal or exceed an amount known as the Cumulative Death Benefit Guarantee Premium. The Death Benefit Guarantee Period is determined at issue, based on each insured's age, sex and risk classification. Some states may limit the maximum length of the Death Benefit Guarantee Period. In New York, this provision is referred to as the "No-Lapse Guarantee." The Cumulative Death Benefit Guarantee Premium is the premium required to maintain the Death Benefit Guarantee. If the Death Benefit Guarantee is available and you fail to pay the required premium as defined in your lapse notice by the end of the policy grace period, the Death Benefit Guarantee will then go into effect. The policy will remain in force, however: - all riders will terminate; - the Death Benefit Option becomes Level; - The Face Amount will be reduced to the Death Benefit Guarantee Amount; and - Any future scheduled increases in the Face Amount will be canceled. The Death Benefit Guarantee Amount is the amount selected by you at the time you apply for the policy. It is the death benefit while the Death Benefit Guarantee is in effect. As long as the policy remains in default and the Death Benefit Guarantee is available, the Death Benefit Guarantee will remain in effect on each subsequent Monthly Activity Date. You may be required to make premium payments to keep the Death Benefit Guarantee available, as described above. If during the Death Benefit Guarantee Period, the Face Amount is decreased below the current Death Benefit Guarantee Amount, the Death Benefit Guarantee Amount will become the new Face Amount. A new monthly Death Benefit Guarantee Premium will be calculated. We will send you a notice of the new Monthly Death Benefit Guarantee Premium, which will be used in calculating the Cumulative Death Benefit Guarantee Premium in subsequent months. HARTFORD LIFE INSURANCE COMPANY 33 ---------------------------------------------------------------------------- DEATH BENEFIT GUARANTEE GRACE PERIOD -- If, on each Monthly Activity Date during the Death Benefit Guarantee Period, the cumulative premiums paid into the policy, less Indebtedness and less withdrawals from the policy, do not equal or exceed the Cumulative Death Benefit Guarantee Premium on that date, a Death Benefit Guarantee Grace Period of 61 days will begin. We will mail to you and any assignee a notice. That notice will warn you that you are in danger of losing the Death Benefit Guarantee and will tell you the amount of premium you need to pay to continue the Death Benefit Guarantee. The Death Benefit Guarantee will be removed from the policy if the required premium is not paid by the end of the Death Benefit Guarantee Grace Period. You will receive a written notification of the change and the Death Benefit Guarantee will never again be available or in effect on the policy. If the Death Benefit Guarantee was in effect, the policy will terminate at the end of the Death Benefit Guarantee Grace Period. Loss of the Death Benefit Guarantee at the end of the Death Benefit Guarantee Grace Period does not automatically cause the policy to terminate; however the policy will terminate if the continued existence of the Death Benefit Guarantee was what was preventing the policy from terminating. REINSTATEMENT -- Unless the policy has been surrendered for its Cash Surrender Value, the policy may be reinstated prior to the maturity date, provided: - the insureds alive at the end of the grace period are also alive on the date of reinstatement; - You make your request in writing within five years from the date the policy lapsed; - You submit to us satisfactory evidence of insurability; - any policy Indebtedness is repaid or carried over to the reinstated policy; and - You pay sufficient premium to (1) cover all Monthly Deduction Amounts that are due and unpaid during the Grace Period and (2) keep your policy in force for three months after the date of reinstatement. If the policy lapse occurs because the Account Value is not sufficient to cover the Monthly Deduction Amount, then the Account Value on the reinstatement date equals: - The Cash Value on the date of policy termination; plus - Net Premiums attributable to premiums paid at the time of policy reinstatement; minus - The Monthly Deduction Amounts that were due and unpaid during the Grace Period. If the policy lapse occurs because the Indebtedness exceeds the Cash Value, then the Account Value on the reinstatement date equals: - The Cash Value on the date of policy termination; plus - Net Premiums attributable to premiums paid at the time of policy reinstatement; minus - The Monthly Deduction Amounts that were due and unpaid during the Grace Period; plus - The Surrender Charge at the time of reinstatement. The Surrender Charge, if any, that will be assessed upon the surrender of any reinstated policy, will be calculated based on the policy duration from the original Policy Date and as though the policy had never lapsed. FEDERAL TAX CONSIDERATIONS INTRODUCTION The following summary of tax rules does not provide or constitute any tax advice. It provides only a general discussion of certain of the expected federal income tax consequences with respect to amounts contributed to, invested in or received from a Contract, based on our understanding of the existing provisions of the Code, Treasury Regulations thereunder, and public interpretations thereof by the IRS (e.g., Revenue Rulings, Revenue Procedures or Notices) or by published court decisions. This summary discusses only certain federal income tax consequences to United States Persons, and does not discuss state, local or foreign tax consequences. The term United States Persons means citizens or residents of the United States, domestic corporations, domestic partnerships, trust or estates that are subject to United States federal income tax, regardless of the source of their income. See "Life Insurance Purchases by Nonresident Aliens and Foreign Corporations," regarding life insurance purchases by non-U.S. Persons. This summary has been prepared by us after consultation with tax counsel, but no opinion of tax counsel has been obtained. We do not make any guarantee or representation regarding any tax status (e.g., federal, state, local or foreign) of any Contract or any transaction involving a Contract. In addition, there is always a possibility that the tax treatment of a life insurance contract could change by legislation or other means (such as regulations, rulings or judicial decisions). Moreover, it is always possible that any such change in tax treatment could be made retroactive (that is, made effective prior to the date of the change). Accordingly, you should consult a qualified tax adviser for complete information and advice before purchasing a Contract. In addition, this discussion does not address many of the tax consequences if you use the Contract in various arrangements, including tax-qualified retirement arrangements, deferred compensation plans, split-dollar insurance arrangements, or other employee benefit arrangements. The tax consequences of any such arrangement may vary depending on the particular facts 34 HARTFORD LIFE INSURANCE COMPANY ---------------------------------------------------------------------------- and circumstances of each individual arrangement and whether the arrangement satisfies certain tax qualification requirements or falls within a potentially adverse and/or broad tax definition or tax classification (e.g., for a deferred compensation or split-dollar arrangement). In addition, the tax rules affecting such an arrangement may have changed recently, e.g., by legislation or regulations that affect compensatory or employee benefit arrangements. Therefore, if you are contemplating the use of a Contract in any arrangement the value of which to you depends in part on its tax consequences, you should consult a qualified tax adviser regarding the tax treatment of the proposed arrangement and of any Contract used in it. THE DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL PURPOSES ONLY. SPECIAL TAX RULES MAY APPLY WITH RESPECT TO CERTAIN SITUATIONS THAT ARE NOT DISCUSSED HEREIN. EACH POTENTIAL PURCHASER OF A CONTRACT IS ADVISED TO CONSULT WITH A QUALIFIED TAX ADVISER AS TO THE CONSEQUENCES OF ANY AMOUNTS INVESTED IN A CONTRACT UNDER APPLICABLE FEDERAL, STATE, LOCAL OR FOREIGN TAX LAW. 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 Chapter 1 of the Code. Accordingly, the Separate Account will not be taxed as a "regulated investment company" under Subchapter M of Chapter 1 of the Code. Investment income and 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. As a result, such investment income and realized capital gains are automatically applied to increase reserves under the policy. Currently, no taxes are due on interest, dividends and short-term or long-term capital gain earned by the Separate Account with respect to the policies. Hartford is entitled to certain tax benefits related to the investment of company assets, including assets of the Separate Account. These tax benefits, which may include the foreign tax credit and the corporate dividends received deduction, are not passed back to you since Hartford is the owner of the assets from which the tax benefits are derived. INCOME TAXATION OF POLICY BENEFITS -- GENERALLY For federal income tax purposes, the Policies should be treated as life insurance contracts under Section 7702 of the Code. The death benefit under a life insurance contract is generally excluded from the gross income of the beneficiary. Also, a life insurance policy owner is generally not taxed on increments in the contract value prior to a receipt of some amount from the policy, e.g., upon a partial or full surrender. Section 7702 imposes certain limits on the amounts of the premiums paid and cash value accumulations in a policy, in order for it to remain tax-qualified as a life insurance contract. We intend to monitor premium and cash value levels to assure compliance with the Section 7702 requirements. Although we believe 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. There is some uncertainty as to the proper determination of the premium limits for purposes of section 7702 and 7702A in the case of policies involving substandard risks. We believe our method of addressing substandard risks is reasonable, but the IRS could take a contrary view. Accordingly, there is a risk that the IRS could contend that certain policies involving substandard risks fail to meet the definition of life insurance in section 7702 or should be considered modified endowment contracts. We also believe 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 unless the policy is a modified endowment contract. 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 transactions. There is a risk that the IRS could contend that certain preferred policy loans might not be loans for tax purposes. Instead, the IRS could treat these loans as distributions from the policy. If so, such amounts might be currently taxable. 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 unclear 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 unclear 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, we believe the policy will continue to be treated as a HARTFORD LIFE INSURANCE COMPANY 35 ---------------------------------------------------------------------------- life insurance contract for federal income tax purposes after the scheduled maturity date. However, due to the lack of specific guidance on this issue, the result is not certain. If the policy is not treated as a life insurance contract for federal income tax purposes after the scheduled maturity date, among other things, the death proceeds may be taxable to the recipient. The policy owner should consult a qualified tax adviser regarding the possible adverse tax consequences resulting from an extension of the scheduled maturity date. DIVERSIFICATION REQUIREMENTS The Code requires that investments supporting your policy be adequately diversified. Code Section 817(h) provides that a variable life insurance contract will not be treated as a life insurance contract for any period during which the investments made by the separate account or underlying fund are not adequately diversified. If a contract is not treated as a life insurance contract, the policy owner will be subject to income tax on annual increases in cash value. The Treasury Department's diversification regulations under Code Section 817(h) require, among other things, that: - no more than 55% of the value of the total assets of the segregated asset account underlying a variable contract is represented by any one investment, - no more than 70% is represented by any two investments, - no more than 80% is represented by any three investments and - no more than 90% is represented by any four investments. In determining whether the diversification standards are met, all securities of the same issuer, all interests in the same real property project, and all interests in the same commodity are each treated as a single investment. In the case of government securities, each government agency or instrumentality is treated as a separate issuer. A separate account must be in compliance with the diversification standards on the last day of each calendar quarter or within 30 days after the quarter ends. If an insurance company inadvertently fails to meet the diversification requirements, the company may still comply within a reasonable period and avoid the taxation of contract income on an ongoing basis. However, either the insurer or the policy owner must agree to pay the tax due for the period during which the diversification requirements were not met. OWNERSHIP OF THE ASSETS IN THE SEPARATE ACCOUNT In order for a variable life insurance contract to qualify for income tax deferral, assets in the separate account supporting the contract must be considered to be owned by the insurance company, and not by the contract owner, for tax purposes. The IRS has stated in published rulings that a variable contract owner will be considered the "owner" of separate account assets for income tax purposes if the contract owner possesses sufficient incidents of ownership in those assets, such as the ability to exercise investment control over the assets. In circumstances where the variable contract owner is treated as the "tax owner" of certain separate account assets, income and gain from such assets would be includable in the variable contract owner's gross income. The Treasury Department indicated in 1986 that, in regulations or revenue rulings under Code Section 817(d) (relating to the definition of a variable contract), it would provide guidance on the extent to which contract owners may direct their investments to particular sub-accounts without being treated as tax owners of the underlying shares. Although no such regulations have been issued to date, the IRS has issued a number of rulings that indicate that this issue remains subject to a facts and circumstances test for both variable annuity and life insurance contracts. For instance, the IRS in Rev. Rul. 2003-92 reiterated its position in prior rulings that, where shares in a fund offered in an insurer's separate account are not available exclusively through the purchase of a variable insurance contract (e.g., where such shares can be purchased directly by the general public or others without going through such a variable contract), such "public availability" means that such shares should be treated as owned directly by the contract owner (and not by the insurer) for tax purposes, as if such contract owner had chosen instead to purchase such shares directly (without going through the variable contract). None of the shares or other interests in the fund choices offered in our Separate Account for your Contract are available for purchase except through an insurer's variable contracts and other permitted entities. The IRS in Rev. Rul. 2003-91 also indicated that an insurer could provide as many as 20 fund choices for its variable contract owners (each with a general investment strategy, e.g., a small company stock fund or a special industry fund) under certain circumstances, without causing such a contract owner to be treated as the tax owner of any of the underlying fund assets. The ruling does not specify the number of fund options, if any, that might prevent a variable contract owner from receiving favorable tax treatment. As a result, we believe that any owner of a contract also should receive the same favorable tax treatment. However, there is necessarily some uncertainty here as long as the IRS continues to use a facts and circumstances test for investor control and other tax ownership issues. Therefore, we reserve the right to modify the Contract as necessary to prevent you from being treated as the tax owner of any underlying assets. TAX DEFERRAL DURING ACCUMULATION PERIOD Under existing provisions of the Code, except as described below, any increase in a policy owner's contract value is generally not taxable to the policy owner unless amounts are received (or are deemed to be received) under the policy prior to the insured's death. If there is a total withdrawal from the policy, then the surrender value will be includable in the policy owner's income to the extent that the amount received exceeds the policy's "basis" or "investment in the contract." (If there is any debt at the time of a total withdrawal, then such 36 HARTFORD LIFE INSURANCE COMPANY ---------------------------------------------------------------------------- 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 policy, less the aggregate amount received under the policy previously to the extent such amounts received were excludable from gross income. Whether partial withdrawals (or loans or other amounts deemed to be received) from the policy constitute income to the policy owner depends, in part, upon whether the policy is considered a modified endowment contract for federal income tax purposes, as described below. MODIFIED ENDOWMENT CONTRACTS Code Section 7702A applies an additional limit on premiums paid, 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 a life insurance contract, 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 (or during any later seven-year test period) 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). A new seven-pay test and seven-year test period may be applied each time that a policy undergoes a material change, which includes an increase in the Face Amount. In addition, where the death benefit is payable only upon the death of a surviving insured individual, if there is a reduction in benefits under the policy at any time, the seven-pay test is applied retroactively as if the policy always had the reduced benefit level from the date of issue. Any reduction in benefits attributable to the nonpayment of premiums will not be taken into account for purposes of the seven-pay test if the benefits are reinstated within 90 days after the reduction. A policy that is classified as a MEC is eligible for certain aspects of the beneficial tax treatment accorded to life insurance. That is, the death benefit is excluded from income tax and increments in contract value are not subject to current income tax (prior to an actual or deemed receipt of some amount). However, if the contract is classified as a MEC, then withdrawals and other amounts received or deemed received from the contract will be treated first as withdrawals of income and then as a tax-free recovery of premium payments or other basis. Thus, withdrawals will be includable in income to the extent the contract value exceeds the unrecovered basis. Also, the income portion of any amount received or deemed received prior to age 59 1/2 is subject to an additional 10% penalty tax, with certain exceptions. The amount of any loan (including unpaid interest thereon) under the contract will be treated as an amount received from the contract for income tax and additional 10% penalty tax purposes. In addition, if the policy owner assigns or pledges any portion of the value of a contract (or agrees to assign or pledge any portion), then such portion will be treated as an amount received from the contract for tax purposes. The policy owner's basis in the contract is increased by the amount includable in income with respect to such assignment, pledge or loan, though it is not affected by any other aspect of the assignment, pledge or loan (including its release or repayment). All MEC policies that are issued in the same calendar year to the same policy owner by the same insurer (or its affiliates) are treated as one MEC policy for the purpose of determining the taxable portion of any loan or other amount received or deemed received that is subject to ordinary income tax or the 10% penalty tax. The adverse income tax (and 10% penalty tax) treatment of loans or other amounts received or deemed received from a MEC affects not only those amounts received or deemed received after the date on which a policy first becomes a MEC, but also those amounts received or deemed received in anticipation of the policy becoming a MEC. Amounts received or deemed received during the 2 years prior to such initial MEC date are automatically treated as amounts received in anticipation of MEC status. Before assigning, pledging, or requesting a loan or other amount to be received under a policy that is a MEC, a policy owner should consult a qualified tax adviser. We have instituted procedures to monitor whether a policy may become classified as a MEC. ESTATE AND GENERATION SKIPPING TRANSFER TAXES ESTATE TAX -- GENERALLY When the last surviving insured dies, the death proceeds will generally be includable in the policy owner's estate for purposes of federal estate tax if the last surviving insured owned the policy. If the policy owner was not the last surviving insured, the fair market value of the policy would be included in the policy owner's estate upon the policy owner's death. The policy would not be includable in the last surviving insured's estate if he or she neither retained incidents of ownership at death nor had given up ownership within three years before death. GENERATION SKIPPING TRANSFER TAX -- GENERALLY Under certain circumstances, the Code may impose a "generation skipping transfer tax" when all or part of a life insurance policy is transferred to, or a death benefit is paid to, an individual two or more generations younger than the owner. Regulations issued under the Code may require us to deduct the tax from your policy, or from any applicable payment, and pay it directly to the IRS. FEDERAL INCOME TAX WITHHOLDING AND REPORTING If any amounts are (or are deemed to be) current taxable income to the policy owner, such amounts will generally be HARTFORD LIFE INSURANCE COMPANY 37 ---------------------------------------------------------------------------- subject to federal income tax withholding and reporting, pursuant to the Code. NON-INDIVIDUAL OWNERS AND BUSINESS BENEFICIARIES OF POLICIES If a policy is owned or held by a corporation, trust or other non-natural person, this could jeopardize some (or all) of such entity's interest deduction under Code Section 264, even where such entity's indebtedness is in no way connected to the policy. In addition, under Section 264(f)(5), if a business (other than a sole proprietorship) is directly or indirectly a beneficiary of a policy, this policy could be treated as held by the business for purposes of the Section 264(f) entity-holder rules. Therefore, it would be advisable to consult with a qualified tax advisor before any non-natural person is made an owner or holder of a policy, or before a business (other than a sole proprietorship) is made a beneficiary of a policy. 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 and required tax forms are submitted to us. If withholding applies, we are required to withhold tax at the 30% rate, or lower treaty rate if applicable, and remit it to the IRS. In addition, purchasers may be subject to state premium tax, other state and/or municipal taxes, and taxes that may be imposed by the purchaser's country of citizenship or residence. LEGAL PROCEEDINGS There continues to be significant federal and state regulatory activity relating to financial services companies, particularly mutual funds companies. These regulatory inquiries have focused on a number of mutual fund issues, including market timing and late trading, revenue sharing and directed brokerage, fees, transfer agents and other fund service providers, and other mutual-fund related issues. The Hartford, which includes Hartford Life Insurance Company ("HLIC") and its affiliates, has received requests for information and subpoenas from the Securities and Exchange Commission ("SEC"), subpoenas from the New York Attorney General's Office, a subpoena from the Connecticut Attorney General's Office, requests for information from the Connecticut Securities and Investments Division of the Department of Banking, and requests for information from the New York Department of Insurance, in each case requesting documentation and other information regarding various mutual fund regulatory issues. The Hartford continues to cooperate fully with these regulators in these matters. The SEC's Division of Enforcement and the New York Attorney General's Office are investigating aspects of The Hartford's variable annuity and mutual fund operations related to market timing. The Hartford continues to cooperate fully with the SEC and the New York Attorney General's Office in these matters. The funds are available for purchase by the Separate Accounts of different variable universal life insurance policies, variable annuity products, and funding agreements, and they are offered directly to certain qualified retirement plans. Although existing products contain transfer restrictions between Sub- Accounts, some products, particularly older variable annuity products, do not contain restrictions on the frequency of transfers. In addition, as a result of the settlement of litigation against The Hartford with respect to certain owners of older variable annuity contracts, The Hartford's ability to restrict transfers by these owners has, until recently, been limited. The Hartford has executed an agreement with the parties to the previously settled litigation which, together with separate agreements between these Contract Owners and their broker, has resulted in the exchange or surrender of substantially all of the variable annuity contracts that were the subject of the previously settled litigation. Pursuant to an agreement in principle reached in February 2005 with the Board of Directors of the HLS funds, The Hartford has indemnified the affected funds for material harm deemed to have been caused to the funds by frequent trading by these owners for the period from January 2, 2004 through December 31, 2005. The Hartford does not expect to incur additional costs pursuant to this agreement in principle in light of the exchange or surrender of these variable annuity contracts. The SEC's Division of Enforcement also is investigating aspects of The Hartford's variable annuity and mutual fund operations related to directed brokerage and revenue sharing. The Hartford discontinued the use of directed brokerage in recognition of mutual fund sales in late 2003. The Hartford continues to cooperate fully with the SEC in these matters. The Hartford has received subpoenas from the New York Attorney General's Office and the Connecticut Attorney General's Office requesting information relating to The Hartford's group annuity products, including single premium group annuities used in maturity or terminal funding programs. These subpoenas seek information about how various group annuity products are sold, how The Hartford selects mutual funds offered as investment options in certain group annuity products, and how brokers selling The Hartford's group annuity products are compensated. The Hartford continues to cooperate fully with these regulators in these matters. To date, none of the SEC's and New York Attorney General's market timing investigation, the SEC's directed brokerage investigation, or the New York Attorney General's and Connecticut Attorney General's single premium group annuity investigation has resulted in the initiation of any formal action 38 HARTFORD LIFE INSURANCE COMPANY ---------------------------------------------------------------------------- against The Hartford by these regulators. However, The Hartford believes that the SEC, the New York Attorney General's Office, and the Connecticut Attorney General's Office are likely to take some action against The Hartford at the conclusion of the respective investigations. The Hartford is engaged in active discussions with the SEC, the New York Attorney General's Office and the Connecticut Attorney General's Office. The potential timing of any resolution of any of these matters or the initiation of any formal action by any of these regulators is difficult to predict. Hartford Life, Inc. ("Hartford Life") recorded a charge of $66 million, after-tax, to establish a reserve for the market timing and directed brokerage matters in the first quarter of 2005. Based on recent developments, Hartford Life recorded an additional charge of $36 million, after-tax, in the fourth quarter of 2005, of which $14 million, after tax, was attributed to HLIC, to increase the reserve for the market timing, directed brokerage and single premium group annuity matters. This reserve is an estimate; in view of the uncertainties regarding the outcome of these regulatory investigations, as well as the tax-deductibility of payments, it is possible that the ultimate cost to Hartford Life of these matters could exceed the reserve by an amount that would have a material adverse effect on Hartford Life's consolidated results of operations or cash flows in a particular quarterly or annual period. It is reasonably possible that HLIC may ultimately be liable for all or a portion of the ultimate cost to Hartford Life in excess of the $14 million already attributed to HLIC. However, the ultimate liability of HLIC is not reasonably estimable at this time. On May 24, 2005, The Hartford received a subpoena from the Connecticut Attorney General's Office seeking information about The Hartford's participation in finite reinsurance transactions in which there was no substantial transfer of risk between the parties. The Hartford is cooperating fully with the Connecticut Attorney General's Office in this matter. On June 23, 2005, The Hartford received a subpoena from the New York Attorney General's Office requesting information relating to purchases of The Hartford's variable annuity products, or exchanges of other products for The Hartford's variable annuity products, by New York residents who were 65 or older at the time of the purchase or exchange. On August 25, 2005, The Hartford received an additional subpoena from the New York Attorney General's Office requesting information relating to purchases of or exchanges into The Hartford's variable annuity products by New York residents during the past five years where the purchase or exchange was funded using funds from a tax-qualified plan or where the variable annuity purchased or exchanged for was a Sub-Account of a tax- qualified plan or was subsequently put into a tax-qualified plan. The Hartford is cooperating fully with the New York Attorney General's Office in these matters. On July 14, 2005, The Hartford received an additional subpoena from the Connecticut Attorney General's Office concerning The Hartford's structured settlement business. This subpoena requests information about The Hartford's sale of annuity products for structured settlements, and about the ways in which brokers are compensated in connection with the sale of these products. The Hartford is cooperating fully with the New York Attorney General's Office and the Connecticut Attorney General's Office in these matters. The Hartford has received a request for information from the New York Attorney General's Office about issues relating to the reporting of workers' compensation premium. The Hartford is cooperating fully with the New York Attorney General's Office in this matter. The Hartford does not expect any of these actions to result in a material adverse on the Separate Accounts or on the HLS funds that serve as underlying investments for these accounts. RESTRICTIONS ON FINANCIAL TRANSACTIONS Federal laws designed to counter terrorism and prevent money laundering might, in certain circumstances, require us to block a policy owner's ability to make certain transactions and thereby we may refuse to accept any request for transfers, withdrawals, surrenders, or death benefits, until the instructions are received from the appropriate regulator. We may also be required to provide additional information about you and your policy to government regulators. ILLUSTRATIONS OF POLICY BENEFITS In order to help you understand how your policy values would vary over time under different sets of assumptions, we will provide you with certain illustrations upon request. These illustrations will be based on the age and insurance risk characteristics of the insured and will also be based on the stated amount of insurance, death benefit option, premium payment pattern and hypothetical rates of return that you request. You can request for such personalized illustrations at any time from your registered representative. We have included an example of an illustration as Appendix A to this prospectus. FINANCIAL STATEMENTS We have included the statutory financial statements for the Company and the Separate Account in the Statement of Additional Information (SAI). To receive a copy of the SAI free of charge, call your registered representative or write to us at: The Hartford P.O. Box 2999 Hartford, CT 06104-2999 HARTFORD LIFE INSURANCE COMPANY 39 ---------------------------------------------------------------------------- GLOSSARY OF SPECIAL TERMS ACCOUNT VALUE: the total of all amounts in the Fixed Account, Loan Account and Sub-Accounts. CASH SURRENDER VALUE: the Cash Value less all Indebtedness. CASH VALUE: the Account Value less any applicable Surrender Charges. CUMULATIVE DEATH BENEFIT GUARANTEE PREMIUM: the premium required to maintain the Death Benefit Guarantee. Initially, the Cumulative Death Benefit Guarantee Premium is the Death Benefit Guarantee Premium. On each Monthly Activity Date thereafter, the Cumulative Death Benefit Guarantee Premium is: (a) the Cumulative Death Benefit Guarantee Premium on the previous Monthly Activity Date; plus (b) the current Death Benefit Guarantee Premium. DEATH BENEFIT GUARANTEE AMOUNT: a benefit amount selected by you at the time you apply for the policy. This is the death benefit that will apply to your policy while the Death Benefit Guarantee is in effect. DEATH BENEFIT GUARANTEE PREMIUM: the amount of monthly premium required to keep the Death Benefit Guarantee available, as shown in the policy's specification page, and used to calculate the Cumulative Death Benefit Guarantee Premium. FACE AMOUNT: an amount we use to determine the Death Benefit. On the policy date, the Face Amount equals the initial Face Amount shown in your policy. Thereafter, it may change under the terms of the policy. FIXED ACCOUNT: part of our general account to which all or a portion of the Account Value may be allocated. FUNDS: the registered open-end management companies in which assets of the Separate Account may be invested. INDEBTEDNESS: all loans taken on the policy, plus any interest due or accrued minus any loan repayments. LOAN ACCOUNT: an account established for any amounts transferred from the Fixed Account and Sub-Accounts as a result of loans. The amounts in the Loan Account are credited with interest and are not subject to the investment experience of any Sub-Accounts. MATURITY DATE: The date on which your policy matures and your policy terminates. MONTHLY ACTIVITY DATE: the policy date and the same date in each succeeding month as the policy date. However, whenever the Monthly Activity Date falls on a date other than a Valuation Day, the Monthly Activity Date will be deemed to be the next Valuation Day. NET PREMIUM: the amount of premium credited to Account Value. It is premium paid minus the sales load and premium tax charge. SEPARATE ACCOUNT: an account which has been established by us to separate the assets funding the variable benefits for the class of contracts to which the policy belongs from our other assets. SUB-ACCOUNT: a subdivision of the Separate Account. SURRENDER CHARGE: a charge that may be assessed if you surrender your policy or the Face Amount is decreased. VALUATION DAY: the date on which a Sub-Account is valued. This occurs every day the New York Stock Exchange is open for trading. WE, US, OUR: Hartford Life Insurance Company, sometimes referred to as "Hartford." YOU, YOUR: the owner of the policy. 40 HARTFORD LIFE INSURANCE COMPANY ---------------------------------------------------------------------------- APPENDIX A -- HYPOTHETICAL ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES AND CASH SURRENDER VALUES The tables illustrate the way policies will perform based on assumptions about returns and the insured's characteristics. The illustrations show how the death benefit, cash surrender value and account value will vary over time, assuming hypothetical gross rates of return, 0%, 6% and 12%. The illustrations are based on the assumptions stated above each illustration and assume no rider benefits or allocations to the Fixed Account. The illustrations show the Option A (Level) death benefit option. Policy values would be higher or lower from the illustrated amounts in certain circumstances. For example, illustrated amounts would be different where actual gross rates of return averaged 0%, 6% and 12%, but: (i) the rates of return varied above and below these averages during the period, (ii) premiums were paid in other amounts or at other than annual intervals, or (iii) account values were allocated differently among the Subaccounts. The policy values would also differ if a policy loan or withdrawal were made. The death benefits, cash surrender values and account values shown in the tables reflect: (i) deductions from premiums for the sales charge and state and federal premium tax charge and (ii) monthly deduction for per thousand charges, mortality and expense risk charges and cost of insurance charges. The amounts shown for the death benefits, account values and cash surrender values as of the end of each Policy Year take into account an arithmetic average of underlying Fund 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 underlying Fund charges) of -0.89%, 5.11% and 11.11%, respectively. The Company, through its agent, will provide you a personalized illustration based upon the proposed Insured's age, sex, underwriting classification, the specified insurance benefits, and the premium requested. The illustration will show the weighted average Fund expenses, arithmetic average Fund expenses and/or the actual Fund expenses depending on what you request. An explanation of how the Fund expenses are calculated will appear on the illustration. The hypothetical gross annual investment return assumed in such an illustration would not exceed 12%. HARTFORD LIFE INSURANCE COMPANY 41 ---------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY FLEXIBLE PREMIUM LAST SURVIVOR VARIABLE UNIVERSAL LIFE INSURANCE DEATH BENEFIT OPTION: LEVEL $2,300,000 FACE AMOUNT ISSUE AGES: 59 MALE STANDARD NON-NICOTINE / 56 FEMALE STANDARD NON-NICOTINE $20,000 PLANNED PREMIUM ILLUSTRATED VALUES ASSUMING CURRENT CHARGES UNDER THE POLICY
TOTAL PREMIUMS WITH 5% DEATH BENEFIT ACCOUNT VALUE CASH SURRENDER VALUE --------------------------------------- ---------------------------------------------------------------------- --------------------------------------- ---------------------------------------------------------------------- YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12% --------------------------------------------- ------------- -------------------------------------------------------- ------------- -- -- 1 $ 21,000 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 14,138 $ 15,096 $ 16,055 $ 0 $ 0 $ 825 2 $ 43,050 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 28,172 $ 30,975 $ 33,896 $ 12,941 $ 15,744 $ 18,665 3 $ 66,203 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 41,819 $ 47,379 $ 53,404 $ 26,589 $ 32,148 $ 38,174 4 $ 90,513 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 55,770 $ 65,058 $ 75,525 $ 42,715 $ 52,003 $ 62,470 5 $ 116,038 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 69,097 $ 83,096 $ 99,505 $ 58,218 $ 72,217 $ 88,626 6 $ 142,840 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 81,698 $ 101,396 $ 125,425 $ 72,995 $ 92,693 $ 116,721 7 $ 170,982 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 93,405 $ 119,788 $ 153,304 $ 86,878 $ 113,261 $ 146,776 8 $ 200,531 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 104,027 $ 138,073 $ 183,146 $ 99,676 $ 133,722 $ 178,795 9 $ 231,558 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 113,388 $ 156,056 $ 214,977 $ 111,212 $ 153,881 $ 212,802 10 $ 264,136 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 121,158 $ 173,385 $ 248,681 $ 121,158 $ 173,385 $ 248,681 15 $ 453,150 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 194,365 $ 315,157 $ 528,961 $ 194,365 $ 315,157 $ 528,961 20 $ 694,385 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 243,686 $ 473,327 $ 975,326 $ 243,686 $ 473,327 $ 975,326 25 $ 1,002,269 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 242,726 $ 638,145 $ 1,733,059 $ 242,726 $ 638,145 $ 1,733,059 30 $ 1,395,216 $ 2,300,000 $ 2,300,000 $ 3,185,981 $ 82,951 $ 721,705 $ 3,034,268 $ 82,951 $ 721,705 $ 3,034,268 35 $ 1,896,726 $ 0 $ 2,300,000 $ 5,469,173 $ 0 $ 624,068 $ 5,208,737 $ 0 $ 624,068 $ 5,208,737 40 $ 2,536,795 $ 0 $ 0 $ 8,878,538 $ 0 $ 0 $ 8,878,538 $ 0 $ 0 $ 8,878,538 44 $ 3,174,003 $ 0 $ 0 $ 13,630,104 $ 0 $ 0 $ 13,630,104 $ 0 $ 0 $ 13,630,104
These hypothetical rates of return are illustrative only and should not be considered a representation of past or future investment results. Actual investment results may be more or less than those shown and will depend on a number of factors. The Account Values and Cash Surrender Values will be different from those shown if the actual rates of return averaged 0%, 6%, or 12% over a period of years but fluctuated above or below the average for individual contract years. No representation can be made that these rates of return can be achieved for any one year or sustained over a period of time. 42 HARTFORD LIFE INSURANCE COMPANY ---------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY FLEXIBLE PREMIUM LAST SURVIVOR VARIABLE UNIVERSAL LIFE INSURANCE DEATH BENEFIT OPTION: LEVEL $2,300,000 FACE AMOUNT ISSUE AGES: 59 MALE STANDARD NON-NICOTINE / 56 FEMALE STANDARD NON-NICOTINE $20,000 PLANNED PREMIUM ILLUSTRATED VALUES ASSUMING MAXIMUM CHARGES UNDER THE POLICY
TOTAL PREMIUMS WITH 5% DEATH BENEFIT ACCOUNT VALUE CASH SURRENDER VALUE -------------------------------------- --------------------------------- --------------------------------- -------------------------------------- --------------------------------- --------------------------------- YEAR INTEREST 0% 6% 12% 0% 6% 12% 0% 6% 12% ------ ------------ ------------ ------------ ------------ ----------- ---------- ---------- ----------- ---------- ---------- ---- ---- 1 $ 21,000 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 14,138 $ 15,096 $ 16,055 $ 0 $ 0 $ 825 2 $ 43,050 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 27,788 $ 30,579 $ 33,488 $ 12,557 $ 15,348 $ 18,258 3 $ 66,203 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 40,703 $ 46,205 $ 52,171 $ 25,473 $ 30,974 $ 36,941 4 $ 90,513 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 53,577 $ 62,706 $ 73,008 $ 40,522 $ 49,651 $ 59,953 5 $ 116,038 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 65,489 $ 79,152 $ 95,202 $ 54,610 $ 68,273 $ 84,323 6 $ 142,840 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 76,284 $ 95,369 $ 118,725 $ 67,580 $ 86,666 $ 110,021 7 $ 170,982 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 85,761 $ 111,131 $ 143,501 $ 79,234 $ 104,604 $ 136,974 8 $ 200,531 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 93,680 $ 126,158 $ 169,413 $ 89,329 $ 121,807 $ 165,061 9 $ 231,558 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 99,769 $ 140,130 $ 196,304 $ 97,594 $ 137,954 $ 194,128 10 $ 264,136 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 103,722 $ 152,675 $ 223,981 $ 103,722 $ 152,675 $ 223,981 15 $ 453,150 $ 2,300,000 $ 2,300,000 $ 2,300,000 $ 94,431 $ 197,401 $ 390,007 $ 94,431 $ 197,401 $ 390,007 20 $ 694,385 $ 900,000 $ 2,300,000 $ 2,300,000 $ 0 $ 92,264 $ 516,237 $ 0 $ 92,264 $ 516,237 25 $ 1,002,269 $ 900,000 $ 900,000 $ 2,300,000 $ 0 $ 0 $ 432,456 $ 0 $ 0 $ 432,456 30 $ 1,395,216 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 35 $ 1,896,726 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 40 $ 2,536,795 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 44 $ 3,174,003 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
These hypothetical rates of return are illustrative only and should not be considered a representation of past or future investment results. Actual investment results may be more or less than those shown and will depend on a number of factors. The Account Values and Cash Surrender Values will be different from those shown if the actual rates of return averaged 0%, 6%, or 12% over a period of years but fluctuated above or below the average for individual contract years. No representation can be made that these rates of re-turn can be achieved for any one year or sustained over a period of time. HARTFORD LIFE INSURANCE COMPANY 43 ---------------------------------------------------------------------------- WHERE YOU CAN FIND MORE INFORMATION You can call us at 1-800-231-5453 to ask us questions, or to receive a copy of the Statement of Additional Information, free of charge. The Statement of Additional Information, which is considered a part of this Prospectus because it is incorporated by reference, contains more information about this life insurance policy and, like this prospectus, is filed with the Securities and Exchange Commission. You should read the Statement of Additional Information because you are bound by the terms contained in it. You can contact your financial adviser for a personalized illustration of policy fees and charges, free of charge. We file other information with the Securities and Exchange Commission. You may read and copy any document we file at the SEC's public reference room located at 100 F Street, NE, Room 1580, Washington, DC 20549. Copies of documents filed with the SEC may be obtained, upon payment of a duplicating fee, by writing the SEC's Public Reference Section. Please call the SEC at 202-551-8090 for further information. Our SEC filings are also available to the public at the SEC's website at http://www.sec.gov. 811-07271 PART B HARTFORD LIFE INSURANCE COMPANY ---------------------------------------------------------------------------- STATEMENT OF ADDITIONAL INFORMATION (PART B) STAG VARIABLE LIFE LAST SURVIVOR II SERIES II SEPARATE ACCOUNT VL II HARTFORD LIFE INSURANCE COMPANY This Statement of Additional Information is not a prospectus. The information contained in this document should be read in conjunction with the prospectus. To obtain a prospectus, call us at 1-800-231-5453. DATE OF PROSPECTUS: MAY 1, 2006 DATE OF STATEMENT OF ADDITIONAL INFORMATION: MAY 1, 2006 2 HARTFORD LIFE INSURANCE COMPANY ---------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ----------------------------------------------------------------------------------------------------------------------------------- GENERAL INFORMATION AND HISTORY 3 SERVICES 3 EXPERTS 3 DISTRIBUTION OF THE POLICIES 3 ADDITIONAL INFORMATION ABOUT CHARGES 4 PERFORMANCE DATA 4 FINANCIAL STATEMENTS 4
HARTFORD LIFE INSURANCE COMPANY 3 ---------------------------------------------------------------------------- GENERAL INFORMATION AND HISTORY HARTFORD LIFE INSURANCE COMPANY ("HARTFORD") -- Hartford Life Insurance Company is a stock life insurance company engaged in the business of writing life insurance, both individual and group, in all states of the United States and the District of Columbia. We were originally incorporated under the laws of Massachusetts on June 5, 1902, and subsequently redomiciled to Connecticut. Our offices are located in Simsbury, Connecticut; however, our mailing address is P.O. Box 2999, Hartford, CT 06104-2999. Hartford Life Insurance Company is controlled by Hartford Life and Accident Insurance Company, which is controlled by Hartford Life Inc., which is controlled by Hartford Accident & Indemnity Company, which is controlled by Hartford Fire Insurance Company, which is controlled by Nutmeg Insurance Company, which is controlled by The Hartford Financial Services Group, Inc. Each of these companies is engaged in the business of insurance and financial services. SEPARATE ACCOUNT VL II was established as a separate account under Connecticut law on September 30, 1994. The Separate Account is classified as a unit investment trust registered with the Securities and Exchange Commission under the Investment Company Act of 1940. SERVICES SAFEKEEPING OF ASSETS -- Title to the assets of the Separate Account is held by Hartford. The assets are kept physically segregated and are held separate and apart from Hartford's general corporate assets. Records are maintained of all purchases and redemptions of Fund shares held in each of the Sub-Accounts. EXPERTS The consolidated balance sheets of Hartford Life Insurance Company (the "Company") as of December 31, 2005 and 2004, and the related consolidated statements of income, changes in stockholder's equity and cash flows for each of the three years in the period ended December 31, 2005 have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report dated February 22, 2006 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the Company's change in its method of accounting for certain nontraditional long- duration contracts and for separate accounts in 2004) and the statements of assets and liabilities of Hartford Life Insurance Company Separate Account VL II (the "Account") as of December 31, 2005, and the related statements of operations and of changes in net assets and the financial highlights for the respective stated periods then ended have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report dated February 22, 2006, which reports are both included in this Statement of Additional Information and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. The principal business address of Deloitte & Touche LLP is City Place, 33rd Floor, 185 Asylum Street, Hartford, Connecticut 06103-3402. DISTRIBUTION OF THE POLICIES Hartford Equity Sales Company, Inc. ("HESCO") serves as principal underwriter for the policies and offers the policies on a continuous basis. HESCO is controlled by Hartford and is located at the same address as Hartford. HESCO is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 as a broker-dealer and is a member of the National Association of Securities Dealers, Inc. ("NASD"). Hartford currently pays HESCO underwriting commissions for its role as Principal Underwriter of all policies offered through this Separate Account. For the past three years, the aggregate dollar amount of underwriting commissions paid to HESCO in its role as Principal Underwriter has been: 2005: $1,342,384; 2004: $1,767,277; and 2003: $2,044,680. HESCO did not retain any of these commissions. HESCO enters into sales agreements with registered broker-dealers, financial institutions and other parties ("Financial Intermediaries"). The policies are sold by salespersons who represent Hartford as insurance agents and who are registered representatives ("Sales Representatives") of HESCO or certain other registered broker-dealers who have entered into sales agreements with HESCO. Financial Intermediaries are compensated according to a schedule in the sales agreement and are subject to any rules or regulations that apply to variable life insurance compensation. This compensation is usually paid from sales charges described in the Prospectus. The compensation generally consists of commissions and may involve other types of payments that are described more fully in the prospectus. 4 HARTFORD LIFE INSURANCE COMPANY ---------------------------------------------------------------------------- ADDITIONAL INFORMATION ABOUT CHARGES SALES LOAD -- The maximum and current sales load under the policy is 8% in years 1 through 3 and 4% year 4 and beyond of premium in order to cover expenses related to the sale and distribution of the Policy. REDUCED CHARGES FOR ELIGIBLE GROUPS -- Certain charges and deductions described above may be reduced for policies issued in connection with a specific plan, group, or program ("Eligible Group") in accordance with our rules in effect as of the date the application for a policy is approved. An Eligible Group must satisfy certain criteria such as size, expected number of policy holders, or present or anticipated levels of aggregate premiums, administrative expenses or commissions. We may modify, from time to time on a uniform basis, both the amount of the reductions and the criteria for eligibility. Reductions in charges will not be unfairly discriminatory against any person, including the affected policy holders invested in the Separate Account. UNDERWRITING PROCEDURES -- To purchase a policy you must submit an application to us. Within limits, you may choose the initial Face Amount. Policies generally will be issued only on the lives of insureds between the ages of 28 and 85 who supply evidence of insurability satisfactory to us. Acceptance is subject to our underwriting rules and we reserve the right to reject an application for any reason. No change in the terms or conditions of a policy will be made without your consent. Cost of insurance rates will be determined on each policy anniversary based on our future expectations of such factors as mortality, expenses, interest, persistency and taxes. For preferred and standard risks, the cost of insurance rate will not exceed those based on the 1980 Commissioners' Standard Ordinary Mortality Table (ALB), Male or Female, Nonsmoker or Smoker Table, age last birthday (unisex rates may be required in some states). A table of guaranteed cost of insurance rates per $1,000 will be included in your policy, however, we reserve the right to use rates less than those shown in the table. Special risk classes are used when mortality experience in excess of the standard risk classes is expected. These substandard risks will be charged a higher cost of insurance rate that will not exceed rates based on a multiple of 1980 Commissioners' Standard Ordinary Mortality Table (ALB), Male or Female, Nonsmoker or Smoker Table, age last birthday (unisex rates may be required in some states) plus any flat extra amount assessed. The multiple will be based on the insured's substandard rating. INCREASES IN FACE AMOUNT -- At any time after the first policy year, you may request in writing to change the Face Amount. The minimum amount by which the Face Amount can be increased is based on our 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. 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 Monthly Activity Date shown on the new policy specifications page, provided that the Monthly Deduction Amount for the first month after the effective date of the increase is made. Each unscheduled increase in Face Amount is subject to an increase fee of 1/12 of $1 per $1,000 of each increase per month for the first 12 months from the effective date of each increase. This amount will not be less than 1/12 of $500 but not greater than 1/12 of $3,000. PERFORMANCE DATA Hartford may advertise the performance history of the underlying Funds of the policy. Performance history is based on the Funds' past performance only and is no indication of future performance. The performance history of the underlying Funds includes deductions for the total fund operating expenses of the Funds. The performance information does not include any charges or fees that are deducted from your policy. These are charges and fees such as the surrender charge, unamortized tax charge, cost of insurance charge, mortality and expense risk charge, tax expense charge, annual maintenance fee, and the administrative charge. Some of these charges vary depending on your age, gender, face amount, underwriting class, premiums, policy duration, and account value. All of these policy charges will have a significant impact on your policy's account value and overall performance. If these charges and fees were reflected in the performance data, performance would be lower. To see the impact of these charges and fees on your policy's performance, you should obtain a personalized illustration based on historical Fund performance from your financial adviser. Performance history of the underlying Funds is measured by comparing the value of the Fund at the beginning of the period to the value of the Fund at the end of the period. Performance is usually calculated for periods of one month, three months, year-to-date, one year, three years, five years, ten years, and since the inception date of the Fund if the Fund has existed for more than ten years. FINANCIAL STATEMENTS The financial statements of the Company and the Separate Account follow this page of the SAI. The financial statements of the Company only bear on the Company's ability to meet its obligations under the Contracts and should not be considered as bearing on the investment performance of the Separate Account. The financial statements of the Separate Account present the investment performance of the Separate Account. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- THE CONTRACT OWNERS OF HARTFORD LIFE INSURANCE COMPANY SEPARATE ACCOUNT VL II AND THE BOARD OF DIRECTORS OF HARTFORD LIFE INSURANCE COMPANY We have audited the accompanying statements of assets and liabilities of each of the individual Sub-Accounts disclosed in Note 1 which comprise the Hartford Life Insurance Company Separate Account VL II (the "Account") as of December 31, 2005, and the related statements of operations and of changes in net assets and the financial highlights for the respective stated periods then ended. These financial statements and financial highlights are the responsibility of the Account's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Account is not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Account's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the investment companies; where replies were not received, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of each of the individual Sub-Accounts constituting the Hartford Life Insurance Company Separate Account VL II as of December 31, 2005, the results of their operations, the changes in their net assets and the financial highlights for the respective stated periods then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP Hartford, Connecticut February 22, 2006 _____________________________________ SA-1 _____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2005
AMERICAN FUNDS AMERICAN FUNDS AIM V.I. MID CAP AIM V.I. PREMIER ASSET ALLOCATION BLUE CHIP INCOME CORE EQUITY FUND EQUITY FUND FUND AND GROWTH FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ---------------- ---------------- ---------------- ---------------- ASSETS: Investments: Number of Shares..... 24,061 408 351,786 157,983 ======== ====== ========== ========== Cost................. $303,032 $8,388 $5,124,075 $1,411,487 ======== ====== ========== ========== Market Value......... $327,474 $9,109 $5,793,911 $1,710,958 Due from Hartford Life Insurance Company..... -- -- 3,772 1,414 Receivable from fund shares sold........... -- -- -- -- Other assets........... -- -- 4 -- -------- ------ ---------- ---------- Total Assets........... 327,474 9,109 5,797,687 1,712,372 -------- ------ ---------- ---------- LIABILITIES: Due to Hartford Life Insurance Company..... -- -- -- -- Payable for fund shares purchased............. -- -- 3,772 1,414 Other liabilities...... -- -- -- 8 -------- ------ ---------- ---------- Total Liabilities...... -- -- 3,772 1,422 -------- ------ ---------- ---------- NET ASSETS: For Variable Life Contract Liabilities........... $327,474 $9,109 $5,793,915 $1,710,950 ======== ====== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-2 _____________________________________
AMERICAN FUNDS AMERICAN FUNDS AMERICAN FUNDS GLOBAL GROWTH AMERICAN FUNDS GROWTH-INCOME AMERICAN FUNDS AMERICAN FUNDS BOND FUND FUND GROWTH FUND FUND INTERNATIONAL FUND NEW WORLD FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------- -------------- -------------- -------------- ------------------ -------------- ASSETS: Investments: Number of Shares..... 72,160 91,535 152,354 228,237 129,473 39,205 ======== ========== ========== ========== ========== ======== Cost................. $801,808 $1,273,219 $6,625,957 $7,123,188 $1,761,110 $506,473 ======== ========== ========== ========== ========== ======== Market Value......... $809,630 $1,786,760 $8,985,838 $8,700,395 $2,449,630 $649,232 Due from Hartford Life Insurance Company..... -- 1,262 4,544 25,208 -- -- Receivable from fund shares sold........... -- -- -- -- -- -- Other assets........... -- 10 11 5 -- -- -------- ---------- ---------- ---------- ---------- -------- Total Assets........... 809,630 1,788,032 8,990,393 8,725,608 2,449,630 649,232 -------- ---------- ---------- ---------- ---------- -------- LIABILITIES: Due to Hartford Life Insurance Company..... -- -- -- -- -- -- Payable for fund shares purchased............. -- 1,262 4,544 25,208 -- -- Other liabilities...... -- -- -- -- 3 -- -------- ---------- ---------- ---------- ---------- -------- Total Liabilities...... -- 1,262 4,544 25,208 3 -- -------- ---------- ---------- ---------- ---------- -------- NET ASSETS: For Variable Life Contract Liabilities........... $809,630 $1,786,770 $8,985,849 $8,700,400 $2,449,627 $649,232 ======== ========== ========== ========== ========== ========
_____________________________________ SA-3 _____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF ASSETS AND LIABILITIES -- (CONTINUED) DECEMBER 31, 2005
AMERICAN FUNDS GLOBAL SMALL FIDELITY VIP ASSET FIDELITY VIP CAPITALIZATION MANAGER FIDELITY VIP EQUITY- CONTRAFUND FUND PORTFOLIO INCOME PORTFOLIO PORTFOLIO SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT (A) -------------- ------------------ -------------------- ------------------ ASSETS: Investments: Number of Shares..... 128,159 70,691 458,933 1,005 ========== ========== =========== ======= Cost................. $1,777,914 $1,180,017 $10,604,403 $30,069 ========== ========== =========== ======= Market Value......... $2,706,724 $1,063,198 $11,698,204 $30,829 Due from Hartford Life Insurance Company..... 631 -- 19,309 -- Receivable from fund shares sold........... -- -- -- -- Other assets........... 25 1 29 -- ---------- ---------- ----------- ------- Total Assets........... 2,707,380 1,063,199 11,717,542 30,829 ---------- ---------- ----------- ------- LIABILITIES: Due to Hartford Life Insurance Company..... -- -- -- -- Payable for fund shares purchased............. 631 -- 19,309 -- Other liabilities...... -- -- -- -- ---------- ---------- ----------- ------- Total Liabilities...... 631 -- 19,309 -- ---------- ---------- ----------- ------- NET ASSETS: For Variable Life Contract Liabilities........... $2,706,749 $1,063,199 $11,698,233 $30,829 ========== ========== =========== =======
(a) From inception October 3, 2005 to December 31, 2005. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-4 _____________________________________
FIDELITY VIP FRANKLIN SMALL HARTFORD TOTAL OVERSEAS FIDELITY VIP MID CAP VALUE MUTUAL SHARES HARTFORD ADVISERS RETURN BOND HLS PORTFOLIO CAP PORTFOLIO SECURITIES FUND SECURITIES FUND HLS FUND FUND SUB-ACCOUNT SUB-ACCOUNT (A) SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT (B) ------------ ---------------- --------------- --------------- ----------------- ---------------- ASSETS: Investments: Number of Shares..... 61,334 278 125,023 52,567 532,353 1,242,423 ========== ====== ========== ======== =========== =========== Cost................. $1,167,639 $9,412 $1,666,479 $812,540 $13,719,014 $14,097,612 ========== ====== ========== ======== =========== =========== Market Value......... $1,264,105 $9,643 $2,099,137 $955,149 $11,993,552 $14,000,352 Due from Hartford Life Insurance Company..... -- -- -- -- -- -- Receivable from fund shares sold........... -- -- 1,603 -- 6,886 415 Other assets........... -- -- -- -- 40 71 ---------- ------ ---------- -------- ----------- ----------- Total Assets........... 1,264,105 9,643 2,100,740 955,149 12,000,478 14,000,838 ---------- ------ ---------- -------- ----------- ----------- LIABILITIES: Due to Hartford Life Insurance Company..... -- -- 1,603 -- 6,886 415 Payable for fund shares purchased............. -- -- -- -- -- -- Other liabilities...... 7 -- -- -- -- -- ---------- ------ ---------- -------- ----------- ----------- Total Liabilities...... 7 -- 1,603 -- 6,886 415 ---------- ------ ---------- -------- ----------- ----------- NET ASSETS: For Variable Life Contract Liabilities........... $1,264,098 $9,643 $2,099,137 $955,149 $11,993,592 $14,000,423 ========== ====== ========== ======== =========== ===========
(a) From inception October 3, 2005 to December 31, 2005. (b) Formerly Hartford Bond HLS Fund Sub-Account. Change Effective March 1, 2005. _____________________________________ SA-5 _____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF ASSETS AND LIABILITIES -- (CONTINUED) DECEMBER 31, 2005
HARTFORD CAPITAL HARTFORD DIVIDEND HARTFORD GLOBAL HARTFORD GLOBAL APPRECIATION HLS AND GROWTH HLS ADVISERS HLS LEADERS HLS FUND FUND FUND FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ---------------- ----------------- --------------- --------------- ASSETS: Investments: Number of Shares..... 639,841 620,482 8,562 263 =========== =========== ======== ====== Cost................. $29,570,963 $11,895,519 $ 91,701 $3,131 =========== =========== ======== ====== Market Value......... $33,903,155 $12,869,127 $106,852 $4,939 Due from Hartford Life Insurance Company..... 10,740 -- -- -- Receivable from fund shares sold........... -- 4,766 -- -- Other assets........... -- 9 -- -- ----------- ----------- -------- ------ Total Assets........... 33,913,895 12,873,902 106,852 4,939 ----------- ----------- -------- ------ LIABILITIES: Due to Hartford Life Insurance Company..... -- 4,766 -- -- Payable for fund shares purchased............. 10,740 -- -- -- Other liabilities...... 47 -- -- -- ----------- ----------- -------- ------ Total Liabilities...... 10,787 4,766 -- -- ----------- ----------- -------- ------ NET ASSETS: For Variable Life Contract Liabilities........... $33,903,108 $12,869,136 $106,852 $4,939 =========== =========== ======== ======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-6 _____________________________________
HARTFORD HARTFORD HARTFORD GLOBAL HARTFORD HARTFORD GROWTH INTERNATIONAL INTERNATIONAL TECHNOLOGY HLS DISCIPLINED OPPORTUNITIES HARTFORD INDEX SMALL COMPANY OPPORTUNITIES FUND EQUITY HLS FUND HLS FUND HLS FUND HLS FUND HLS FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------- --------------- --------------- -------------- ------------- ------------- ASSETS: Investments: Number of Shares..... 3,271 67,801 13,762 395,693 18,733 554,375 ======= ======== ======== =========== ======== ========== Cost................. $18,347 $783,919 $326,331 $11,018,934 $251,220 $7,142,403 ======= ======== ======== =========== ======== ========== Market Value......... $17,921 $858,351 $413,892 $12,651,524 $277,919 $7,534,133 Due from Hartford Life Insurance Company..... -- -- -- 214 -- -- Receivable from fund shares sold........... 1,611 -- -- -- -- 16,791 Other assets........... -- -- 1 4 -- -- ------- -------- -------- ----------- -------- ---------- Total Assets........... 19,532 858,351 413,893 12,651,742 277,919 7,550,924 ------- -------- -------- ----------- -------- ---------- LIABILITIES: Due to Hartford Life Insurance Company..... 1,611 -- -- -- -- 16,791 Payable for fund shares purchased............. -- -- -- 214 -- -- Other liabilities...... -- 4 -- -- -- 7 ------- -------- -------- ----------- -------- ---------- Total Liabilities...... 1,611 4 -- 214 -- 16,798 ------- -------- -------- ----------- -------- ---------- NET ASSETS: For Variable Life Contract Liabilities........... $17,921 $858,347 $413,893 $12,651,528 $277,919 $7,534,126 ======= ======== ======== =========== ======== ==========
_____________________________________ SA-7 _____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF ASSETS AND LIABILITIES -- (CONTINUED) DECEMBER 31, 2005
HARTFORD MORTGAGE HARTFORD MIDCAP HARTFORD MIDCAP HARTFORD MONEY SECURITIES HLS HLS FUND VALUE HLS FUND MARKET HLS FUND FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------- --------------- --------------- -------------- ASSETS: Investments: Number of Shares..... 239,318 57,664 6,677,911 100,826 ========== ======== ========== ========== Cost................. $5,232,682 $695,503 $6,677,911 $1,144,464 ========== ======== ========== ========== Market Value......... $6,874,743 $808,062 $6,677,911 $1,159,276 Due from Hartford Life Insurance Company..... -- 482 64,629 -- Receivable from fund shares sold........... 30,286 -- -- -- Other assets........... -- 1 282 1 ---------- -------- ---------- ---------- Total Assets........... 6,905,029 808,545 6,742,822 1,159,277 ---------- -------- ---------- ---------- LIABILITIES: Due to Hartford Life Insurance Company..... 30,286 -- -- -- Payable for fund shares purchased............. -- 482 64,629 -- Other liabilities...... 2 -- -- -- ---------- -------- ---------- ---------- Total Liabilities...... 30,288 482 64,629 -- ---------- -------- ---------- ---------- NET ASSETS: For Variable Life Contract Liabilities........... $6,874,741 $808,063 $6,678,193 $1,159,277 ========== ======== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-8 _____________________________________
HARTFORD SMALL HARTFORD VALUE OPPENHEIMER COMPANY HLS HARTFORD STOCK OPPORTUNITIES MFS NEW MFS TOTAL RETURN GLOBAL SECURITIES FUND HLS FUND HLS FUND DISCOVERY SERIES SERIES FUND/VA SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT (A) -------------- -------------- -------------- ---------------- ---------------- ----------------- ASSETS: Investments: Number of Shares..... 243,101 362,144 76,255 6,743 59,355 810 ========== =========== ========== ======== ========== ======= Cost................. $3,457,394 $19,865,584 $1,243,164 $ 93,399 $1,204,719 $26,110 ========== =========== ========== ======== ========== ======= Market Value......... $4,780,546 $17,821,133 $1,443,424 $105,530 $1,228,056 $26,869 Due from Hartford Life Insurance Company..... 3,259 -- -- -- -- -- Receivable from fund shares sold........... -- 3,731 -- -- -- -- Other assets........... -- 33 -- 1 -- -- ---------- ----------- ---------- -------- ---------- ------- Total Assets........... 4,783,805 17,824,897 1,443,424 105,531 1,228,056 26,869 ---------- ----------- ---------- -------- ---------- ------- LIABILITIES: Due to Hartford Life Insurance Company..... -- 3,731 -- -- -- -- Payable for fund shares purchased............. 3,259 -- -- -- -- -- Other liabilities...... 31 -- -- -- -- -- ---------- ----------- ---------- -------- ---------- ------- Total Liabilities...... 3,290 3,731 -- -- -- -- ---------- ----------- ---------- -------- ---------- ------- NET ASSETS: For Variable Life Contract Liabilities........... $4,780,515 $17,821,166 $1,443,424 $105,531 $1,228,056 $26,869 ========== =========== ========== ======== ========== =======
(a) From inception October 3, 2005 to December 31, 2005. _____________________________________ SA-9 _____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF ASSETS AND LIABILITIES -- (CONTINUED) DECEMBER 31, 2005
PUTNAM VT PUTNAM VT GLOBAL PUTNAM VT DIVERSIFIED ASSET ALLOCATION PUTNAM VT GLOBAL GROWTH AND INCOME FUND FUND EQUITY FUND INCOME FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------- ---------------- ---------------- ------------- ASSETS: Investments: Number of Shares..... 12,175 58,598 425,927 409,581 ======== ========== ========== =========== Cost................. $132,570 $1,006,861 $7,824,809 $10,854,432 ======== ========== ========== =========== Market Value......... $107,873 $ 880,723 $4,744,829 $10,857,937 Due from Hartford Life Insurance Company..... -- -- -- -- Receivable from fund shares sold........... -- 2,392 18,262 -- Other assets........... -- 2 9 13 -------- ---------- ---------- ----------- Total Assets........... 107,873 883,117 4,763,100 10,857,950 -------- ---------- ---------- ----------- LIABILITIES: Due to Hartford Life Insurance Company..... -- 2,392 18,262 -- Payable for fund shares purchased............. -- -- -- -- Other liabilities...... -- -- -- -- -------- ---------- ---------- ----------- Total Liabilities...... -- 2,392 18,262 -- -------- ---------- ---------- ----------- NET ASSETS: For Variable Life Contract Liabilities........... $107,873 $ 880,725 $4,744,838 $10,857,950 ======== ========== ========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-10 ____________________________________
PUTNAM VT PUTNAM VT INTERNATIONAL PUTNAM VT INTERNATIONAL NEW PUTNAM VT HEALTH PUTNAM VT HIGH PUTNAM VT GROWTH AND INTERNATIONAL OPPORTUNITIES SCIENCES FUND YIELD FUND INCOME FUND INCOME FUND EQUITY FUND FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ---------------- -------------- ----------- ------------- ------------- ----------------- ASSETS: Investments: Number of Shares..... 14,368 374,900 215,673 7,208 191,382 1,454 ======== ========== ========== ======== ========== ======= Cost................. $163,290 $4,285,964 $2,716,885 $100,763 $3,194,450 $22,269 ======== ========== ========== ======== ========== ======= Market Value......... $191,807 $2,879,109 $2,736,837 $110,647 $3,130,628 $21,415 Due from Hartford Life Insurance Company..... -- -- -- -- 4,888 -- Receivable from fund shares sold........... 1,219 -- -- -- -- -- Other assets........... -- -- 1 -- -- -- -------- ---------- ---------- -------- ---------- ------- Total Assets........... 193,026 2,879,109 2,736,838 110,647 3,135,516 21,415 -------- ---------- ---------- -------- ---------- ------- LIABILITIES: Due to Hartford Life Insurance Company..... 1,219 -- -- -- -- -- Payable for fund shares purchased............. -- -- -- -- 4,888 -- Other liabilities...... -- 4 -- -- 7 -- -------- ---------- ---------- -------- ---------- ------- Total Liabilities...... 1,219 4 -- -- 4,895 -- -------- ---------- ---------- -------- ---------- ------- NET ASSETS: For Variable Life Contract Liabilities........... $191,807 $2,879,105 $2,736,838 $110,647 $3,130,621 $21,415 ======== ========== ========== ======== ========== ======= PUTNAM VT INVESTORS FUND SUB-ACCOUNT -------------- ASSETS: Investments: Number of Shares..... 9,211 ======= Cost................. $88,554 ======= Market Value......... $99,569 Due from Hartford Life Insurance Company..... -- Receivable from fund shares sold........... -- Other assets........... -- ------- Total Assets........... 99,569 ------- LIABILITIES: Due to Hartford Life Insurance Company..... -- Payable for fund shares purchased............. -- Other liabilities...... -- ------- Total Liabilities...... -- ------- NET ASSETS: For Variable Life Contract Liabilities........... $99,569 =======
_____________________________________ SA-11 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF ASSETS AND LIABILITIES -- (CONTINUED) DECEMBER 31, 2005
PUTNAM VT NEW PUTNAM VT OTC & PUTNAM VT MONEY OPPORTUNITIES PUTNAM VT NEW EMERGING GROWTH MARKET FUND FUND VALUE FUND FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------- ------------- ------------- ------------------ ASSETS: Investments: Number of Shares..... 614 279,890 24,109 14,413 ==== ========== ======== ======== Cost................. $614 $5,342,600 $284,974 $239,533 ==== ========== ======== ======== Market Value......... $614 $5,244,616 $415,881 $ 94,402 Due from Hartford Life Insurance Company..... -- -- -- -- Receivable from fund shares sold........... -- -- -- -- Other assets........... 2 -- -- 1 ---- ---------- -------- -------- Total Assets........... 616 5,244,616 415,881 94,403 ---- ---------- -------- -------- LIABILITIES: Due to Hartford Life Insurance Company..... -- -- -- -- Payable for fund shares purchased............. -- -- -- -- Other liabilities...... -- 1 -- -- ---- ---------- -------- -------- Total Liabilities...... -- 1 -- -- ---- ---------- -------- -------- NET ASSETS: For Variable Life Contract Liabilities........... $616 $5,244,615 $415,881 $ 94,403 ==== ========== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-12 ____________________________________
PUTNAM VT PUTNAM VT THE PUTNAM VT CAPITAL PUTNAM VT SMALL GEORGE PUTNAM UTILITIES GROWTH PUTNAM VT VISTA PUTNAM VT OPPORTUNITIES CAP VALUE FUND FUND OF BOSTON AND INCOME FUND FUND VOYAGER FUND FUND SUB-ACCOUNT (A) SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------- -------------- ---------------- --------------- ------------ ------------- ASSETS: Investments: Number of Shares..... 407 8,165 32,389 11,652 337,190 7,148 ====== ======= ======== ======== =========== ======== Cost................. $9,412 $82,623 $485,055 $271,773 $12,391,716 $100,166 ====== ======= ======== ======== =========== ======== Market Value......... $9,331 $96,588 $468,999 $164,877 $ 9,684,091 $112,865 Due from Hartford Life Insurance Company..... -- -- -- -- 2,960 -- Receivable from fund shares sold........... -- -- -- -- -- -- Other assets........... -- -- -- 1 8 -- ------ ------- -------- -------- ----------- -------- Total Assets........... 9,331 96,588 468,999 164,878 9,687,059 112,865 ------ ------- -------- -------- ----------- -------- LIABILITIES: Due to Hartford Life Insurance Company..... -- -- -- -- -- -- Payable for fund shares purchased............. -- -- -- -- 2,960 -- Other liabilities...... -- -- -- -- -- -- ------ ------- -------- -------- ----------- -------- Total Liabilities...... -- -- -- -- 2,960 -- ------ ------- -------- -------- ----------- -------- NET ASSETS: For Variable Life Contract Liabilities........... $9,331 $96,588 $468,999 $164,878 $ 9,684,099 $112,865 ====== ======= ======== ======== =========== ======== PUTNAM VT EQUITY INCOME FUND SUB-ACCOUNT ---------------- ASSETS: Investments: Number of Shares..... 20,501 ======== Cost................. $242,054 ======== Market Value......... $284,962 Due from Hartford Life Insurance Company..... -- Receivable from fund shares sold........... -- Other assets........... -- -------- Total Assets........... 284,962 -------- LIABILITIES: Due to Hartford Life Insurance Company..... -- Payable for fund shares purchased............. -- Other liabilities...... -- -------- Total Liabilities...... -- -------- NET ASSETS: For Variable Life Contract Liabilities........... $284,962 ========
(a) From inception October 3, 2005 to December 31, 2005. _____________________________________ SA-13 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF ASSETS AND LIABILITIES -- (CONTINUED) DECEMBER 31, 2005
UNITS OWNED BY UNIT FAIR CONTRACT SUB-ACCOUNT: PARTICIPANTS VALUE # LIABILITY ------------ ------------ ---------- ------------ AIM V.I. Mid Cap Core Equity Fund.............................. 23,468 $13.954120 $ 327,474 AIM V.I. Premier Equity Fund....... 724 12.588744 9,109 American Funds Asset Allocation Fund.............................. 443,045 13.077484 5,793,915 American Funds Blue Chip Income and Growth Fund....................... 125,347 13.649702 1,710,950 American Funds Bond Fund........... 73,047 11.08375 809,630 American Funds Global Growth Fund.............................. 1,438,688 1.241944 1,786,770 American Funds Growth Fund......... 8,397,299 1.070088 8,985,849 American Funds Growth-Income Fund.............................. 6,867,184 1.266953 8,700,400 American Funds International Fund.............................. 134,577 18.202405 2,449,627 American Funds New World Fund...... 36,431 17.820884 649,232 American Funds Global Small Capitalization Fund............... 1,651,660 1.638805 2,706,749 Fidelity VIP Asset Manager Portfolio......................... 501,911 2.118302 1,063,199 Fidelity VIP Equity-Income Portfolio......................... 4,263,915 2.743539 11,698,218 Fidelity VIP Equity-Income Portfolio......................... 1 10.387944 15 Fidelity VIP Contrafund Portfolio......................... 2,884 10.689654 30,829 Fidelity VIP Overseas Portfolio.... 587,849 2.150376 1,264,098 Fidelity VIP Mid Cap Portfolio..... 907 10.631702 9,643 Franklin Small Cap Value Securities Fund.............................. 128,142 16.381351 2,099,137 Mutual Shares Securities Fund...... 67,435 14.163953 955,149 Hartford Advisers HLS Fund......... 4,154,421 2.886947 11,993,592 Hartford Total Return Bond HLS Fund.............................. 6,211,351 2.254006 14,000,423 Hartford Capital Appreciation HLS Fund.............................. 6,018,326 5.633312 33,903,108 Hartford Dividend and Growth HLS Fund.............................. 3,807,270 3.380148 12,869,136 Hartford Global Advisers HLS Fund.............................. 75,827 1.409162 106,852 Hartford Global Leaders HLS Fund... 4,363 1.131997 4,939 Hartford Global Technology HLS Fund.............................. 21,758 0.823643 17,921 Hartford Disciplined Equity HLS Fund.............................. 628,910 1.364817 858,347 Hartford Growth Opportunities HLS Fund.............................. 25,156 16.452771 413,893 Hartford Index HLS Fund............ 3,880,191 3.260543 12,651,528 Hartford International Small Company HLS Fund.................. 15,529 17.897193 277,919 Hartford International Opportunities HLS Fund............ 3,183,293 2.366771 7,534,126 Hartford MidCap HLS Fund........... 2,113,786 3.252335 6,874,741 Hartford MidCap Value HLS Fund..... 50,138 16.116626 808,063 Hartford Money Market HLS Fund..... 4,174,275 1.599845 6,678,193 Hartford Mortgage Securities HLS Fund.............................. 567,296 2.043515 1,159,277 Hartford Small Company HLS Fund.... 2,454,302 1.947811 4,780,515 Hartford Stock HLS Fund............ 5,312,174 3.354778 17,821,166 Hartford Value Opportunities HLS Fund.............................. 91,027 15.857149 1,443,424 MFS New Discovery Series........... 7,768 13.585071 105,531 MFS Total Return Series............ 99,566 12.33414 1,228,056 Oppenheimer Global Securities Fund/VA........................... 2,509 10.710592 26,869 Putnam VT Diversified Income Fund.............................. 5,523 19.530112 107,873 Putnam VT Global Asset Allocation Fund.............................. 34,695 25.385139 880,725 Putnam VT Global Equity Fund....... 196,644 24.129019 4,744,838 Putnam VT Growth and Income Fund... 338,623 32.040356 10,849,604 Putnam VT Growth and Income Fund... 628 13.285600 8,346 Putnam VT Health Sciences Fund..... 13,739 13.960596 191,807 Putnam VT High Yield Fund.......... 125,959 22.734033 2,863,566
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-14 ____________________________________
UNITS OWNED BY UNIT FAIR CONTRACT SUB-ACCOUNT: PARTICIPANTS VALUE # LIABILITY ------------ ------------ ---------- ------------ Putnam VT High Yield Fund.......... 1,247 $12.463889 $ 15,539 Putnam VT Income Fund.............. 134,133 20.337007 2,727,858 Putnam VT Income Fund.............. 844 10.640021 8,980 Putnam VT International Growth and Income Fund....................... 6,825 16.212019 110,647 Putnam VT International Equity Fund.............................. 195,114 15.728136 3,068,787 Putnam VT International Equity Fund.............................. 4,005 15.439804 61,834 Putnam VT International New Opportunities Fund................ 1,581 13.548679 21,415 Putnam VT Investors Fund........... 9,296 10.711383 99,569 Putnam VT Money Market Fund........ 388 1.588794 616 Putnam VT New Opportunities Fund... 231,659 22.488065 5,209,560 Putnam VT New Opportunities Fund... 2,508 13.979089 35,055 Putnam VT New Value Fund........... 22,309 18.642121 415,881 Putnam VT OTC & Emerging Growth Fund.............................. 13,338 7.077526 94,403 Putnam VT Small Cap Value Fund..... 927 10.061432 9,331 Putnam VT The George Putnam Fund of Boston............................ 6,813 14.177205 96,588 Putnam VT Utilities Growth and Income Fund....................... 18,842 24.890887 468,999 Putnam VT Vista Fund............... 12,790 12.891632 164,878 Putnam VT Voyager Fund............. 317,317 30.510819 9,681,610 Putnam VT Voyager Fund............. 200 12.448612 2,489 Putnam VT Capital Opportunities Fund.............................. 7,211 15.651902 112,865 Putnam VT Equity Income Fund....... 21,253 13.408382 284,962 ------------ $228,946,237 ============
# Rounded unit values _____________________________________ SA-15 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2005
AMERICAN AMERICAN FUNDS BLUE AIM V.I. MID AIM V.I. FUNDS ASSET CHIP INCOME CAP CORE PREMIER EQUITY ALLOCATION AND GROWTH EQUITY FUND FUND FUND FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------ -------------- ----------- ----------- INVESTMENT INCOME: Dividends.............. $ 1,539 $ 76 $120,700 $ 15,865 ------- ---- -------- -------- CAPITAL GAINS INCOME:.... 9,405 -- -- -- ------- ---- -------- -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on security transactions.......... 2,050 6 1,312 (1,615) Net unrealized appreciation (depreciation) of investments during the year.................. 10,101 459 350,065 99,928 ------- ---- -------- -------- Net gain (loss) on investments......... 12,151 465 351,377 98,313 ------- ---- -------- -------- Net increase (decrease) in net assets resulting from operations..... $23,095 $541 $472,077 $114,178 ======= ==== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-16 ____________________________________
AMERICAN AMERICAN AMERICAN AMERICAN AMERICAN FUNDS AMERICAN FUNDS BOND FUNDS GLOBAL FUNDS GROWTH FUNDS GROWTH- INTERNATIONAL FUNDS NEW FUND GROWTH FUND FUND INCOME FUND FUND WORLD FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------- ------------ ------------ ------------- ------------- ----------- INVESTMENT INCOME: Dividends.............. $ 26,061 $ 10,216 $ 57,028 $110,977 $ 32,004 $ 6,137 -------- -------- ---------- -------- -------- -------- CAPITAL GAINS INCOME:.... -- -- -- 32,705 -- -- -------- -------- ---------- -------- -------- -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on security transactions.......... (1,673) 1,502 1,356 14,031 2,789 2,416 Net unrealized appreciation (depreciation) of investments during the year.................. (18,394) 204,277 1,183,847 312,866 385,460 97,285 -------- -------- ---------- -------- -------- -------- Net gain (loss) on investments......... (20,067) 205,779 1,185,203 326,897 388,249 99,701 -------- -------- ---------- -------- -------- -------- Net increase (decrease) in net assets resulting from operations..... $ 5,994 $215,995 $1,242,231 $470,579 $420,253 $105,838 ======== ======== ========== ======== ======== ========
_____________________________________ SA-17 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS -- (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2005
AMERICAN FUNDS GLOBAL SMALL FIDELITY VIP FIDELITY VIP FIDELITY VIP CAPITALIZATION ASSET MANAGER EQUITY-INCOME CONTRAFUND FUND PORTFOLIO PORTFOLIO PORTFOLIO SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT (A) -------------- ------------- ------------- ---------------- INVESTMENT INCOME: Dividends.............. $ 22,695 $28,649 $172,860 $-- -------- ------- -------- ------- CAPITAL GAINS INCOME:.... -- 367 379,864 -- -------- ------- -------- ------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on security transactions.......... 11,685 (6,886) 14,200 4 Net unrealized appreciation (depreciation) of investments during the year.................. 510,193 19,184 77,038 760 -------- ------- -------- ------- Net gain (loss) on investments......... 521,878 12,298 91,238 764 -------- ------- -------- ------- Net increase (decrease) in net assets resulting from operations..... $544,573 $41,314 $643,962 $ 764 ======== ======= ======== =======
(a) From inception October 3, 2005 to December 31, 2005. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-18 ____________________________________
FRANKLIN SMALL FIDELITY VIP CAP VALUE MUTUAL SHARES HARTFORD HARTFORD TOTAL OVERSEAS FIDELITY VIP MID SECURITIES SECURITIES ADVISERS HLS RETURN BOND PORTFOLIO CAP PORTFOLIO FUND FUND FUND HLS FUND SUB-ACCOUNT SUB-ACCOUNT (A) SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT (B) ------------ ---------------- -------------- ------------- ------------ ------------------ INVESTMENT INCOME: Dividends.............. $ 7,939 --$ $ 14,286 $ 7,120 $ 391,499 $1,027,367 -------- ---- -------- ------- --------- ---------- CAPITAL GAINS INCOME:.... 6,213 -- 11,556 2,655 685,158 99,231 -------- ---- -------- ------- --------- ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on security transactions.......... (13,584) 1 (6,194) 2,588 93,372 278 Net unrealized appreciation (depreciation) of investments during the year.................. 207,393 231 138,414 73,222 (346,702) (803,069) -------- ---- -------- ------- --------- ---------- Net gain (loss) on investments......... 193,809 232 132,220 75,810 (253,330) (802,791) -------- ---- -------- ------- --------- ---------- Net increase (decrease) in net assets resulting from operations..... $207,961 $232 $158,062 $85,585 $ 823,327 $ 323,807 ======== ==== ======== ======= ========= ==========
(a) From inception October 3, 2005 to December 31, 2005. (b) Formerly Hartford Bond HLS Fund Sub-Account. Change Effective March 1, 2005. _____________________________________ SA-19 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS -- (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2005
HARTFORD HARTFORD CAPITAL DIVIDEND AND HARTFORD GLOBAL HARTFORD GLOBAL APPRECIATION GROWTH HLS ADVISERS HLS LEADERS HLS HLS FUND FUND FUND FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------ ------------ --------------- --------------- INVESTMENT INCOME: Dividends.............. $ 295,034 $ 235,556 $3,831 $ 38 ---------- --------- ------ ---- CAPITAL GAINS INCOME:.... 4,484,930 544,063 -- -- ---------- --------- ------ ---- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on security transactions.......... 308,496 100,748 194 133 Net unrealized appreciation (depreciation) of investments during the year.................. (501,481) (153,413) (578) (67) ---------- --------- ------ ---- Net gain (loss) on investments......... (192,985) (52,665) (384) 66 ---------- --------- ------ ---- Net increase (decrease) in net assets resulting from operations..... $4,586,979 $ 726,954 $3,447 $104 ========== ========= ====== ====
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-20 ____________________________________
HARTFORD HARTFORD HARTFORD INTERNATIONAL HARTFORD HARTFORD GLOBAL DISCIPLINED GROWTH SMALL INTERNATIONAL TECHNOLOGY EQUITY HLS OPPORTUNITIES HARTFORD INDEX COMPANY HLS OPPORTUNITIES HLS FUND FUND HLS FUND HLS FUND FUND HLS FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------- ----------- ------------- -------------- ------------- ------------- INVESTMENT INCOME: Dividends.............. $ 52 $10,121 $ 814 $236,234 $ 6,460 $ -- ------ ------- ------- -------- ------- -------- CAPITAL GAINS INCOME:.... -- -- 25,496 381,001 29,469 -- ------ ------- ------- -------- ------- -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on security transactions.......... 1,521 7,172 6,167 (32,089) 5,793 14,452 Net unrealized appreciation (depreciation) of investments during the year.................. (121) 38,270 28,780 (42,089) (328) 961,979 ------ ------- ------- -------- ------- -------- Net gain (loss) on investments......... 1,400 45,442 34,947 (74,178) 5,465 976,431 ------ ------- ------- -------- ------- -------- Net increase (decrease) in net assets resulting from operations..... $1,452 $55,563 $61,257 $543,057 $41,394 $976,431 ====== ======= ======= ======== ======= ========
_____________________________________ SA-21 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS -- (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2005
HARTFORD HARTFORD HARTFORD HARTFORD MONEY MORTGAGE MIDCAP HLS MIDCAP VALUE MARKET HLS SECURITIES HLS FUND HLS FUND FUND FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------- ------------ -------------- -------------- INVESTMENT INCOME: Dividends.............. $ 25,849 $ 4,364 $199,158 $ 46,145 -------- -------- -------- -------- CAPITAL GAINS INCOME:.... 948,431 67,277 -- -- -------- -------- -------- -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on security transactions.......... 64,336 26,980 -- 1,496 Net unrealized appreciation (depreciation) of investments during the year.................. (46,880) (35,154) -- (20,016) -------- -------- -------- -------- Net gain (loss) on investments......... 17,456 (8,174) -- (18,520) -------- -------- -------- -------- Net increase (decrease) in net assets resulting from operations..... $991,736 $ 63,467 $199,158 $ 27,625 ======== ======== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-22 ____________________________________
HARTFORD SMALL HARTFORD VALUE MFS NEW OPPENHEIMER COMPANY HLS HARTFORD STOCK OPPORTUNITIES DISCOVERY MFS TOTAL GLOBAL SECURITIES FUND HLS FUND HLS FUND SERIES RETURN SERIES FUND/VA SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT (A) -------------- -------------- -------------- ----------- ------------- ----------------- INVESTMENT INCOME: Dividends.............. $-- $ 319,627 $ 20,458 $-- $ 6,710 $-- -------- ---------- -------- ------ ------- ------- CAPITAL GAINS INCOME:.... -- -- 35,868 -- 13,155 -- -------- ---------- -------- ------ ------- ------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on security transactions.......... 89,900 (79,848) 191 898 707 -- Net unrealized appreciation (depreciation) of investments during the year.................. 760,447 1,315,181 73,769 3,992 3,881 759 -------- ---------- -------- ------ ------- ------- Net gain (loss) on investments......... 850,347 1,235,333 73,960 4,890 4,588 759 -------- ---------- -------- ------ ------- ------- Net increase (decrease) in net assets resulting from operations..... $850,347 $1,554,960 $130,286 $4,890 $24,453 $ 759 ======== ========== ======== ====== ======= =======
(a) From inception October 3, 2005 to December 31, 2005. _____________________________________ SA-23 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS -- (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2005
PUTNAM VT PUTNAM VT GLOBAL ASSET PUTNAM VT PUTNAM VT DIVERSIFIED ALLOCATION GLOBAL EQUITY GROWTH AND INCOME FUND FUND FUND INCOME FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------- ------------ ------------- ----------- INVESTMENT INCOME: Dividends.............. $ 8,991 $ 12,443 $ 45,571 $200,428 ------- -------- -------- -------- CAPITAL GAINS INCOME:.... -- -- -- -- ------- -------- -------- -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on security transactions.......... (2,330) (34,120) 3,280 (54,149) Net unrealized appreciation (depreciation) of investments during the year.................. (2,876) 83,676 351,493 442,296 ------- -------- -------- -------- Net gain (loss) on investments......... (5,206) 49,556 354,773 388,147 ------- -------- -------- -------- Net increase (decrease) in net assets resulting from operations..... $ 3,785 $ 61,999 $400,344 $588,575 ======= ======== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-24 ____________________________________
PUTNAM VT PUTNAM VT INTERNATIONAL PUTNAM VT PUTNAM VT INTERNATIONAL PUTNAM VT NEW HEALTH HIGH YIELD PUTNAM VT GROWTH AND INTERNATIONAL OPPORTUNITIES PUTNAM VT SCIENCES FUND FUND INCOME FUND INCOME FUND EQUITY FUND FUND INVESTORS FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------- ----------- ----------- ------------- ------------- ------------- -------------- INVESTMENT INCOME: Dividends.............. $ 558 $ 233,695 $ 87,786 $ 1,147 $ 50,069 $ 239 $1,170 ------- --------- -------- ------- -------- ------- ------ CAPITAL GAINS INCOME:.... -- -- 28,414 -- -- -- -- ------- --------- -------- ------- -------- ------- ------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on security transactions.......... (5,822) 2,207 1,741 2,120 56,509 (6,778) (74) Net unrealized appreciation (depreciation) of investments during the year.................. 28,328 (140,808) (50,697) 10,729 245,403 10,130 7,227 ------- --------- -------- ------- -------- ------- ------ Net gain (loss) on investments......... 22,506 (138,601) (48,956) 12,849 301,912 3,352 7,153 ------- --------- -------- ------- -------- ------- ------ Net increase (decrease) in net assets resulting from operations..... $23,064 $ 95,094 $ 67,244 $13,996 $351,981 $ 3,591 $8,323 ======= ========= ======== ======= ======== ======= ======
_____________________________________ SA-25 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS -- (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2005
PUTNAM VT PUTNAM VT PUTNAM VT NEW PUTNAM VT OTC & MONEY MARKET OPPORTUNITIES NEW VALUE EMERGING FUND FUND FUND GROWTH FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------ ------------- ----------- ----------- INVESTMENT INCOME: Dividends.............. $35 $ 18,665 $ 4,453 $ -- --- --------- -------- -------- CAPITAL GAINS INCOME:.... -- -- -- -- --- --------- -------- -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on security transactions.......... -- (299,795) 65,974 (39,766) Net unrealized appreciation (depreciation) of investments during the year.................. -- 780,334 (54,110) 46,649 --- --------- -------- -------- Net gain (loss) on investments......... -- 480,539 11,864 6,883 --- --------- -------- -------- Net increase (decrease) in net assets resulting from operations..... $35 $ 499,204 $ 16,317 $ 6,883 === ========= ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-26 ____________________________________
PUTNAM VT PUTNAM VT PUTNAM VT PUTNAM VT THE UTILITIES GROWTH CAPITAL PUTNAM VT SMALL CAP VALUE GEORGE PUTNAM AND INCOME PUTNAM VT PUTNAM VT OPPORTUNITIES EQUITY FUND FUND OF BOSTON FUND VISTA FUND VOYAGER FUND FUND INCOME FUND SUB-ACCOUNT (A) SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ---------------- -------------- ---------------- ----------- ------------ ------------- ----------- INVESTMENT INCOME: Dividends.............. $-- $2,749 $ 9,981 $ -- $ 88,387 $-- $ 2,367 ------- ------ ------- -------- ---------- ------- ------- CAPITAL GAINS INCOME:.... -- -- -- -- -- 238 3,264 ------- ------ ------- -------- ---------- ------- ------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on security transactions.......... -- 3,325 (9,409) (19,049) (727,578) 6,007 2,135 Net unrealized appreciation (depreciation) of investments during the year.................. (81) (998) 39,193 37,717 1,175,420 11,082 10,628 ------- ------ ------- -------- ---------- ------- ------- Net gain (loss) on investments......... (81) 2,327 29,784 18,668 447,842 17,089 12,763 ------- ------ ------- -------- ---------- ------- ------- Net increase (decrease) in net assets resulting from operations..... $ (81) $5,076 $39,765 $ 18,668 $ 536,229 $17,327 $18,394 ======= ====== ======= ======== ========== ======= =======
(a) From inception October 3, 2005 to December 31, 2005. _____________________________________ SA-27 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 2005
AMERICAN AMERICAN FUNDS BLUE AIM V.I. MID AIM V.I. FUNDS ASSET CHIP INCOME CAP CORE PREMIER EQUITY ALLOCATION AND GROWTH EQUITY FUND FUND FUND FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------ -------------- ----------- ----------- OPERATIONS: Net investment income (loss)................ $ 1,539 $ 76 $ 120,700 $ 15,865 Capital gains income... 9,405 -- -- -- Net realized gain (loss) on security transactions.......... 2,050 6 1,312 (1,615) Net unrealized appreciation (depreciation) of investments during the year.................. 10,101 459 350,065 99,928 -------- ------ ---------- ---------- Net increase (decrease) in net assets resulting from operations............ 23,095 541 472,077 114,178 -------- ------ ---------- ---------- UNIT TRANSACTIONS: Purchases.............. 37,941 4,837 458,762 97,622 Net transfers.......... 61,466 -- 614,664 69,536 Surrenders for benefit payments and fees..... (4,073) (5) (105,054) (27,930) Net loan activity...... -- -- -- -- Cost of insurance...... (15,120) (906) (209,794) (73,580) -------- ------ ---------- ---------- Net increase (decrease) in net assets resulting from unit transactions.......... 80,214 3,926 758,578 65,648 -------- ------ ---------- ---------- Net increase (decrease) in net assets......... 103,309 4,467 1,230,655 179,826 NET ASSETS: Beginning of year...... 224,165 4,642 4,563,260 1,531,124 -------- ------ ---------- ---------- End of year............ $327,474 $9,109 $5,793,915 $1,710,950 ======== ====== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-28 ____________________________________
AMERICAN AMERICAN AMERICAN AMERICAN AMERICAN FUNDS AMERICAN FUNDS BOND FUNDS GLOBAL FUNDS GROWTH FUNDS GROWTH- INTERNATIONAL FUNDS NEW FUND GROWTH FUND FUND INCOME FUND FUND WORLD FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------- ------------ ------------ ------------- ------------- ----------- OPERATIONS: Net investment income (loss)................ $ 26,061 $ 10,216 $ 57,028 $ 110,977 $ 32,004 $ 6,137 Capital gains income... -- -- -- 32,705 -- -- Net realized gain (loss) on security transactions.......... (1,673) 1,502 1,356 14,031 2,789 2,416 Net unrealized appreciation (depreciation) of investments during the year.................. (18,394) 204,277 1,183,847 312,866 385,460 97,285 --------- ---------- ---------- ---------- ---------- -------- Net increase (decrease) in net assets resulting from operations............ 5,994 215,995 1,242,231 470,579 420,253 105,838 --------- ---------- ---------- ---------- ---------- -------- UNIT TRANSACTIONS: Purchases.............. 69,890 137,953 620,636 794,266 167,977 42,044 Net transfers.......... (133,179) 210,989 617,314 71,970 477,591 153,950 Surrenders for benefit payments and fees..... (37,474) (62,710) (400,662) (258,305) (198,467) 81 Net loan activity...... -- (2,647) (23,644) (21,877) -- -- Cost of insurance...... (47,644) (69,033) (372,806) (412,490) (117,703) (20,895) --------- ---------- ---------- ---------- ---------- -------- Net increase (decrease) in net assets resulting from unit transactions.......... (148,407) 214,552 440,838 173,564 329,398 175,180 --------- ---------- ---------- ---------- ---------- -------- Net increase (decrease) in net assets......... (142,413) 430,547 1,683,069 644,143 749,651 281,018 NET ASSETS: Beginning of year...... 952,043 1,356,223 7,302,780 8,056,257 1,699,976 368,214 --------- ---------- ---------- ---------- ---------- -------- End of year............ $ 809,630 $1,786,770 $8,985,849 $8,700,400 $2,449,627 $649,232 ========= ========== ========== ========== ========== ========
_____________________________________ SA-29 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2005
AMERICAN FUNDS GLOBAL SMALL FIDELITY VIP FIDELITY VIP FIDELITY VIP CAPITALIZATION ASSET MANAGER EQUITY-INCOME CONTRAFUND FUND PORTFOLIO PORTFOLIO PORTFOLIO SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT (A) -------------- ------------- ------------- ------------------ OPERATIONS: Net investment income (loss)................ $ 22,695 $ 28,649 $ 172,860 $-- Capital gains income... -- 367 379,864 -- Net realized gain (loss) on security transactions.......... 11,685 (6,886) 14,200 4 Net unrealized appreciation (depreciation) of investments during the year.................. 510,193 19,184 77,038 760 ---------- ---------- ----------- ------- Net increase (decrease) in net assets resulting from operations............ 544,573 41,314 643,962 764 ---------- ---------- ----------- ------- UNIT TRANSACTIONS: Purchases.............. 84,914 -- 715,362 -- Net transfers.......... 6,559 (3,637) 118,033 30,484 Surrenders for benefit payments and fees..... (94,821) (22,589) (281,238) -- Net loan activity...... (1,128) -- 48,253 -- Cost of insurance...... (77,100) (49,190) (521,674) (419) ---------- ---------- ----------- ------- Net increase (decrease) in net assets resulting from unit transactions.......... (81,576) (75,416) 78,736 30,065 ---------- ---------- ----------- ------- Net increase (decrease) in net assets......... 462,997 (34,102) 722,698 30,829 NET ASSETS: Beginning of year...... 2,243,752 1,097,301 10,975,535 -- ---------- ---------- ----------- ------- End of year............ $2,706,749 $1,063,199 $11,698,233 $30,829 ========== ========== =========== =======
(a) From inception October 3, 2005 to December 31, 2005. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-30 ____________________________________
FRANKLIN SMALL CAP VALUE MUTUAL SHARES HARTFORD HARTFORD TOTAL FIDELITY VIP OVERSEAS FIDELITY VIP MID SECURITIES SECURITIES ADVISERS HLS RETURN BOND HLS PORTFOLIO CAP PORTFOLIO FUND FUND FUND FUND SUB-ACCOUNT SUB-ACCOUNT (A) SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT (B) --------------------- ---------------- -------------- ------------- ------------ ---------------- OPERATIONS: Net investment income (loss)................ $ 7,939 $-- $ 14,286 $ 7,120 $ 391,499 $ 1,027,367 Capital gains income... 6,213 -- 11,556 2,655 685,158 99,231 Net realized gain (loss) on security transactions.......... (13,584) 1 (6,194) 2,588 93,372 278 Net unrealized appreciation (depreciation) of investments during the year.................. 207,393 231 138,414 73,222 (346,702) (803,069) ---------- ------- ---------- -------- ----------- ----------- Net increase (decrease) in net assets resulting from operations............ 207,961 232 158,062 85,585 823,327 323,807 ---------- ------- ---------- -------- ----------- ----------- UNIT TRANSACTIONS: Purchases.............. -- -- 169,967 59,780 1,182,289 751,838 Net transfers.......... (18,722) 9,430 619,802 204,415 (1,233,791) 1,387,611 Surrenders for benefit payments and fees..... (83,857) -- (419,818) (60,896) (826,271) (433,240) Net loan activity...... (7,440) -- -- -- (2,060) 26,975 Cost of insurance...... (59,470) (19) (96,884) (42,617) (637,635) (613,050) ---------- ------- ---------- -------- ----------- ----------- Net increase (decrease) in net assets resulting from unit transactions.......... (169,489) 9,411 273,067 160,682 (1,517,468) 1,120,134 ---------- ------- ---------- -------- ----------- ----------- Net increase (decrease) in net assets......... 38,472 9,643 431,129 246,267 (694,141) 1,443,941 NET ASSETS: Beginning of year...... 1,225,626 -- 1,668,008 708,882 12,687,733 12,556,482 ---------- ------- ---------- -------- ----------- ----------- End of year............ $1,264,098 $ 9,643 $2,099,137 $955,149 $11,993,592 $14,000,423 ========== ======= ========== ======== =========== ===========
(a) From inception October 3, 2005 to December 31, 2005. (b) Formerly Hartford Bond HLS Fund Sub-Account. Change Effective March 1, 2005. _____________________________________ SA-31 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2005
HARTFORD HARTFORD CAPITAL DIVIDEND AND HARTFORD GLOBAL HARTFORD GLOBAL APPRECIATION GROWTH HLS ADVISERS HLS LEADERS HLS HLS FUND FUND FUND FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------ ------------ --------------- --------------- OPERATIONS: Net investment income (loss)................ $ 295,034 $ 235,556 $ 3,831 $ 38 Capital gains income... 4,484,930 544,063 -- -- Net realized gain (loss) on security transactions.......... 308,496 100,748 194 133 Net unrealized appreciation (depreciation) of investments during the year.................. (501,481) (153,413) (578) (67) ----------- ----------- -------- ------ Net increase (decrease) in net assets resulting from operations............ 4,586,979 726,954 3,447 104 ----------- ----------- -------- ------ UNIT TRANSACTIONS: Purchases.............. 1,701,158 803,256 -- -- Net transfers.......... (854,644) (69,951) -- -- Surrenders for benefit payments and fees..... (1,837,887) (775,072) -- -- Net loan activity...... (23,914) (9,037) -- -- Cost of insurance...... (1,390,378) (595,492) (2,211) (418) ----------- ----------- -------- ------ Net increase (decrease) in net assets resulting from unit transactions.......... (2,405,665) (646,296) (2,211) (418) ----------- ----------- -------- ------ Net increase (decrease) in net assets......... 2,181,314 80,658 1,236 (314) NET ASSETS: Beginning of year...... 31,721,794 12,788,478 105,616 5,253 ----------- ----------- -------- ------ End of year............ $33,903,108 $12,869,136 $106,852 $4,939 =========== =========== ======== ======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-32 ____________________________________
HARTFORD HARTFORD HARTFORD HARTFORD HARTFORD GLOBAL DISCIPLINED GROWTH INTERNATIONAL INTERNATIONAL TECHNOLOGY EQUITY HLS OPPORTUNITIES HARTFORD INDEX SMALL COMPANY OPPORTUNITIES HLS FUND FUND HLS FUND HLS FUND HLS FUND HLS FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------- ----------- ------------- -------------- ------------- ------------- OPERATIONS: Net investment income (loss)................ $ 52 $ 10,121 $ 814 $ 236,234 $ 6,460 $ -- Capital gains income... -- -- 25,496 381,001 29,469 -- Net realized gain (loss) on security transactions.......... 1,521 7,172 6,167 (32,089) 5,793 14,452 Net unrealized appreciation (depreciation) of investments during the year.................. (121) 38,270 28,780 (42,089) (328) 961,979 ------- -------- -------- ----------- --------- ---------- Net increase (decrease) in net assets resulting from operations............ 1,452 55,563 61,257 543,057 41,394 976,431 ------- -------- -------- ----------- --------- ---------- UNIT TRANSACTIONS: Purchases.............. -- 39,941 46,119 1,137,146 35,994 351,269 Net transfers.......... (6,919) (10,881) 141,689 (335,137) 88,054 381,709 Surrenders for benefit payments and fees..... (1,611) (45,779) (67,092) (436,502) (140,026) (413,123) Net loan activity...... -- -- -- (5,202) 447 (9,335) Cost of insurance...... (1,209) (55,532) (17,106) (596,638) (14,274) (287,437) ------- -------- -------- ----------- --------- ---------- Net increase (decrease) in net assets resulting from unit transactions.......... (9,739) (72,251) 103,610 (236,333) (29,805) 23,083 ------- -------- -------- ----------- --------- ---------- Net increase (decrease) in net assets......... (8,287) (16,688) 164,867 306,724 11,589 999,514 NET ASSETS: Beginning of year...... 26,208 875,035 249,026 12,344,804 266,330 6,534,612 ------- -------- -------- ----------- --------- ---------- End of year............ $17,921 $858,347 $413,893 $12,651,528 $ 277,919 $7,534,126 ======= ======== ======== =========== ========= ==========
_____________________________________ SA-33 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2005
HARTFORD HARTFORD HARTFORD HARTFORD MONEY MORTGAGE MIDCAP HLS MIDCAP VALUE MARKET HLS SECURITIES HLS FUND HLS FUND FUND FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------- ------------ -------------- -------------- OPERATIONS: Net investment income (loss)................ $ 25,849 $ 4,364 $ 199,158 $ 46,145 Capital gains income... 948,431 67,277 -- -- Net realized gain (loss) on security transactions.......... 64,336 26,980 -- 1,496 Net unrealized appreciation (depreciation) of investments during the year.................. (46,880) (35,154) -- (20,016) ---------- ---------- ----------- ---------- Net increase (decrease) in net assets resulting from operations............ 991,736 63,467 199,158 27,625 ---------- ---------- ----------- ---------- UNIT TRANSACTIONS: Purchases.............. 425,070 67,527 2,620,286 135,115 Net transfers.......... (307,037) (349,614) (372,277) (101,496) Surrenders for benefit payments and fees..... (236,696) (24,660) (2,642,765) (43,574) Net loan activity...... (2,556) 298 74,975 -- Cost of insurance...... (345,018) (38,760) (465,142) (51,988) ---------- ---------- ----------- ---------- Net increase (decrease) in net assets resulting from unit transactions.......... (466,237) (345,209) (784,923) (61,943) ---------- ---------- ----------- ---------- Net increase (decrease) in net assets......... 525,499 (281,742) (585,765) (34,318) NET ASSETS: Beginning of year...... 6,349,242 1,089,805 7,263,958 1,193,595 ---------- ---------- ----------- ---------- End of year............ $6,874,741 $ 808,063 $ 6,678,193 $1,159,277 ========== ========== =========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-34 ____________________________________
OPPENHEIMER HARTFORD SMALL HARTFORD VALUE MFS NEW GLOBAL COMPANY HLS HARTFORD STOCK OPPORTUNITIES DISCOVERY MFS TOTAL SECURITIES FUND HLS FUND HLS FUND SERIES RETURN SERIES FUND/VA SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT (A) -------------- -------------- -------------- ----------- ------------- ------------------ OPERATIONS: Net investment income (loss)................ $ -- $ 319,627 $ 20,458 $ -- $ 6,710 $-- Capital gains income... -- -- 35,868 -- 13,155 -- Net realized gain (loss) on security transactions.......... 89,900 (79,848) 191 898 707 -- Net unrealized appreciation (depreciation) of investments during the year.................. 760,447 1,315,181 73,769 3,992 3,881 759 ---------- ----------- ---------- -------- ---------- ------- Net increase (decrease) in net assets resulting from operations............ 850,347 1,554,960 130,286 4,890 24,453 759 ---------- ----------- ---------- -------- ---------- ------- UNIT TRANSACTIONS: Purchases.............. 213,377 1,459,512 45,611 4,639 31,813 -- Net transfers.......... (240,130) (1,663,014) 559,779 (2,184) 1,040,151 26,157 Surrenders for benefit payments and fees..... (217,977) (508,622) (133,857) (4) (40,502) -- Net loan activity...... (1,226) (5,367) -- -- -- -- Cost of insurance...... (205,085) (800,432) (52,564) (4,733) (33,622) (47) ---------- ----------- ---------- -------- ---------- ------- Net increase (decrease) in net assets resulting from unit transactions.......... (451,041) (1,517,923) 418,969 (2,282) 997,840 26,110 ---------- ----------- ---------- -------- ---------- ------- Net increase (decrease) in net assets......... 399,306 37,037 549,255 2,608 1,022,293 26,869 NET ASSETS: Beginning of year...... 4,381,209 17,784,129 894,169 102,923 205,763 -- ---------- ----------- ---------- -------- ---------- ------- End of year............ $4,780,515 $17,821,166 $1,443,424 $105,531 $1,228,056 $26,869 ========== =========== ========== ======== ========== =======
(a) From inception October 3, 2005 to December 31, 2005. _____________________________________ SA-35 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2005
PUTNAM VT PUTNAM VT GLOBAL ASSET PUTNAM VT PUTNAM VT DIVERSIFIED ALLOCATION GLOBAL EQUITY GROWTH AND INCOME FUND FUND FUND INCOME FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------- ------------ ------------- ------------ OPERATIONS: Net investment income (loss)................ $ 8,991 $ 12,443 $ 45,571 $ 200,428 Capital gains income... -- -- -- -- Net realized gain (loss) on security transactions.......... (2,330) (34,120) 3,280 (54,149) Net unrealized appreciation (depreciation) of investments during the year.................. (2,876) 83,676 351,493 442,296 -------- --------- ---------- ----------- Net increase (decrease) in net assets resulting from operations............ 3,785 61,999 400,344 588,575 -------- --------- ---------- ----------- UNIT TRANSACTIONS: Purchases.............. -- -- 381,675 900,064 Net transfers.......... -- (53,137) (112,708) (866,235) Surrenders for benefit payments and fees..... (11,322) (37,916) (302,029) (671,504) Net loan activity...... -- -- 41,259 (14,724) Cost of insurance...... (7,717) (39,995) (213,899) (561,876) -------- --------- ---------- ----------- Net increase (decrease) in net assets resulting from unit transactions.......... (19,039) (131,048) (205,702) (1,214,275) -------- --------- ---------- ----------- Net increase (decrease) in net assets......... (15,254) (69,049) 194,642 (625,700) NET ASSETS: Beginning of year...... 123,127 949,774 4,550,196 11,483,650 -------- --------- ---------- ----------- End of year............ $107,873 $ 880,725 $4,744,838 $10,857,950 ======== ========= ========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-36 ____________________________________
PUTNAM VT PUTNAM VT INTERNATIONAL PUTNAM VT PUTNAM VT INTERNATIONAL PUTNAM VT NEW HEALTH HIGH YIELD PUTNAM VT GROWTH AND INTERNATIONAL OPPORTUNITIES PUTNAM VT SCIENCES FUND FUND INCOME FUND INCOME FUND EQUITY FUND FUND INVESTORS FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------- ----------- ----------- ------------- ------------- ------------- -------------- OPERATIONS: Net investment income (loss)................ $ 558 $ 233,695 $ 87,786 $ 1,147 $ 50,069 $ 239 $ 1,170 Capital gains income... -- -- 28,414 -- -- -- -- Net realized gain (loss) on security transactions.......... (5,822) 2,207 1,741 2,120 56,509 (6,778) (74) Net unrealized appreciation (depreciation) of investments during the year.................. 28,328 (140,808) (50,697) 10,729 245,403 10,130 7,227 -------- ---------- ---------- -------- ---------- ------- ------- Net increase (decrease) in net assets resulting from operations............ 23,064 95,094 67,244 13,996 351,981 3,591 8,323 -------- ---------- ---------- -------- ---------- ------- ------- UNIT TRANSACTIONS: Purchases.............. -- 190,735 243,483 -- 212,938 -- -- Net transfers.......... (28,670) (47,516) 53,730 (4,721) (67,996) -- -- Surrenders for benefit payments and fees..... (1,219) (47,898) (82,600) -- (234,477) (5,284) -- Net loan activity...... -- (3,604) (16,383) -- (602) -- -- Cost of insurance...... (10,269) (134,933) (123,978) (10,308) (144,413) (3,550) (5,849) -------- ---------- ---------- -------- ---------- ------- ------- Net increase (decrease) in net assets resulting from unit transactions.......... (40,158) (43,216) 74,252 (15,029) (234,550) (8,834) (5,849) -------- ---------- ---------- -------- ---------- ------- ------- Net increase (decrease) in net assets......... (17,094) 51,878 141,496 (1,033) 117,431 (5,243) 2,474 NET ASSETS: Beginning of year...... 208,901 2,827,227 2,595,342 111,680 3,013,190 26,658 97,095 -------- ---------- ---------- -------- ---------- ------- ------- End of year............ $191,807 $2,879,105 $2,736,838 $110,647 $3,130,621 $21,415 $99,569 ======== ========== ========== ======== ========== ======= =======
_____________________________________ SA-37 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2005
PUTNAM VT PUTNAM VT PUTNAM VT NEW PUTNAM VT OTC & MONEY MARKET OPPORTUNITIES NEW VALUE EMERGING FUND FUND FUND GROWTH FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------ ------------- ----------- ----------- OPERATIONS: Net investment income (loss)................ $ 35 $ 18,665 $ 4,453 $ -- Capital gains income... -- -- -- -- Net realized gain (loss) on security transactions.......... -- (299,795) 65,974 (39,766) Net unrealized appreciation (depreciation) of investments during the year.................. -- 780,334 (54,110) 46,649 -------- ---------- --------- -------- Net increase (decrease) in net assets resulting from operations............ 35 499,204 16,317 6,883 -------- ---------- --------- -------- UNIT TRANSACTIONS: Purchases.............. -- 453,193 -- -- Net transfers.......... (12,140) (511,972) (232,639) -- Surrenders for benefit payments and fees..... -- (271,210) (17,358) (1,973) Net loan activity...... -- 10,233 -- -- Cost of insurance...... (292) (274,375) (13,334) (10,174) -------- ---------- --------- -------- Net increase (decrease) in net assets resulting from unit transactions.......... (12,432) (594,131) (263,331) (12,147) -------- ---------- --------- -------- Net increase (decrease) in net assets......... (12,397) (94,927) (247,014) (5,264) NET ASSETS: Beginning of year...... 13,013 5,339,542 662,895 99,667 -------- ---------- --------- -------- End of year............ $ 616 $5,244,615 $ 415,881 $ 94,403 ======== ========== ========= ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-38 ____________________________________
PUTNAM VT PUTNAM VT PUTNAM VT THE UTILITIES GROWTH CAPITAL PUTNAM VT SMALL GEORGE PUTNAM AND INCOME PUTNAM VT PUTNAM VT OPPORTUNITIES CAP VALUE FUND FUND OF BOSTON FUND VISTA FUND VOYAGER FUND FUND SUB-ACCOUNT (A) SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ---------------- -------------- ---------------- ----------- ------------ ------------- OPERATIONS: Net investment income (loss)................ $-- $ 2,749 $ 9,981 $ -- $ 88,387 $ -- Capital gains income... -- -- -- -- -- 238 Net realized gain (loss) on security transactions.......... -- 3,325 (9,409) (19,049) (727,578) 6,007 Net unrealized appreciation (depreciation) of investments during the year.................. (81) (998) 39,193 37,717 1,175,420 11,082 ------- -------- -------- -------- ----------- -------- Net increase (decrease) in net assets resulting from operations............ (81) 5,076 39,765 18,668 536,229 17,327 ------- -------- -------- -------- ----------- -------- UNIT TRANSACTIONS: Purchases.............. -- -- -- -- 805,792 6,285 Net transfers.......... 9,430 (27,354) (19,472) (8,259) (817,601) 68,184 Surrenders for benefit payments and fees..... -- (767) (6,286) -- (635,008) (2,644) Net loan activity...... -- -- -- -- (4,490) -- Cost of insurance...... (18) (6,481) (25,863) (13,910) (472,985) (3,789) ------- -------- -------- -------- ----------- -------- Net increase (decrease) in net assets resulting from unit transactions.......... 9,412 (34,602) (51,621) (22,169) (1,124,292) 68,036 ------- -------- -------- -------- ----------- -------- Net increase (decrease) in net assets......... 9,331 (29,526) (11,856) (3,501) (588,063) 85,363 NET ASSETS: Beginning of year...... -- 126,114 480,855 168,379 10,272,162 27,502 ------- -------- -------- -------- ----------- -------- End of year............ $ 9,331 $ 96,588 $468,999 $164,878 $ 9,684,099 $112,865 ======= ======== ======== ======== =========== ======== PUTNAM VT EQUITY INCOME FUND SUB-ACCOUNT ------------- OPERATIONS: Net investment income (loss)................ $ 2,367 Capital gains income... 3,264 Net realized gain (loss) on security transactions.......... 2,135 Net unrealized appreciation (depreciation) of investments during the year.................. 10,628 -------- Net increase (decrease) in net assets resulting from operations............ 18,394 -------- UNIT TRANSACTIONS: Purchases.............. 18,728 Net transfers.......... 79,136 Surrenders for benefit payments and fees..... (13,966) Net loan activity...... -- Cost of insurance...... (9,885) -------- Net increase (decrease) in net assets resulting from unit transactions.......... 74,013 -------- Net increase (decrease) in net assets......... 92,407 NET ASSETS: Beginning of year...... 192,555 -------- End of year............ $284,962 ========
(a) From inception October 3, 2005 to December 31, 2005. _____________________________________ SA-39 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 2004
AMERICAN AMERICAN FUNDS BLUE AIM V.I. MID AIM V.I. FUNDS ASSET CHIP INCOME CAP CORE PREMIER EQUITY ALLOCATION AND GROWTH EQUITY FUND FUND FUND FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------ -------------- ----------- ----------- OPERATIONS: Net investment income................ $ 288 $ 21 $ 84,206 $ 7,862 Capital gains income... 8,496 -- -- -- Net realized gain (loss) on security transactions.......... (251) (5) 4,296 (147) Net unrealized appreciation (depreciation) of investments during the year.................. 11,112 252 257,986 126,019 -------- ------ ---------- ---------- Net increase (decrease) in net assets resulting from operations............ 19,645 268 346,488 133,734 -------- ------ ---------- ---------- UNIT TRANSACTIONS: Purchases.............. 34,497 4,468 345,170 105,023 Net transfers.......... 111,308 -- 2,791,411 384,326 Surrenders for benefit payments and fees..... -- -- (201,954) (1,445) Net loan activity...... -- -- -- -- Cost of insurance...... (10,117) (756) (139,785) (57,970) -------- ------ ---------- ---------- Net increase (decrease) in net assets resulting from unit transactions.......... 135,688 3,712 2,794,842 429,934 -------- ------ ---------- ---------- Net increase (decrease) in net assets......... 155,333 3,980 3,141,330 563,668 NET ASSETS: Beginning of year...... 68,832 662 1,421,930 967,456 -------- ------ ---------- ---------- End of year............ $224,165 $4,642 $4,563,260 $1,531,124 ======== ====== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-40 ____________________________________
AMERICAN AMERICAN FUNDS GLOBAL AMERICAN AMERICAN AMERICAN AMERICAN FUNDS AMERICAN SMALL FUNDS BOND FUNDS GLOBAL FUNDS GROWTH FUNDS GROWTH- INTERNATIONAL FUNDS NEW CAPITALIZATION FUND GROWTH FUND FUND INCOME FUND FUND WORLD FUND FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------- ------------ ------------ ------------- ------------- ----------- -------------- OPERATIONS: Net investment income................ $ 13,526 $ 4,833 $ 11,119 $ 66,178 $ 19,999 $ 4,238 $ -- Capital gains income... -- -- -- -- -- -- -- Net realized gain (loss) on security transactions.......... (2,305) 4,169 (1,339) (5) 4,166 (1,187) 3,441 Net unrealized appreciation (depreciation) of investments during the year.................. 17,091 150,403 771,149 650,091 231,159 36,117 313,662 -------- ---------- ---------- ---------- ---------- -------- ---------- Net increase (decrease) in net assets resulting from operations............ 28,312 159,405 780,929 716,264 255,324 39,168 317,103 -------- ---------- ---------- ---------- ---------- -------- ---------- UNIT TRANSACTIONS: Purchases.............. 60,671 112,842 590,281 692,878 183,971 19,512 82,814 Net transfers.......... 728,199 311,714 2,182,103 1,722,021 717,269 191,793 1,296,783 Surrenders for benefit payments and fees..... (86,920) (145,930) (188,634) (291,758) (118,232) -- (88,653) Net loan activity...... -- (2,675) (33,131) (3,507) -- -- (1,505) Cost of insurance...... (28,162) (51,155) (280,476) (344,973) (95,963) (8,270) (56,788) -------- ---------- ---------- ---------- ---------- -------- ---------- Net increase (decrease) in net assets resulting from unit transactions.......... 673,788 224,796 2,270,143 1,774,661 687,045 203,035 1,232,651 -------- ---------- ---------- ---------- ---------- -------- ---------- Net increase (decrease) in net assets......... 702,100 384,201 3,051,072 2,490,925 942,369 242,203 1,549,754 NET ASSETS: Beginning of year...... 249,943 972,022 4,251,708 5,565,332 757,607 126,011 693,998 -------- ---------- ---------- ---------- ---------- -------- ---------- End of year............ $952,043 $1,356,223 $7,302,780 $8,056,257 $1,699,976 $368,214 $2,243,752 ======== ========== ========== ========== ========== ======== ==========
_____________________________________ SA-41 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2004
FRANKLIN SMALL FIDELITY VIP FIDELITY VIP FIDELITY VIP CAP VALUE ASSET MANAGER EQUITY-INCOME OVERSEAS SECURITIES PORTFOLIO PORTFOLIO PORTFOLIO FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------- ------------- ------------ -------------- OPERATIONS: Net investment income................ $ 39,753 $ 157,778 $ 19,649 $ 1,620 Capital gains income... -- 37,691 -- -- Net realized gain (loss) on security transactions.......... (102,585) 45,056 (246,328) 708 Net unrealized appreciation (depreciation) of investments during the year.................. 119,824 926,506 372,546 245,307 ---------- ----------- ---------- ---------- Net increase (decrease) in net assets resulting from operations............ 56,992 1,167,031 145,867 247,635 ---------- ----------- ---------- ---------- UNIT TRANSACTIONS: Purchases.............. -- 729,056 -- 97,135 Net transfers.......... (324,093) (156,332) (509,313) 962,373 Surrenders for benefit payments and fees..... (78,389) (479,913) (92,426) (59,648) Net loan activity...... (5,760) (8,939) -- -- Cost of insurance...... (64,567) (516,382) (68,843) (60,130) ---------- ----------- ---------- ---------- Net increase (decrease) in net assets resulting from unit transactions.......... (472,809) (432,510) (670,582) 939,730 ---------- ----------- ---------- ---------- Net increase (decrease) in net assets......... (415,817) 734,521 (524,715) 1,187,365 NET ASSETS: Beginning of year...... 1,513,118 10,241,014 1,750,341 480,643 ---------- ----------- ---------- ---------- End of year............ $1,097,301 $10,975,535 $1,225,626 $1,668,008 ========== =========== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-42 ____________________________________
HARTFORD HARTFORD MUTUAL SHARES HARTFORD CAPITAL DIVIDEND AND HARTFORD GLOBAL HARTFORD GLOBAL SECURITIES ADVISERS HLS HARTFORD BOND APPRECIATION GROWTH HLS ADVISERS HLS LEADERS HLS FUND FUND HLS FUND HLS FUND FUND FUND FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------- ------------ ------------- ------------ ------------ --------------- --------------- OPERATIONS: Net investment income................ $ 4,719 $ 259,332 $ 576,839 $ 97,830 $ 163,529 $ 18 $ 26 Capital gains income... -- -- 318,043 -- -- -- -- Net realized gain (loss) on security transactions.......... (118) (2,142) 29,513 92,866 38,694 285 160 Net unrealized appreciation (depreciation) of investments during the year.................. 60,563 170,920 (350,816) 4,998,990 1,212,025 11,761 697 -------- ----------- ----------- ----------- ----------- -------- ------ Net increase (decrease) in net assets resulting from operations............ 65,164 428,110 573,579 5,189,686 1,414,248 12,064 883 -------- ----------- ----------- ----------- ----------- -------- ------ UNIT TRANSACTIONS: Purchases.............. 32,523 1,471,355 730,617 1,828,114 870,163 -- -- Net transfers.......... 419,078 (1,043,326) 838,310 235,397 103,877 -- -- Surrenders for benefit payments and fees..... (6) (505,891) (408,526) (1,267,296) (642,074) 2 -- Net loan activity...... -- -- (49,550) (117,774) (33,492) -- -- Cost of insurance...... (34,088) (676,957) (551,061) (1,327,986) (590,746) (2,606) (595) -------- ----------- ----------- ----------- ----------- -------- ------ Net increase (decrease) in net assets resulting from unit transactions.......... 417,507 (754,819) 559,790 (649,545) (292,272) (2,604) (595) -------- ----------- ----------- ----------- ----------- -------- ------ Net increase (decrease) in net assets......... 482,671 (326,709) 1,133,369 4,540,141 1,121,976 9,460 288 NET ASSETS: Beginning of year...... 226,211 13,014,442 11,423,113 27,181,653 11,666,502 96,156 4,965 -------- ----------- ----------- ----------- ----------- -------- ------ End of year............ $708,882 $12,687,733 $12,556,482 $31,721,794 $12,788,478 $105,616 $5,253 ======== =========== =========== =========== =========== ======== ======
_____________________________________ SA-43 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2004
HARTFORD HARTFORD HARTFORD GLOBAL DISCIPLINED GROWTH TECHNOLOGY EQUITY HLS OPPORTUNITIES HARTFORD INDEX HLS FUND FUND HLS FUND HLS FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------- ----------- ------------- -------------- OPERATIONS: Net investment income................ $-- $ 9,232 $ -- $ 152,459 Capital gains income... -- -- -- 56,049 Net realized gain (loss) on security transactions.......... 213 (133) 1,126 (1,414,212) Net unrealized appreciation (depreciation) of investments during the year.................. (740) 59,139 35,511 2,332,258 ------- -------- -------- ----------- Net increase (decrease) in net assets resulting from operations............ (527) 68,238 36,637 1,126,554 ------- -------- -------- ----------- UNIT TRANSACTIONS: Purchases.............. -- 64,502 44,497 1,178,544 Net transfers.......... (5,800) 66,245 (908) (4,970,477) Surrenders for benefit payments and fees..... -- (5,570) (5,736) (1,097,103) Net loan activity...... -- (5,240) -- (5,278) Cost of insurance...... (3,260) (44,344) (11,526) (698,521) ------- -------- -------- ----------- Net increase (decrease) in net assets resulting from unit transactions.......... (9,060) 75,593 26,327 (5,592,835) ------- -------- -------- ----------- Net increase (decrease) in net assets......... (9,587) 143,831 62,964 (4,466,281) NET ASSETS: Beginning of year...... 35,795 731,204 186,062 16,811,085 ------- -------- -------- ----------- End of year............ $26,208 $875,035 $249,026 $12,344,804 ======= ======== ======== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-44 ____________________________________
HARTFORD INTERNATIONAL HARTFORD HARTFORD SMALL INTERNATIONAL HARTFORD HARTFORD HARTFORD MONEY MORTGAGE HARTFORD SMALL COMPANY HLS OPPORTUNITIES MIDCAP HLS MIDCAP VALUE MARKET HLS SECURITIES HLS COMPANY HLS FUND HLS FUND FUND HLS FUND FUND FUND FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------- ------------- ----------- ------------ -------------- -------------- -------------- OPERATIONS: Net investment income................ $-- $ 41,420 $ 15,265 $ 534 $ 81,848 $ 57,833 $ -- Capital gains income... 2,305 -- -- 6,216 -- 2,130 -- Net realized gain (loss) on security transactions.......... 3,644 1,819 58,955 (936) -- 3,622 23,774 Net unrealized appreciation (depreciation) of investments during the year.................. 27,891 954,796 843,657 115,062 -- (12,546) 492,880 -------- ---------- ---------- ---------- ----------- ---------- ---------- Net increase (decrease) in net assets resulting from operations............ 33,840 998,035 917,877 120,876 81,848 51,039 516,654 -------- ---------- ---------- ---------- ----------- ---------- ---------- UNIT TRANSACTIONS: Purchases.............. 18,714 362,034 445,650 56,977 3,390,254 119,152 241,558 Net transfers.......... 196,970 1,339,526 (109,587) 686,901 (1,290,026) (449,404) 417,874 Surrenders for benefit payments and fees..... (35,013) (135,783) (290,350) (56,236) (3,067,404) (112,058) (43,580) Net loan activity...... 1,036 (12,109) (2,293) 691 10,115 -- (24,943) Cost of insurance...... (8,081) (235,300) (322,387) (26,905) (569,244) (73,769) (199,916) -------- ---------- ---------- ---------- ----------- ---------- ---------- Net increase (decrease) in net assets resulting from unit transactions.......... 173,626 1,318,368 (278,967) 661,428 (1,526,305) (516,079) 390,993 -------- ---------- ---------- ---------- ----------- ---------- ---------- Net increase (decrease) in net assets......... 207,466 2,316,403 638,910 782,304 (1,444,457) (465,040) 907,647 NET ASSETS: Beginning of year...... 58,864 4,218,209 5,710,332 307,501 8,708,415 1,658,635 3,473,562 -------- ---------- ---------- ---------- ----------- ---------- ---------- End of year............ $266,330 $6,534,612 $6,349,242 $1,089,805 $ 7,263,958 $1,193,595 $4,381,209 ======== ========== ========== ========== =========== ========== ==========
_____________________________________ SA-45 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2004
HARTFORD VALUE MFS NEW HARTFORD STOCK OPPORTUNITIES DISCOVERY MFS TOTAL HLS FUND HLS FUND SERIES RETURN SERIES SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------- -------------- ----------- ------------- OPERATIONS: Net investment income................ $ 190,577 $ 1,099 $ -- $ 1,566 Capital gains income... -- -- -- -- Net realized gain (loss) on security transactions.......... (1,055) 322 3,524 57 Net unrealized appreciation (depreciation) of investments during the year.................. 536,501 115,075 3,062 15,249 ----------- -------- -------- -------- Net increase (decrease) in net assets resulting from operations............ 726,023 116,496 6,586 16,872 ----------- -------- -------- -------- UNIT TRANSACTIONS: Purchases.............. 1,635,150 32,395 8,179 14,135 Net transfers.......... (42,988) 661,524 (51,094) 106,988 Surrenders for benefit payments and fees..... (459,999) (109) -- -- Net loan activity...... (7,991) -- -- -- Cost of insurance...... (828,632) (22,310) (4,358) (6,551) ----------- -------- -------- -------- Net increase (decrease) in net assets resulting from unit transactions.......... 295,540 671,500 (47,273) 114,572 ----------- -------- -------- -------- Net increase (decrease) in net assets......... 1,021,563 787,996 (40,687) 131,444 NET ASSETS: Beginning of year...... 16,762,566 106,173 143,610 74,319 ----------- -------- -------- -------- End of year............ $17,784,129 $894,169 $102,923 $205,763 =========== ======== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-46 ____________________________________
PUTNAM VT PUTNAM VT GLOBAL ASSET PUTNAM VT PUTNAM VT PUTNAM VT PUTNAM VT DIVERSIFIED ALLOCATION GLOBAL EQUITY GROWTH AND HEALTH HIGH YIELD PUTNAM VT INCOME FUND FUND FUND INCOME FUND SCIENCES FUND FUND INCOME FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------- ------------ ------------- ------------ ------------- ----------- ----------- OPERATIONS: Net investment income................ $ 20,910 $ 34,285 $ 97,757 $ 206,654 $ 902 $ 270,637 $ 115,131 Capital gains income... -- -- -- -- -- -- -- Net realized gain (loss) on security transactions.......... (28,920) (683,085) (2,438) (65,912) (22,123) 42,738 3,433 Net unrealized appreciation (depreciation) of investments during the year.................. 27,357 746,971 487,057 1,088,522 36,524 4,032 11,833 --------- ----------- ---------- ----------- -------- ---------- ---------- Net increase (decrease) in net assets resulting from operations............ 19,347 98,171 582,376 1,229,264 15,303 317,407 130,397 --------- ----------- ---------- ----------- -------- ---------- ---------- UNIT TRANSACTIONS: Purchases.............. -- -- 439,832 1,019,384 -- 225,125 282,164 Net transfers.......... (198,459) (1,726,476) (353,457) (717,887) (72,743) (554,304) (526,133) Surrenders for benefit payments and fees..... -- (52,801) (260,422) (973,638) (1,395) (205,952) (135,337) Net loan activity...... -- -- 9,824 (9,615) -- (3,661) (2,010) Cost of insurance...... (13,390) (55,455) (218,985) (609,558) (18,549) (154,915) (139,858) --------- ----------- ---------- ----------- -------- ---------- ---------- Net increase (decrease) in net assets resulting from unit transactions.......... (211,849) (1,834,732) (383,208) (1,291,314) (92,687) (693,707) (521,174) --------- ----------- ---------- ----------- -------- ---------- ---------- Net increase (decrease) in net assets......... (192,502) (1,736,561) 199,168 (62,050) (77,384) (376,300) (390,777) NET ASSETS: Beginning of year...... 315,629 2,686,335 4,351,028 11,545,700 286,285 3,203,527 2,986,119 --------- ----------- ---------- ----------- -------- ---------- ---------- End of year............ $ 123,127 $ 949,774 $4,550,196 $11,483,650 $208,901 $2,827,227 $2,595,342 ========= =========== ========== =========== ======== ========== ==========
_____________________________________ SA-47 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2004
PUTNAM VT PUTNAM VT INTERNATIONAL PUTNAM VT INTERNATIONAL GROWTH AND INTERNATIONAL NEW OPPORTUNITIES PUTNAM VT INCOME FUND EQUITY FUND FUND INVESTORS FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------- ------------- ----------------- -------------- OPERATIONS: Net investment income................ $ 1,665 $ 48,767 $ 470 $ 760 Capital gains income... -- -- -- -- Net realized gain (loss) on security transactions.......... 2,030 74,757 (16,590) (11,730) Net unrealized appreciation (depreciation) of investments during the year.................. 16,991 318,853 19,856 22,774 -------- ---------- -------- -------- Net increase (decrease) in net assets resulting from operations............ 20,686 442,377 3,736 11,804 -------- ---------- -------- -------- UNIT TRANSACTIONS: Purchases.............. -- 280,230 -- -- Net transfers.......... (8,326) (366,929) (12,480) (21,376) Surrenders for benefit payments and fees..... (4,280) (95,002) -- (13,917) Net loan activity...... -- (38,001) -- -- Cost of insurance...... (10,327) (145,086) (4,556) (7,773) -------- ---------- -------- -------- Net increase (decrease) in net assets resulting from unit transactions.......... (22,933) (364,788) (17,036) (43,066) -------- ---------- -------- -------- Net increase (decrease) in net assets......... (2,247) 77,589 (13,300) (31,262) NET ASSETS: Beginning of year...... 113,927 2,935,601 39,958 128,357 -------- ---------- -------- -------- End of year............ $111,680 $3,013,190 $ 26,658 $ 97,095 ======== ========== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-48 ____________________________________
PUTNAM VT PUTNAM VT PUTNAM VT PUTNAM VT NEW PUTNAM VT OTC & PUTNAM VT THE UTILITIES GROWTH MONEY MARKET OPPORTUNITIES NEW VALUE EMERGING GEORGE PUTNAM AND INCOME FUND FUND FUND GROWTH FUND FUND OF BOSTON FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------ ------------- ----------- ----------- -------------- ---------------- OPERATIONS: Net investment income................ $ 504 $ -- $ 7,507 $ -- $ 2,747 $ 11,766 Capital gains income... -- -- -- -- -- -- Net realized gain (loss) on security transactions.......... -- (233,127) 19,806 (130,512) 979 (57,779) Net unrealized appreciation (depreciation) of investments during the year.................. -- 739,860 66,646 137,956 7,005 140,957 -------- ---------- --------- --------- -------- --------- Net increase (decrease) in net assets resulting from operations............ 504 506,733 93,959 7,444 10,731 94,944 -------- ---------- --------- --------- -------- --------- UNIT TRANSACTIONS: Purchases.............. -- 524,574 -- -- -- -- Net transfers.......... (79,011) (551,804) (93,429) (13,856) (34,879) (115,050) Surrenders for benefit payments and fees..... (4,474) (145,540) (28,136) -- -- (15,997) Net loan activity...... -- -- -- -- -- -- Cost of insurance...... 122 (301,941) (21,841) (16,585) (8,384) (24,908) -------- ---------- --------- --------- -------- --------- Net increase (decrease) in net assets resulting from unit transactions.......... (83,363) (474,711) (143,406) (30,441) (43,263) (155,955) -------- ---------- --------- --------- -------- --------- Net increase (decrease) in net assets......... (82,859) 32,022 (49,447) (22,997) (32,532) (61,011) NET ASSETS: Beginning of year...... 95,872 5,307,520 712,342 122,664 158,646 541,866 -------- ---------- --------- --------- -------- --------- End of year............ $ 13,013 $5,339,542 $ 662,895 $ 99,667 $126,114 $ 480,855 ======== ========== ========= ========= ======== =========
_____________________________________ SA-49 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2004
PUTNAM VT CAPITAL PUTNAM VT PUTNAM VT PUTNAM VT OPPORTUNITIES EQUITY INCOME VISTA FUND VOYAGER FUND FUND FUND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT (A) SUB-ACCOUNT ----------- ------------ ------------------ ------------- OPERATIONS: Net investment income................ $ -- $ 53,471 $ 55 $ 190 Capital gains income... -- -- 814 -- Net realized gain (loss) on security transactions.......... (40,300) (2,805,240) 291 103 Net unrealized appreciation (depreciation) of investments during the year.................. 68,163 3,225,700 1,617 19,023 -------- ----------- ------- -------- Net increase (decrease) in net assets resulting from operations............ 27,863 473,931 2,777 19,316 -------- ----------- ------- -------- UNIT TRANSACTIONS: Purchases.............. -- 1,009,119 -- 24,984 Net transfers.......... (15,565) (2,902,742) 24,875 14,593 Surrenders for benefit payments and fees..... (3,610) (752,641) -- -- Net loan activity...... -- -- -- -- Cost of insurance...... (13,538) (595,209) (150) (8,224) -------- ----------- ------- -------- Net increase (decrease) in net assets resulting from unit transactions.......... (32,713) (3,241,473) 24,725 31,353 -------- ----------- ------- -------- Net increase (decrease) in net assets......... (4,850) (2,767,542) 27,502 50,669 NET ASSETS: Beginning of year...... 173,229 13,039,704 -- 141,886 -------- ----------- ------- -------- End of year............ $168,379 $10,272,162 $27,502 $192,555 ======== =========== ======= ========
(a) Funded as of August 6, 2004. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. _____________________________________ SA-50 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 1. ORGANIZATION: Separate Account VL II (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. 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 contract owners of the Company in various mutual funds (the "Funds") as directed by the contract owners. The Account invests in the following sub-accounts (collectively, the "Sub-Accounts"): the AIM V.I. Mid Cap Core Equity Fund, AIM V.I. Premier Equity Fund, American Funds Asset Allocation Fund, American Funds Blue Chip Income and Growth Fund, American Funds Bond Fund, American Funds Global Growth Fund, American Funds Growth Fund, American Funds Growth-Income Fund, American Funds International Fund, American Funds New World Fund, American Funds Global Small Capitalization Fund, Fidelity VIP Asset Manager Portfolio, Fidelity VIP Equity-Income Portfolio, Fidelity VIP Contrafund Portfolio, Fidelity VIP Overseas Portfolio, Fidelity VIP Mid Cap Portfolio, Franklin Small Cap Value Securities Fund, Mutual Shares Securities Fund, Hartford Advisers HLS Fund, Hartford Total Return Bond HLS Fund, Hartford Capital Appreciation HLS Fund, Hartford Dividend and Growth HLS Fund, Hartford Global Advisers HLS Fund, Hartford Global Leaders HLS Fund, Hartford Global Technology HLS Fund, Hartford Disciplined Equity HLS Fund, Hartford Growth Opportunities HLS Fund, Hartford Index HLS Fund, Hartford International Small Company HLS Fund, Hartford International Opportunities HLS Fund, Hartford MidCap HLS Fund, Hartford MidCap Value HLS Fund, Hartford Money Market HLS Fund, Hartford Mortgage Securities HLS Fund, Hartford Small Company HLS Fund, Hartford Stock HLS Fund, Hartford Value Opportunities HLS Fund, MFS New Discovery Series, MFS Total Return Series, Oppenheimer Global Securities Fund/VA, Putnam VT Diversified Income Fund, Putnam VT Global Asset Allocation Fund, Putnam VT Global Equity Fund, Putnam VT Growth and Income Fund, Putnam VT Health Sciences Fund, Putnam VT High Yield Fund, Putnam VT Income Fund, Putnam VT International Growth and Income Fund, Putnam VT International Equity 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 Small Cap Value Fund, Putnam VT The George Putnam Fund of Boston, Putnam VT Utilities Growth and Income Fund, Putnam VT Vista Fund, Putnam VT Voyager Fund, Putnam VT Capital Opportunities Fund and Putnam VT Equity Income Fund. 2. SIGNIFICANT ACCOUNTING POLICIES: The following is a summary of significant accounting policies of the Account, which are in accordance with accounting principles generally accepted in the United States of America in the investment company industry: a) SECURITY TRANSACTIONS--Security transactions are recorded on the trade date (date the order to buy or sell is executed). Realized gains and losses on the sales of securities are computed on the basis of identified cost of the fund shares sold. Dividend and capital gains income is accrued as of the ex-dividend date. Capital gains income represents those dividends from the Funds which are characterized as capital gains under tax regulations. b) SECURITY VALUATION--The investments in shares of the Funds are valued at the closing net asset value per share as determined by the appropriate Fund as of December 31, 2005. c) UNIT TRANSACTIONS--Unit transactions are executed based on the unit values calculated at the close of the business day. d) FEDERAL INCOME TAXES--The operations of the Account form a part of, and are taxed with, the total operations of the Company, which is taxed as an insurance company under the Internal Revenue Code. Under current law, no federal income taxes are payable with respect to the operations of the Account. e) USE OF ESTIMATES--The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. _____________________________________ SA-51 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2005 3. ADMINISTRATION OF THE ACCOUNT AND RELATED CHARGES: DEDUCTIONS AND CHARGES FROM THE ACCOUNT VALUE--On the policy date and on each subsequent monthly activity date, the Company will deduct from the Account an amount to cover mortality and expense risk charges, cost of insurance, administrative charges and any other benefits provided by the rider. These charges, which may vary from month to month in accordance which the terms of the contracts, are deducted through termination of units of interest from applicable contract owners accounts. 4. PURCHASES AND SALES OF INVESTMENTS The cost of purchases and proceeds from sales of investments for the year ended December 31, 2005 were as follows:
PURCHASES PROCEEDS SUB-ACCOUNT AT COST FROM SALES ----------- ----------- ----------- AIM V.I. Mid Cap Core Equity Fund....... $ 153,291 $ 62,133 AIM V.I. Premier Equity Fund............ 4,913 911 American Funds Asset Allocation Fund.... 1,164,008 284,733 American Funds Blue Chip Income and Growth Fund............................ 207,595 126,074 American Funds Bond Fund................ 590,890 713,236 American Funds Global Growth Fund....... 367,438 142,675 American Funds Growth Fund.............. 1,291,353 793,480 American Funds Growth-Income Fund....... 1,223,924 906,689 American Funds International Fund....... 777,468 416,063 American Funds New World Fund........... 344,615 163,298 American Funds Global Small Capitalization Fund.................... 341,297 400,205 Fidelity VIP Asset Manager Portfolio.... 29,015 75,415 Fidelity VIP Equity-Income Portfolio.... 1,610,013 978,578 Fidelity VIP Contrafund Portfolio....... 30,484 419 Fidelity VIP Overseas Portfolio......... 14,152 169,488 Fidelity VIP Mid Cap Portfolio.......... 9,431 20 Franklin Small Cap Value Securities Fund................................... 953,716 654,807 Mutual Shares Securities Fund........... 294,761 124,304 Hartford Advisers HLS Fund.............. 2,195,386 2,636,241 Hartford Total Return Bond HLS Fund..... 3,158,598 911,913 Hartford Capital Appreciation HLS Fund................................... 6,281,063 3,906,700 Hartford Dividend and Growth HLS Fund... 1,973,539 1,840,184 Hartford Global Advisers HLS Fund....... 3,831 2,209 Hartford Global Leaders HLS Fund........ 39 419 Hartford Global Technology HLS Fund..... 53 9,740 Hartford Disciplined Equity HLS Fund.... 94,387 156,514 Hartford Growth Opportunities HLS Fund................................... 242,362 112,443 Hartford Index HLS Fund................. 1,780,640 1,399,735 Hartford International Small Company HLS Fund................................... 251,350 245,226 Hartford International Opportunities HLS Fund................................... 1,040,229 1,017,152 Hartford MidCap HLS Fund................ 1,881,906 1,373,861 Hartford MidCap Value HLS Fund.......... 254,779 528,348 Hartford Money Market HLS Fund.......... 4,835,138 5,421,125 Hartford Mortgage Securities HLS Fund... 266,711 282,508 Hartford Small Company HLS Fund......... 227,246 678,242 Hartford Stock HLS Fund................. 1,297,421 2,495,740 Hartford Value Opportunities HLS Fund... 914,627 439,333 MFS New Discovery Series................ 22,390 24,673 MFS Total Return Series................. 1,087,536 69,832
_____________________________________ SA-52 ____________________________________
PURCHASES PROCEEDS SUB-ACCOUNT AT COST FROM SALES ----------- ----------- ----------- Oppenheimer Global Securities Fund/VA... $ 26,125 $ 15 Putnam VT Diversified Income Fund....... 8,992 19,040 Putnam VT Global Asset Allocation Fund................................... 12,444 131,051 Putnam VT Global Equity Fund............ 385,799 545,938 Putnam VT Growth and Income Fund........ 821,369 1,835,224 Putnam VT Health Sciences Fund.......... 557 40,158 Putnam VT High Yield Fund............... 514,239 323,762 Putnam VT Income Fund................... 457,658 267,207 Putnam VT International Growth and Income Fund............................ 1,147 15,029 Putnam VT International Equity Fund..... 364,320 548,796 Putnam VT International New Opportunities Fund..................... 238 8,833 Putnam VT Investors Fund................ 1,170 5,849 Putnam VT Money Market Fund............. 34 12,431 Putnam VT New Opportunities Fund........ 373,401 948,867 Putnam VT New Value Fund................ 4,453 263,331 Putnam VT OTC & Emerging Growth Fund.... -- 12,148 Putnam VT Small Cap Value Fund.......... 9,431 19 Putnam VT The George Putnam Fund of Boston................................. 2,749 34,602 Putnam VT Utilities Growth and Income Fund................................... 9,981 51,621 Putnam VT Vista Fund.................... -- 22,170 Putnam VT Voyager Fund.................. 711,581 1,747,493 Putnam VT Capital Opportunities Fund.... 212,002 143,728 Putnam VT Equity Income Fund............ 182,311 102,667 ----------- ----------- $41,317,596 $36,644,645 =========== ===========
_____________________________________ SA-53 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2005 5. CHANGES IN UNITS OUTSTANDING The changes in units outstanding for the year ended December 31, 2005 were as follows:
UNITS UNITS NET INCREASE SUB-ACCOUNT ISSUED REDEEMED (DECREASE) ----------- ---------- ---------- ------------ AIM V.I. Mid Cap Core Equity Fund.............................. 10,885 4,705 6,180 AIM V.I. Premier Equity Fund....... 410 76 334 American Funds Asset Allocation Fund.............................. 130,493 68,279 62,214 American Funds Blue Chip Income and Growth Fund....................... 17,846 12,789 5,057 American Funds Bond Fund........... 52,739 66,952 (14,213) American Funds Global Growth Fund.............................. 361,836 168,863 192,973 American Funds Growth Fund......... 1,667,679 1,199,764 467,915 American Funds Growth-Income Fund.............................. 1,209,056 1,071,480 137,576 American Funds International Fund.............................. 57,003 35,901 21,102 American Funds New World Fund...... 22,708 11,224 11,484 American Funds Global Small Capitalization Fund............... 248,956 313,535 (64,579) Fidelity VIP Asset Manager Portfolio......................... -- 37,048 (37,048) Fidelity VIP Equity-Income Portfolio......................... 582,977 554,207 28,770 Fidelity VIP Contrafund Portfolio......................... 2,923 39 2,884 Fidelity VIP Overseas Portfolio.... -- 90,661 (90,661) Fidelity VIP Mid Cap Portfolio..... 909 2 907 Franklin Small Cap Value Securities Fund.............................. 65,317 47,925 17,392 Mutual Shares Securities Fund...... 22,316 10,211 12,105 Hartford Advisers HLS Fund......... 784,688 1,343,149 (558,461) Hartford Total Return Bond HLS Fund.............................. 1,218,603 714,430 504,173 Hartford Capital Appreciation HLS Fund.............................. 653,221 1,141,390 (488,169) Hartford Dividend and Growth HLS Fund.............................. 555,912 757,538 (201,626) Hartford Global Advisers HLS Fund.............................. -- 1,647 (1,647) Hartford Global Leaders HLS Fund... -- 398 (398) Hartford Global Technology HLS Fund.............................. -- 13,612 (13,612) Hartford Disciplined Equity HLS Fund.............................. 79,263 133,673 (54,410) Hartford Growth Opportunities HLS Fund.............................. 15,663 8,111 7,552 Hartford Index HLS Fund............ 547,248 623,651 (76,403) Hartford International Small Company HLS Fund.................. 14,169 16,288 (2,119) Hartford International Opportunities HLS Fund............ 625,157 606,501 18,656 Hartford MidCap HLS Fund........... 402,815 568,880 (166,065) Hartford MidCap Value HLS Fund..... 14,891 39,126 (24,235) Hartford Money Market HLS Fund..... 4,238,365 4,733,650 (495,285) Hartford Mortgage Securities HLS Fund.............................. 118,843 149,436 (30,593) Hartford Small Company HLS Fund.... 253,789 521,303 (267,514) Hartford Stock HLS Fund............ 593,934 1,092,874 (498,940) Hartford Value Opportunities HLS Fund.............................. 60,663 30,719 29,944 MFS New Discovery Series........... 1,760 1,966 (206) MFS Total Return Series............ 88,529 6,116 82,413 Oppenheimer Global Securities Fund/VA........................... 2,513 4 2,509 Putnam VT Diversified Income Fund.............................. -- 988 (988) Putnam VT Global Asset Allocation Fund.............................. -- 5,413 (5,413) Putnam VT Global Equity Fund....... 21,850 30,926 (9,076) Putnam VT Growth and Income Fund... 35,349 74,523 (39,174) Putnam VT Health Sciences Fund..... -- 3,244 (3,244) Putnam VT High Yield Fund.......... 16,809 18,275 (1,466)
_____________________________________ SA-54 ____________________________________
UNITS UNITS NET INCREASE SUB-ACCOUNT ISSUED REDEEMED (DECREASE) ----------- ---------- ---------- ------------ Putnam VT Income Fund.............. 19,830 15,993 3,837 Putnam VT International Growth and Income Fund....................... -- 1,051 (1,051) Putnam VT International Equity Fund.............................. 37,986 54,307 (16,321) Putnam VT International New Opportunities Fund................ -- 753 (753) Putnam VT Investors Fund........... -- 587 (587) Putnam VT Money Market Fund........ -- 8,031 (8,031) Putnam VT New Opportunities Fund... 28,293 56,078 (27,785) Putnam VT New Value Fund........... -- 15,432 (15,432) Putnam VT OTC & Emerging Growth Fund.............................. -- 1,883 (1,883) Putnam VT Small Cap Value Fund..... 929 2 927 Putnam VT The George Putnam Fund of Boston............................ -- 2,458 (2,458) Putnam VT Utilities Growth and Income Fund....................... -- 2,204 (2,204) Putnam VT Vista Fund............... -- 1,901 (1,901) Putnam VT Voyager Fund............. 41,577 80,721 (39,144) Putnam VT Capital Opportunities Fund.............................. 15,054 9,779 5,275 Putnam VT Equity Income Fund....... 14,560 8,458 6,102
The changes in units outstanding for the year ended December 31, 2004 were as follows:
UNITS UNITS NET INCREASE SUB-ACCOUNT ISSUED REDEEMED (DECREASE) ----------- ---------- ---------- ------------ AIM V.I. Mid Cap Core Equity Fund.............................. 13,182 1,936 11,246 AIM V.I. Premier Equity Fund....... 399 68 331 American Funds Asset Allocation Fund.............................. 286,840 34,575 252,265 American Funds Blue Chip Income and Growth Fund....................... 41,914 5,036 36,878 American Funds Bond Fund........... 74,953 11,911 63,042 American Funds Global Growth Fund.............................. 459,730 227,250 232,480 American Funds Growth Fund......... 3,442,094 706,163 2,735,931 American Funds Growth-Income Fund.............................. 2,319,165 720,701 1,598,464 American Funds International Fund.............................. 71,633 18,498 53,135 American Funds New World Fund...... 18,755 3,950 14,805 American Funds Global Small Capitalization Fund............... 1,412,183 337,624 1,074,559 Fidelity VIP Asset Manager Portfolio......................... -- 244,880 (244,880) Fidelity VIP Equity-Income Portfolio......................... 710,238 882,413 (172,175) Fidelity VIP Overseas Portfolio.... -- 422,605 (422,605) Franklin Small Cap Value Securities Fund.............................. 81,842 10,583 71,259 Mutual Shares Securities Fund...... 40,248 4,805 35,443 Hartford Advisers HLS Fund......... 722,440 1,024,774 (302,334) Hartford Bond HLS Fund............. 2,018,173 1,743,109 275,064 Hartford Capital Appreciation HLS Fund.............................. 1,024,435 1,172,814 (148,379) Hartford Dividend and Growth HLS Fund.............................. 715,674 818,232 (102,558) Hartford Global Advisers HLS Fund.............................. -- 2,053 (2,053) Hartford Global Leaders HLS Fund... -- 602 (602) Hartford Global Technology HLS Fund.............................. -- 13,589 (13,589) Hartford Disciplined Equity HLS Fund.............................. 131,198 66,896 64,302 Hartford Growth Opportunities HLS Fund.............................. 5,202 3,012 2,190 Hartford Index HLS Fund............ 588,990 2,580,490 (1,991,500) Hartford International Small Company HLS Fund.................. 17,191 4,105 13,086 Hartford International Opportunities HLS Fund............ 1,140,387 387,948 752,439 Hartford MidCap HLS Fund........... 593,685 701,287 (107,602)
_____________________________________ SA-55 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2005
UNITS UNITS NET INCREASE SUB-ACCOUNT ISSUED REDEEMED (DECREASE) ----------- ---------- ---------- ------------ Hartford MidCap Value HLS Fund..... 57,561 7,594 49,967 Hartford Money Market HLS Fund..... 5,245,603 6,227,001 (981,398) Hartford Mortgage Securities HLS Fund.............................. 98,630 365,810 (267,180) Hartford Small Company HLS Fund.... 877,111 576,110 301,001 Hartford Stock HLS Fund............ 1,115,366 1,009,917 105,449 Hartford Value Opportunities HLS Fund.............................. 55,581 3,120 52,461 MFS New Discovery Series........... 3,039 6,916 (3,877) MFS Total Return Series............ 10,840 584 10,256 Putnam VT Diversified Income Fund.............................. -- 11,779 (11,779) Putnam VT Global Asset Allocation Fund.............................. -- 83,834 (83,834) Putnam VT Global Equity Fund....... 24,888 43,303 (18,415) Putnam VT Growth and Income Fund... 54,372 99,629 (45,257) Putnam VT Health Sciences Fund..... -- 7,991 (7,991) Putnam VT High Yield Fund.......... 21,313 54,462 (33,149) Putnam VT Income Fund.............. 20,162 46,781 (26,619) Putnam VT International Growth and Income Fund....................... -- 1,871 (1,871) Putnam VT International Equity Fund.............................. 32,069 61,122 (29,053) Putnam VT International New Opportunities Fund................ -- 1,642 (1,642) Putnam VT Investors Fund........... 129 5,019 (4,890) Putnam VT Money Market Fund........ 1,052 55,222 (54,170) Putnam VT New Opportunities Fund... 41,500 67,453 (25,953) Putnam VT New Value Fund........... -- 9,212 (9,212) Putnam VT OTC & Emerging Growth Fund.............................. -- 5,197 (5,197) Putnam VT The George Putnam Fund of Boston............................ -- 3,380 (3,380) Putnam VT Utilities Growth and Income Fund....................... 4 7,861 (7,857) Putnam VT Vista Fund............... 32 3,312 (3,280) Putnam VT Voyager Fund............. 47,114 167,366 (120,252) Putnam VT Capital Opportunities Fund.............................. 2,472 536 1,936 Putnam VT Equity Income Fund....... 3,841 1,174 2,667
_____________________________________ SA-56 ____________________________________ 6. FINANCIAL HIGHLIGHTS The following is a summary of units, unit fair value, contract owners' equity, expense ratios, investment income ratios, and total return showing the minimum and maximum contract charges for which a series of each Sub-Account has outstanding units.
UNIT CONTRACT EXPENSE INVESTMENT TOTAL SUB-ACCOUNT UNITS FAIR VALUE # OWNER'S EQUITY RATIO* INCOME RATIO** RETURN*** ----------- ---------- ------------ -------------- ------- -------------- ------------- AIM V.I. MID CAP CORE EQUITY FUND 2005 Lowest contract charges 23,468 $13.954120 $ 327,474 -- 0.56% 7.62% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 17,288 12.966631 224,165 -- 0.19% 13.82% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 6,042 11.392463 68,832 -- -- 13.93% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- AIM V.I. PREMIER EQUITY FUND 2005 Lowest contract charges 724 12.588744 9,109 -- 0.91% 5.66% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 390 11.914989 4,642 -- 0.71% 5.77% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 59 11.264791 662 -- -- 12.65% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- AMERICAN FUNDS ASSET ALLOCATION FUND 2005 Lowest contract charges 443,045 13.077484 5,793,915 -- 2.32% 9.14% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 380,831 11.982388 4,563,260 -- 2.34% 8.34% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 128,566 11.059916 1,421,930 -- 5.09% 10.60% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- AMERICAN FUNDS BLUE CHIP INCOME AND GROWTH FUND 2005 Lowest contract charges 125,347 13.649702 1,710,950 -- 1.00% 7.24% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 120,290 12.728640 1,531,124 -- 0.66% 9.74% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 83,412 11.598516 967,456 -- -- 15.99% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- --
_____________________________________ SA-57 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2005
UNIT CONTRACT EXPENSE INVESTMENT TOTAL SUB-ACCOUNT UNITS FAIR VALUE # OWNER'S EQUITY RATIO* INCOME RATIO** RETURN*** ----------- ---------- ------------ -------------- ------- -------------- ------------- AMERICAN FUNDS BOND FUND 2005 Lowest contract charges 73,047 $11.083750 $ 809,630 -- 2.91% 1.59% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 87,260 10.910455 952,043 -- 2.67% 5.72% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 24,218 10.320517 249,943 -- -- 3.21% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- AMERICAN FUNDS GLOBAL GROWTH FUND 2005 Lowest contract charges 1,438,688 1.241944 1,786,770 -- 0.67% 14.08% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 1,245,715 1.088710 1,356,223 -- 0.43% 13.49% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 1,013,235 0.959325 972,022 -- 0.34% 35.27% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 392,336 0.709176 278,236 -- 0.66% (14.64)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 79,737 0.830793 66,245 -- 0.91% (16.92)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- AMERICAN FUNDS GROWTH FUND 2005 Lowest contract charges 8,397,299 1.070088 8,985,849 -- 0.72% 16.19% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 7,929,384 0.920977 7,302,780 -- 0.20% 12.50% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 5,193,453 0.818667 4,251,708 -- 0.15% 36.80% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 2,799,340 0.598421 1,675,184 -- 0.04% (24.45)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 741,450 0.792121 587,318 -- 0.45% (20.79)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- --
_____________________________________ SA-58 ____________________________________
UNIT CONTRACT EXPENSE INVESTMENT TOTAL SUB-ACCOUNT UNITS FAIR VALUE # OWNER'S EQUITY RATIO* INCOME RATIO** RETURN*** ----------- ---------- ------------ -------------- ------- -------------- ------------- AMERICAN FUNDS GROWTH -- INCOME FUND 2005 Lowest contract charges 6,867,184 $ 1.266953 $ 8,700,400 -- 1.37% 5.83% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 6,729,608 1.197136 8,056,257 -- 0.97% 10.37% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 5,131,144 1.084618 5,565,332 -- 1.32% 32.43% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 2,533,523 0.819043 2,075,064 -- 1.11% (18.34)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 1,055,572 1.003020 1,058,760 -- 1.24% 0.30% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- AMERICAN FUNDS INTERNATIONAL FUND 2005 Lowest contract charges 134,577 18.202405 2,449,627 -- 1.59% 21.50% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 113,475 14.981085 1,699,976 -- 1.53% 19.32% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 60,340 12.555634 757,607 -- 2.46% 25.56% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- AMERICAN FUNDS NEW WORLD FUND 2005 Lowest contract charges 36,431 17.820884 649,232 -- 1.23% 20.74% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 24,947 14.760130 368,214 -- 2.12% 18.80% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 10,142 12.424553 126,011 -- -- 24.25% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- --
_____________________________________ SA-59 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2005
UNIT CONTRACT EXPENSE INVESTMENT TOTAL SUB-ACCOUNT UNITS FAIR VALUE # OWNER'S EQUITY RATIO* INCOME RATIO** RETURN*** ----------- ---------- ------------ -------------- ------- -------------- ------------- AMERICAN FUNDS GLOBAL SMALL CAPITALIZATION FUND 2005 Lowest contract charges 1,651,660 $ 1.638805 $ 2,706,749 -- 0.94% 25.35% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 1,716,239 1.307366 2,243,752 -- -- 20.88% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 641,680 1.081533 693,998 -- 0.36% 52.51% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 133,886 0.704466 94,318 -- 1.06% (19.05)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 38,235 0.870271 33,274 -- 0.60% (12.97)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- FIDELITY VIP ASSET MANAGER PORTFOLIO 2005 Lowest contract charges 501,911 2.118302 1,063,199 -- 2.70% 4.04% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 538,959 2.035964 1,097,301 -- 3.10% 5.47% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 783,839 1.930394 1,513,118 -- 3.62% 17.97% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 972,644 1.636274 1,591,511 -- 4.50% (8.73)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 1,098,649 1.792741 1,969,593 -- 4.22% (4.09)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- FIDELITY VIP EQUITY-INCOME PORTFOLIO 2005 Lowest contract charges 1 10.387944 15 -- -- 3.24% Highest contract charges 4,263,915 2.743539 11,698,218 -- 1.56% 5.87% Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 4,235,146 2.591536 10,975,535 -- 1.53% 11.53% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 4,407,321 2.323637 10,241,014 -- 1.81% 30.33% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 4,582,802 1.782890 8,170,631 -- 1.73% (16.95)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 4,538,187 2.146668 9,741,981 -- 1.68% (4.96)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- --
_____________________________________ SA-60 ____________________________________
UNIT CONTRACT EXPENSE INVESTMENT TOTAL SUB-ACCOUNT UNITS FAIR VALUE # OWNER'S EQUITY RATIO* INCOME RATIO** RETURN*** ----------- ---------- ------------ -------------- ------- -------------- ------------- FIDELITY VIP CONTRAFUND PORTFOLIO 2005 Lowest contract charges 2,884 $10.689654 $ 30,829 -- -- 3.58% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- FIDELITY VIP OVERSEAS PORTFOLIO 2005 Lowest contract charges 587,849 2.150376 1,264,098 -- 0.67% 19.05% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 678,510 1.806348 1,225,626 -- 1.30% 13.64% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 1,101,115 1.589607 1,750,341 -- 0.93% 43.37% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 1,638,628 1.108757 1,816,840 -- 0.88% (20.28)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 2,082,364 1.390795 2,896,141 -- 5.43% (21.17)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- FIDELITY VIP MID CAP PORTFOLIO 2005 Lowest contract charges 907 10.631702 9,643 -- -- 3.65% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- FRANKLIN SMALL CAP VALUE SECURITIES FUND 2005 Lowest contract charges 128,142 16.381351 2,099,137 -- 0.73% 8.77% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 110,750 15.061082 1,668,008 -- 0.17% 23.75% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 39,491 12.170997 480,643 -- -- 21.71% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- MUTUAL SHARES SECURITIES FUND 2005 Lowest contract charges 67,435 14.163953 955,149 -- 0.86% 10.55% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 55,330 12.811952 708,882 -- 0.89% 12.63% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 19,887 11.375095 226,211 -- -- 13.75% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- --
_____________________________________ SA-61 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2005
UNIT CONTRACT EXPENSE INVESTMENT TOTAL SUB-ACCOUNT UNITS FAIR VALUE # OWNER'S EQUITY RATIO* INCOME RATIO** RETURN*** ----------- ---------- ------------ -------------- ------- -------------- ------------- HARTFORD ADVISERS HLS FUND 2005 Lowest contract charges 4,154,421 $ 2.886947 $11,993,592 -- 3.22% 7.24% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 4,712,882 2.692139 12,687,733 -- 2.02% 3.74% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 5,015,216 2.594991 13,014,442 -- 2.52% 18.49% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 4,828,333 2.190023 10,574,160 -- 2.95% (13.79)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 4,830,074 2.540380 12,270,223 -- 2.86% (4.64)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- HARTFORD TOTAL RETURN BOND HLS FUND 2005 Lowest contract charges 6,211,351 2.254006 14,000,423 -- 7.58% 2.45% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 5,707,178 2.200121 12,556,482 -- 4.67% 4.62% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 5,432,114 2.102885 11,423,113 -- 3.71% 7.85% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 4,477,378 1.949909 8,730,479 -- 4.17% 10.08% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 3,575,248 1.771309 6,332,868 -- 4.71% 8.68% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- HARTFORD CAPITAL APPRECIATION HLS FUND 2005 Lowest contract charges 6,018,326 5.633312 33,903,108 -- 0.94% 15.55% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 6,506,495 4.875404 31,721,794 -- 0.35% 19.36% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 6,654,874 4.084473 27,181,653 -- 0.60% 42.38% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 7,291,518 2.868780 20,917,762 -- 0.64% (19.70)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 6,874,573 3.572570 24,559,894 -- 0.64% (6.94)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- --
_____________________________________ SA-62 ____________________________________
UNIT CONTRACT EXPENSE INVESTMENT TOTAL SUB-ACCOUNT UNITS FAIR VALUE # OWNER'S EQUITY RATIO* INCOME RATIO** RETURN*** ----------- ---------- ------------ -------------- ------- -------------- ------------- HARTFORD DIVIDEND AND GROWTH HLS FUND 2005 Lowest contract charges 3,807,270 $ 3.380148 $12,869,136 -- 1.88% 5.96% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 4,008,896 3.190025 12,788,479 -- 1.40% 12.42% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 4,111,454 2.837561 11,666,502 -- 1.52% 26.80% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 4,146,231 2.237882 9,278,776 -- 1.47% (14.23)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 4,268,131 2.609041 11,135,730 -- 1.58% (4.04)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- HARTFORD GLOBAL ADVISERS HLS FUND 2005 Lowest contract charges 75,827 1.409162 106,852 -- 3.72% 3.37% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 77,474 1.363233 105,616 -- 0.02% 12.75% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 79,527 1.209099 96,156 -- 0.57% 22.26% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 114,808 0.988953 113,540 -- 0.05% (8.95)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 88,865 1.086141 96,520 -- 1.15% (6.25)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- HARTFORD GLOBAL LEADERS HLS FUND 2005 Lowest contract charges 4,363 1.131997 4,939 -- 0.79% 2.59% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 4,761 1.103429 5,253 -- 0.53% 19.19% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 5,363 0.925806 4,965 -- 0.20% 35.57% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 203,376 0.682881 138,882 -- 3.28% (19.51)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 51,695 0.848373 43,856 -- 1.11% (15.16)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- --
_____________________________________ SA-63 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2005
UNIT CONTRACT EXPENSE INVESTMENT TOTAL SUB-ACCOUNT UNITS FAIR VALUE # OWNER'S EQUITY RATIO* INCOME RATIO** RETURN*** ----------- ---------- ------------ -------------- ------- -------------- ------------- HARTFORD GLOBAL TECHNOLOGY HLS FUND 2005 Lowest contract charges 21,758 $ 0.823643 $ 17,921 -- 0.28% 11.15% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 35,370 0.740995 26,208 -- -- 1.35% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 48,959 0.731126 35,795 -- -- 61.50% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 65,646 0.452718 29,719 -- -- (38.59)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 58,077 0.737165 42,812 -- -- (26.28)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- HARTFORD DISCIPLINED EQUITY HLS FUND 2005 Lowest contract charges 628,910 1.364817 858,347 -- 1.15% 6.58% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 683,320 1.280563 875,035 -- 1.17% 8.41% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 619,018 1.181232 731,204 -- 1.79% 28.82% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 321,074 0.916970 294,415 -- 0.37% (24.65)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 234,620 1.216983 285,528 -- -- (8.02)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- HARTFORD GROWTH OPPORTUNITIES HLS FUND 2005 Lowest contract charges 25,156 16.452771 413,893 -- 0.26% 16.31% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 17,604 14.145761 249,026 -- -- 17.19% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 15,414 12.071320 186,062 -- -- 20.71% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- --
_____________________________________ SA-64 ____________________________________
UNIT CONTRACT EXPENSE INVESTMENT TOTAL SUB-ACCOUNT UNITS FAIR VALUE # OWNER'S EQUITY RATIO* INCOME RATIO** RETURN*** ----------- ---------- ------------ -------------- ------- -------------- ------------- HARTFORD INDEX HLS FUND 2005 Lowest contract charges 3,880,191 $ 3.260543 $12,651,528 -- 1.94% 4.50% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 3,956,594 3.120058 12,344,804 -- 1.05% 10.39% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 5,948,094 2.826298 16,811,085 -- 1.38% 28.13% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 6,464,655 2.205769 14,259,536 -- 1.13% (22.45)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 6,296,682 2.844242 17,909,287 -- 0.86% (12.31)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- HARTFORD INTERNATIONAL SMALL COMPANY HLS FUND 2005 Lowest contract charges 15,529 17.897193 277,919 -- 2.16% 18.60% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 17,648 15.090922 266,330 -- -- 16.96% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 4,562 12.902318 58,864 -- 2.78% 29.02% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- HARTFORD INTERNATIONAL OPPORTUNITIES HLS FUND 2005 Lowest contract charges 3,183,293 2.366771 7,534,126 -- -- 14.62% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 3,164,637 2.064885 6,534,612 -- 0.82% 18.08% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 2,412,198 1.748699 4,218,209 -- 0.90% 33.10% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 2,970,983 1.313864 3,903,467 -- 1.99% (17.93)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 3,200,254 1.600938 5,123,408 -- 0.12% (18.73)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- --
_____________________________________ SA-65 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2005
UNIT CONTRACT EXPENSE INVESTMENT TOTAL SUB-ACCOUNT UNITS FAIR VALUE # OWNER'S EQUITY RATIO* INCOME RATIO** RETURN*** ----------- ---------- ------------ -------------- ------- -------------- ------------- HARTFORD MIDCAP HLS FUND 2005 Lowest contract charges 2,113,786 $ 3.252335 $ 6,874,741 -- 0.41% 16.78% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 2,279,851 2.784937 6,349,242 -- 0.27% 16.44% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 2,387,453 2.391809 5,710,332 -- 0.27% 37.67% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 2,051,705 1.737334 3,564,496 -- 0.11% (14.22)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 1,106,917 2.025330 2,241,872 -- -- (3.62)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- HARTFORD MIDCAP VALUE HLS FUND 2005 Lowest contract charges 50,138 16.116626 808,063 -- 0.56% 9.99% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 74,373 14.653166 1,089,805 -- 0.10% 16.30% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 24,406 12.599619 307,501 -- -- 26.00% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- HARTFORD MONEY MARKET HLS FUND 2005 Lowest contract charges 4,174,275 1.599845 6,678,193 -- 2.78% 2.84% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 4,669,560 1.555598 7,263,958 -- 0.94% 0.94% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 5,650,958 1.541051 8,708,415 -- 0.73% 0.75% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 5,297,481 1.529607 8,103,064 -- 1.46% 1.47% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 5,496,718 1.507506 8,286,335 -- 3.60% 3.87% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- --
_____________________________________ SA-66 ____________________________________
UNIT CONTRACT EXPENSE INVESTMENT TOTAL SUB-ACCOUNT UNITS FAIR VALUE # OWNER'S EQUITY RATIO* INCOME RATIO** RETURN*** ----------- ---------- ------------ -------------- ------- -------------- ------------- HARTFORD MORTGAGE SECURITIES HLS FUND 2005 Lowest contract charges 567,296 $ 2.043515 $ 1,159,277 -- 4.04% 2.36% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 597,889 1.996349 1,193,595 -- 4.52% 4.12% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 865,069 1.917343 1,658,635 -- 3.07% 2.29% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 851,714 1.874447 1,596,492 -- 2.36% 8.15% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 326,119 1.733120 565,203 -- 4.17% 7.50% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- HARTFORD SMALL COMPANY HLS FUND 2005 Lowest contract charges 2,454,302 1.947811 4,780,515 -- -- 21.01% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 2,721,816 1.609664 4,381,209 -- -- 12.18% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 2,420,815 1.434873 3,473,562 -- -- 55.87% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 2,216,929 0.920563 2,040,823 -- -- (30.23)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 1,484,164 1.319402 1,958,209 -- -- (14.92)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- HARTFORD STOCK HLS FUND 2005 Lowest contract charges 5,312,174 3.354778 17,821,166 -- 1.88% 9.62% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 5,811,114 3.060365 17,784,129 -- 1.12% 4.17% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 5,705,665 2.937881 16,762,566 -- 1.21% 26.47% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 5,882,093 2.322928 13,663,679 -- 1.01% (24.25)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 5,996,456 3.066451 18,387,837 -- 0.72% (12.23)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- --
_____________________________________ SA-67 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2005
UNIT CONTRACT EXPENSE INVESTMENT TOTAL SUB-ACCOUNT UNITS FAIR VALUE # OWNER'S EQUITY RATIO* INCOME RATIO** RETURN*** ----------- ---------- ------------ -------------- ------- -------------- ------------- HARTFORD VALUE OPPORTUNITIES HLS FUND 2005 Lowest contract charges 91,027 $15.857149 $ 1,443,424 -- 1.45% 8.32% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 61,083 14.638700 894,169 -- 0.26% 18.87% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 8,622 12.314438 106,173 -- -- 23.14% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- MFS NEW DISCOVERY SERIES 2005 Lowest contract charges 7,768 13.585071 105,531 -- -- 5.25% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 7,974 12.907985 102,923 -- -- 6.52% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 11,851 12.118057 143,610 -- -- 21.18% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- MFS TOTAL RETURN SERIES 2005 Lowest contract charges 99,566 12.334140 1,228,056 -- 0.92% 2.82% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 17,153 11.995951 205,763 -- 1.29% 11.32% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 6,897 10.776006 74,319 -- -- 7.76% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- OPPENHEIMER GLOBAL SECURITIES FUND/VA 2005 Lowest contract charges 2,509 10.710592 26,869 -- -- 4.57% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- PUTNAM VT DIVERSIFIED INCOME FUND 2005 Lowest contract charges 5,523 19.530112 107,873 -- 7.49% 3.28% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 6,511 18.910417 123,127 -- 9.66% 9.58% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 18,290 17.256953 315,629 -- 13.75% 20.27% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 93,482 14.348324 1,341,312 -- 3.97% 6.20% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 51,117 13.510984 690,643 -- 6.66% 3.82% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- --
_____________________________________ SA-68 ____________________________________
UNIT CONTRACT EXPENSE INVESTMENT TOTAL SUB-ACCOUNT UNITS FAIR VALUE # OWNER'S EQUITY RATIO* INCOME RATIO** RETURN*** ----------- ---------- ------------ -------------- ------- -------------- ------------- PUTNAM VT GLOBAL ASSET ALLOCATION FUND 2005 Lowest contract charges 34,695 $25.385139 $ 880,725 -- 1.39% 7.20% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 40,108 23.680233 949,774 -- 2.58% 9.26% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 123,942 21.674078 2,686,335 -- 4.38% 22.04% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 174,369 17.760045 3,096,795 -- 1.97% (12.36)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 176,366 20.265402 3,574,133 -- 1.15% (8.35)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- PUTNAM VT GLOBAL EQUITY FUND 2005 Lowest contract charges 196,644 24.129019 4,744,838 -- 1.00% 9.09% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 205,720 22.118357 4,550,196 -- 2.22% 13.94% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 224,135 19.412578 4,351,028 -- 1.25% 29.54% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 260,875 14.985684 3,909,392 -- 0.31% (22.16)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 269,345 19.251979 5,185,422 -- -- (29.66)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- PUTNAM VT GROWTH AND INCOME FUND 2005 Lowest contract charges 628 13.285600 8,346 -- 1.39% 5.23% Highest contract charges 338,623 32.040356 10,849,604 -- 1.81% 5.50% Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 523 12.625543 6,600 -- 1.57% 11.11% Highest contract charges 377,902 30.370460 11,477,050 -- 1.80% 11.37% Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 537 11.362976 6,102 -- -- 13.63% Highest contract charges 423,145 27.270997 11,539,598 -- 2.19% 27.60% Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 536,448 21.356598 11,456,704 -- 2.38% (18.79)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 606,768 26.297364 15,956,406 -- 1.66% (6.16)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- --
_____________________________________ SA-69 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2005
UNIT CONTRACT EXPENSE INVESTMENT TOTAL SUB-ACCOUNT UNITS FAIR VALUE # OWNER'S EQUITY RATIO* INCOME RATIO** RETURN*** ----------- ---------- ------------ -------------- ------- -------------- ------------- PUTNAM VT HEALTH SCIENCES FUND 2005 Lowest contract charges 13,739 $13.960596 $ 191,807 -- 0.30% 13.50% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 16,983 12.300632 208,901 -- 0.39% 7.30% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 24,974 11.463412 286,285 -- 0.89% 18.80% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 32,167 9.649126 310,381 -- 0.07% (20.21)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 32,308 12.092641 390,690 -- 0.05% (19.53)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- PUTNAM VT HIGH YIELD FUND 2005 Lowest contract charges 125,959 22.734033 2,863,566 -- 8.30% 3.47% Highest contract charges 1,247 12.463889 15,539 -- -- 3.10% Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 128,672 21.972422 2,827,227 -- 8.74% 10.99% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 161,821 19.796707 3,203,527 -- 11.01% 26.86% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 185,967 15.605782 2,902,167 -- 12.04% (0.54)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 188,722 15.690083 2,961,071 -- 13.56% 3.87% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- PUTNAM VT INCOME FUND 2005 Lowest contract charges 134,133 20.337007 2,727,858 -- 3.29% 2.60% Highest contract charges 844 10.640021 8,980 -- 3.45% 2.36% Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 130,703 19.822044 2,590,802 -- 4.23% 4.72% Highest contract charges 437 10.394738 4,540 -- -- 4.43% Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 157,759 18.928406 2,986,119 -- 4.69% 4.70% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 143,335 18.079459 2,591,420 -- 4.50% 8.09% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 132,824 16.725709 2,221,576 -- 6.51% 7.53% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- --
_____________________________________ SA-70 ____________________________________
UNIT CONTRACT EXPENSE INVESTMENT TOTAL SUB-ACCOUNT UNITS FAIR VALUE # OWNER'S EQUITY RATIO* INCOME RATIO** RETURN*** ----------- ---------- ------------ -------------- ------- -------------- ------------- PUTNAM VT INTERNATIONAL GROWTH AND INCOME FUND 2005 Lowest contract charges 6,825 $16.212019 $ 110,647 -- 1.07% 14.33% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 7,876 14.179491 111,680 -- 1.52% 21.31% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 9,747 11.688479 113,927 -- 2.17% 38.37% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 27,322 8.447396 230,796 -- 0.65% (13.67)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 19,389 9.785153 189,726 -- 0.69% (20.67)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- PUTNAM VT INTERNATIONAL EQUITY FUND 2005 Lowest contract charges 195,114 15.728136 3,068,787 -- 1.69% 12.45% Highest contract charges 4,005 15.439804 61,834 -- 0.38% 12.20% Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 215,440 13.986237 3,013,191 -- 1.69% 16.49% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 244,493 12.006885 2,935,601 -- 1.07% 28.89% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 243,946 9.315833 2,272,556 -- 1.00% (17.52)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 226,490 11.294275 2,558,039 -- 0.35% (20.41)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- PUTNAM VT INTERNATIONAL NEW OPPORTUNITIES FUND 2005 Lowest contract charges 1,581 13.548679 21,415 -- 1.05% 18.64% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 2,334 11.419666 26,658 -- 1.30% 13.63% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 3,976 10.050111 39,958 -- 0.73% 33.59% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 12,850 7.523083 96,671 -- 0.96% (13.46)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 13,413 8.693232 116,601 -- -- (28.52)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- --
_____________________________________ SA-71 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2005
UNIT CONTRACT EXPENSE INVESTMENT TOTAL SUB-ACCOUNT UNITS FAIR VALUE # OWNER'S EQUITY RATIO* INCOME RATIO** RETURN*** ----------- ---------- ------------ -------------- ------- -------------- ------------- PUTNAM VT INVESTORS FUND 2005 Lowest contract charges 9,296 $10.711383 $ 99,569 -- 1.22% 9.03% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 9,883 9.824339 97,095 -- 0.73% 13.07% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 14,773 8.688642 128,357 -- 0.95% 27.25% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 63,680 6.827953 434,807 -- 0.39% (23.68)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 51,987 8.946510 465,104 -- 0.10% (24.61)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- PUTNAM VT MONEY MARKET FUND 2005 Lowest contract charges 388 1.588794 616 -- 2.25% 2.79% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 8,419 1.545717 13,013 -- 0.77% 0.91% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 62,589 1.531768 95,872 -- 0.79% 0.76% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 293,162 1.520209 445,667 -- 1.46% 1.46% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 452,727 1.498367 678,352 -- 3.34% 4.00% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- PUTNAM VT NEW OPPORTUNITIES FUND 2005 Lowest contract charges 2,508 13.979089 35,055 -- -- 10.00% Highest contract charges 231,659 22.488065 5,209,560 -- 0.37% 10.32% Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 261,952 20.383662 5,339,542 -- -- 10.57% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 287,905 18.434963 5,307,520 -- -- 32.70% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 356,281 13.891974 4,949,443 -- -- (30.29)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 415,456 19.929373 8,279,775 -- -- (29.99)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- --
_____________________________________ SA-72 ____________________________________
UNIT CONTRACT EXPENSE INVESTMENT TOTAL SUB-ACCOUNT UNITS FAIR VALUE # OWNER'S EQUITY RATIO* INCOME RATIO** RETURN*** ----------- ---------- ------------ -------------- ------- -------------- ------------- PUTNAM VT NEW VALUE FUND 2005 Lowest contract charges 22,309 $18.642121 $ 415,881 -- 1.04% 6.14% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 37,741 17.564560 662,895 -- 1.13% 15.77% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 46,953 15.171400 712,342 -- 1.65% 32.86% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 67,054 11.418982 765,693 -- 5.38% (15.44)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 93,014 13.503535 1,256,011 -- 0.79% 3.61% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- PUTNAM VT OTC & EMERGING GROWTH FUND 2005 Lowest contract charges 13,338 7.077526 94,403 -- -- 8.09% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 15,221 6.548058 99,667 -- -- 8.99% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 20,418 6.007790 122,664 -- -- 35.94% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 61,474 4.419389 271,675 -- -- (32.06)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 56,043 6.504819 364,549 -- -- (45.57)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- PUTNAM VT SMALL CAP VALUE FUND 2005 Lowest contract charges 927 10.061432 9,331 -- -- 0.35% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- --
_____________________________________ SA-73 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2005
UNIT CONTRACT EXPENSE INVESTMENT TOTAL SUB-ACCOUNT UNITS FAIR VALUE # OWNER'S EQUITY RATIO* INCOME RATIO** RETURN*** ----------- ---------- ------------ -------------- ------- -------------- ------------- PUTNAM VT THE GEORGE PUTNAM FUND OF BOSTON 2005 Lowest contract charges 6,813 $14.177205 $ 96,588 -- 2.26% 4.22% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 9,271 13.603625 126,114 -- 2.12% 8.48% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 12,651 12.540269 158,646 -- 2.88% 17.35% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 20,423 10.685893 218,237 -- 2.21% (8.57)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 15,137 11.687147 176,906 -- 1.36% 0.74% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- PUTNAM VT UTILITIES GROWTH AND INCOME FUND 2005 Lowest contract charges 18,842 24.890887 468,999 -- 2.12% 8.94% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 21,046 22.847531 480,855 -- 2.43% 21.87% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 28,903 18.747452 541,866 -- 4.40% 25.00% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 46,237 14.997690 693,445 -- 3.69% (23.83)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 50,945 19.690377 1,003,134 -- 3.11% (22.15)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- PUTNAM VT VISTA FUND 2005 Lowest contract charges 12,790 12.891632 164,878 -- -- 12.48% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 14,691 11.461246 168,379 -- -- 18.90% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 17,971 9.639100 173,229 -- -- 33.42% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 55,580 7.224769 401,554 -- -- (30.38)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 37,178 10.377065 385,801 -- -- (33.40)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- --
_____________________________________ SA-74 ____________________________________
UNIT CONTRACT EXPENSE INVESTMENT TOTAL SUB-ACCOUNT UNITS FAIR VALUE # OWNER'S EQUITY RATIO* INCOME RATIO** RETURN*** ----------- ---------- ------------ -------------- ------- -------------- ------------- PUTNAM VT VOYAGER FUND 2005 Lowest contract charges 317,317 $30.510819 $ 9,681,610 -- 0.92% 5.94% Highest contract charges 200 12.448612 2,489 -- -- 5.69% Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 356,661 28.800926 10,272,162 -- 0.47% 5.34% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 476,913 27.341904 13,039,703 -- 0.65% 25.16% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2002 Lowest contract charges 532,073 21.845647 11,623,484 -- 0.87% (26.34)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2001 Lowest contract charges 567,866 29.655765 16,840,502 -- 0.11% (22.24)% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- PUTNAM VT CAPITAL OPPORTUNITIES FUND 2005 Lowest contract charges 7,211 15.651902 112,865 -- -- 10.16% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 1,936 14.208783 27,502 -- 1.06% 18.12% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- PUTNAM VT EQUITY INCOME FUND 2005 Lowest contract charges 21,253 13.408382 284,962 -- 0.87% 5.51% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2004 Lowest contract charges 15,151 12.708724 192,555 -- 0.12% 11.82% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- -- 2003 Lowest contract charges 12,484 11.365596 141,886 -- 0.95% 13.66% Highest contract charges -- -- -- -- -- -- Remaining contract charges -- -- -- -- -- --
* This represents the annualized contract expenses of the Sub-Account for the year indicated and includes only those expenses that are charged through a reduction in the unit values. Excluded are expenses of the Funds and charges made directly to contract owner accounts through the redemption of units. ** These amounts represent the dividends, excluding distributions of capital gains, received by the Sub-Account from the Fund, net of management fees assessed by the Fund's manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense risk charges, that result in direct reductions in the unit values. The recognition of investment income by the Sub-Account is affected by the timing of the declaration of dividends by the Fund in which the Sub-Accounts invest. *** This represents the total return for the year indicated and reflects a deduction only for expenses assessed through the daily unit value calculation. The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented. Investment options with a date notation indicate the effective date of that investment option in the Account. The total return is calculated for the year indicated or from the effective date through the end of the reporting period. # Rounded unit values _____________________________________ SA-75 ____________________________________ SEPARATE ACCOUNT VL II -------------------------------------------------------------------------------- HARTFORD LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2005 Summary of the Account's expense charges, including Mortality and Expense Risk Charges, Administrative Charges, Issue Charges, and Riders (if applicable). These fees are assessed as a direct reduction in unit values or through a redemption of units for all contract's contained within the Account. MORTALITY AND EXPENSE RISK CHARGES: The Company will make certain deductions ranging from 0.50% to 0.85% of the contract's value for mortality and expense risks undertaken by the Company. These charges are a redemption of units. ADMINISTRATIVE CHARGES: The Company will make certain deductions ranging from $7.50 to $24.16 for administrative services provided by the Company. These charges are a redemption of units. RIDERS: The Company will make certain deductions for various Rider charges, such as Estate Protection Rider, Last Survivor Exchange Option Rider, Maturity Value Extension Rider, Single Life Yearly RenewableLife Insurance Rider. These deductions range from $0.27 to $86.13 of net amount at Risk. These charges are a redemption of units. _____________________________________ SA-76 ____________________________________ REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholder of Hartford Life Insurance Company Hartford, Connecticut We have audited the accompanying consolidated balance sheets of Hartford Life Insurance Company and its subsidiaries (the "Company") as of December 31, 2005 and 2004, and the related consolidated statements of income, changes in stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2005. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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, such consolidated financial statements present fairly, in all material respects, the financial position of Hartford Life Insurance Company and its subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 2 of the consolidated financial statements, the Company changed its method of accounting and reporting for certain nontraditional long- duration contracts and for separate accounts in 2004. Deloitte & Touche LLP Hartford, Connecticut February 22, 2006 1 HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 2005 2004 2003 -------------------------------- (In millions) REVENUES Fee income and other $ 2,811 $ 2,592 $ 2,297 Earned premiums 449 484 806 Net investment income 2,569 2,470 1,764 Net realized capital gains (losses) 75 140 (13) -------------------------------- TOTAL REVENUES 5,904 5,686 4,854 -------------------------------- BENEFITS, CLAIMS AND EXPENSES Benefits, claims and claim adjustment expenses 3,008 3,111 2,726 Insurance expenses and other 798 709 625 Amortization of deferred policy acquisition costs and present value of future profits 945 825 646 Dividends to policyholders 37 29 63 -------------------------------- TOTAL BENEFITS, CLAIMS AND EXPENSES 4,788 4,674 4,060 -------------------------------- Income before income tax expense and cumulative effect of accounting changes 1,116 1,012 794 Income tax expense 207 29 168 Income before cumulative effect of accounting changes 909 983 626 Cumulative effect of accounting changes, net of tax -- (18) -- -------------------------------- NET INCOME $ 909 $ 965 $ 626 --------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-2 HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, ------------------------- 2005 2004 ------------------------- (In millions, except for share data) ASSETS Investments Fixed maturities, available for sale, at fair value (amortized cost of $42,256 and 43,242 42,691 $40,479) $ $ Equity securities, available for sale, at fair value (cost of $303 and $171) 310 179 Equity securities, held for trading, at fair value 1 1 Policy loans, at outstanding balance 1,971 2,617 Mortgage loans on real estate 1,355 794 Other investments 579 289 ------------------------- TOTAL INVESTMENTS 47,458 46,571 ------------------------- Cash 124 216 Premiums receivable and agents' balances 23 20 Reinsurance recoverables 1,114 1,460 Deferred policy acquisition costs and present value of future profits 7,101 6,453 Deferred income taxes (516) (638) Goodwill 186 186 Other assets 1,611 1,562 Separate account assets 150,523 139,812 ------------------------- TOTAL ASSETS $ 207,624 $ 195,642 ------------------------- LIABILITIES Reserve for future policy benefits $ 7,406 $ 7,244 Other policyholder funds 38,399 37,493 Other liabilities 3,959 3,844 Separate account liabilities 150,523 139,812 ------------------------- TOTAL LIABILITIES 200,287 188,393 ------------------------- COMMITMENTS AND CONTINGENT LIABILITIES, NOTE 11 -- -- STOCKHOLDER'S EQUITY Common stock -- 1,000 shares authorized, issued and outstanding, par value $5,690 6 6 Capital surplus 2,405 2,240 Accumulated other comprehensive income Net unrealized capital gains on securities, net of tax 464 940 Foreign currency translation adjustments (1) (1) ------------------------- TOTAL ACCUMULATED OTHER COMPREHENSIVE INCOME 463 939 ------------------------- Retained earnings 4,463 4,064 ------------------------- TOTAL STOCKHOLDER'S EQUITY 7,337 7,249 ------------------------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 207,624 $ 195,642 -------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-3 HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
Accumulated Other Comprehensive Income (Loss) ---------------------------------------- Net Unrealized Net (Loss) Capital Gain On Gains Cash Flow Foreign (Losses) on Hedging Currency Total Common Capital Securities, Instruments, Translation Retained Stockholder's Stock Surplus Net of Tax Net of Tax Adjustments Earnings Equity ------------------------------------------------------------------------------------- (In millions) 2005 Balance, December 31, 2004 $ 6 $2,240 $1,124 $(184) $(1) $4,064 $7,249 Comprehensive income Net income 909 909 Other comprehensive income, net of tax [1] Net change in unrealized capital gains (losses) on securities [2] (547) (547) Net loss on cash flow hedging instruments 71 71 Total other comprehensive income (476) Total comprehensive income 433 Capital contribution from parent 165 165 Dividends declared (510) (510) BALANCE, DECEMBER 31, 2005 $ 6 $2,405 $ 577 $(113) $(1) $4,463 $7,337 2004 Balance, December 31, 2003 $ 6 $2,240 $ 728 $ (17) $(1) $3,648 $6,604 Comprehensive income Net income 965 965 Other comprehensive income, net of tax [1] Cumulative effect of accounting change 292 292 Net change in unrealized capital gains (losses) on securities [2] 104 104 Net loss on cash flow hedging instruments (167) (167) Total other comprehensive income 229 Total comprehensive income 1,194 Dividends declared (549) (549) BALANCE, DECEMBER 31, 2004 $ 6 $2,240 $1,124 $(184) $(1) $4,064 $7,249 2003 Balance, December 31, 2002 $ 6 $2,041 $ 463 $ 111 $(1) $3,197 $5,817 Comprehensive income Net income 626 626 Other comprehensive income, net of tax [1] Net change in unrealized capital gains (losses) on securities [2] 265 265 Net loss on cash flow hedging instruments (128) (128) Total other comprehensive income 137 Total comprehensive income 763 Capital contribution from parent 199 199 Dividends declared (175) (175) BALANCE, DECEMBER 31, 2003 $ 6 $2,240 $ 728 $ (17) $(1) $3,648 $6,604
[1] Net change in unrealized capital gain on securities is reflected net of tax provision (benefit) and other items of $(295), $56, and $143 for the years ended December 31, 2005, 2004 and 2003, respectively. Net (loss) gain on cash flow hedging instruments is net of tax provision (benefit) of $38, $(90) and $(69) for the years ended December 31, 2005, 2004 and 2003, respectively. There is no tax effect on cumulative translation adjustments. [2] There were reclassification adjustments for after-tax gains (losses) realized in net income of $26, and $78 for the years ended December 31, 2005, and 2004, respectively. There were no reclassification adjustments for after-tax gains (losses) realized in net income for the year ended December 31, 2003. SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4 HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------ 2005 2004 2003 ------------------------------------ (In millions) OPERATING ACTIVITIES Net income $ 909 $ 965 $ 626 Adjustments to reconcile net income to net cash provided by operating activities Net realized capital (gains) losses (75) (140) 13 Cumulative effect of accounting changes, net of tax -- 18 -- Amortization of deferred policy acquisition costs and present value of future profits 945 825 646 Additions to deferred policy acquisition costs and present value of future profits (1,226) (1,375) (1,319) Depreciation and amortization 200 43 117 Increase in premiums receivable and agents' balances (3) (3) (2) (Decrease) increase in other liabilities 339 (7) 299 Change in receivables, payables, and accruals 46 (205) 227 Increase (decrease) in accrued tax (98) 34 (67) (Increase) decrease in deferred income tax 134 (55) 65 Amortization of sales inducements 39 30 68 Additions to deferred sales inducements (85) (141) (136) Increase in future policy benefits 129 726 794 Decrease (increase) in reinsurance recoverables 177 (15) (1) Decrease (increase) in other assets (143) 55 (109) ------------------------------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 1,288 755 1,221 ------------------------------------ INVESTING ACTIVITIES Purchases of investments (21,654) (17,192) (13,628) Sales of investments 16,899 13,306 6,676 Maturity and principal paydowns of fixed maturity investments 2,398 2,971 3,233 Other -- 85 ------------------------------------ NET CASH USED FOR INVESTING ACTIVITIES (2,357) (915) (3,634) ------------------------------------ FINANCING ACTIVITIES Capital contributions 129 -- 199 Dividends paid (498) (549) (175) Net receipts from investment and universal life-type contracts 1,347 829 2,406 ------------------------------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 978 280 2,430 ------------------------------------ Net (decrease) increase in cash (91) 120 17 Impact of foreign exchange (1) -- -- Cash -- beginning of year 216 96 79 ------------------------------------ Cash -- end of year $ 124 $ 216 $ 96 ------------------------------------ Supplemental Disclosure of Cash Flow Information: Net Cash Paid During the Year for: Income taxes $ 149 $ 42 $ 35
SUPPLEMENTAL SCHEDULE OF NONCASH OPERATING AND FINANCING ACTIVITIES: The Company recaptured an indemnity reinsurance arrangement with Hartford Life and Accident Insurance Company. In conjunction with this transaction, the Company recorded a noncash capital contribution of $36 and a related extinguishment of the reinsurance recoverable liability. SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-5 HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN MILLIONS, UNLESS OTHERWISE STATED) ------------------------------------------------------------------------------ NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS These consolidated financial statements include Hartford Life Insurance Company and its wholly-owned subsidiaries ("Hartford Life Insurance Company" or the "Company"), Hartford Life and Annuity Insurance Company ("HLAI"), Hartford International Life Reassurance Corporation ("HLRe") and Servus Life Insurance Company, formerly Royal Life Insurance Company of America. 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 Holdings, Inc., a direct subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford"), the Company's ultimate parent company. Along with its parent, HLA, the Company is a leading financial services and insurance group which provides (a) investment products, such as individual variable annuities and fixed market value adjusted annuities and retirement plan services for savings and retirement needs; (b) individual life insurance for income protection and estate planning; (c) group benefits products such as group life and group disability insurance that is directly written by the Company and is substantially ceded to its parent, HLA, (d) corporate owned life insurance and (e) assumes fixed annuity products and guaranteed minimum income benefits ("GMIB") from Hartford Life's international operations. NOTE 2. BASIS OF PRESENTATION AND ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States, which differ materially from the accounting prescribed by various insurance regulatory authorities. All material intercompany transactions and balances between the Company and its subsidiaries and affiliates have been eliminated. In 2004, the Company sponsored and purchased an investment interest in a synthetic collateralized loan obligation transaction, a variable interest entity ("VIE") for which the Company determined itself to be the primary beneficiary. Accordingly, the assets, liabilities and results of operations of the entity are included in the Company's consolidated financial statements. For further discussion of the synthetic collateralized loan transaction see Note 4. USE OF ESTIMATES The preparation of financial statements, in conformity with accounting principles generally accepted in the United States, 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. RECLASSIFICATIONS Certain reclassifications have been made to prior year financial information to conform to the current year presentation. ADOPTION OF NEW ACCOUNTING STANDARDS In March 2004, the Emerging Issues Task Force ("EITF") reached a consensus on EITF Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments" ("EITF Issue No. 03-1"). EITF Issue No. 03- 1 provided a model for determining when unrealized holding losses on debt and equity securities should be deemed other-than-temporary impairments and the impairments recognized as realized losses. In addition, EITF Issue No. 03-1 provided clarified guidance on the subsequent accounting for debt securities that are other-than-temporarily impaired and established certain disclosure requirements regarding investments in an unrealized loss position. The disclosure requirements were retroactively effective for the year ended December 31, 2003 and are included in Note 4 of Notes to Consolidated Financial Statements. The Financial Accounting Standards Board ("FASB") subsequently voted to delay the implementation of the other provisions of EITF Issue No. 03- 1 in order to redeliberate certain aspects. In November 2005, the FASB released FASB Staff Position Nos. FAS 115-1 and FAS 124-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments" ("FSP 115-1"), which effectively replaces EITF Issue No. 03-1. FSP 115-1 contains a three-step model for evaluating impairments and carries forward the disclosure requirements in EITF Issue No. 03-1 pertaining to securities in an unrealized loss position. Under the model, any security in an unrealized loss position is considered impaired; an evaluation is made to determine whether the impairment is other-than-temporary; and, if an impairment is considered other-than temporary a realized loss is recognized to write the security's cost or amortized cost basis down to fair value. FSP 115-1 references existing other-than-temporary impairment guidance for determining when an impairment is other-than-temporary and clarifies that subsequent to the recognition of an other-than-temporary impairment loss for debt securities, an investor shall account for the security using the constant effective yield method. FSP 115-1 is effective for reporting periods beginning after December 15, 2005, with earlier application permitted. The Company adopted FSP 115-1 upon issuance. The adoption did not have a material effect on the Company's consolidated financial condition or results of operations. In July 2003, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position F-6 ("SOP") 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts" ("SOP 03-1"). SOP 03-1 addresses a wide variety of topics, some of which have a significant impact on the Company. The major provisions of SOP 03-1 require: - Recognizing expenses for a variety of contracts and contract features, including guaranteed minimum death benefits ("GMDB"), certain death benefits on universal-life type contracts and annuitization options, on an accrual basis versus the previous method of recognition upon payment; - Reporting and measuring assets and liabilities of certain separate account products as general account assets and liabilities when specified criteria are not met; - Reporting and measuring the Company's interest in its separate accounts as general account assets based on the insurer's proportionate beneficial interest in the separate account's underlying assets; and - Capitalizing sales inducements that meet specified criteria and amortizing such amounts over the life of the contracts using the same methodology as used for amortizing deferred acquisition costs ("DAC"). SOP 03-1 was effective for financial statements for fiscal years beginning after December 15, 2003. At the date of initial application, January 1, 2004, the cumulative effect of the adoption of SOP 03-1 on net income and other comprehensive income was comprised of the following individual impacts shown net of income tax benefit of $10:
Other Comprehensive Components of Cumulative Effect of Adoption Net Income Income --------------------------------- Establishing GMDB and other benefit reserves for annuity contracts $ (50) $ -- Reclassifying certain separate accounts to general account 30 294 Other 2 (2) --------------------------------- TOTAL CUMULATIVE EFFECT OF ADOPTION $ (18) $ 292 ---------------------------------
In May 2003, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"). SFAS 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. Generally, SFAS 150 requires liability classification for two broad classes of financial instruments: (a) instruments that represent, or are indexed to, an obligation to buy back the issuer's shares regardless of whether the instrument is settled on a net-cash or gross-physical basis and (b) obligations that (i) can be settled in shares but derive their value predominately from another underlying instrument or index (e.g. security prices, interest rates, and currency rates), (ii) have a fixed value, or (iii) have a value inversely related to the issuer's shares. Mandatorily redeemable equity and written options requiring the issuer to buyback shares are examples of financial instruments that should be reported as liabilities under this new guidance. SFAS 150 specifies accounting only for certain freestanding financial instruments and does not affect whether an embedded derivative must be bifurcated and accounted for separately. SFAS 150 was effective for instruments entered into or modified after May 31, 2003 and for all other instruments beginning with the first interim reporting period beginning after June 15, 2003. Adoption of this statement did not have a material impact on the Company's consolidated financial condition or results of operations. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51" ("FIN 46"), which required an enterprise to assess whether consolidation of an entity is appropriate based upon its interests in a variable interest entity ("VIE"). A VIE is an entity in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The initial determination of whether an entity is a VIE shall be made on the date at which an enterprise becomes involved with the entity. An enterprise shall consolidate a VIE if it has a variable interest that will absorb a majority of the VIEs expected losses if they occur, receive a majority of the entity's expected residual returns if they occur or both. FIN 46 was effective immediately for new VIEs established or purchased subsequent to January 31, 2003. For VIEs established or purchased subsequent to January 31, 2003, the adoption of FIN 46 did not have a material impact on the Company's consolidated financial condition or results of operations as there were no material VIEs which required consolidation. In December 2003, the FASB issued a revised version of FIN 46 ("FIN 46R"), which incorporated a number of modifications and changes made to the original version. FIN 46R replaced the previously issued FIN 46 and, subject to certain special provisions, was effective no later than the end of the first reporting period that ends after December 15, 2003 for entities considered to be special- purpose entities and no later than the end of the first reporting period that ends after March 15, 2004 for all other VIEs. Early adoption was permitted. The Company adopted FIN 46R in the fourth quarter of 2003. The adoption of FIN 46R did not result in the consolidation of any material VIEs. FUTURE ADOPTION OF NEW ACCOUNTING STANDARDS In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments -- an amendment of FASB Statements No. 133 and 140" ("SFAS F-7 155"). This statement amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), and SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" and resolves issues addressed in SFAS 133 Implementation Issue No. D1, "Application of Statement 133 to Beneficial Interest in Securitized Financial Assets." This Statement: (a) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation; (b) clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS 133; (c) establishes a requirement to evaluate beneficial interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; (d) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and, (e) eliminates restrictions on a qualifying special-purpose entity's ability to hold passive derivative financial instruments that pertain to beneficial interests that are or contain a derivative financial instrument. The standard also requires presentation within the financial statements that identifies those hybrid financial instruments for which the fair value election has been applied and information on the income statement impact of the changes in fair value of those instruments. The Company is required to apply SFAS 155 to all financial instruments acquired, issued or subject to a remeasurement event beginning January 1, 2007 although early adoption is permitted as of the beginning of an entity's fiscal year. The provisions of SFAS 155 are not expected to have an impact recorded at adoption; however, the standard could affect the future income recognition for securitized financial assets because there may be more embedded derivatives identified with changes in fair value recognized in net income. In September 2005, the AICPA issued Statement of Position 05-1, "Accounting by Insurance Enterprises for Deferred Acquisition Costs ("DAC") in Connection with Modifications or Exchanges of Insurance Contracts," ("SOP 05-1"). SOP 05-1 provides guidance on accounting by insurance enterprises for DAC on internal replacements of insurance and investment contracts. An internal replacement is a modification in product benefits, features, rights or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. Modifications that result in a replacement contract that is substantially changed from the replaced contract should be accounted for as an extinguishment of the replaced contract. Unamortized DAC, unearned revenue liabilities and deferred sales inducements from the replaced contract must be written-off. Modifications that result in a contract that is substantially unchanged from the replaced contract should be accounted for as a continuation of the replaced contract. SOP 05-1 is effective for internal replacements occurring in fiscal years beginning after December 15, 2006, with earlier adoption encouraged. Initial application of SOP 05-1 should be as of the beginning of the entity's fiscal year. The Company is expected to adopt SOP 05- 1 effective January 1, 2007. Adoption of this statement is expected to have an impact on the Company's consolidated financial statements; however, the impact has not yet been determined. In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), which replaces SFAS No. 123, "Accounting for Stock- Based Compensation" ("SFAS 123") and supercedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123R requires all companies to recognize compensation costs for share-based payments to employees based on the grant- date fair value of the award for financial statements for reporting periods beginning after June 15, 2005. In April 2005, the Securities and Exchange Commission deferred the required effective date for adoption to annual periods beginning after June 15, 2005. The pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. The transition methods include prospective and retrospective adoption options. The prospective method requires that compensation expense be recorded for all unvested stock-based awards including those granted prior to adoption of the fair value recognition provisions of SFAS 123, at the beginning of the first quarter of adoption of SFAS 123R; while the retrospective methods would record compensation expense for all unvested stock-based awards beginning with the first period restated. The Company will adopt SFAS 123R in the first quarter of fiscal 2006 using the prospective method. In January 2003, the Company began expensing all stock-based compensation awards granted or modified after January 1, 2003 under the fair value recognition provisions of SFAS 123 and; therefore, the adoption is not expected to have a material impact on the Company's consolidated financial condition or results of operations. STOCK-BASED COMPENSATION The Hartford has an incentive stock plan (the "2005 Stock Plan") which permits the Hartford to grant non-qualified or incentive stock options qualifying under Section 422A of the Internal Revenue Code, stock appreciation rights, performance shares, restricted stock, or restricted stock units, or any combination of the foregoing. In January 2003, the Hartford began expensing all stock-based compensation awards granted or modified after January 1, 2003 under the fair value recognition provisions of Statement of Financial Accounting Standard ("SFAS") No. 123 "Accounting for Stock-Based Compensation." The fair value of stock-based awards granted by the Hartford during the years ended December 31, 2005, 2004 and 2003 were $42, $40 and $35, respectively, after- tax. The fair value of these awards will be recognized as expense over the awards' vesting periods, generally three years. Prior to January 1, 2004, the Company used the Black-Scholes model to determine the fair value of the Hartford's stock-based compensation. For all awards granted or modified on or after January 1, 2004, the Hartford uses a hybrid lattice/Monte-Carlo based option valuation model F-8 (the "valuation model") that incorporates the possibility of early exercise of options into the valuation. The valuation model also incorporates the Hartford's historical forfeiture and exercise experience to determine the option value. For these reasons, the Hartford believes the valuation model provides a fair value that is more representative of actual experience than the value calculated under the Black-Scholes model. All stock-based awards granted or modified prior to January 1, 2003 continue to be valued using the intrinsic value-based provisions set forth in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Under the intrinsic value method, compensation expense is determined on the measurement date, which is the first date on which both the number of shares the employee is entitled to receive and the exercise price are known. Compensation expense, if any, is measured based on the award's intrinsic value, which is the excess of the market price of the stock over the exercise price on the measurement date, and is recognized over the award's vesting period. The expense, including non-option plans, related to stock-based employee compensation included in the determination of net income for the years ended December 31, 2005, 2004 and 2003 is less than that which would have been recognized if the fair value method had been applied to all awards since the effective date of SFAS No. 123. For further discussion of the Hartford's stock- based compensation plans, see Note 17. INVESTMENTS The Company's investments in fixed maturities, which include bonds, redeemable preferred stock and commercial paper; and certain equity securities, which include common and non-redeemable preferred stocks, are classified as "available-for-sale" and accordingly, are carried at fair value with the after- tax difference from cost or amortized cost, as adjusted for the effect of deducting the life and pension policyholders' share of the immediate participation guaranteed contracts and certain life and annuity deferred policy acquisition costs and reserve adjustments, reflected in stockholders' equity as a component of accumulated other comprehensive income ("AOCI"). Policy loans are carried at outstanding balance, which approximates fair value. Mortgage loans on real estate are recorded at the outstanding principal balance adjusted for amortization of premiums or discounts and net of valuation allowances, if any. Other investments primarily consist of limited partnership interests and derivatives. Limited partnerships are accounted for under the equity method and accordingly the Company's share of partnership earnings are included in net investment income. Derivatives are carried at fair value. VALUATION OF FIXED MATURITIES The fair value for fixed maturity securities is largely determined by one of three primary pricing methods: independent third party pricing service market quotations, independent broker quotations or pricing matrices, which use data provided by external sources. With the exception of short-term securities for which amortized cost is predominantly used to approximate fair value, security pricing is applied using a hierarchy or "waterfall" approach whereby prices are first sought from independent pricing services with the remaining unpriced securities submitted to brokers for prices or lastly priced via a pricing matrix. Prices from independent pricing services are often unavailable for securities that are rarely traded or are traded only in privately negotiated transactions. As a result, certain of the Company's asset-backed ("ABS") and commercial mortgage-backed securities ("CMBS") are priced via broker quotations. A pricing matrix is used to price securities for which the Company is unable to obtain either a price from an independent third party service or an independent broker quotation. The pricing matrix begins with current treasury rates and uses credit spreads and issuer-specific yield adjustments received from an independent third party source to determine the market price for the security. The credit spreads, as assigned by a nationally recognized rating agency, incorporate the issuer's credit rating and a risk premium, if warranted, due to the issuer's industry and the security's time to maturity. The issuer-specific yield adjustments, which can be positive or negative, are updated twice annually, as of June 30 and December 31, by an independent third party source and are intended to adjust security prices for issuer-specific factors. The matrix-priced securities at December 31, 2005 and 2004, primarily consisted of non-144A private placements and have an average duration of 4.8 and 4.7 years, respectively. The following table identifies the fair value of fixed maturity securities by pricing source as of December 31, 2005 and 2004.
2005 2004 ---------------------------------------------------------- Percentage Percentage of Total of Total Fair Value Fair Value Fair Value Fair Value ---------------------------------------------------------- Priced via independent market quotations $ 36,055 83.4% $ 34,555 80.9% Priced via broker quotations 2,271 5.2 3,082 7.2 Priced via matrices 3,667 8.5 3,508 8.2 Priced via other methods 202 0.5 61 0.2 Short-term investments [1] 1,047 2.4 1,485 3.5 ---------------------------------------------------------- TOTAL $ 43,242 100.0% $ 42,691 100.0% ----------------------------------------------------------
[1] Short-term investments are primarily valued at amortized cost, which approximates fair value. F-9 The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between knowledgeable, unrelated willing parties. As such, the estimated fair value of a financial instrument may differ significantly from the amount that could be realized if the security was sold immediately. OTHER-THAN-TEMPORARY IMPAIRMENTS ON AVAILABLE-FOR-SALE SECURITIES One of the significant estimates inherent in the valuation of investments is the evaluation of investments for other-than-temporary impairments. The evaluation of impairments is a quantitative and qualitative process, which is subject to risks and uncertainties and is intended to determine whether declines in the fair value of investments should be recognized in current period earnings. The risks and uncertainties include changes in general economic conditions, the issuer's financial condition or near term recovery prospects and the effects of changes in interest rates. The Company's accounting policy requires that a decline in the value of a security below its cost or amortized cost basis be assessed to determine if the decline is other- than-temporary. If the security is deemed to be other-than-temporarily impaired, a charge is recorded in net realized capital losses equal to the difference between the fair value and cost or amortized cost basis 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. The fair value of the other-than-temporarily impaired investment becomes its new cost basis. The Company has a security monitoring process overseen by a committee of investment and accounting professionals ("the committee") that identifies securities that, due to certain characteristics, as described below, are subjected to an enhanced analysis on a quarterly basis. Securities not subject to EITF Issue No. 99-20 ("non-EITF Issue No. 99-20 securities") that are in an unrealized loss position, are reviewed at least quarterly to determine if an other-than-temporary impairment is present based on certain quantitative and qualitative factors. The primary factors considered in evaluating whether a decline in value for non-EITF Issue No. 99-20 securities is other-than-temporary include: (a) the length of time and the extent to which the fair value has been less than cost or amortized cost, (b) the financial condition, credit rating and near-term prospects of the issuer, (c) whether the debtor is current on contractually obligated interest and principal payments and (d) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for recovery. Non-EITF Issue No. 99-20 securities depressed by twenty percent or more for six months are presumed to be other-than-temporarily impaired unless significant objective verifiable evidence supports that the security price is temporarily depressed and is expected to recover within a reasonable period of time. The evaluation of non-EITF Issue No. 99-20 securities depressed more than ten percent is documented and discussed quarterly by the committee. For certain securitized financial assets with contractual cash flows including ABS, EITF Issue No. 99-20 requires the Company to periodically update its best estimate of cash flows over the life of the security. If the fair value of a securitized financial asset is less than its cost or amortized cost and there has been a decrease in the present value of the estimated cash flows since the last revised estimate, considering both timing and amount, an other-than- temporary impairment charge is recognized. Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third party sources along with certain internal assumptions and judgments regarding the future performance of the underlying collateral. As a result, actual results may differ from current estimates. In addition, projections of expected future cash flows may change based upon new information regarding the performance of the underlying collateral. MORTGAGE LOAN IMPAIRMENTS Mortgage loans on real estate are considered to be impaired when management estimates that, based upon current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. For mortgage loans that are determined to be impaired, a valuation allowance is established for the difference between the carrying amount and the Company's share of either (a) the present value of the expected future cash flows discounted at the loan's original effective interest rate, (b) the loan's observable market price or (c) the fair value of the collateral. Changes in valuation allowances are recorded in net realized capital gains and losses. NET REALIZED CAPITAL GAINS AND LOSSES Net realized capital gains and losses from investment sales, after deducting the life and pension policyholders' share for certain products, are reported as a component of revenues and are determined on a specific identification basis. Net realized capital gains and losses also result from fair value changes in derivatives contracts (both free-standing and embedded) that do not qualify, or are not designated, as a hedge for accounting purposes, and the change in value of derivatives in certain fair-value hedge relationships. Impairments are recognized as net realized capital losses when investment losses in value are deemed other-than-temporary. Foreign currency transaction remeasurements are also recognized within net realized capital gains and losses. Net realized capital gains and losses on security transactions associated with the Company's immediate participation guaranteed contracts are recorded and offset by amounts owed to policyholders and were less than $1 for the years ended December 31, 2005 and 2004 and were $1 for the year ended December 31, 2003. Under the terms of the contracts, the net realized capital gains and losses will be credited to policyholders in future years as they are entitled to receive them. NET INVESTMENT INCOME Interest income from fixed maturities and mortgage loans on real estate is recognized when earned on the constant effective yield method based on estimated principal F-10 repayments, if applicable. For fixed maturities subject to prepayment risk, yields are recalculated and adjusted periodically to reflect historical and/or estimated future principal repayments. These adjustments are accounted for using the retrospective method for highly-rated fixed maturities, and the prospective method for non-highly rated securitized financial assets. Prepayment fees on fixed maturities and mortgage loans are recorded in net investment income when earned. For partnership investments, the equity method of accounting is used to recognize the Company's share of partnership earnings. For investments that have had an other-than-temporary impairment loss, income is earned on the constant effective yield method based upon the new cost basis and the amount and timing of future estimated cash flows. DERIVATIVE INSTRUMENTS Overview The Company utilizes a variety of derivative instruments, including swaps, caps, floors, forwards, futures and options through one of four Company- approved objectives: to hedge risk arising from interest rate, equity market, price or currency exchange rate volatility; to manage liquidity; to control transaction costs; or to enter into replication transactions. For a further discussion of derivative instruments, see the Derivative Instruments section of Note 4. The Company's derivative transactions are used in strategies permitted under the derivatives use plans filed and/or approved, as applicable, by the State of Connecticut and the State of New York insurance departments. The Company does not make a market or trade in these instruments for the express purpose of earning short-term trading profits. Accounting and Financial Statement Presentation of Derivative Instruments and Hedging Activities Derivatives are recognized on the balance sheet at fair value. Other than the guaranteed minimum withdrawal benefit ("GMWB") rider, which is discussed below, and the associated reinsurance contracts as well as the reinsurance contracts associated with the GMIB product, which is discussed in Note 15, approximately 84% and 76% of derivatives, based upon notional values, were priced via valuation models, while the remaining 16% and 24% of derivatives were priced via broker quotations, as of December 31, 2005 and 2004, respectively. The derivative contracts are reported as assets or liabilities in other investments and other liabilities, respectively, in the consolidated balance sheets, excluding embedded derivatives and GMWB and GMIB reinsurance contracts. Embedded derivatives are recorded in the consolidated balance sheets with the associated host instrument. GMWB and GMIB reinsurance assumed contract amounts are recorded in other policyholder funds in the consolidated balance sheets. GMWB reinsurance ceded amounts are recorded in reinsurance recoverables in the consolidated balance sheets. On the date the derivative contract is entered into, the Company designates the derivative as (1) a hedge of the fair value of a recognized asset or liability ("fair-value" hedge), (2) a hedge of the variability in cash flows of a forecasted transaction or of amounts to be received or paid related to a recognized asset or liability ("cash-flow" hedge), (3) a foreign-currency fair value or cash-flow hedge ("foreign-currency" hedge), (4) a hedge of a net investment in a foreign operation or (5) held for other investment and risk management purposes, which primarily involve managing asset or liability related risks which do not qualify for hedge accounting. Fair-Value Hedges Changes in the fair value of a derivative that is designated and qualifies as a fair-value hedge, along with the changes in the fair value of the hedged asset or liability that is attributable to the hedged risk, are recorded in current period earnings with any differences between the net change in fair value of the derivative and the hedged item representing the hedge ineffectiveness. Periodic derivative net coupon settlements are recorded in net investment income with the exception of hedges of Company issued debt which are recorded in interest expense. Cash-Flow Hedges Changes in the fair value of a derivative that is designated and qualifies as a cash-flow hedge are recorded in AOCI and are reclassified into earnings when the variability of the cash flow of the hedged item impacts earnings. Gains and losses on derivative contracts that are reclassified from AOCI to current period earnings are included in the line item in the consolidated statements of income in which the cash flows of the hedged item are recorded. Any hedge ineffectiveness is recorded immediately in current period earnings as net realized capital gains and losses. Periodic derivative net coupon settlements are recorded in net investment income. Foreign-Currency Hedges Changes in the fair value of derivatives that are designated and qualify as foreign-currency hedges are recorded in either current period earnings or AOCI, depending on whether the hedged transaction is a fair-value hedge or a cash- flow hedge, respectively. Any hedge ineffectiveness is recorded immediately in current period earnings as net realized capital gains and losses. Periodic derivative net coupon settlements are recorded in net investment income. Net Investment in a Foreign Operation Hedges Changes in fair value of a derivative used as a hedge of a net investment in a foreign operation, to the extent effective as a hedge, are recorded in the foreign currency translation adjustments account within AOCI. Cumulative changes in fair value recorded in AOCI are reclassified into earnings upon the sale or complete or substantially complete liquidation of the foreign entity. Any hedge ineffectiveness is recorded immediately in current period earnings as net realized capital gains and losses. Periodic derivative net coupon settlements are recorded in net investment income. F-11 Other Investment and Risk Management Activities The Company's other investment and risk management activities primarily relate to strategies used to reduce economic risk, enhance income, or replicate permitted fixed income investments, and do not receive hedge accounting treatment. Changes in the fair value, including periodic net coupon settlements, of derivative instruments held for other investment and risk management purposes are reported in current period earnings as net realized capital gains and losses. Hedge Documentation and Effectiveness Testing To qualify for hedge accounting treatment, a derivative must be highly effective in mitigating the designated changes in value or cash flow of the hedged item. At hedge inception, the Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking each hedge transaction. The documentation process includes linking derivatives that are designated as fair-value, cash-flow, foreign-currency or net investment hedges to specific assets or liabilities on the balance sheet or to specific forecasted transactions. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. In addition, certain hedging relationships are considered highly effective if the changes in the fair value or discounted cash flows of the hedging instrument are within a ratio of 80-125% of the inverse changes in the fair value or discounted cash flows of the hedged item. Hedge ineffectiveness is measured using qualitative and quantitative methods. Qualitative methods may include comparison of critical terms of the derivative to the hedged item. Depending on the hedging strategy, quantitative methods may include the "Change in Variable Cash Flows Method," the "Change in Fair Value Method," the "Hypothetical Derivative Method" and the "Dollar Offset Method." Discontinuance of Hedge Accounting The Company discontinues hedge accounting prospectively when (1) it is determined that the derivative is no longer highly effective in offsetting changes in the fair value or cash flows of a hedged item; (2) the derivative is dedesignated as a hedging instrument; or (3) the derivative expires or is sold, terminated or exercised. When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair-value hedge, the derivative continues to be carried at fair value on the balance sheet with changes in its fair value recognized in current period earnings. When hedge accounting is discontinued because the Company becomes aware that it is not probable that the forecasted transaction will occur, the derivative continues to be carried on the balance sheet at its fair value, and gains and losses that were accumulated in AOCI are recognized immediately in earnings. In other situations in which hedge accounting is discontinued on a cash-flow hedge, including those where the derivative is sold, terminated or exercised, amounts previously deferred in AOCI are reclassified into earnings when earnings are impacted by the variability of the cash flow of the hedged item. Embedded Derivatives The Company purchases and issues financial instruments and products that contain embedded derivative instruments. When it is determined that (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and (2) a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host for measurement purposes. The embedded derivative, which is reported with the host instrument in the consolidated balance sheets, is carried at fair value with changes in fair value reported in net realized capital gains and losses. Credit Risk The Company's derivatives counterparty exposure policy establishes market-based credit limits, favors long-term financial stability and creditworthiness, and typically requires credit enhancement/credit risk reducing agreements. By using derivative instruments, the Company is exposed to credit risk, which is measured as the amount owed to the Company based on current market conditions and potential payment obligations between the Company and its counterparties. When the fair value of a derivative contract is positive, this indicates that the counterparty owes the Company and, therefore, exposes the Company to credit risk. Credit exposures are generally quantified daily, netted by counterparty for each legal entity of the Company, and then collateral is pledged to and held by, or on behalf of, the Company to the extent the current value of derivatives exceeds exposure policy thresholds. The Company also minimizes the credit risk in derivative instruments by entering into transactions with high quality counterparties that are monitored by the Company's internal compliance unit and reviewed frequently by senior management. In addition, the compliance unit monitors counterparty credit exposure on a monthly basis to ensure compliance with Company policies and statutory limitations. The Company also maintains a policy of requiring that all derivative contracts, with the exception of exchange-traded contracts and currency forward purchase or sale contracts, be governed by an International Swaps and Dealers Association Master Agreement which is structured by legal entity and by counterparty and permits the right of offset. In addition, the Company periodically enters into swap agreements in which the Company assumes credit exposure from a single entity, referenced index or asset pool. F-12 Product Derivatives and Risk Management VALUATION OF GUARANTEED MINIMUM WITHDRAWAL BENEFIT AND GUARANTEED MINIMUM INCOME BENEFIT REINSURANCE DERIVATIVES The Company offers certain variable annuity products with a guaranteed minimum withdrawal benefit ("GMWB") rider. The GMWB provides the policyholder with a guaranteed remaining balance ("GRB") if the account value is reduced to zero through a combination of market declines and withdrawals. The GRB is generally equal to premiums less withdrawals. However, annual withdrawals that exceed a specific percentage of the premiums paid may reduce the GRB by an amount greater than the withdrawals and may also impact the guaranteed annual withdrawal amount that subsequently applies after the excess annual withdrawals occur. For certain of the withdrawal benefit features, the policyholder also has the option, after a specified time period, to reset the GRB to the then- current account value, if greater. In addition, the Company has recently added a feature, available to new contract holders, that allows the policyholder the option to receive the guaranteed annual withdrawal amount for as long as they are alive. In this new feature, in all cases the contract holder or their beneficiary will receive the GRB and the GRB is reset on an annual basis to the maximum anniversary account value subject to a cap. Effective August 31, 2005, Hartford Life and Annuity Insurance Company entered into a reinsurance agreement with Hartford Life Insurance K.K., a related party and subsidiary of Hartford Life, Inc. Through the reinsurance agreement, Hartford Life, K.K. agreed to cede and Hartford Life and Annuity Insurance Company agreed to reinsure 100% of the risks associated with the in-force and prospective GMIB riders issued by Hartford Life, K.K. on its variable annuity business. In connection with accepting the GMIB risk for the in-force riders, Hartford Life and Annuity Insurance Company received fees collected since inception by Hartford Life, K.K. related to the in-force riders of $25. Prospectively, Hartford Life and Annuity Insurance Company will receive the rider fee (currently, approximately 26 basis points) collected by Hartford Life, K.K. and payable monthly in arrears. Depending on the underlying contract form, benefits are paid from Hartford Life and Annuity Insurance Company to Hartford Life, K.K. either on the guaranteed annuity commencement date, when the contract holder's account value is less than the present value of minimum guaranteed annuity payments, or alternatively, during the annuitization phase, when the contract holder's account value is reduced to zero or upon death of the contract holder. The GMWB represents an embedded derivative in the variable annuity contract that is required to be reported separately from the host variable annuity contract. The GMIB reinsurance represents a free standing derivative. Both are carried at fair value and reported in other policyholder funds. The fair value of the GMWB and GMIB obligations is calculated based on actuarial and capital market assumptions related to the projected cash flows, including benefits and related contract charges, over the lives of the contracts, incorporating expectations concerning policyholder behavior. Because of the dynamic and complex nature of these cash flows, stochastic techniques under a variety of market return scenarios and other best estimate assumptions are used. Estimating these cash flows involves numerous estimates and subjective judgments including those regarding expected market rates of return, market volatility, correlations of market returns and discount rates. At each valuation date, the Company assumes expected returns based on risk-free rates as represented by the current LIBOR forward curve rates; market volatility assumptions for each underlying index based on a blend of observed market "implied volatility" data and annualized standard deviations of monthly returns using the most recent 20 years of observed market performance; correlations of market returns across underlying indices based on actual observed market returns and relationships over the ten years preceding the valuation date; and current risk-free spot rates as represented by the current LIBOR spot curve to determine the present value of expected future cash flows produced in the stochastic projection process. During the 4th quarter of 2005, the Company reflected a newly reliable market input for volatility on Standard and Poor's ("S&P") 500 index options. The impact of reflecting the newly reliable market input for the S&P 500 index volatility resulted in a decrease to the GMWB asset of $83 and had an insignificant impact on the valuation of the GMIB reinsurance assumed asset. The impact to net income including other changes in assumptions, after DAC amortization and taxes was a loss of $18. In valuing the GMWB embedded derivative, the Company attributes to the derivative a portion of the fees collected from the contract holder equal to the present value of future GMWB claims (the "Attributed Fees"). All changes in the fair value of the embedded derivative are recorded in net realized capital gains and losses. The excess of fees collected from the contract holder for the GMWB over the Attributed Fees are associated with the host variable annuity contract and are recorded in fee income. For contracts issued prior to July 2003, the Company has an unrelated party reinsurance arrangement in place to transfer its risk of loss due to GMWB. For contracts issued after July 2003, the Company had reinsured the risk of loss due to GMWB to a related party, Hartford Life and Accident Insurance Company. Both of these arrangements are recognized as derivatives and carried at fair value in reinsurance recoverables. Changes in the fair value of both the derivative assets and liabilities related to the reinsured GMWB are recorded in net realized capital gains and losses. During September 2005, the Company recaptured the reinsurance agreement with the related party. As a result of the recapture, the Company received derivative instruments, used to hedge its exposure to the GMWB rider, including interest rate futures, Standard and Poor's ("S&P") 500 and NASDAQ index put options and futures contracts and Europe, Australasia and Far East ("EAFE") Index swaps to hedge GMWB exposure to international equity markets. For the years ended December 31, 2005, 2004 and 2003, net realized capital gains and losses included the change in market value of the embedded derivative F-13 related to the GMWB liability, the derivative reinsurance arrangement and the related derivative contracts that were purchased as economic hedges, the net effect of which was a $55 loss, $0 and $0, before deferred policy acquisition costs and tax effects, respectively. A contract is 'in the money' if the contract holder's GRB is greater than the account value. For contracts that were 'in the money' the Company's exposure, as of December 31, 2005, was $8. However, the only ways the contract holder can monetize the excess of the GRB over the account value of the contract is upon death or if their account value is reduced to zero through a combination of a series of withdrawals that do not exceed a specific percentage of the premiums paid per year and market declines. If the account value is reduced to zero, the contract holder will receive a period certain annuity equal to the remaining GRB. As the amount of the excess of the GRB over the account value can fluctuate with equity market returns on a daily basis the ultimate amount to be paid by the Company, if any, is uncertain and could be significantly more or less than $8. SEPARATE ACCOUNTS The Company maintains separate account assets and liabilities, which are reported at fair value. Separate accounts reflect two categories of risk assumption: non-guaranteed separate accounts, wherein the policyholder assumes the investment risk, and guaranteed separate accounts, wherein the Company contractually guarantees either a minimum return or account value to the policyholder. Non-guaranteed separate account assets are segregated from other investments and investment income and gains and losses accrue directly to the policyholder. DEFERRED POLICY ACQUISITION COSTS AND PRESENT VALUE OF FUTURE PROFITS ASSOCIATED WITH VARIABLE ANNUITY AND OTHER UNIVERSAL LIFE-TYPE CONTRACTS Accounting Policy and Assumptions The Company's policy acquisition costs include commissions and certain other expenses that vary with and are primarily associated with acquiring business. Present value of future profits is an intangible asset recorded upon applying purchase accounting in an acquisition of a life insurance company. Deferred policy acquisition costs and the present value of future profits intangible asset are amortized in the same way. Both are amortized over the estimated life of the contracts acquired, generally 20 years. Within the following discussion, deferred policy acquisition costs and the present value of future profits intangible asset will be referred to as "DAC." At December 31, 2005 and 2004, the carrying value of the Company's DAC asset was $7.1 billion and $6.5 billion, respectively. The Company amortizes DAC related to traditional policies (term, whole life and group insurance) over the premium-paying period in proportion to the present value of annual expected premium income. The Company amortizes DAC related to investment contracts and universal life-type contracts (including individual variable annuities) using the retrospective deposit method. Under the retrospective deposit method, acquisition costs are amortized in proportion to the present value of estimated gross profits ("EGPs"). The Company uses other measures for amortizing DAC, such as gross costs, as a replacement for EGPs when EGPs are expected to be negative for multiple years of the contract's life. The Company also adjusts the DAC balance, through other comprehensive income, by an amount that represents the amortization of DAC that would have been required as a charge or credit to operations had unrealized gains and losses on investments been realized. Actual gross profits, in a given reporting period, that vary from management's initial estimates result in increases or decreases in the rate of amortization, commonly referred to as a "true-up," which are recorded in the current period. The true-up recorded for the years ended December 31, 2005, 2004 and 2003, was an increase to amortization of $27, $16 and $35, respectively. Each year, the Company develops future EGPs for the products sold during that year. The EGPs for products sold in a particular year are aggregated into cohorts. Future gross profits are projected for the estimated lives of the contracts, generally 20 years and are, to a large extent, a function of future account value projections for individual variable annuity products and to a lesser extent for variable universal life products. The projection of future account values requires the use of certain assumptions. The assumptions considered to be important in the projection of future account value, and hence the EGPs, include separate account fund performance, which is impacted by separate account fund mix, less fees assessed against the contract holder's account balance, surrender and lapse rates, interest margin, and mortality. The assumptions are developed as part of an annual process and are dependent upon the Company's current best estimates of future events which are likely to be different for each year's cohort. For example, upon completion of a study during the fourth quarter of 2005, the Company, in developing projected account values and the related EGP's for the 2005 cohorts, used a separate account return assumption of 7.6% (after fund fees, but before mortality and expense charges). For prior year cohorts, the Company's separate account return assumption, at the time those cohorts' account values and related EGPs were projected, was 9.0%. UNLOCK ANALYSIS EGPs that are used as the basis for determining amortization of DAC are evaluated regularly to determine if actual experience or other evidence suggests that earlier estimates should be revised. Assumptions used to project account values and the related EGPs, are not revised unless the EGPs in the DAC amortization model fall outside of a reasonable range. In the event that the Company was to revise assumptions used for prior year cohorts, thereby changing its estimate of projected account value, and the related EGPs, in the DAC amortization model, the cumulative DAC amortization would be adjusted to reflect such changes, in the period the revision was determined to be necessary, a process known as "unlocking." To determine the reasonableness of the prior assumptions used and their impact on previously projected account F-14 values and the related EGPs, the Company evaluates, on a quarterly basis, its previously projected EGPs. The Company's process to assess the reasonableness of its EGPs, involves the use of internally developed models, which run a large number of stochastically determined scenarios of separate account fund performance. Incorporated in each scenario are the Company's current best estimate assumptions with respect to separate account returns, lapse rates, mortality, and expenses. These scenarios are run to calculate statistically significant ranges of reasonable EGPs. The statistical ranges produced from the stochastic scenarios are compared to the present value of EGPs used in the respective DAC amortization models. If EGPs used in the DAC amortization model fall outside of the statistical ranges of reasonable EGPs, a revision to the assumptions in prior year cohorts used to project account value and the related EGPs, in the DAC amortization model would be necessary. A similar approach is used for variable universal life business. As of December 31, 2005, the present value of the EGPs used in the DAC amortization models, for variable annuities and variable universal life business, fell within the statistical range of reasonable EGPs. Therefore, the Company did not revise the separate account return assumption, the account value or any other assumptions, in those DAC amortization models, for 2004 and prior cohorts. Aside from absolute levels and timing of market performance, additional factors that will influence the unlock determination include the degree of volatility in separate account fund performance and shifts in asset allocation within the separate account made by policyholders. The overall return generated by the separate account is dependent on several factors, including the relative mix of the underlying sub-accounts among bond funds and equity funds as well as equity sector weightings. The Company's overall separate account fund performance has been reasonably correlated to the overall performance of the S&P 500 Index (which closed at 1,248 on December 31, 2005), although no assurance can be provided that this correlation will continue in the future. The overall recoverability of the DAC asset is dependent on the future profitability of the business. The Company tests the aggregate recoverability of the DAC asset by comparing the amounts deferred to the present value of total EGPs. In addition, the Company routinely stress tests its DAC asset for recoverability against severe declines in its separate account assets, which could occur if the equity markets experienced another significant sell-off, as the majority of policyholders' funds in the separate accounts is invested in the equity market. RESERVE FOR FUTURE POLICY BENEFITS AND UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES Liabilities for the Company's group life and disability contracts as well its individual term life insurance policies include amounts for unpaid claims and future policy benefits. Liabilities for unpaid claims include estimates of amounts to fully settle known reported claims as well as claims related to insured events that the Company estimates have been incurred but have not yet been reported. Liabilities for future policy benefits are calculated by the net level premium method using interest, withdrawal and mortality assumptions appropriate at the time the policies were issued. The methods used in determining the liability for unpaid claims and future policy benefits are standard actuarial methods recognized by the American Academy of Actuaries. For the tabular reserves, discount rates are based on the Company's earned investment yield and the morbidity/mortality tables used are standard industry tables modified to reflect the Company's actual experience when appropriate. In particular, for the Company's group disability known claim reserves, the morbidity table for the early durations of claim is based exclusively on the Company's experience, incorporating factors such as sex, elimination period and diagnosis. These reserves are computed such that they are expected to meet the Company's future policy obligations. Future policy benefits are computed at amounts that, with additions from estimated premiums to be received and with interest on such reserves compounded annually at certain assumed rates, are expected to be sufficient to meet the Company's policy obligations at their maturities or in the event of an insured's death. Changes in or deviations from the assumptions used for mortality, morbidity, expected future premiums and interest can significantly affect the Company's reserve levels and related future operations and, as such, provisions for adverse deviation are built into the long-tailed liability assumptions. Certain contracts classified as universal life-type may also include additional death or other insurance benefit features, such as guaranteed minimum death or income benefits offered with variable annuity contracts or no lapse guarantees offered with universal life insurance contracts. An additional liability is established for these benefits by estimating the expected present value of the benefits in excess of the projected account value in proportion to the present value of total expected assessments. Excess benefits are accrued as a liability as actual assessments are recorded. Determination of the expected value of excess benefits and assessments are based on a range of scenarios and assumptions including those related to market rates of return and volatility, contract surrender rates and mortality experience. OTHER POLICYHOLDER FUNDS AND BENEFITS PAYABLE The Company has classified its fixed and variable annuities, 401(k), certain governmental annuities, private placement life insurance ("PPLI"), variable universal life insurance, universal life insurance and interest sensitive whole life insurance as universal life-type contracts. The liability for universal life-type contracts is equal to the balance that accrues to the benefit of the policyholders as of the financial statement date (commonly referred to as the account value), including credited interest, amounts that have been assessed to compensate the Company for services to be performed over future periods, and any amounts previously assessed against policyholders that are refundable on termination of the contract. F-15 The Company has classified its institutional and governmental products, without life contingencies, including funding agreements, certain structured settlements and guaranteed investment contracts, as investment contracts. The liability for investment contracts is equal to the balance that accrues to the benefit of the contract holder as of the financial statement date, which includes the accumulation of deposits plus credited interest, less withdrawals and amounts assessed through the financial statement date. Policyholder funds include funding agreements held by VIE issuing medium-term notes. REVENUE RECOGNITION For investment and universal life-type contracts, the amounts collected from policyholders are considered deposits and are not included in revenue. Fee income for investment and universal life-type contracts consists of policy charges for policy administration, cost of insurance charges and surrender charges assessed against policyholders' account balances and are recognized in the period in which services are provided. The Company's traditional life and group disability products are classified as long duration contracts, and premiums are recognized as revenue when due from policyholders. DIVIDENDS TO POLICYHOLDERS Policyholder dividends are accrued using an estimate of the amount to be paid based on underlying contractual obligations under policies and applicable state laws. Participating life insurance inforce accounted for 3%, 5%, and 6% as of December 31, 2005, 2004 and 2003, respectively, of total life insurance in force. Dividends to policyholders were $37, $29 and $63 for the years ended December 31, 2005, 2004 and 2003, respectively. There were no additional amounts of income allocated to participating policyholders. If limitations exist on the amount of net income from participating life insurance contracts that may be distributed to stockholders, the policyholder's share of net income on those contracts that cannot be distributed is excluded from stockholders' equity by a charge to operations and a credit to a liability. REINSURANCE Written premiums, earned premiums and incurred insurance losses and loss adjustment expense all reflect the net effects of assumed and ceded reinsurance transactions. Assumed reinsurance refers to our acceptance of certain insurance risks that other insurance companies have underwritten. Ceded reinsurance means other insurance companies have agreed to share certain risks the Company has underwritten. Reinsurance accounting is followed for assumed and ceded transactions when the risk transfer provisions of SFAS No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts," have been met. INCOME TAXES The Company recognizes taxes payable or refundable for the current year and deferred taxes for the future tax consequences of differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse. NOTE 3. SEGMENT INFORMATION The Company has adjusted its reportable operating segments in 2005 from Retail Products Group ("Retail"), Institutional Solutions Group ("Institutional") and Individual Life to Retail, Retirement Plans, Institutional and Individual Life. Retail offers individual variable and fixed market value adjusted ("MVA") annuities, and other investment products. Retirement Plans offer retirement plan products and services to corporations and municipalities pursuant to Section 401(k), 403(b) and 457 plans. Institutional offers institutional liability products, including stable value products, structured settlements and institutional annuities (primarily terminal funding cases), as well as variable private placement life insurance owned by corporations and high net worth individuals (formerly referred to as COLI). Individual Life sells a variety of life insurance products, including variable universal life, universal life, interest sensitive whole life and term life insurance. Life includes in an Other category its leveraged PPLI product line of business; corporate items not directly allocated to any of its reportable operating segments; net realized capital gains and losses on fixed maturity sales generated from movements in interest rates, less amortization of those gains or losses back to the reportable segments; net realized capital gains and losses generated from credit related events, less a credit risk fee charged to the reportable segments; net realized capital gains and losses from non-qualifying derivative strategies (including embedded derivatives) and interest rate risk generated from sales of the assumed yen based fixed annuity from Hartford Life's international operations, other than the net periodic coupon settlements on credit derivatives, which are allocated to the reportable segments; intersegment eliminations and GMIB reinsurance assumed from Hartford Life Insurance KK, a related party and subsidiary of Hartford Life, as well as certain group benefit products, including group life and group disability insurance that is directly written by the Company and is substantially ceded to its parent, HLA. The accounting policies of the reportable operating segments are the same as those described in the summary of significant accounting policies in Note 1. Life evaluates performance of its segments based on revenues, net income and the segment's return on allocated capital. The Company charges direct operating expenses to the appropriate segment and allocates the majority of indirect expenses to the segments based on an intercompany expense arrangement. Intersegment revenues primarily occur between Life's Other category and the operating segments. These amounts primarily include interest income F-16 on allocated surplus, interest charges on excess separate account surplus, the allocation of net realized capital gains and losses and the allocation of credit risk charges. Each operating segment is allocated corporate surplus as needed to support its business. Portfolio management is a corporate function and net realized capital gains and losses on invested assets are recognized in Life's Other category. Those net realized capital gains and losses that are interest rate related are subsequently allocated back to the operating segments in future periods, with interest, over the average estimated duration of the operating segment's investment portfolios, through an adjustment to each respective operating segment's realized capital gains and losses, with an offsetting adjustment in the Other category. Net realized capital gains and losses from non-qualifying derivative strategies, including embedded derivatives, are retained by Corporate and reported in the Other category. Net realized capital gains and losses generated from credit related events, other than net periodic coupon settlements on credit derivatives, are retained by Corporate. However, in exchange for retaining credit related losses, the Other category charges each operating segment a "credit-risk" fee through realized capital gains and losses. The "credit-risk" fee covers fixed income assets included in each operating segment's general account and guaranteed separate accounts. The "credit-risk" fee is based upon historical default rates in the corporate bond market, the Company's actual default experience and estimates of future losses. The Company's revenues are primarily derived from customers within the United States. The Company's long-lived assets primarily consist of deferred policy acquisition costs and deferred tax assets from within the United States. The positive (negative) impact on realized gains and losses of the segments for allocated interest related realized gains and losses and the credit-risk fees were as follows:
2005 2004 2003 ----------------------------- Retail Realized gains (losses) $ 34 $ 25 $ 1 Credit risk fees (26) (22) (14) Retirement Plans Realized gains (losses) 6 5 5 Credit risk fees (8) (8) (7) Institutional Realized gains (losses) 13 8 6 Credit risk fees (18) (16) (13) Individual Life Realized gains (losses) 8 12 -- Credit risk fees (5) (5) (5) Other Realized gains (losses) (61) (50) (12) Credit risk fees 57 51 39 ----------------------------- TOTAL $ -- $ -- $ -- -----------------------------
F-17 The following tables represent summarized financial information concerning the Company's segments.
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 2005 2004 2003 -------------------------------- TOTAL REVENUES Retail $ 2,570 $ 2,488 $ 1,657 Retirement Plans 457 421 376 Institutional 1,400 1,273 1,494 Individual Life 991 966 894 Other 486 538 433 -------------------------------- TOTAL REVENUES $ 5,904 $ 5,686 $ 4,854 -------------------------------- NET INVESTMENT INCOME Retail $ 934 $ 1,013 $ 431 Retirement Plans 311 307 280 Institutional 784 647 562 Individual Life 272 269 227 Other 268 234 264 -------------------------------- TOTAL NET INVESTMENT INCOME $ 2,569 $ 2,470 $ 1,764 -------------------------------- AMORTIZATION OF DAC Retail $ 689 $ 596 $ 450 Retirement Plans 26 28 18 Institutional 32 26 27 Individual Life 196 175 166 Other 2 -- (15) -------------------------------- TOTAL AMORTIZATION OF DAC $ 945 $ 825 $ 646 -------------------------------- INCOME TAX EXPENSE (BENEFIT) Retail $ 33 $ 35 $ 27 Retirement Plans 19 17 15 Institutional [1] 34 24 34 Individual Life 69 70 64 Other [2] 52 (117) 28 -------------------------------- TOTAL INCOME TAX EXPENSE $ 207 $ 29 $ 168 -------------------------------- NET INCOME Retail $ 520 $ 373 $ 330 Retirement Plans 66 59 39 Institutional 82 55 68 Individual Life 149 143 134 Other [2] 92 335 55 -------------------------------- TOTAL NET INCOME $ 909 $ 965 $ 626 --------------------------------
[1] 2003 includes $9 of after-tax benefit related to the settlement of litigation. [2] For the year ended December 31, 2004 the Company includes a $191 tax benefit recorded in its Other category, which relates to an agreement with the IRS on the resolution of matters pertaining to tax years prior to 2004. For further discussion of this tax benefit see Note 12. F-18
DECEMBER 31, -------------------------- 2005 2004 -------------------------- ASSETS Retail $ 119,185 $ 114,288 Retirement Plans 20,058 17,142 Institutional 48,561 44,572 Individual Life 12,314 11,361 Other 7,506 8,279 -------------------------- TOTAL ASSETS $ 207,624 $ 195,642 -------------------------- DAC Retail $ 4,617 $ 4,307 Retirement Plans 406 264 Institutional 81 57 Individual Life 1,976 1,802 Other 21 23 -------------------------- TOTAL DAC $ 7,101 $ 6,453 -------------------------- RESERVE FOR FUTURE POLICY BENEFITS Retail $ 732 $ 678 Retirement Plans 366 387 Institutional 4,962 4,512 Individual Life 536 538 Other 810 1,129 -------------------------- TOTAL RESERVE FOR FUTURE POLICY BENEFITS $ 7,406 $ 7,244 -------------------------- OTHER POLICYHOLDER FUNDS Retail $ 16,299 $ 18,320 Retirement Plans 5,194 4,790 Institutional 9,228 7,653 Individual Life 4,482 4,150 Other 3,196 2,580 -------------------------- TOTAL OTHER POLICYHOLDER FUNDS $ 38,399 $ 37,493 --------------------------
NOTE 4. INVESTMENTS AND DERIVATIVE INSTRUMENTS
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 2005 2004 2003 -------------------------------- COMPONENTS OF NET INVESTMENT INCOME Fixed maturities $ 2,275 $ 2,122 $ 1,425 Policy loans 142 183 207 Other investments 189 195 152 Gross investment income 2,606 2,500 1,784 Less: Investment expenses 37 30 20 -------------------------------- NET INVESTMENT INCOME $ 2,569 $ 2,470 $ 1,764 -------------------------------- COMPONENTS OF NET REALIZED CAPITAL GAINS (LOSSES) Fixed maturities $ 57 $ 168 $ (6) Equity securities 8 7 (7) Foreign currency transaction remeasurements 157 (6) -- Derivatives and other [1] (147) (29) -- -------------------------------- NET REALIZED CAPITAL GAINS (LOSSES) $ 75 $ 140 $ (13) --------------------------------
[1] Primarily consists of changes in fair value on non-qualifying derivatives, changes in fair value of certain derivatives in fair value hedge relationships and hedge ineffectiveness on qualifying derivative instruments. F-19
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 2005 2004 2003 -------------------------------- COMPONENTS OF NET UNREALIZED GAINS (LOSSES) ON AVAILABLE-FOR-SALE SECURITIES Fixed maturities $ 986 $ 2,212 $ 1,574 Equity securities 7 8 7 Net unrealized gains credited to policyholders (9) (20) (63) Net unrealized gains 984 2,200 1,518 Deferred income taxes and other items 407 1,076 790 Net unrealized gains, net of tax -- end of year 577 1,124 728 Net unrealized gains, net of tax -- beginning of year 1,124 728 463 -------------------------------- CHANGE IN UNREALIZED GAINS (LOSSES) ON AVAILABLE-FOR-SALE SECURITIES $ (547) $ 396 $ 265 --------------------------------
COMPONENTS OF FIXED MATURITY INVESTMENTS
AS OF DECEMBER 31, 2005 ---------------------------------------------------------------------- Amortized Gross Gross Cost Unrealized Gains Unrealized Losses Fair Value ---------------------------------------------------------------------- BONDS AND NOTES ABS $ 6,383 $ 44 $ (73) $ 6,354 Collateralized mortgage obligations ("CMOs") Agency backed 657 3 (4) 656 Non-agency backed 107 -- -- 107 CMBS Agency backed 53 1 -- 54 Non-agency backed 8,258 158 (85) 8,331 Corporate 21,179 1,098 (226) 22,051 Government/Government agencies Foreign 646 43 (4) 685 United States 435 23 (2) 456 Mortgage-backed securities ("MBS") -- U.S. Government/Government agencies 2,559 6 (39) 2,526 States, municipalities and political subdivisions 926 47 (4) 969 Redeemable preferred stock 6 -- -- 6 Short-term investments 1,047 -- -- 1,047 --------------------------------------------------------------------- TOTAL FIXED MATURITIES $ 42,256 $ 1,423 $ (437) $ 43,242 ---------------------------------------------------------------------
F-20
AS OF DECEMBER 31, 2004 ---------------------------------------------------------------------- Amortized Gross Gross Cost Unrealized Gains Unrealized Losses Fair Value ---------------------------------------------------------------------- BONDS AND NOTES ABS $ 5,881 $ 72 $ (61) $ 5,892 Collateralized mortgage obligations ("CMOs") Agency backed 834 9 (3) 840 Non-agency backed 48 -- -- 48 CMBS Agency backed 54 -- -- 54 Non-agency backed 7,336 329 (17) 7,648 Corporate 21,200 1,826 (57) 22,969 Government/Government agencies Foreign 649 60 (2) 707 United States 774 19 (4) 789 Mortgage-backed securities ("MBS") -- U.S. Government/Government agencies 1,542 18 (2) 1,558 States, municipalities and political subdivisions 675 30 (5) 700 Redeemable preferred stock 1 -- -- 1 Short-term investments 1,485 -- -- 1,485 ---------------------------------------------------------------------- TOTAL FIXED MATURITIES $ 40,479 $ 2,363 $ (151) $ 42,691 ----------------------------------------------------------------------
The amortized cost and estimated fair value of fixed maturity investments at December 31, 2005 by contractual maturity year are shown below. Estimated maturities may differ from contractual maturities due to call or prepayment provisions. ABS, including MBS and CMOs, 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. Actual prepayment experience may vary from these estimates.
Amortized Cost Fair Value -------------------------------- MATURITY One year or less $ 4,113 $ 4,106 Over one year through five years 13,312 13,558 Over five years through ten years 11,423 11,524 Over ten years 13,408 14,054 ------------------------------- TOTAL $ 42,256 $ 43,242 -------------------------------
SALES OF FIXED MATURITY AND AVAILABLE-FOR-SALE EQUITY SECURITY INVESTMENTS
FOR THE YEARS ENDED DECEMBER 31, --------------------------------- 2005 2004 2003 --------------------------------- SALE OF FIXED MATURITIES Sale proceeds $ 15,882 $ 13,022 $ 6,205 Gross gains 302 311 196 Gross losses (218) (125) (71) SALE OF AVAILABLE-FOR-SALE EQUITY SECURITIES Sale proceeds $ 39 $ 75 $ 107 Gross gains 8 12 4 Gross losses -- (5) (3) ---------------------------------
CONCENTRATION OF CREDIT RISK The Company aims to maintain a diversified investment portfolio including issuer, sector and geographic stratification, where applicable, and has established certain exposure limits, diversification standards and review procedures to mitigate credit risk. The Company is not exposed to any concentration of credit risk of a single issuer greater than 10% of the Company's stockholders' equity other than certain U.S. government and government agencies. Other than U.S. government and government agencies, the Company's top three exposures by issuer as of December 31, 2005 were Royal Bank of Scotland Group PLC, AT&T Inc. and JPMorgan Chase & Co. F-21 which comprise 0.5%, 0.4% and 0.4%, respectively, of total invested assets and as of December 31, 2004 were the JPMorgan Chase & Co., Banco Santander Central Hispano, S.A. and General Motors Corporation which comprised 0.8%, 0.4% and 0.4%, respectively, of total invested assets. The Company's top three exposures by industry sector as of December 31, 2005 were financial services, technology and communications and utilities which comprise 13%, 6% and 5%, respectively, of total invested assets and as of December 31, 2004 were financial services, technology and communications and consumer non-cyclical which comprised approximately 13%, 8% and 5%, respectively, of total invested assets. The Company's investments in states, municipalities and political subdivisions are geographically dispersed throughout the United States. As of December 31, 2005, the largest concentrations were in California, Oregon and Illinois and comprised approximately 0.5%, 0.4% and 0.2%, respectively, of total invested assets. As of December 31, 2004, the largest concentrations were in California, Oregon and Wisconsin and comprised approximately 0.5%, 0.4% and 0.2%, respectively, of total invested assets. SECURITY UNREALIZED LOSS AGING The Company has a security monitoring process overseen by a committee of investment and accounting professionals that, on a quarterly basis, identifies securities in an unrealized loss position that could potentially be other-than- temporarily impaired. For further discussion regarding the Company's other- than-temporary impairment policy, see the Investments section of Note 2. Due to the issuers' continued satisfaction of the securities' obligations in accordance with their contractual terms and the expectation that they will continue to do so, management's intent and ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in market value, as well as the evaluation of the fundamentals of the issuers' financial condition and other objective evidence, the Company believes that the prices of the securities in the sectors identified in the tables below were temporarily depressed as of December 31, 2005 and 2004. The following table presents amortized cost, fair value and unrealized losses for the Company's fixed maturity and available-for-sale equity securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2005.
2005 --------------------------------------------------------------------------- Less Than 12 Months 12 Months or More --------------------------------------------------------------------------- Amortized Fair Unrealized Amortized Fair Unrealized Cost Value Losses Cost Value Losses --------------------------------------------------------------------------- ABS $ 1,534 $ 1,517 $ (17) $ 494 $ 438 $ (56) CMOs Agency backed 271 269 (2) 221 219 (2) Non-agency backed 18 18 -- 1 1 -- CMBS Agency backed 2 2 -- 4 4 -- Non-agency backed 3,899 3,833 (66) 578 559 (19) Corporate 7,339 7,158 (181) 1,173 1,128 (45) Government/Government agencies Foreign 173 170 (3) 36 35 (1) United States 147 146 (1) 20 19 (1) MBS -- U.S. Government/Government agencies 1,689 1,658 (31) 170 162 (8) States, municipalities and political subdivisions 194 190 (4) -- -- -- Short-term investments 61 61 -- -- -- -- ------------------------------------------------------------------------ TOTAL FIXED MATURITIES 15,327 15,022 (305) 2,697 2,565 (132) ----------------------------------------- Common stock 5 5 -- 1 1 -- Non-redeemable preferred stock 38 37 (1) 39 37 (2) ------------------------------------------------------------------------ TOTAL EQUITY 43 42 (1) 40 38 (2) ----------------------------------------- ------------------------------------------------------------------------ TOTAL TEMPORARILY IMPAIRED SECURITIES $ 15,370 $ 15,064 $ (306) $ 2,737 $ 2,603 $ (134) ------------------------------------------------------------------------
F-22
Total ---------------------------------------- Amortized Fair Unrealized Cost Value Losses ---------------------------------------- ABS $ 2,028 $ 1,955 $ (73) CMOs Agency backed 492 488 (4) Non-agency backed 19 19 -- CMBS Agency backed 6 6 -- Non-agency backed 4,477 4,392 (85) Corporate 8,512 8,286 (226) Government/Government agencies Foreign 209 205 (4) United States 167 165 (2) MBS -- U.S. Government/Government agencies 1,859 1,820 (39) States, municipalities and political subdivisions 194 190 (4) Short-term investments 61 61 -- ------------------------------------- TOTAL FIXED MATURITIES 18,024 17,587 (437) Common stock 6 6 -- Non-redeemable preferred stock 77 74 (3) ------------------------------------- TOTAL EQUITY 83 80 (3) ------------------------------------- TOTAL TEMPORARILY IMPAIRED SECURITIES $ 18,107 $ 17,667 $ (440) -------------------------------------
As of December 31, 2005, fixed maturities represented approximately 99% of the Company's total unrealized loss amount, which was comprised of approximately 2,700 different securities. The Company held no securities as of December 31, 2005, that were in an unrealized loss position in excess of $12. There were no fixed maturities or equity securities as of December 31, 2005, with a fair value less than 80% of the security's cost or amortized cost for six continuous months other than certain ABS and CMBS. Other-than-temporary impairments for certain ABS and CMBS are recognized if the fair value of the security, as determined by external pricing sources, is less than its cost or amortized cost and there has been a decrease in the present value of the expected cash flows since the last reporting period. Based on management's best estimate of future cash flows, there were no such ABS and CMBS in an unrealized loss position, as of December 31, 2005 that were deemed to be other-than-temporarily impaired. Securities in an unrealized loss position for less than twelve months were comprised of over 2,200 securities of which 94%, or $288, of the unrealized loss were comprised of securities with fair value to amortized cost ratios at or greater than 90%. The majority of these securities are investment grade fixed maturities depressed due to changes in interest rates from the date of purchase. The securities depressed for twelve months or more as of December 31, 2005, were comprised of approximately 500 securities, with the majority of the unrealized loss amount relating to ABS, CMBS and corporate fixed maturities within the financial services sector. A description of the events contributing to the security types' unrealized loss position and the factors considered in determining that recording an other-than-temporary impairment was not warranted are outlined below. ABS -- The ABS in an unrealized loss position for twelve months or more were primarily supported by aircraft lease receivables that had suffered a decrease in value in recent years. The Company's holdings are ABS secured by leases on aircraft. The decline in the fair values of these securities is primarily attributable to the high risk premium associated with the increase in volatility of airline travel demand in recent years, lack of market liquidity in this sector and long term to maturity of these securities. In recent years, aircraft demand and lease rates have improved as a result of an increase in worldwide travel. However, the continuing difficulties experienced by several major U.S. domestic airlines due to high operating costs, including fuel and certain employee benefits costs, continue to weigh heavily on this sector. Based on the Company's projections of future cash flows under distressed scenarios, the Company expects to recover the full contractual principal and interest payments of these investments. However, future price recovery will depend on continued improvement in economic fundamentals, political stability, airline operating performance and collateral value. CMBS -- The CMBS in an unrealized loss position as of December 31, 2005, were primarily the result of an increase in interest rates from the security's purchase date. Substantially all of these securities are investment grade securities priced at or greater than 90% of amortized cost as of December 31, 2005. Additional changes in fair value of these securities are primarily dependent on future changes in interest rates. FINANCIAL SERVICES -- Financial services represents approximately $13 of the corporate securities in an unrealized loss position for twelve months or more. Substantially all of these securities are investment grade securities priced at or greater than 90% of amortized cost. F-23 These positions are a mixture of fixed and variable rate securities with extended maturity dates, which have been adversely impacted by changes in interest rates after the purchase date. Additional changes in fair value of these securities are primarily dependent on future changes in interest rates. The remaining balance of $46 in the twelve months or more unrealized loss category is comprised of approximately 200 securities, substantially all of which were depressed only to a minor extent with fair value to amortized cost ratios at or greater than 90% as of December 31, 2005. The decline in market value for these securities is primarily attributable to changes in interest rates. The following table presents amortized cost, fair value and unrealized losses for the Company's fixed maturity and available-for-sale equity securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2004.
2004 -------------------------------------------------------------------------- Less Than 12 Months 12 Months or More -------------------------------------------------------------------------- Amortized Fair Unrealized Amortized Fair Unrealized Cost Value Losses Cost Value Losses -------------------------------------------------------------------------- ABS $ 1,112 $ 1,102 $ (10) $ 343 $ 292 $ (51) CMOs Agency backed 494 491 (3) 2 2 -- Non-agency backed 40 40 -- -- -- -- CMBS Agency backed 19 19 -- -- -- -- Non-agency backed 1,563 1,548 (15) 73 71 (2) Corporate 2,685 2,652 (33) 657 633 (24) Government/Government agencies Foreign 116 115 (1) 27 26 (1) United States 445 442 (3) 7 6 (1) MBS -- U.S. Government/Government agencies 398 396 (2) 24 24 -- States, municipalities and political subdivisions 163 158 (5) 2 2 -- Short-term investments 11 11 -- -- -- -- --------------------------------------------------------------------- TOTAL FIXED MATURITIES 7,046 6,974 (72) 1,135 1,056 (79) ------------------------------------------ Common stock -- -- -- 1 1 -- Non-redeemable preferred stock 19 19 -- 39 36 (3) --------------------------------------------------------------------- TOTAL EQUITY 19 19 -- 40 37 (3) ------------------------------------------ --------------------------------------------------------------------- TOTAL TEMPORARILY IMPAIRED SECURITIES $ 7,065 $ 6,993 $ (72) $ 1,175 $ 1,093 $ (82) ---------------------------------------------------------------------
F-24
Total --------------------------------------- Amortized Fair Unrealized Cost Value Losses --------------------------------------- ABS $ 1,455 $ 1,394 $ (61) CMOs Agency backed 496 493 (3) Non-agency backed 40 40 -- CMBS Agency backed 19 19 -- Non-agency backed 1,636 1,619 (17) Corporate 3,342 3,285 (57) Government/Government agencies Foreign 143 141 (2) United States 452 448 (4) MBS -- U.S. Government/Government agencies 422 420 (2) States, municipalities and political subdivisions 165 160 (5) Short-term investments 11 11 -- ----------------------------------- TOTAL FIXED MATURITIES 8,181 8,030 (151) Common stock 1 1 -- Non-redeemable preferred stock 58 55 (3) ----------------------------------- TOTAL EQUITY 59 56 (3) ----------------------------------- TOTAL TEMPORARILY IMPAIRED SECURITIES $ 8,240 $ 8,086 $ (154) -----------------------------------
MORTGAGE LOANS The carrying value of mortgage loans was $1.4 billion and $794 for the years ended December 31, 2005 and 2004, respectively. The Company's mortgage loans are collateralized by a variety of commercial and agricultural properties. The largest concentrations by property type at December 31, 2005 and 2004 are office buildings (approximately 35% and 33%, respectively), retail stores (approximately 26% and 28%, respectively) and hotels (approximately 15% and 12%, respectively). The properties collateralizing mortgage loans are geographically dispersed throughout the United States, with the largest concentration in California (approximately 20% and 29% at December 31, 2005 and 2004, respectively). At December 31, 2005 and 2004, the Company held no impaired, restructured, delinquent or in-process-of-foreclosure mortgage loans. The Company had no valuation allowance for mortgage loans at December 31, 2005 and 2004. VARIABLE INTEREST ENTITIES The Company invests in two synthetic collateralized loan obligation trusts and a recently issued continuously offered ERISA-eligible institutional fund (collectively, "synthetic CLOs") that are managed by Hartford Investment Management Company ("HIMCO"), an affiliate of the Company. These synthetic CLOs invest in senior secured bank loans through total return swaps ("referenced bank loan portfolios"). The outstanding notional value of the referenced bank loan portfolios from the three synthetic CLOs was $800 and $700 as of December 31, 2005 and 2004, respectively. As of December 31, 2005 and 2004, the synthetic CLOs had issued approximately $145 and $135 of notes and preferred shares ("CLO issuances"), respectively. The proceeds from the CLO issuances are invested in collateral accounts consisting of high credit quality securities and/or bank loans that are pledged to the referenced bank loan portfolios' swap counterparties. Investors in the CLO issuances receive the net proceeds from the referenced bank loan portfolios. Any principal losses incurred by the swap counterparties associated with the referenced bank loan portfolios are borne by the CLO issuances investors through the total return swaps. Approximately $110 and $120 of the CLO issuances were held by third party investors as of December 31, 2005 and 2004, respectively. The third party investors in the synthetic CLOs have recourse only to the synthetic CLOs' assets and not to the general credit of the Company. Accordingly, the Company's financial exposure to these synthetic CLOs is limited to its direct investment in certain notes and preferred shares issued by the synthetic CLOs. Pursuant to the requirements of FIN 46R, the Company has concluded that the three synthetic CLOs are variable interest entities ("VIEs") and for two of the synthetic CLOs, the Company is the primary beneficiary and must consolidate these synthetic CLOs. Accordingly, the Company has reflected the assets and liabilities of two synthetic CLOs in its consolidated financial statements. As of December 31, 2005, the Company recorded $75 of cash and fixed maturities, total return swaps with a fair value of $2 in other investments and $42 in other liabilities related to the CLO issuances in its consolidated balance sheets. As of December 31, 2004, the Company recorded in the consolidated balance sheets $65 of cash and fixed maturities, total return swaps with a fair value of $3 in other investments and $52 related to the CLO issuances in other liabilities. The Company's investments in the consolidated synthetic CLOs, which is its maximum exposure to loss, was $33 and $14, as of December 31, 2005 and 2004, respectively. F-25 The Company utilized qualitative and quantitative analyses to assess whether it was the primary beneficiary of the VIEs. The qualitative considerations included the Company's co-investment in relation to the total CLO issuance. The quantitative analysis included calculating the variability of the CLO issuance based upon statistical techniques utilizing historical normalized default and recovery rates for the average credit quality of the initial referenced bank loan portfolio. DERIVATIVE INSTRUMENTS Derivative instruments are recorded in the consolidated balance sheets at fair value. Asset and liability values are determined by calculating the net position for each derivative counterparty by legal entity and are presented as of December 31, as follows:
Asset Values Liability Values ------------------------------------- 2005 2004 2005 2004 ------------------------------------- Other investments $ 159 $ 42 $ -- $ -- Reinsurance recoverables -- -- 17 129 Other policyholder funds and benefits payable 80 129 -- -- Fixed maturities -- 4 -- -- Other liabilities -- -- 390 449 ------------------------------------- TOTAL $ 239 $ 175 $ 407 $ 578 -------------------------------------
The following table summarizes the derivative instruments used by the Company and the primary hedging strategies to which they relate. Derivatives in the Company's non-guaranteed separate accounts are not included because the associated gains and losses accrue directly to policyholders. The notional value of derivative contracts represent the basis upon which pay or receive amounts are calculated and are not reflective of credit risk. The fair value amounts of derivative assets and liabilities are presented on a net basis as of December 3,2005 and 2004. The total ineffectiveness of all cash-flow, fair- value and net investment hedges and total change in value of other derivative- based strategies which do not qualify for hedge accounting treatment, including net periodic coupon settlements, are presented below on an after-tax basis for the years ended December 31, 2005 and 2004.
Hedge Ineffectiveness Notional Amount Fair Value After-Tax ---------------------------------------------------------------- HEDGING STRATEGY 2005 2004 2005 2004 2005 2004 ---------------------------------------------------------------- CASH-FLOW HEDGES Interest rate swaps Interest rate swaps are primarily used to convert interest receipts on floating -rate fixed maturity securities to fixed rates. These derivatives are predominantly used to better match cash receipts from assets with cash disbursements required to fund liabilities. The Company also enters into forward starting swap agreements to hedge the interest rate exposure on anticipated fixed-rate asset purchases due to changes in the benchmark interest rate, London-Interbank Offered Rate ("LIBOR"). These derivatives were structured to hedge interest rate exposure inherent in the assumptions used to price primarily certain long-term disability products. Interest rate swaps are also used to hedge a portion of the Company's floating rate guaranteed investment contracts. These derivatives convert the floating rate guaranteed investment contract payments to a fixed rate to better match the cash receipts earned from the supporting investment portfolio. $ 4,860 $ 4,944 $ (26) $ 40 $ (10) $ (10)
F-26
Hedge Ineffectiveness Notional Amount Fair Value After-Tax -------------------------------------------------------------- HEDGING STRATEGY 2005 2004 2005 2004 2005 2004 -------------------------------------------------------------- Foreign currency swaps Foreign currency swaps are used to convert foreign denominated cash flows associated with certain foreign denominated fixed maturity investments to U.S. dollars. The foreign fixed maturities are primarily denominated in euros and are swapped to minimize cash flow fluctuations due to changes in currency rates. $ 1,361 $ 1,311 $ (222) $ (421) $ 4 $ -- FAIR-VALUE HEDGES Interest rate swaps A portion of the Company's fixed debt is hedged against increases in LIBOR, the designated benchmark interest rate. In addition, interest rate swaps are used to hedge the changes in fair value of certain fixed rate liabilities and fixed maturity securities due to changes in LIBOR. 1,707 201 (1) (5) 2 -- Interest rate caps and floors Interest rate caps and floors are used to offset the changes in fair value related to corresponding interest rate caps and floors that exist in certain of the Company's variable-rate fixed maturity investments and are not required to be bifurcated. -- 148 -- (1) -- -- ------------------------------------------------------------- TOTAL CASH-FLOW, FAIR-VALUE AND NET INVESTMENT HEDGES $ 7,928 $ 6,604 $ (249) $ (387) $ (4) $ (10) -------------------------------------------------------------
Derivative Change in Value Notional Amount Fair Value After-Tax ------------------------------------------------------------- HEDGING STRATEGY 2005 2004 2005 2004 2005 2004 ------------------------------------------------------------- OTHER INVESTMENT AND RISK MANAGEMENT ACTIVITIES Interest rate caps and swaption contracts The Company is exposed to policyholder surrenders during a rising interest rate environment. Interest rate cap and swaption contracts are used to mitigate the Company's loss in a rising interest rate environment. The increase in yield from the cap and swaption contract in a rising interest rate environment may be used to raise credited rates, thereby increasing the Company's competitiveness and reducing the policyholder's incentive to surrender. These derivatives are also used to reduce the duration risk in certain investment portfolios. These derivative instruments are structured to hedge the durations of fixed maturity investments to match certain life products in accordance with the Company's asset and liability management policy. $ 1,116 $ 1,466 $ 1 $ 2 $ -- $ (5)
F-27
Derivative Change in Value Notional Amount Fair Value After-Tax ------------------------------------------------------------- HEDGING STRATEGY 2005 2004 2005 2004 2005 2004 ------------------------------------------------------------- Interest rate swaps and floors The Company uses interest rate swaps and floors to manage duration risk between assets and liabilities. In addition, the Company enters into interest rate swaps to terminate existing swaps in hedging relationships, thereby offsetting the changes in value of the original swap. $ 1,371 $ 1,441 $ 12 $ 7 $ 2 $ 3 Foreign currency swaps and forwards The Company enters into foreign currency swaps and forwards and purchases foreign put options and writes foreign call options to hedge the foreign currency exposures in certain of its foreign fixed maturity investments. 490 312 (8) (74) 20 (23) Credit default and total return swaps The Company enters into swap agreements in which the Company assumes credit exposure of an individual entity, referenced index or asset pool. The Company assumes credit exposure to individual entities through credit default swaps. These contracts entitle the company to receive a periodic fee in exchange for an obligation to compensate the derivative counterparty should a credit event occur on the part of the referenced security issuer. Credit events typically include failure on the part of the referenced security issuer to make a fixed dollar amount of contractual interest or principal payments or bankruptcy. The maximum potential future exposure to the Company is the notional value of the swap contracts, $324 and $193, after-tax, as of December 31, 2005 and 2004, respectively. The Company also assumes exposure to the change in value of indices or asset pools through total return swaps and credit spreadlocks. As of December 31, 2005 and 2004, the maximum potential future exposure to the Company from such contracts is $542 and $458, after-tax, respectively. The Company enters into credit default swap agreements, in which the Company pays a derivative counterparty a periodic fee in exchange for compensation from the counterparty should a credit event occur on the part of the referenced security issuer. The Company entered into these agreements as an efficient means to reduce credit exposure to specified issuers or sectors. In addition, the Company enters into option contracts to receive protection should a credit event occur on the part of the referenced security issuer. 2,013 1,418 3 6 10 16
F-28
Derivative Change in Value Notional Amount Fair Value After-Tax --------------------------------------------------------------- HEDGING STRATEGY 2005 2004 2005 2004 2005 2004 --------------------------------------------------------------- Options The Company writes option contracts for a premium to monetize the bifurcated option embedded in certain of its fixed maturity investments. The written option grants the holder the ability to call the bond at a predetermined strike value. The maximum potential future economic exposure is represented by the then fair value of the bond in excess of the strike value, which is expected to be entirely offset by the appreciation in the value of the embedded long option. $ 12 $ 95 $ -- $ 1 $ (1) $ (1) Yen fixed annuity hedging instruments The Company enters into currency rate swaps and forwards to mitigate the foreign currency exchange rate and yen interest rate exposures associated with the yen denominated individual fixed annuity compound rate contract product. For further discussion, see below. Additionally, forward settling fixed maturity investments are traded to manage duration and foreign currency risk associated with this product. 1,675 611 (179) 10 (143) 4 Product derivatives The Company offers certain variable annuity products with a GMWB rider. The GMWB is a bifurcated embedded derivative that provides the policyholder with a GRB if the account value is reduced to zero through a combination of market declines and withdrawals. The GRB is generally equal to premiums less withdrawals. The policyholder also has the option, after a specified time period, to reset the GRB to the then-current account value, if greater. For a further discussion, see the Derivative Instruments section of Note 2. The notional value of the embedded derivative is the GRB balance. 31,803 25,433 8 129 (42) 35 GMWB hedging instruments The Company enters into interest rate futures, S&P 500 and NASDAQ index futures contracts and put and call options, as well as interest rate and EAFE index swap contracts to economically hedge exposure to the volatility associated with the portion of the GMWB liabilities which are not reinsured. In addition, the Company periodically enters into forward starting S&P500 put options as well as S&P index futures and interest rate swap contracts to economically hedge the equity volatility risk exposure associated with anticipated future sales of the GMWB rider. 5,086 -- 175 -- (13) --
F-29
Derivative Change in Value Notional Amount Fair Value After-Tax ------------------------------------------------------------------- HEDGING STRATEGY 2005 2004 2005 2004 2005 2004 ------------------------------------------------------------------- Reinsurance contracts associated with GMWB Reinsurance arrangements are used to offset the Company's exposure to the GMWB embedded derivative for the lives of the host variable annuity contracts. The notional amount of the reinsurance contracts is the GRB amount. $ 8,575 $ 25,433 $ (17) $ (129) $ 19 $ (35) Reinsurance contracts associated with GMIB Reinsurance arrangements are used to offset the Company's exposure to the GMIB embedded derivative for the lives of the host variable annuity contracts. The notional amount of the reinsurance contracts is the yen denominated policyholder account value remeasured at the year-end yen to U.S. dollar spot rate. 16,782 -- 72 -- 73 -- Statutory reserve hedging instruments The Company purchased one and two year S&P500 put option contracts to economically hedge the statutory reserve impact of equity exposure arising primarily from GMDB obligations against a decline in the equity markets. 1,142 1,921 14 32 (20) (2) ------------------------------------------------------------------ TOTAL OTHER INVESTMENT AND RISK MANAGEMENT ACTIVITIES 70,065 58,130 81 (16) (95) (8) ------------------------------------------------------------------ TOTAL DERIVATIVES [1] $ 77,993 $ 64,734 $ (168) $ (403) $ (99) $ (18) ------------------------------------------------------------------
[1] Derivative change in value includes hedge ineffectiveness for cash-flow, fair-value and net investment hedges and total change in value of other investment and risk management activities. The increase in notional amount since December 31, 2004, is primarily due to the reinsurance of GMIB product and new hedging strategies, which were partially offset by a decrease in the reinsurance arrangement associated with GMWB. The increase in net fair value of derivative instruments since December 31, 2004, was primarily due to an increase in market value of derivatives hedging foreign bonds due to the strengthening of the U.S. dollar in comparison to foreign currencies, an increase in GMWB related derivatives due to the recapture of its indemnity reinsurance arrangement (see below), and the reinsurance of GMIB, which is driven by the favorable returns of the underlying funds supporting the variable annuity product sold in Japan. These market value increases were partially offset by a decline in market value of yen fixed annuity hedging instruments due to the strengthening of the U.S. dollar against the yen. For the year ended December 31, 2003, the after-tax net gains and losses representing the total ineffectiveness on all fair-value, cash-flow and net investment hedges were less than $1. During September 2005, the Company and its subsidiary HLAI, recaptured its indemnity reinsurance arrangement, associated with the GMWB variable annuity rider, from HLA. The purchased derivatives that were used to economically hedge the contracts, previously held by HLA, were transferred to the Company and HLAI as part of the recapture. The notional and fair value of the transferred derivative contracts as of September 30, 2005, was $4.6 billion and $170, respectively. The derivative contracts consist of interest rate futures, S&P 500 and NASDAQ index futures contracts and put and call options as well as interest rate swap contracts. The loss on the derivative contracts from the recapture date to September 30, 2005, was $8, after-tax. Net realized capital gains and losses included the change in market value of both the embedded derivative related to the GMWB liability and the related derivative contracts that were purchased as economic hedges. For the year ended December 31, 2005, net loss associated with the GMWB derivatives (embedded derivative reinsurance contracts and hedging instruments) was $36, after-tax. For a further discussion of the recaptured indemnity reinsurance arrangement, see Note 15. Effective August 31, 2005, HLAI entered into a reinsurance agreement with HLIKK. Through the reinsurance agreement, HLIKK agreed to cede and HLAI agreed to reinsure 100% of the risks associated with the in-force and prospective GMIB riders issued by HLIKK on its variable F-30 annuity business. The GMIB reinsurance agreement is accounted for as a derivative in accordance with SFAS No. 133. Accordingly, the GMIB reinsurance agreement is recorded on the balance sheet at fair value with changes in value reported in net realized capital gains and losses. As of December 31, 2005, the notional and fair value of the GMIB reinsurance agreement was $16.8 billion and $72, respectively. The change in value of the GMIB reinsurance agreement for the year ended December 31, 2005, was a gain of $73, after-tax. For a further discussion of the reinsurance agreement, see Note 15. The yen denominated fixed annuity product ("yen fixed annuities") assumed from HLIKK is recorded in the consolidated balance sheets in other policyholder funds and benefits payable in U.S. dollars based upon the December 31, 2005 yen to U.S. dollar spot rate. During 2004 and the first six months of 2005, the Company managed the yen currency risk associated with the yen fixed annuities with pay fixed U.S. dollar receive fixed yen, zero coupon currency swaps ("fixed currency swaps"). In order to mitigate the U.S. interest rate exposure, the fixed currency swaps, with a notional value of $1.2 billion, were closed or restructured in June 2005. The Company then entered into pay variable U.S. dollar receive fixed yen, zero coupon currency swaps ("currency swaps") associated with the yen fixed annuities. As of December 31, 2005, the notional value and fair value of the currency swaps were $1.7 billion and $(179), respectively. Although economically an effective hedge, a divergence between the yen denominated fixed annuity product liability and the currency swaps exists primarily due to the difference in the basis of accounting between the liability and the derivative instruments (i.e. historical cost versus fair value). The yen denominated fixed annuity product liabilities are recorded on a historical cost basis and are only adjusted for changes in foreign spot rates and accrued income. The currency swaps are recorded at fair value incorporating changes in value due to changes in foreign exchange rates, Japanese and U.S. interest rates and accrued income. An after-tax net loss of $23 and a net gain of $2 for the years ended December 31, 2005 and 2004, respectively, which includes the changes in value of the currency swaps, fixed currency swaps and the yen fixed annuity contract remeasurement, was recorded in net realized capital gains and losses. As of December 31, 2005 and 2004, the after-tax deferred net gains on derivative instruments accumulated in AOCI that are expected to be reclassified to earnings during the next twelve months are $(1) and $6, respectively. This expectation is based on the anticipated interest payments on hedged investments in fixed maturity securities that will occur over the next twelve months, at which time the Company will recognize the deferred net gains (losses) as an adjustment to interest income over the term of the investment cash flows. The maximum term over which the Company is hedging its exposure to the variability of future cash flows (for all forecasted transactions, excluding interest payments on variable-rate debt) is twenty-four months. For the years ended December 31, 2005, 2004 and 2003, the Company had less than $1 of net reclassifications from AOCI to earnings resulting from the discontinuance of cash-flow hedges due to the forecasted transactions that were no longer probable of occurring. SECURITIES LENDING AND COLLATERAL ARRANGEMENTS The Company participates in a securities lending program to generate additional income, whereby certain domestic fixed income securities are loaned for a short period of time from the Company's portfolio to qualifying third parties, via two lending agents. Borrowers of these securities provide collateral of 102% of the market value of the loaned securities. Acceptable collateral may be in the form of cash or U.S. Government securities. The market value of the loaned securities is monitored and additional collateral is obtained if the market value of the collateral falls below 100% of the market value of the loaned securities. Under the terms of the securities lending program, the lending agent indemnifies the Company against borrower defaults. As of December 31, 2005 and 2004, the fair value of the loaned securities was approximately $745 and $1.0 billion, respectively, and was included in fixed maturities in the consolidated balance sheets. The Company retains a portion of the income earned from the cash collateral or receives a fee from the borrower. The Company recorded before-tax income from securities lending transactions, net of lending fees, of $1 for the years ended December 31, 2005 and 2004, which was included in net investment income. The Company enters into various collateral arrangements, which require both the pledging and accepting of collateral in connection with its derivative instruments. As of December 31, 2005 and 2004, collateral pledged of $257 and $276, respectively, was included in fixed maturities in the consolidated balance sheets. The classification and carrying amount of the loaned securities associated with the lending program and the collateral pledged at December 31, 2005 and 2004, were as follows:
2005 2004 --------------------- LOANED SECURITIES AND COLLATERAL PLEDGED ABS $ 13 $ 24 CMBS 146 158 Corporate 599 681 MBS 125 -- Government/Government Agencies Foreign 26 16 United States 93 404 --------------------- TOTAL $ 1,002 $ 1,283 ---------------------
As of December 31, 2005 and 2004, the Company had accepted collateral relating to the securities lending program and collateral arrangements consisting of cash, U.S. Government and U.S. Government agency securities with a fair value of $873 and $1.0 billion, respectively. At December 31, 2005 and 2004, cash collateral of $785 and F-31 $1.0 billion, respectively, was invested and recorded in the consolidated balance sheets in fixed maturities with a corresponding amount recorded in other liabilities. The Company is only permitted by contract to sell or repledge the noncash collateral in the event of a default by the counterparty and none of the collateral has been sold or repledged at December 31, 2005 and 2004. As of December 31, 2005 and 2004, all collateral accepted was held in separate custodial accounts. As discussed in the Variable Interest Entities section above, the Company manages and invests in certain synthetic CLOs. Also, for certain of these synthetic CLOs, the Company is the primary beneficiary and must consolidate the CLOs. These CLOs have entered into various collateral arrangements with third party swap counterparties. For further discussion, see the Variable Interest Entities section above. SECURITIES ON DEPOSIT WITH STATES The Company is required by law to deposit securities with government agencies in states where it conducts business. As of December 31, 2005 and 2004, the fair value of securities on deposit was approximately $22 and $24, respectively. NOTE 5. FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS 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 other than financial guarantees and investment contracts. The Company uses the following methods and assumptions in estimating the fair value of each class of financial instrument. Fair value for fixed maturities and marketable equity securities approximates those quotations published by applicable stock exchanges or received from other reliable sources. For policy loans, carrying amounts approximate fair value. Fair value of other investments, which primarily consist of partnership investments, is based on external market valuations from partnership management. For mortgage loans, fair values were estimated using discounted cash flow calculations based on current incremental lending rates for similar type loans. Derivative instruments are reported at fair value based upon internally established valuations that are consistent with external valuation models, quotations furnished by dealers in such instrument or market quotations. Other policyholder funds 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 as of December 31, 2005 and 2004 were as follows:
2005 2004 -------------------------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value -------------------------------------------------- ASSETS Fixed maturities $ 43,242 $ 43,242 $ 42,691 $ 42,691 Equity securities 311 311 180 180 Policy loans 1,971 1,971 2,617 2,617 Mortgage loans on real estate 1,355 1,348 794 806 Other investments 579 579 289 289 LIABILITIES Other policyholder funds [1] $ 11,686 $ 11,273 $ 9,244 $ 9,075 -------------------------------------------------
[1] Excludes universal life type insurance contracts, including corporate owned life insurance. NOTE 6. REINSURANCE The Company cedes insurance to other insurers in order to limit its maximum losses and to diversify its exposures. Such transfers do not relieve the Company of its primary liability and, as such, failure of reinsurers to honor their obligations could result in losses to the Company. The Company also assumes reinsurance from other insurers and is a member of and participates in several reinsurance pools and associations. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk. As of December 31, 2005, the Company had no reinsurance recoverables and related concentrations of credit risk greater than 10% of the Company's stockholder's equity. In accordance with normal industry practice, the Company is involved in both the cession and assumption of insurance with other insurance and reinsurance companies. As of December 31, 2005, the Company's current policy for the largest amount of life insurance retained on any one life by any one of the life operations was approximately $5.0, which increased from $2.9 million as of December 31, 2004. In addition, the Company reinsures the majority of the minimum death benefit guarantees as well as the F-32 guaranteed withdrawal benefits offered in connection with its variable annuity contracts. Substantially all contracts issued between July 7, 2003 through September 2005 with the GMWB are covered by a reinsurance arrangement with a related party. During September 2005, the Company and HLAI recaptured this indemnity reinsurance arrangement from HLA. Insurance fees, earned premiums and other were comprised of the following:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 2005 2004 2003 -------------------------------- Gross fee income, earned premiums and other $ 4,019 $ 3,834 $ 3,780 Reinsurance assumed 39 49 43 Reinsurance ceded (798) (807) (720) -------------------------------- NET FEE INCOME, EARNED PREMIUMS AND OTHER $ 3,260 $ 3,076 $ 3,103 --------------------------------
The Company reinsures certain of its risks to other reinsurers under yearly renewable term, coinsurance, and modified coinsurance arrangements. Yearly renewable term and coinsurance arrangements result in passing a portion of the risk to the reinsurer. Generally, the reinsurer receives a proportionate amount of the premiums less an allowance for commissions and expenses and is liable for a corresponding proportionate amount of all benefit payments. Modified coinsurance is similar to coinsurance except that the cash and investments that support the liabilities for contract benefits are not transferred to the assuming company, and settlements are made on a net basis between the companies. The Company also purchases reinsurance covering the death benefit guarantees on a portion of its variable annuity business. On March 16, 2003, a final decision and award was issued in the previously disclosed arbitration between subsidiaries of the Company and one of their primary reinsurers relating to policies with death benefits written from 1994 to 1999. The cost of reinsurance related to long-duration contracts is accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies. Insurance recoveries on ceded reinsurance contracts, which reduce death and other benefits were $378, $426, and $550 for the years ended December 31, 2005, 2004 and 2003, respectively. The Company also assumes reinsurance from other insurers. The Company records a receivable for reinsured benefits paid and the portion of insurance liabilities that are reinsured, net of a valuation allowance, if necessary. The amounts recoverable from reinsurers are estimated based on assumptions that are consistent with those used in establishing the reserves related to the underlying reinsured contracts. Management believes the recoverables are appropriately established; however, in the event that future circumstances and information require the Company to change its estimates of needed loss reserves, the amount of reinsurance recoverables may also require adjustments. The Company maintains certain reinsurance agreements with HLA, whereby the Company cedes both group life and group accident and health risk. Under these treaties, the Company ceded group life premium of $130, 133 and $78 in 2005, 2004 and 2003, respectively, and accident and health premium of $221, $230, and $305, respectively, to HLA. NOTE 7. DEFERRED POLICY ACQUISITION COSTS AND PRESENT VALUE OF FUTURE PROFITS Changes in deferred policy acquisition costs and present value of future profits is as follows:
2005 2004 2003 -------------------------------- BALANCE, JANUARY 1 $ 6,453 $ 6,088 $ 5,479 Capitalization 1,226 1,375 1,319 Amortization -- Deferred policy acquisitions costs and present value of future profits (945) (825) (646) Adjustments to unrealized gains and losses on securities available-for-sale and other 367 (80) (64) Cumulative effect of accounting changes (SOP03-1) -- (105) -- -------------------------------- BALANCE, DECEMBER 31 $ 7,101 $ 6,453 $ 6,088 --------------------------------
F-33 Estimated future net amortization expense of present value of future profits for the succeeding five years is as follows.
For the year ended December 31, ------------------------------------------------------------ 2006 $ 29 2007 $ 29 2008 $ 26 2009 $ 24 2010 $ 22 ------------------------------------------------------------
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS As of December 31, 2005 and December 31, 2004, the carrying amount of goodwill for the Company's Retail Products segment was $85 and $119 and the Company's Individual Life segment was $101 and $67, respectively. During 2005, the Company reallocated goodwill between segments to align the acquired business with the appropriate reporting segment. The Company's goodwill impairment test performed in accordance with SFAS No. 142 "Goodwill and Other Intangible Assets", resulted in no write-downs for the years ended December 31, 2005 and 2004. The goodwill impairment analysis included Life's new operating segments. For a discussion of present value of future profits that continue to be subject to amortization and aggregate amortization expense, see Note 7. NOTE 9. SEPARATE ACCOUNTS, DEATH BENEFITS AND OTHER INSURANCE BENEFIT FEATURES The Hartford records the variable portion of individual variable annuities, 401(k), institutional, governmental, private placement life and variable life insurance products within separate account assets and liabilities, which are reported at fair value. Separate account assets are segregated from other investments. Investment income and gains and losses from those separate account assets, which accrue directly to, and whereby investment risk is borne by the policyholder, are offset by the related liability changes within the same line item in the statement of income. The fees earned for administrative and contract holder maintenance services performed for these separate accounts are included in fee income. During 2005, there were no gains or losses on transfers of assets from the general account to the separate account. The Company had recorded certain market value adjusted ("MVA") fixed annuity products and modified guarantee life insurance (primarily the Company's Compound Rate Contract ("CRC") and associated assets) as separate account assets and liabilities through December 31, 2003. Notwithstanding the market value adjustment feature in this product, all of the investment performance of the separate account assets is not being passed to the contract holder. Therefore, it does not meet the conditions for separate account reporting under SOP 03-1. Separate account assets and liabilities related to CRC of $11.7 billion were reclassified to, and revalued in, the general account upon adoption of SOP 03-1 on January 1, 2004. Many of the variable annuity contracts issued by the Company offer various guaranteed minimum death, withdrawal and income benefits. Guaranteed minimum death and income benefits are offered in various forms as described in the footnotes to the table below. The Company currently reinsures a significant portion of the death benefit guarantees associated with its in-force block of business. Changes in the gross GMDB liability balance sold with annuity products were as follows:
GMDB [1] ------------ LIABILITY BALANCE AS OF JANUARY 1, 2005 $ 174 Incurred 123 Paid (139) ------- LIABILITY BALANCE AS OF DECEMBER 31, 2005 $ 158 -------
[1] The reinsurance recoverable asset related to the GMDB was $64 as of January 1, 2005 and $40 as of December 31, 2005.
GMDB [1] ------------ LIABILITY BALANCE UPON ADOPTION -- AS OF JANUARY 1, 2004 $ 217 Incurred 123 Paid (166) ------- LIABILITY BALANCE AS OF DECEMBER 31, 2004 $ 174 -------
[1] The reinsurance recoverable asset related to the GMDB was $108 upon adoption of SOP 03-1 and $64 as of December 31, 2004. The net GMDB liability is established by estimating the expected value of net reinsurance costs and death benefits in excess of the projected account balance. The excess death benefits and net reinsurance costs are recognized ratably over the accumulation period based on total expected assessments. The GMDB liabilities are recorded in Future Policy Benefits on the Company's balance sheet. Changes in the GMDB liability are recorded in Benefits, Claims and Claims Adjustment Expenses in the Company's statement of income. The Company regularly evaluates estimates used and adjusts the additional liability balances, with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions should be revised. The determination of the GMDB liabilities and related GMDB reinsurance recoverable is based on models that involve a range of scenarios and assumptions, including those regarding expected market rates of return and volatility, contract surrender rates and mortality experience. The following assumptions were used to determine the GMDB liabilities as of December 31, 2005 and 2004: - 1,000 stochastically generated investment performance scenarios for 2005 and 2004 issue years; 250 stochastically generated investment performance scenarios for issue year 2003 and prior. F-34 - Separate account returns representing the Company's long-term assumptions, varied by asset class with a low of 3% for cash, a high of 9.5% and 11% for aggressive equities, and a weighted average of 7.8% and 9% for December 31, 2005 and 2004, respectively. - Volatilities also varied by asset class with a low of 1% for cash, a high of 15% for aggressive equities, and a weighted average of 12% - 80% of the 1983 GAM mortality table was used for mortality assumptions - Lapse rates by calendar year vary from a low of 8% to a high of 14%, with an average of 12% - Discount rate of 5.6% for 2005 issue year, 7% for issue years 2004 and 2003 and 7.5% for issue year 2002 and prior The following table provides details concerning GMDB exposure: BREAKDOWN OF VARIABLE ANNUITY ACCOUNT VALUE BY GMDB TYPE AT DECEMBER 31, 2005
Retained Weighted Average Account Net Amount Net Amount Attained Age Maximum anniversary value (MAV) [1] Value at Risk at Risk of Annuitant -------------------------------------------------------------------- MAV only $ 57,445 $ 5,040 $ 507 64 With 5% rollup [2] 4,032 497 91 63 With Earnings Protection Benefit Rider (EPB) [3] 5,358 313 57 60 With 5% rollup & EPB 1,445 132 24 62 -------------------------------------------------------------------- Total MAV 68,280 5,982 679 Asset Protection Benefit (APB) [4] 26,880 25 13 61 Lifetime Income Benefit (LIB) [5] 251 -- -- 59 Reset [6] (5-7 years) 7,419 435 435 65 Return of Premium [7] /Other 9,235 37 35 49 -------------------------------------------------------------------- TOTAL $ 112,065 $ 6,479 $ 1,162 62 --------------------------------------------------------------------
[1] MAV: the death benefit is the greatest of current account value, net premiums paid and the highest account value on any anniversary before age 80 (adjusted for withdrawals). [2] Rollup: the death benefit is the greatest of the MAV, current account value, net premium paid and premiums (adjusted for withdrawals) accumulated at generally 5% simple interest up to the earlier of age 80 or 100% of adjusted premiums. [3] EPB: The death benefit is the greatest of the MAV, current account value, or contract value plus a percentage of the contract's growth. The contract's growth is account value less premiums net of withdrawals, subject to a cap of 200% of premiums net of withdrawals. [4] APB: the death benefit is the greater of current account value or MAV, not to exceed current account value plus 25% times the greater of net premiums and MAV (each adjusted for premiums in the past 12 months). [5] LIB: The death benefit is the greatest of the current account value, net premiums paid, or a benefit amount that rachets over time, generally based on market performance. [6] Reset: the death benefit is the greatest of current account value, net premiums paid and the most recent five to seven year anniversary account value before age 80 (adjusted for withdrawals). [7] Return of premium: the death benefit is the greater of current account value and net premiums paid. The Company offers certain variable annuity products with a guaranteed minimum withdrawal benefit ("GMWB") rider. The GMWB provides the policyholder with a guaranteed remaining balance ("GRB") if the account value is reduced to zero through a combination of market declines and withdrawals. The GRB is generally equal to premiums less withdrawals. However, annual withdrawals that exceed a specific percentage of the premiums paid may reduce the GRB by an amount greater than the withdrawals and may also impact the guaranteed annual withdrawal amount that subsequently applies after the excess annual withdrawals occur. For certain of the withdrawal benefit features, the policyholder also has the option, after a specified time period, to reset the GRB to the then- current account value, if greater. In addition, the Company has recently added a feature, available to new contract holders, that allows the policyholder the option to receive the guaranteed annual withdrawal amount for as long as they are alive. In this new feature, in all cases the contract holder or their beneficiary will receive the GRB and the GRB is reset on an annual basis to the maximum anniversary account value subject to a cap. Effective August 31, 2005, Hartford Life and Annuity Insurance Company entered into a reinsurance agreement with Hartford Life Insurance K.K., a related party and subsidiary of Hartford Life, Inc. Through the reinsurance agreement, Hartford Life, K.K. agreed to cede and Hartford Life and Annuity Insurance Company agreed to reinsure 100% of the risks associated with the in-force and prospective GMIB riders issued by Hartford Life, K.K. on its F-35 variable annuity business. In connection with accepting the GMIB risk for the in-force riders, Hartford Life and Annuity Insurance Company received fees collected since inception by Hartford Life, K.K. related to the in-force riders of $25. Prospectively, Hartford Life and Annuity Insurance Company will receive the rider fee (currently, approximately 26 basis points) collected by Hartford Life, K.K. and payable monthly in arrears. Depending on the underlying contract form, benefits are paid from Hartford Life and Annuity Insurance Company to Hartford Life, K.K. either on the guaranteed annuity commencement date, when the contract holder's account value is less than the present value of minimum guaranteed annuity payments, or alternatively, during the annuitization phase, when the contract holder's account value is reduced to zero or upon death of the contract holder. The GMWB represents an embedded derivative in the variable annuity contract that is required to be reported separately from the host variable annuity contract. The GMIB reinsurance represents a free standing derivative. Both are carried at fair value and reported in other policyholder funds. The fair value of the GMWB and GMIB reinsurance obligations are calculated based on actuarial and capital market assumptions related to the projected cash flows, including benefits and related contract charges, over the lives of the contracts, incorporating expectations concerning policyholder behavior. Because of the dynamic and complex nature of these cash flows, stochastic techniques under a variety of market return scenarios and other best estimate assumptions are used. Estimating these cash flows involves numerous estimates and subjective judgments including those regarding expected market rates of return, market volatility, correlations of market returns and discount rates. During the fourth quarter of 2005, the Company reflected a newly reliable market input for volatility on Standard and Poor's (S&P) 500 index options in its valuation of the GMWB embedded derivative and related reinsurance as well as the GMIB reinsurance derivative. The impact of reflecting the newly reliable market input for the S&P 500 index volatility resulted in a decrease to the GMWB asset of $83 and had an insignificant impact on the GMIB reinsurance asset. The impact to net income, including other changes in assumptions, after DAC amortization and taxes, was a loss of $18. As of December 31, 2005 and December 31, 2004, the embedded derivative asset recorded for GMWB, before reinsurance or hedging, was $8 and $129, respectively. During 2005, 2004 and 2003, the increase (decrease) in value of the GMWB, before reinsurance and hedging, reported in realized gains was $(64), $54 and $178, respectively. There were no payments made for the GMWB during 2005, 2004 or 2003. Prior to September 2005, the risk of loss associated with GMWB was 100% reinsured to both external and related parties. During September 2005, the Company recaptured the reinsurance agreement with the related party. As of December 31, 2005 $26.4 billion, or 69% of account value representing substantially all of the contracts written after July 2003, with the GMWB feature, were unreinsured. In order to minimize the volatility associated with the unreinsured GMWB liabilities, the Company has established an alternative risk management strategy. As part of the recapture, the Company received derivative instruments used to hedge its unreinsured GMWB exposure including interest rate futures, Standard and Poor's ("S&P") 500 and NASDAQ index options and futures contracts and Europe, Australasia and Far East ("EAFE") Index swaps to hedge GMWB exposure to international equity markets. The GRB as of December 31, 2005 and 2004 was $31.8 billion and $25.4 billion, respectively A contract is 'in the money' if the contract holder's GRB is greater than the account value. For contracts that were 'in the money' the Company's exposure, as of December 31, 2005, was $8. However, the only ways the contract holder can monetize the excess of the GRB over the account value of the contract is upon death or if their account value is reduced to zero through a combination of a series of withdrawals that do not exceed a specific percentage of the premiums paid per year and market declines. If the account value is reduced to zero, the contract holder will receive a period certain annuity equal to the remaining GRB. As the amount of the excess of the GRB over the account value can fluctuate with equity market returns on a daily basis the ultimate amount to be paid by the Company, if any, is uncertain and could be significantly more or less than $8. Account balances of contracts with guarantees were invested in variable separate accounts as follows:
AS OF DECEMBER 31, Asset type 2005 ----------------- Equity securities (including mutual funds) $ 94,419 Cash and cash equivalents 8,609 ----------------- TOTAL $ 103,028 -----------------
As of December 31, 2005, approximately 16% of the equity securities above were invested in fixed income securities through these funds and approximately 84% were invested in equity securities. The Individual Life segment sells universal life-type contracts with and without certain secondary guarantees, such as a guarantee that the policy will not lapse, even if the account value is reduced to zero, as long as the policyholder makes sufficient premium payments to meet the requirements of the guarantee. The cumulative effect on net income upon recording additional liabilities for universal life-type contracts and the related secondary guarantees, in accordance with SOP 03-1, was not material. As of December 31, 2005, the liability for secondary guarantees as well as the amounts incurred and paid during the year was immaterial. NOTE 10. SALES INDUCEMENTS The Company currently offers enhanced crediting rates or bonus payments to contract holders on certain of its individual and group annuity products. Through F-36 December 31, 2003, the expense associated with offering certain of these bonuses was deferred and amortized over the contingent deferred sales charge period. Others were expensed as incurred. Effective January 1, 2004, upon the Company's adoption of SOP 03-1, the expense associated with offering a bonus is deferred and amortized over the life of the related contract in a pattern consistent with the amortization of deferred policy acquisition costs. Also, effective January 1, 2004, amortization expense associated with expenses previously deferred is recorded over the remaining life of the contract rather than over the contingent deferred sales charge period. Changes in deferred sales inducement activity were as follows for the years ended December 31,:
2005 2004 --------------- Balance, beginning of period $ 309 $ 198 Sales inducements deferred 85 141 Amortization charged to income (39) (30) --------------- BALANCE, END OF PERIOD $ 355 $ 309 ---------------
NOTE 11. COMMITMENTS AND CONTINGENCIES LITIGATION The Hartford is involved in various legal actions arising in the ordinary course of business, some of which assert claims for substantial amounts. These actions include, among others, putative state and federal class actions seeking certification of a state or national class. Such putative class actions have alleged, for example, improper sales practices in connection with the sale of life insurance and other investment products; and improper fee arrangements in connection with mutual funds. The Hartford also is involved in individual actions in which punitive damages are sought, such as claims alleging bad faith in the handling of insurance claims. Management expects that the ultimate liability, if any, with respect to such lawsuits, after consideration of provisions made for estimated losses, will not be material to the consolidated financial condition of the Company. Nonetheless, given the large or indeterminate amounts sought in certain of these actions, and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company's consolidated results of operations or cash flows in particular quarterly or annual periods. BROKER COMPENSATION LITIGATION -- On October 14, 2004, the New York Attorney General's Office filed a civil complaint (the "NYAG Complaint") against Marsh Inc. and Marsh & McLennan Companies, Inc. (collectively, "Marsh") alleging, among other things, that certain insurance companies, including The Hartford, participated with Marsh in arrangements to submit inflated bids for business insurance and paid contingent commissions to ensure that Marsh would direct business to them. The Hartford was not joined as a defendant in the action, which has since settled. Since the filing of the NYAG Complaint, several private actions have been filed against The Hartford asserting claims arising from the allegations of the NYAG Complaint. Two securities class actions, now consolidated, have been filed in the United States District Court for the District of Connecticut alleging claims against The Hartford and certain of its executive officers under Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5. The consolidated amended complaint alleges on behalf of a putative class of shareholders that The Hartford and the four named individual defendants, as control persons of The Hartford, failed to disclose to the investing public that The Hartford's business and growth was predicated on the unlawful activity alleged in the NYAG Complaint. The class period alleged is August 6, 2003 through October 13, 2004, the day before the NYAG Complaint was filed. The complaint seeks damages and attorneys' fees. Defendants filed a motion to dismiss in June 2005, and the Court heard oral argument on December 22, 2005. The Hartford and the individual defendants dispute the allegations and intend to defend these actions vigorously. Two corporate derivative actions, now consolidated, also have been filed in the same court. The consolidated amended complaint, brought by a shareholder on behalf of The Hartford against its directors and an executive officer, alleges that the defendants knew adverse non-public information about the activities alleged in the NYAG Complaint and concealed and misappropriated that information to make profitable stock trades, thereby breaching their fiduciary duties, abusing their control, committing gross mismanagement, wasting corporate assets, and unjustly enriching themselves. The complaint seeks damages, injunctive relief, disgorgement, and attorneys' fees. Defendants filed a motion to dismiss in May 2005, and the plaintiffs thereafter agreed to stay further proceedings pending resolution of the motion to dismiss the securities class action. All defendants dispute the allegations and intend to defend these actions vigorously. Three consolidated putative class actions filed in the same court on behalf of participants in The Hartford's 401(k) plan, alleging that The Hartford and other plan fiduciaries breached their fiduciary duties to plan participants by, among other things, failing to inform them of the risk associated with investment in The Hartford's stock as a result of the activity alleged in the NYAG Complaint, have been voluntarily dismissed by the plaintiffs without payment. The Hartford is also a defendant in a multidistrict litigation in federal district court in New Jersey. There are two consolidated amended complaints filed in the multidistrict litigation, one related to alleged conduct in connection with the sale of property-casualty insurance and the other related to alleged conduct in connection with the sale of group benefits products. The Hartford and various of its subsidiaries are named in both complaints. The actions assert, on behalf of a class of persons who purchased insurance through the broker defendants, claims under the Sherman Act, the Racketeer Influenced and Corrupt Organizations Act ("RICO"), state law, and in the case of the group benefits complaint, claims under ERISA arising from conduct similar to that alleged in the NYAG Complaint. The class period alleged is 1994 through the date of class certification, which has not yet occurred. The F-37 complaints seek treble damages, injunctive and declaratory relief, and attorneys' fees. The Hartford also has been named in two similar actions filed in state courts, which the defendants have removed to federal court. Those actions currently are transferred to the court presiding over the multidistrict litigation. In addition, The Hartford was joined as a defendant in an action by the California Commissioner of Insurance alleging similar conduct by various insurers in connection with the sale of group benefits products. The Commissioner's action asserts claims under California insurance law and seeks injunctive relief only. The Hartford disputes the allegations in all of these actions and intends to defend the actions vigorously. Additional complaints may be filed against The Hartford in various courts alleging claims under federal or state law arising from the conduct alleged in the NYAG Complaint. The Hartford's ultimate liability, if any, in the pending and possible future suits is highly uncertain and subject to contingencies that are not yet known, such as how many suits will be filed, in which courts they will be lodged, what claims they will assert, what the outcome of investigations by the New York Attorney General's Office and other regulatory agencies will be, the success of defenses that The Hartford may assert, and the amount of recoverable damages if liability is established. In the opinion of management, it is possible that an adverse outcome in one or more of these suits could have a material adverse effect on the Company's consolidated results of operations or cash flows in particular quarterly or annual periods. REGULATORY DEVELOPMENTS In June 2004, The Hartford received a subpoena from the New York Attorney General's Office in connection with its inquiry into compensation arrangements between brokers and carriers. In mid-September 2004 and subsequently, The Hartford has received additional subpoenas from the New York Attorney General's Office, which relate more specifically to possible anti-competitive activity among brokers and insurers. Since the beginning of October 2004, The Hartford has received subpoenas or other information requests from Attorneys General and regulatory agencies in more than a dozen jurisdictions regarding broker compensation and possible anti-competitive activity. The Hartford may receive additional subpoenas and other information requests from Attorneys General or other regulatory agencies regarding similar issues. In addition, The Hartford has received a request for information from the New York Attorney General's Office concerning The Hartford's compensation arrangements in connection with the administration of workers compensation plans. The Hartford intends to continue cooperating fully with these investigations, and is conducting an internal review, with the assistance of outside counsel, regarding broker compensation issues in its Group Benefits operations. On October 14, 2004, the New York Attorney General's Office filed a civil complaint against Marsh & McLennan Companies, Inc., and Marsh, Inc. (collectively, "Marsh"). The complaint alleges, among other things, that certain insurance companies, including The Hartford, participated with Marsh in arrangements to submit inflated bids for business insurance and paid contingent commissions to ensure that Marsh would direct business to them. The Hartford was not joined as a defendant in the action, which has since settled. Although no regulatory action has been initiated against The Hartford in connection with the allegations described in the civil complaint, it is possible that the New York Attorney General's Office or one or more other regulatory agencies may pursue action against The Hartford or one or more of its employees in the future. The potential timing of any such action is difficult to predict. If such an action is brought, it could have a material adverse effect on The Hartford. On October 29, 2004, the New York Attorney General's Office informed The Hartford that the Attorney General is conducting an investigation with respect to the timing of the previously disclosed sale by Thomas Marra, a director and executive officer of The Hartford, of 217,074 shares of The Hartford's common stock on September 21, 2004. The sale occurred shortly after the issuance of two additional subpoenas dated September 17, 2004 by the New York Attorney General's Office. The Hartford has engaged outside counsel to review the circumstances related to the transaction and is fully cooperating with the New York Attorney General's Office. On the basis of the review, The Hartford has determined that Mr. Marra complied with The Hartford's applicable internal trading procedures and has found no indication that Mr. Marra was aware of the additional subpoenas at the time of the sale. There continues to be significant federal and state regulatory activity relating to financial services companies, particularly mutual funds companies. These regulatory inquiries have focused on a number of mutual fund issues, including market timing and late trading, revenue sharing and directed brokerage, fees, transfer agents and other fund service providers, and other mutual-fund related issues. The Hartford has received requests for information and subpoenas from the SEC, subpoenas from the New York Attorney General's Office, a subpoena from the Connecticut Attorney General's Office, requests for information from the Connecticut Securities and Investments Division of the Department of Banking, and requests for information from the New York Department of Insurance, in each case requesting documentation and other information regarding various mutual fund regulatory issues. The Hartford continues to cooperate fully with these regulators in these matters. The SEC's Division of Enforcement and the New York Attorney General's Office are investigating aspects of The Hartford's variable annuity and mutual fund operations related to market timing. The Hartford continues to cooperate fully with the SEC and the New York Attorney General's Office in these matters. The Hartford's mutual funds are available for purchase by the separate accounts of different variable universal life insurance policies, variable annuity products, and funding agreements, and they are offered directly to certain qualified retirement plans. Although existing products contain transfer restrictions between subaccounts, some products, particularly older F-38 variable annuity products, do not contain restrictions on the frequency of transfers. In addition, as a result of the settlement of litigation against The Hartford with respect to certain owners of older variable annuity contracts, The Hartford's ability to restrict transfers by these owners has, until recently, been limited. The Hartford has executed an agreement with the parties to the previously settled litigation which, together with separate agreements between these contract owners and their broker, has resulted in the exchange or surrender of substantially all of the variable annuity contracts that were the subject of the previously settled litigation. Pursuant to an agreement in principle reached in February 2005 with the Board of Directors of the mutual funds, The Hartford has indemnified the affected mutual funds for material harm deemed to have been caused to the funds by frequent trading by these owners for the period from January 2, 2004 through December 31, 2005. The Hartford does not expect to incur additional costs pursuant to this agreement in principle in light of the exchange or surrender of these variable annuity contracts. The SEC's Division of Enforcement also is investigating aspects of The Hartford's variable annuity and mutual fund operations related to directed brokerage and revenue sharing. The Hartford discontinued the use of directed brokerage in recognition of mutual fund sales in late 2003. The Hartford continues to cooperate fully with the SEC in these matters. The Hartford has received subpoenas from the New York Attorney General's Office and the Connecticut Attorney General's Office requesting information relating to The Hartford's group annuity products, including single premium group annuities used in maturity or terminal funding programs. These subpoenas seek information about how various group annuity products are sold, how The Hartford selects mutual funds offered as investment options in certain group annuity products, and how brokers selling The Hartford's group annuity products are compensated. The Hartford continues to cooperate fully with these regulators in these matters. To date, none of the SEC's and New York Attorney General's market timing investigation, the SEC's directed brokerage investigation, or the New York Attorney General's and Connecticut Attorney General's single premium group annuity investigation has resulted in the initiation of any formal action against The Hartford by these regulators. However, The Hartford believes that the SEC, the New York Attorney General's Office, and the Connecticut Attorney General's Office are likely to take some action against The Hartford at the conclusion of the respective investigations. The Hartford is engaged in active discussions with the SEC, the New York Attorney General's Office and the Connecticut Attorney General's Office. The potential timing of any resolution of any of these matters or the initiation of any formal action by any of these regulators is difficult to predict. Hartford Life recorded a charge of $66, after-tax, to establish a reserve for the market timing and directed brokerage matters in the first quarter of 2005. Based on recent developments, Hartford Life recorded an additional charge of $36, after-tax, in the fourth quarter of 2005, of which $14, after tax, was attributed to the Company to increase the reserve for the market timing, directed brokerage and single premium group annuity matters. This reserve is an estimate; in view of the uncertainties regarding the outcome of these regulatory investigations, as well as the tax- deductibility of payments, it is possible that the ultimate cost to Hartford Life of these matters could exceed the reserve by an amount that would have a material adverse effect on Hartford Life's consolidated results of operations or cash flows in a particular quarterly or annual period. It is reasonably possible that the Company may ultimately be liable for all or a portion of the ultimate cost to Hartford Life in excess of the $14 already attributed to the Company. However, the ultimate liability of the Company is not reasonably estimable at this time. On May 24, 2005, The Hartford received a subpoena from the Connecticut Attorney General's Office seeking information about The Hartford's participation in finite reinsurance transactions in which there was no substantial transfer of risk between the parties. The Hartford is cooperating fully with the Connecticut Attorney General's Office in this matter. On June 23, 2005, The Hartford received a subpoena from the New York Attorney General's Office requesting information relating to purchases of The Hartford's variable annuity products, or exchanges of other products for The Hartford's variable annuity products, by New York residents who were 65 or older at the time of the purchase or exchange. On August 25, 2005, The Hartford received an additional subpoena from the New York Attorney General's Office requesting information relating to purchases of or exchanges into The Hartford's variable annuity products by New York residents during the past five years where the purchase or exchange was funded using funds from a tax-qualified plan or where the variable annuity purchased or exchanged for was a sub-account of a tax- qualified plan or was subsequently put into a tax-qualified plan. The Hartford is cooperating fully with the New York Attorney General's Office in these matters. On July 14, 2005, The Hartford received an additional subpoena from the Connecticut Attorney General's Office concerning The Hartford's structured settlement business. This subpoena requests information about The Hartford's sale of annuity products for structured settlements, and about the ways in which brokers are compensated in connection with the sale of these products. The Hartford is cooperating fully with the New York Attorney General's Office and the Connecticut Attorney General's Office in these matters. The Hartford has received a request for information from the New York Attorney General's Office about issues relating to the reporting of workers' compensation premium. The Hartford is cooperating fully with the New York Attorney General's Office in this matter. F-39 LEASES The rent paid to Hartford Fire for operating leases entered into by the Company was $35, $36, and $31 for the years ended December 31, 2005, 2004 and 2003, respectively. Included in Hartford Fire's operating leases are the principal executive offices of Hartford Life Insurance Company, together with its parent, which are located in Simsbury, Connecticut. Rental expense is recognized on a level basis for the facility located in Simsbury, Connecticut, which expires on December 31, 2009, and amounted to approximately $27, $15 and $12 for the years ended December 31, 2005, 2004 and 2003, respectively. Future minimum rental commitments on all operating leases are as follows: 2006 $ 33 2007 31 2008 26 2009 23 2010 21 Thereafter 8 ------------------------------------------------------------ TOTAL $ 142 ------------------------------------------------------------
TAX MATTERS The Company's federal income tax returns are routinely audited by the Internal Revenue Service ("IRS"). The IRS began its audit of the 2002-2003 tax years in 2005 and is in the examination phase. Management believes that adequate provision has been made in the financial statements for any potential assessments that may result from future tax examinations and other tax-related matters for all open tax years. During 2004, the IRS completed its examination of the 1998-2001 tax years, and the IRS and the Company agreed upon all adjustments. As a result, during 2004 the Company booked a $191 tax benefit to reflect the impact of the audit settlement on tax years covered by the examination as well as all other tax years prior to 2004. The benefit related primarily to the separate account DRD and interest. The separate account DRD is estimated for the current year using information from the most recent year-end, adjusted for projected equity market performance. The estimated DRD is generally updated in the third quarter for the provision-to-filed-return adjustments, and in the fourth quarter based on known actual mutual fund distributions and fee income from The Hartford's variable insurance products. The actual current year DRD can vary from the estimates based on, but not limited to, changes in eligible dividends received by the mutual funds, amounts of distributions from these mutual funds, appropriate levels of taxable income as well as the utilization of capital loss carry forwards at the mutual fund level. UNFUNDED COMMITMENTS At December 31, 2005, the Company has outstanding commitments totaling $477, of which $243 is committed to fund limited partnership investments. These capital commitments can be called by the partnership during the commitment period (on average two to five years) to fund the purchase of new investments and partnership expenses. Once the commitment period expires, the Company is under no obligation to fund the remaining unfunded commitment but may elect to do so. The remaining $234 of outstanding commitments are primarily related to various funding obligations associated with investments in mortgage and construction loans. These have a commitment period of one month to three years. GUARANTY FUND AND OTHER INSURANCE-RELATED ASSESSMENTS 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. 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. There were $3.3, $2.9 and $0 in guaranty fund assessment payments (net of refunds) in 2005, 2004 and 2003, respectively. The Hartford accounts for guaranty fund and other insurance assessments in accordance with Statement of Position No. 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments." Liabilities for guaranty fund and other insurance-related assessments are accrued when an assessment is probable, when it can be reasonably estimated, and when the event obligating the Company to pay an imposed or probable assessment has occurred. Liabilities for guaranty funds and other insurance-related assessments are not discounted and are included as part of other liabilities in the Consolidated Balance Sheets. As of December 31, 2005 and 2004, the liability balance was $15 and $22, respectively. As of December 31, 2005 and 2004, included in other assets was $13 and $11, respectively, of related assets for premium tax offsets. NOTE 12. INCOME TAX The Company is included in The Hartford's consolidated Federal income tax return. The Company and The Hartford have entered into a tax sharing agreement under which each member in the consolidated U.S. Federal income tax return will make payments between them such that, with respect to any period, the amount of taxes to be paid by the Company, subject to certain tax adjustments, generally will be determined as though the Company were filing a separate Federal income tax return with current credit for net losses to the extent the losses provide a benefit in the consolidated return. Income tax expense (benefit) is as follows:
FOR THE YEARS ENDED DECEMBER 31, ---------------------------- 2005 2004 2003 ---------------------------- Current $ 71 $ (34) $ 13 Deferred 136 63 155 ---------------------------- INCOME TAX EXPENSE $ 207 $ 29 $ 168 ----------------------------
F-40 A reconciliation of the tax provision at the U.S. Federal statutory rate to the provision (benefit) for income taxes is as follows:
FOR THE YEARS ENDED DECEMBER 31, ---------------------------- 2005 2004 2003 ---------------------------- Tax provision at the U.S. federal statutory rate $ 391 $ 354 $ 278 Dividends received deduction (184) (132) (108) IRS audit settlement -- (191) -- Foreign related investments (2) (2) (4) Other 2 -- 2 ---------------------------- TOTAL $ 207 $ 29 $ 168 ----------------------------
Deferred tax assets (liabilities) include the following as of December 31:
2005 2004 ---------------------- DEFERRED TAX ASSETS Tax basis deferred policy acquisition costs and reserves $ 581 $ 607 NOL carryover 13 -- Minimum tax credit 191 126 Foreign tax credit carryovers 31 6 Other 30 36 ---------------------- TOTAL DEFERRED TAX ASSETS 846 775 DEFERRED TAX LIABILITIES Financial statement deferred policy acquisition costs and reserves (977) (677) Net unrealized gains on securities (291) (669) Employee benefits (15) (16) Investment related items and other (79) (51) ---------------------- TOTAL DEFERRED TAX LIABILITIES (1,362) (1,413) ---------------------- TOTAL DEFERRED TAX ASSET/(LIABILITY) $ (516) $ (638) ----------------------
The Company had a current tax receivable of $199 and $121 as of December 31, 2005 and 2004, respectively. In management's judgment, the gross deferred tax asset will more likely than not be realized through reductions of future taxes. Accordingly, no valuation allowance has been recorded. 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 would be taxable only under conditions which management considered to be remote; therefore, no federal income taxes have been provided on the balance sheet in this account, which for tax return purposes was $88 as of December 31, 2005. The American Jobs Creation Act of 2004, which was enacted in October 2004, allows distributions to be made from the Policyholders' Surplus Account free of tax in 2005 and 2006. The Company anticipates, based on currently available information, that it will distribute the entire balance in the account, thereby permanently eliminating the potential tax of $31. NOTE 13. STATUTORY RESULTS
FOR THE YEARS ENDED DECEMBER 31, ------------------------------- 2005 2004 2003 ------------------------------- Statutory net income $ 185 $ 536 $ 801 ------------------------------- Statutory capital and surplus $ 3,034 $ 3,191 $ 3,115 -------------------------------
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 payment of dividends by Connecticut-domiciled insurers is limited under the insurance holding company laws of Connecticut. Under these laws, the insurance subsidiaries may only make their dividend payments out of unassigned surplus. These laws require notice to and approval by the state insurance commissioner for the declaration or payment of any dividend, which, together with other dividends or distributions made within the preceding twelve months, exceeds the greater of (i) 10% of the insurer's policyholder surplus as of December 31 of the preceding year or (ii) net income (or net gain from operations, if such company is a life insurance company) for the twelve-month period ending on the thirty-first day of December last preceding, in each case determined under statutory insurance accounting policies. In addition, if any dividend of a Connecticut-domiciled insurer exceeds the insurer's earned surplus, it requires the prior approval of the Connecticut Insurance Commissioner. The insurance holding company laws of the other jurisdictions in which The Hartford's insurance subsidiaries are incorporated (or deemed commercially domiciled) generally contain similar (although in certain instances somewhat more restrictive) limitations on the payment of dividends. As of December 31, 2005, the maximum amount of statutory dividends which may be paid by the insurance subsidiaries of the Company in 2006, without prior approval, is $303. The domestic insurance subsidiaries of the Company prepare their statutory financial statements in accordance with accounting practices prescribed by the applicable 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. F-41 NOTE 14. PENSION PLANS, POSTRETIREMENT, HEALTH CARE AND LIFE INSURANCE BENEFIT AND SAVINGS PLANS PENSION PLANS The Company's employees are included in The Hartford's non-contributory defined benefit pension and postretirement health care and life insurance benefit plans. Defined benefit pension expense, postretirement health care and life insurance benefits expense allocated by The Hartford to the Company, was $21, $20 and $19 in 2005, 2004 and 2003, respectively. INVESTMENT AND SAVINGS PLAN Substantially all the Company's U.S. employees are eligible to participate in The Hartford's Investment and Savings Plan. The cost to the Company for this plan was approximately $8, $8 and $6 for the years ended December 31, 2005, 2004 and 2003, respectively. NOTE 15. STOCK COMPENSATION PLANS On May 18, 2005 at the The Hartford's Annual Meeting of Shareholders, the shareholders of The Hartford approved The Hartford 2005 Incentive Stock Plan (the "2005 Stock Plan"), which superseded and replaced The Hartford Incentive Stock Plan and The Hartford Restricted Stock Plan for Non-employee Directors. The terms of the 2005 Stock Plan are substantially similar to the terms of these superseded plans. The 2005 Stock Plan provides for awards to be granted in the form of non- qualified or incentive stock options qualifying under Section 422A of the Internal Revenue Code, stock appreciation rights, performance shares, restricted stock, or restricted stock units, or any combination of the foregoing. The aggregate number of shares of stock, which may be awarded, is subject to a maximum limit of 7,000,000 shares applicable to all awards for the ten-year duration of the 2005 Stock Plan. To the extent that any awards under The Hartford Incentive Stock Plan and The Hartford Restricted Stock Plan for Non-employee Directors are forfeited, terminated, expire unexercised or are settled for cash in lieu of stock, the shares subject to such awards (or the relevant portion thereof) shall be available for awards under the 2005 Stock Plan and shall be added to the total number of shares available under the 2005 Stock Plan. Under the 2005 Stock Plan, all options granted have an exercise price equal to the market price of the The Hartford's common stock on the date of grant, and an option's maximum term is ten years and two days. Certain options become exercisable over a three year period commencing one year from the date of grant, while certain other options become exercisable upon the attainment of specified market price appreciation of the The Hartford's common shares. For any year, no individual employee may receive an award of options for more than 1,000,000 shares. As of December 31, 2005, The Hartford had not issued any incentive stock options under any plans. Performance awards of common stock granted under the 2005 Stock Plan become payable upon the attainment of specific performance goals achieved over a period of not less than one nor more than five years, and the restricted stock granted is subject to a restriction period. On a cumulative basis, no more than 20% of the aggregate number of shares which may be awarded under the 2005 Stock Plan are available for performance shares, restricted stock awards, or restricted stock unit awards. Also, the maximum award of performance shares, restricted stock awards, or restricted stock unit awards for any individual employee in any year is 200,000 shares or units. In 2005, the The Hartford granted 704,738 shares of common stock with a weighted average price of $71.62 related to performance shares, restricted stock awards, and restricted stock unit awards. In 2004 and 2003, the The Hartford granted shares of common stock of 315,452 and 333,712 with weighted average prices of $64.93 and $38.13, respectively, related to performance share and restricted stock awards. In 1996, the The Hartford established The Hartford Employee Stock Purchase Plan ("ESPP"). Under this plan, eligible employees of The Hartford may purchase common stock of the Company at a 15% discount from the lower of the closing market price at the beginning or end of the quarterly offering period. The Hartford may sell up to 5,400,000 shares of stock to eligible employees under the ESPP. In 2005, 2004 and 2003, 328,276, 345,262 and 443,467 shares were sold, respectively. The per share weighted average fair value of the discount under the ESPP was $10.77, $9.31, and $11.96 in 2005, 2004 and 2003, respectively. Additionally, during 1997, The Hartford established employee stock purchase plans for certain employees of The Hartford's international subsidiaries. Under these plans, participants may purchase common stock of The Hartford at a fixed price at the end of a three-year period. The activity under these programs is not material. NOTE 16. TRANSACTIONS WITH AFFILIATES Transactions of the Company with Hartford Fire, Hartford Holdings 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, depending on type, are allocated based on either a percentage of direct expenses or on utilization. In connection with a comprehensive evaluation of various capital maintenance and allocation strategies by The F-42 Hartford, an intercompany asset sale transaction was completed in April 2003. The transaction resulted in certain of The Hartford's Property & Casualty subsidiaries selling ownership interests in certain high quality fixed maturity securities to the Company for cash equal to the fair value of the securities as of the effective date of the sale. For the Property and Casualty subsidiaries, the transaction monetized the embedded gain in certain securities on a tax deferred basis to The Hartford because no capital gains tax will be paid until the securities are sold to unaffiliated third parties. The transfer re-deployed to the Company desirable investments without incurring substantial transaction costs that would have been payable in a comparable open market transaction. The fair value of securities transferred was $1.7 billion. Effective July 7, 2003, the Company and its subsidiary, Hartford Life and Annuity Insurance Company ("HLAI") entered into an indemnity reinsurance arrangement with Hartford Life and Accident Company ("HLA"). Through this arrangement, both the Company and HLAI automatically ceded 100% of the GMWB's incurred on variable annuity contracts issued between July 7, 2003 through September 2005 that were otherwise not reinsured. The Company and HLAI, in total, ceded approximately $120 of premiums to HLA during this period. During September 2005, the Company and HLAI recaptured this indemnity reinsurance arrangement from HLA. The Company and HLAI, combined, paid cash of $63, received hedging assets with a fair value of $182 and extinguishment of a reinsurance recoverable liability of $36, resulting in a capital contribution of $155. During the third quarter of 2004, Hartford Life introduced fixed MVA annuity products to provide a diversified product portfolio to customers in Japan. The yen based MVA product is written by HLIKK, a wholly owned Japanese subsidiary of Hartford Life and subsequently reinsured to the Company. As of December 31, 2005, $1,463 of the account value had been assumed by the Company. The Company has issued a guarantee to retirees and vested terminated employees (Retirees) of The Hartford Retirement Plan for U.S. Employees (the Plan) who retired or terminated prior to January 1, 2004. The Plan is sponsored by The Hartford. The guarantee is an irrevocable commitment to pay all accrued benefits which the Retiree or the Retiree's designated beneficiary is entitled to receive under the Plan in the event the Plan assets are insufficient to fund those benefits and The Hartford is unable to provide sufficient assets to fund those benefits. The Company believes that the likelihood that payments will be required under this guarantee is remote. Effective August 31, 2005, HLAI entered into a reinsurance agreement with HLIKK., a related party and subsidiary of Hartford Life, Inc. Through the reinsurance agreement, HLIKK agreed to cede and Hartford Life and Annuity Insurance Company agreed to reinsure 100% of the risks associated with the in- force and prospective GMIB riders issued by HLIKK on its variable annuity business. In connection with accepting the GMIB risk for the in-force riders, Hartford Life and Annuity Insurance Company received fees collected since inception by HLIKK. related to the in-force riders of $25. Prospectively, Hartford Life and Annuity Insurance Company will receive the rider fee (currently, approximately 26 basis points) collected by HLIKK. and payable monthly in arrears. Depending on the underlying contract form, benefits are paid from Hartford Life and Annuity Insurance Company to HLIKK. either on the guaranteed annuity commencement date, when the contract holder's account value is less than the present value of minimum guaranteed annuity payments, or alternatively, during the annuitization phase, when the contract holder's account value is reduced to zero or upon death of the contract holder. While the form of the agreement between HLAI and HLIKK. is reinsurance, in substance and for accounting purposes the agreement is a free standing derivative. As such, the agreement is recorded at fair value on the Company's balance sheet, with prospective changes in fair value recorded in earnings. The methodology for calculating the value of the reinsurance derivative is consistent with the methodology used by the Company in valuing the guaranteed minimum withdrawal benefit rider sold with U.S. variable annuities. The calculation uses risk neutral Japanese capital market assumptions and includes estimates for dynamic policyholder behavior. The resulting reinsurance derivative value in Japanese Yen is converted to U.S. dollars at the spot rate. Should actual policyholder behavior or capital markets experience emerge differently from these estimates, the resulting impact on the value of the reinsurance derivative could be material to earnings. As of August 31, 2005, the effective date of the agreement, the reinsurance derivative liability recorded by the Company was $15. As described above, in connection with accepting the reinsurance derivative, the Company received $25 in cash. The difference between the fair value of the reinsurance derivative and the cash received was recorded as an in substance capital contribution of $10 from a related party. Subsequent cohorts, as ceded, representing new business written with the GMIB rider, will be recorded in a manner similar to the in-force block. The initial fair value of the derivative associated with new business will be recorded as an in substance capital contribution or distribution between these related parties. As of December 31, 2005, the fair value of the reinsurance derivative was an asset of $72. During the year ended, December 31, 2005, the Company recorded a net capital contribution of $2 and a pre-tax realized gain of $113, representing the change in fair value of the reinsurance derivative. F-43 NOTE 17. QUARTERLY RESULTS FOR 2005 AND 2004 (UNAUDITED)
Three Months Ended ----------------------------------------------------------------------------- March 31, June 30, September 30, December 31, ----------------------------------------------------------------------------- 2005 2004 2005 2004 2005 2004 2005 2004 ----------------------------------------------------------------------------- Revenues $ 1,440 $ 1,399 $1,400 $ 1,346 $ 1,521 $ 1,456 $ 1,543 $ 1,485 Benefits, claims and expenses 1,118 1,116 1,172 1,091 1,210 1,202 1,275 1,243 Net income [1] 241 181 180 180 247 395 248 209 -----------------------------------------------------------------------------
[1] Included in the quarter ended September 30, 2004 is a $191 tax benefit which relates to agreement with IRS on the resolution of matters pertaining to tax years prior to 2004. F-44