Item 1. Business of HL Funding Company, Inc. A. Organization HL Funding Company, Inc. (the Company or HLFC) offers and administers programs whereby participants obtain life insurance coverage from various ITT Hartford Group affiliated insurance companies. Under the programs, insurance premiums are paid by participants through a series of loans from HLFC. Loans to participants are secured by participants' ownership in shares of regulated investment companies. The loans to participants are funded with proceeds from a loan arrangement with HLIC. All programs will be ten years in length. Upon program conclusion, loan balances and accrued interest become due.
HLFC is a corporation formed in the state of Connecticut on February 8, 1993. HLFC is a wholly owned subsidiary of Hartford Life Insurance Company (HLIC). HLFC's registration statement became effective on March 16, 1994.
Item 2.
Item 2. Properties
The Company occupies office space leased by Hartford Fire. Expenses associated with these offices are allocated on a direct and indirect basis to the Life subsidiaries of Hartford Fire.
Item 3.
Item 3. Legal Proceedings
HLFC is not involved in any pending or threatened litigation in which claims for monetary damages are or would be asserted.
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Part II
Item 5.
Item 5. Market for HL Funding Company's Common Stock and Related Stockholder Matters
All of HLFC's outstanding shares are ultimately owned by Hartford Fire which is a subsidiary of ITT Hartford Group, Inc., a wholly-owned subsidiary of ITT Corporation.
HLFC has issued and outstanding 100 shares of common stock at a par value of $1 per share.
Item 7.
Item 7. Management's Narrative of Results of Operations
HL Funding Company, Inc. had a loss for the year ended December 31, 1994 of $243,825 compared to income of $302 for the year ended December 31, 1993. The 1994 loss reflects general operating expenses for the marketing and administration of HLFC's programs exceeding short term interest and program income for the year. During the fourth quarter of 1994, the first program was sold. At December 31, 1994, a total of three programs were sold and premium principal loans were $18,473.
Item 8.
Item 8. Financial Statements and Supplementary Data
See Index to Financial Statements and Schedules.
Item 9.
Item 9. Disagreements on Accounting and Financial Disclosures
None.
Item 14.
Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K
(a) Documents Filed (1) See Index to Financial Statements and Schedules (2) See Exhibit Index (b) No reports on Form 8-K have been filed during the last quarter of
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Report of Independent Public Accountants
Statements of Income (Loss) for the year ended December 31, 1994 and the Period February 8, 1993 to December 31, 1993
Balance Sheets as of December 31, 1994 and December 31, 1993
Statements of Stockholder's Equity for the year ended December 31, 1994 and the Period February 8, 1993 to December 31, 1993
Statements of Cash Flow for the year ended December 31, 1994 and the Period February 8, 1993 to December 31, 1993
Notes to Financial Statements -8
All schedules not listed above have been omitted because they are not applicable or the amounts are insignificant, immaterial or the information has been otherwise supplied in the financial statements or notes thereto.
REPORT OF MANAGEMENT
The management of HL Funding Company, Inc., (the Company) is responsible for the preparation and integrity of the information contained in the accompanying financial statements and other sections of the Annual Report. The financial statements are prepared in accordance with generally accepted accounting principles, and, where necessary, include amounts that are based on management's informed judgments and estimates. Other information in the Annual Report is consistent with the financial statements.
The Company's financial statements are audited by Arthur Andersen LLP, independent public accountants. Management has made available to Arthur Andersen LLP the Company's financial records and related data and believes that the representations made to the independent public accountants are valid and complete.
The Company's system of internal controls is a major component of management's responsibility for the fair presentation of the financial statements. The internal controls, including accounting controls and the internal auditing program, are designed to provide reasonable assurance that the assets are safeguarded, transactions are executed in accordance with management's authorization and are properly recorded, and fraudulent financial reporting is prevented or detected.
The Company's internal controls provide for the careful selection and training of personnel and for appropriate segregation of responsibilities. The controls are documented in written codes of conduct, policies, and procedures that are communicated to the Company's employees. Management continually monitors the system of internal controls for compliance. The Company's internal auditors perform independent tests of accounting procedures and records to assess the overall effectiveness of the Company's internal controls. They also make recommendations for improving internal controls, policies and practices. Management takes appropriate action in response to each recommendation from the internal auditors and the independent public accountants.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder and Board of Directors of HL Funding Company, Inc.:
We have audited the accompanying balance sheets of HL Funding Company, Inc. as of December 31, 1994 and 1993, and the related statements of income (loss), stockholder's equity and cash flows for the year then ended and for the period from inception, February 8, 1993, to December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of HL Funding Company, Inc. as of December 31, 1994 and 1993, and the results of its operations and its cash flows for the year then ended and for the period from inception, February 8, 1993, to December 31, 1993, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut March 3, 1995
HL FUNDING COMPANY, INC. STATEMENTS OF INCOME (LOSS)
The accompanying notes are an integral part of these financial statements.
HL FUNDING COMPANY, INC. BALANCE SHEETS
The accompanying notes are an integral part of these financial statements.
HL FUNDING COMPANY, INC. STATEMENTS OF STOCKHOLDER'S EQUITY
The accompanying notes are an integral part of these financial statements.
HL FUNDING COMPANY, INC. STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these financial statements.
HL FUNDING COMPANY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1994
NOTE 1 - ORGANIZATION
HL Funding Company, Inc. (HLFC) is a corporation formed in the state of Connecticut on February 8, 1993. HLFC is a wholly owned subsidiary of Hartford Life Insurance Company (HLIC). All of the outstanding shares of HLIC are ultimately owned by Hartford Fire Insurance Company (Hartford Fire), which is owned by ITT Hartford Group, Inc., a subsidiary of ITT Corporation (ITT). On March 26, 1993 HLFC issued 100 shares ($1 par) of stock to HLIC for $1,000 per share. On May 28, 1993, and September 30, 1994, additional capital contributions of $99,900 and $650,000, respectively, were made by HLIC.
HLFC offers and administers programs whereby participants obtain life insurance coverage from HLIC and Hartford Life and Accident Insurance Company. Under the programs, insurance premiums are paid on behalf of participants through a series of loans from HLFC. Loans to participants are secured by participants' ownership in shares of regulated investment companies. Premium loans receivable are funded with proceeds from a loan arrangement with HLIC. Programs can be up to ten years in length. Upon program conclusion, loan balances and accrued interest become due.
The administrative costs of issuing and maintaining the programs are expected to be offset by: a) fees charged to program participants; b) interest charged to participants for insurance premium loans to the extent that the interest charged exceeds the cost to HLFC of obtaining funds to finance the programs; and c) interest income earned on investments held by HLFC. Through December 31, 1994, three programs were sold.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles.
REVENUES AND EXPENSES - Interest and fees from investments and premium loans receivable are recognized as revenue when earned. Expenses, which are primarily allocated from affiliates, are recognized when incurred.
ORGANIZATIONAL COSTS - Organizational costs include software development and are amortized over a three year period.
INVESTMENT IN HARTFORD LIQUID ASSET TRUST - Investment in Hartford Liquid Asset Trust is considered a cash equivalent.
NOTE 3 - TRANSACTIONS WITH AFFILIATES
HLIC provides administrative services to HLFC, including use of its facilities and personnel, and allocates a portion of its expense to HLFC.
HLFC invested the capital contributions in the Hartford Liquid Asset Trust. Pursuant to the terms of the Trust Agreement, the purpose of the Trust is to invest funds in a less costly manner in assets which achieve a high level of current income as well as maintain liquidity and preserve capital. The Trust investments are restricted to cash and investments having a stated maturity date of 12 months or less from the date of purchase. Interest earned by the Trust is allocated to each participant based on their pro-rata share of principle contributions.
HLFC's funds for financing the programs are currently obtained through a promissory note agreement with HLIC. The agreement allows HLIC to advance to HLFC funds in an amount of up to $7,000,000. The interest rate for the note is equal to the 90 day LIBOR plus 125 basis points. The rate was 6.75% at December 31, 1994.
NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Premium loans receivable and intercompany loan payable amounts reflected in the balance sheet approximate fair value.
NOTE 5 - INCOME TAXES
HLFC is included in ITT's consolidated U.S. Federal income tax return and remits to (receives from) ITT a current income tax provision (benefit) computed in accordance with the tax sharing arrangements between ITT and its subsidiaries. The effective tax rate in 1994 and 1993 approximated the U.S. Statutory tax rate of 35%. The provision (benefit) for income taxes was as follows:
The deferred tax asset at December 31, 1994, was due to expenses capitalized for tax purposes until the start of business of HLFC. Income taxes paid were $162 and $0 in 1994 and 1993, respectively.
SIGNATURES
Pursuant to the requirements of section 13 or 15d of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HL Funding Company
March 24, 1995 by -------------------------- -------------------------- Date George R. Jay Secretary and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date identified.
Signature Title Date --------- ----- ----
Principal Executive Officer
__________________________ Lowndes A. Smith President and Director March 24, 1995
Principal Accounting Officer
__________________________ George R. Jay Secretary and Controller March 24, 1995
__________________________ Bruce D. Gardner Secretary and Director March 24, 1995
__________________________ Donald E. Waggaman, Jr. Treasurer and Director March 24, 1995
__________________________ Timothy M. Fitch Secretary March 24, 1995
No annual report or proxy material has been sent to the stockholder.
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EXHIBIT INDEX
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