SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934 [fee required] For the fiscal year ended December
31, 1999
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [no fee required] For the transition period
from _______________ to _______________.
Commission file number 2-79192.
-------
HAMPSHIRE FUNDING, INC.
----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW HAMPSHIRE 02-0277842
- -------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE GRANITE PLACE, CONCORD, NEW HAMPSHIRE 03301
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (603) 226-5000
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Programs for coordinating the acquisition of mutual fund shares and insurance
Indicate by check mark whether the registrant has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and has been subject to such filing requirements
for the past 90 days.
YES |X| NO |_|
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. NONE
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock as of March 30, 2000: 50,000 shares, all of which are owned by
Jefferson-Pilot Corporation.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
The total number of pages, including exhibits, is 33, and the exhibit index
appears on pages 28 through 32.
<PAGE>
Item 1 - Description of Business
(a) General Development of Business
Hampshire Funding, Inc. ("the Company") was incorporated in the State
of New Hampshire on December 8, 1969, as a wholly-owned subsidiary of
Chubb Life Insurance Company of America ("Chubb Life"). The Company
became a wholly-owned subsidiary of The Chubb Corporation on December
21, 1971, when Chubb Life sold all the outstanding stock of the
Company. On April 1, 1981, the Company's common stock was transferred
by contribution to Chubb Life Insurance Company of New Hampshire
("CLNH"). On July 1, 1991, CLNH and Chubb Life merged with and into The
Volunteer State Life Insurance Company, which on the same date
re-domesticated from Tennessee to New Hampshire and changed its name to
Chubb Life Insurance Company of America. As a result of said merger,
all of the common stock of the company was owned by Chubb Life.
Chubb Life and its subsidiaries were acquired by Jefferson-Pilot
Corporation from The Chubb Corporation, effective April 30, 1997. As a
wholly-owned subsidiary of Chubb Life, the Company was included in the
acquisition. The fair market value of the Company was determined to be
its book value.
On December 30, 1997, the Company sold its investment in its
subsidiary, Hampshire Syndications, Inc., (wholly owned since October
9, 1986), to Jefferson-Pilot Investments, Inc. Hampshire Syndication's
net worth at December 30, 1997 was $239,811. The transaction was
accounted for as a reorganization of entities under common control.
Effective December 31, 1997, the Company's outstanding stock was sold
to Jefferson-Pilot Corporation. As a result, the Company became a
wholly-owned subsidiary of Jefferson-Pilot Corporation.
The Company, in affiliation with Jefferson Pilot Financial Insurance
Company (formerly Chubb Life), Jefferson Pilot Life America Insurance
Company (formerly Colonial) (collectively "Insurance Companies") and
Jefferson Pilot Securities Corporation (the "Broker-Dealer"), a member
of the National Association of Securities Dealers, Inc. ("NASD"), has
primarily been engaged in the offering and administration of programs
which coordinate the acquisition of mutual fund shares and life or
health insurance (the "Programs"). The Programs were intended, in part,
to augment the sales activities of the Broker-Dealer and the Insurance
Companies.
Effective March 31, 1998, the Company discontinued offering its
Programs for sale. The Company will, however, continue to service all
existing Programs until their stated maturity or termination dates.
(b) Financial Information About Industry Segments
Revenues, operating profit and loss, and identifiable assets for the
three years ended December 31, 1999, are included in Item 6 - Selected
Financial Data and Item 8 - Financial Statements and Supplementary
Data.
(c) Narrative Description of Business
The Company administers Programs which involve initial and periodic
cash purchases of mutual fund shares. Under the Programs, purchasers of
a Program ("Participants") make initial and periodic purchases of
mutual fund shares for cash with automatic reinvestment of all
distributions. Participants obtain insurance coverage through a series
of insurance premium loans offered by the Company. Loans to
Participants are secured by Participants' initial and periodic
purchases of mutual fund shares. The mutual fund shares are registered
in the Company's name as Custodian for Participants and are pledged
under a Receivables Purchase Agreement.
The objective of a Program is the utilization of the appreciation, if
any, in the value of the mutual fund shares and the reinvestment of
dividends or capital gains distributions thereon to aid in offsetting
the principal and accumulated interest on the loans.
2 of 33
<PAGE>
As noted, the Company discontinued offering Programs for sale but will
continue to administer all programs until their stated maturity or
termination dates.
Historically, the Programs were offered for sale by those agents of the
Insurance Companies who qualify as registered representatives, through
the Broker-Dealer, under the regulations of the NASD.
Revenues derived from Participant Programs include gain on sale of
loans, interest income on securities and Program fees. For the years
ended December 31, 1999, 1998 and 1997 such revenues were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest income on securities $ 897,800 $ 582,261 $ 76,139
Gain on sale of loans 125,485 339,086 0
Interest on loans 0 0 4,776,636
Program fees 327,372 413,726 426,758
</TABLE>
Regulation
The Company filed its final Registration Statement under the Securities
Act of 1933, as amended, with the Securities and Exchange Commission on
April 16, 1997. The Company is also subject to supervision by the
Commissioners of Securities of the jurisdictions in which the Company
has sold the Programs.
Although the Company no longer offers its Programs for sale, its
existing Programs are authorized to use insurance policies offered by
the Insurance Companies. Insurance available for purchase in connection
with a Program may vary from state to state, depending on whether
Jefferson Pilot Financial Insurance Company (Jefferson Pilot Financial)
or Jefferson Pilot LifeAmerica Insurance Company (Jefferson Pilot
LifeAmerica) is licensed to sell insurance in a particular
jurisdiction, and whether a jurisdiction in which one of the Insurance
Companies is licensed has approved the sale of a particular insurance
product.
Historically, each Insurance Company offered several types of policies
within the Program. The Insurance Companies are subject to the
regulations of the insurance department of each state in which they are
licensed to do business. In addition, Jefferson Pilot Financial,
through Jefferson Pilot Financial Separate Account A, offer for sale a
variable universal life insurance policy, which is subject to
regulation by the Securities and Exchange Commission. Policies,
including the variable universal life insurance product, issued under
the Program may not be identical in each state or jurisdiction.
Regulations that determine the types of policies and their provisions
may differ in each state. As a result, the Insurance Companies have
internal procedures designed to ensure that only approved policies are
issued in each state.
The insurance agents who sold the Company's Programs are subject to the
oversight and regulation of the insurance department of each
jurisdiction where they are licensed. In addition, only those agents
who are registered representatives of the Broker-Dealer sold Programs;
thus the insurance agents are also subject to supervision and
regulation of the NASD and securities department of each jurisdiction
where they are licensed.
Dependence Upon a Single or a Few Customers
Given the Company's decision to discontinue the sale of its programs,
the dependence upon a single or few customers is not applicable.
Historically, the Company was not dependent upon a single or few
customers.
Competition
Competition is no longer a factor since the Company no longer offers
Programs for sale. Historically the Company faced limited competition
in the sale of Programs, as the number of companies offering plans
similar to the Programs was quite small. Historically, a large number
of companies offered programs combining the purchase of insurance and
mutual fund shares; however, in recent years the number of companies
has reduced dramatically.
3 of 33
<PAGE>
Employees
The Company has no paid employees. Jefferson Pilot Life Insurance
Company ("JP Life"), a wholly-owned subsidiary of Jefferson-Pilot
Corporation, provides employee and office services, as well as certain
operating assets, to the Company and its affiliates. JP Life employs
all of the personnel who perform business functions for the Company. JP
Life believes that its relationship with employees is good.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
All sales and operations of the Company are conducted within the United
States.
Item 2 - Properties
The Company does not own or lease any real property. The Company occupies a
portion of the home office of Jefferson Pilot Financial located at One Granite
Place, Concord, New Hampshire. The use by the Company of such facilities and the
equipment and furnishings owned by JP Life, Jefferson Pilot Financial, or any of
the other Insurance Companies is subject to a pro-rata allocation of expenses.
Item 3 - Legal Proceedings
The Company may become involved from time to time with legal proceedings arising
out of the ordinary course of its business. For the year ended December 31,
1999, the Company was not involved in any material legal proceedings.
Item 4 - Submission of Matters to a Vote of Security Holders
No matters were submitted during the fourth quarter of 1999 to a vote of
security holders.
4 of 33
<PAGE>
PART II
Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters
(a) Holders
Not publicly traded.
(b) Market Information
1 (See Item 12, Security Ownership of Certain Beneficial Owners and
Management.)
(c) Dividends
The Company has not authorized or paid any dividends since inception.
There are no restrictions presently known on the Company's ability to
pay dividends except for general New Hampshire corporate laws relating
to earnings.
Item 6 - Selected Financial Data
<TABLE>
<CAPTION>
Selected Statement of Operations
Data: Year Ended December 31, 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Revenue $1,350,657 $1,335,073 $5,279,533 $ 4,948,442 $ 4,423,807
========== ========== ========== =========== ===========
Net Income $ 723,044 $ 780,583 $ 597,624 $ 308,341 $ 224,639
========== ========== ========== =========== ===========
Dividends Per Common Share $ -- $ -- $ -- $ -- $ --
========== ========== ========== =========== ===========
Selected Balance Sheet Data:
December 31, 1999 1998 1997 1996 1995
---------- ---------- ---------- ----------- -----------
Total Assets(1) $7,520,878 $5,861,387 $4,978,870 $54,549,392 $47,185,445
========== ========== ========== =========== ===========
Loans Payable(2) $ 0 $ 0 $ 0 $50,851,618 $43,899,673
========== ========== ========== =========== ===========
</TABLE>
(1) On December 31, 1997, the Company sold its aggregate collateral notes
receivable of $55,783,965. The Company received proceeds of $52,994,767 and
retained a subordinated interest and servicing rights in the assets
transferred aggregating $2,789,198. As of December 31, 1999 the Company's
subordinated interest and servicing rights in the assets transferred was
$5,509,426, compared to $4,301,000 at December 31, 1998 (See Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations.)
(2) Proceeds from the sale of collateral notes receivables were used to
extinguish the Company's outstanding debt under its Revolving Credit
Agreement with SunTrust Bank of Atlanta, Georgia (see Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations.)
5 of 33
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Company administers investment programs (the "Programs") which coordinate
the acquisition of mutual fund shares and insurance over a period of ten years.
Under the Programs, Participants purchase life and health insurance from
affiliated Insurance Companies. and finance the premiums through a series of
loans secured by mutual fund shares. Upon issuance of a policy by an Insurance
Company, the Company makes a loan to the Participant in an amount equal to the
selected premium mode. As each premium becomes due, if not paid in cash, a new
loan equal to the next premium and administrative fee is made and added to the
Participant's account indebtedness ("Account Indebtedness"). Thus, interest, as
well as principal, is borrowed and mutual fund shares are pledged as collateral.
Each loan made by the Company must initially be secured by mutual fund shares
which have a value of at least 250% of the loan, except for the initial premium
loan of Programs using certain no-load funds, where the collateral requirement
is 1800%. In addition, the aggregate value of all mutual fund shares pledged as
collateral must be at least 150% of the Participant's total Account
Indebtedness. If the value of the shares pledged to the Company declines below
130% of the Account Indebtedness, the Company will terminate the Programs and
liquidate shares sufficient to repay the indebtedness.
Effective March 31, 1998, the Company discontinued the sale of Programs. The
Company, however, will continue to make premium loans to current Participants
and administer all Programs until their stated maturity or termination dates.
On December 31, 1997, the Company entered into a Receivables Purchase Agreement
(the Agreement) with Preferred Receivables Funding Corporation (PREFCO), a
wholly-owned subsidiary of First National Bank of Chicago (the Bank).
The Agreement provides for the initial and periodic purchase of the Company's
collateral loans receivable by PREFCO or other investors (for which the Bank
serves as agent). On June 29, 1999, the Agreement was amended to extend the
termination date to June 27, 2000 and to decrease PREFCOs commitment from
$60,000,000 to $55,000,000. The Company anticipates the termination date will be
extended under the provisions of the Agreement. PREFCO finances purchases of the
Company's collateral loans receivables through the issuance of commercial paper.
As of December 31, 1999, the Company has sold aggregate loans of $54,360,208 and
has retained a subordinated interest and servicing rights in the assets
transferred aggregating $5,509,426. The cash flows related to the repayment of
loans is first used to satisfy all principal and variable interest rate
obligations due to PREFCO, investors or the Bank. The retained interest
represents the fair value of the Company's future cash flows and obligations
that it will receive after all investor obligations are met. The fair value of
the Company's retained interest and servicing rights was $4,301,000, and
$2,789,198 at December 31, 1998 and 1997 respectively.
The Company is responsible for servicing, managing and collecting all
receivables and loan repayments, monitoring the underlying collateral and
reporting all activity to the Bank for which it receives an annual service fee
(collected monthly in arrears) calculated as 2% of outstanding receivables. The
Company received $1,004,364 in service fees during 1999, and $1,028,796 during
1998.
As servicing agent for the loans sold, the Company collected loan prepayments of
$11,182,062 during 1999 and $13,196,750 in 1998, which were paid to PREFCO (one
month in arrears) to satisfy principal and variable interest obligation due. The
Company originated new loans of $8,506,006 during 1999 and $9,983,843 in 1998,
which were sold to PREFCO.
The Agreement includes a Performance Guarantee by Jefferson-Pilot Corporation
that the Company will service the receivables sold and administer all aspects of
the Programs in accordance with the terms and conditions of the Agreement. The
Performance Guarantee contains restrictions on the debt of the Guarantor and the
collateral value monitored by the Company.
Proceeds from the original sale of the receivables were used by the Company to
extinguish its outstanding debt under its Revolving Credit Agreement with
SunTrust Bank of Atlanta, Georgia. Following the repayment of all principal and
interest, on December 31, 1997 the Company's Revolving Credit Agreement with
SunTrust was terminated.
6 of 33
<PAGE>
From October 23, 1996 through December 30, 1997 the Company's funds for
financing the Programs were obtained through this Revolving Credit Agreement
with SunTrust Bank of Atlanta, Georgia ("SunTrust"). The Company entered into
this Revolving Credit Agreement on October 23, 1996 which provided for advances
up to $60,000,000. The Revolving Credit Agreement with SunTrust replaced the
Company's loan agreements with its affiliates. At December 31, 1997 the Company
had no loans outstanding to affiliates.
During 1998, the Company entered into an intercompany loan agreement with
Jefferson-Pilot Corporation whereby it may borrow funds for working capital
needs at short-term interest rates. At December 31, 1999, and 1998, the Company
had borrowed $1,200,000.
The continuance of the Program is dependent upon the Company's ability to
arrange for the sale of collateral notes receivable or provide for the financing
of insurance premiums for Participants. Prior to the Company's Agreement with
PREFCO, such financing was provided by its Revolving Credit Agreement with
SunTrust and affiliated loan agreements. The Company expects that it will be
able to continue to sell its collateral notes receivables or arrange for other
financing for the foreseeable future.
If the Company is unable to sell its collateral notes receivable or borrow funds
in the future for the purpose of financing loans to Participants for the payment
of insurance premiums, the Programs may be subject to termination.
If the Company subsequently defaults on its Agreement with PREFCO for which the
Participant's mutual fund shares have been pledged as security, the mutual fund
shares may be redeemed by PREFCO (or its agent) and the Programs will be
terminated on their renewal dates.
The Company's liabilities include amounts due to affiliates for expense
reimbursements to JP Life and other working capital needs.
JP Life, a wholly-owned subsidiary of Jefferson-Pilot Corporation, provides
employee services and office facilities to the Company and its affiliates under
a Service Agreement. The Company pays JP Life a monthly fee in accordance with
mutually agreed upon cost allocation methods which the Companies believe reflect
a proportional allocation of common expenses and are commensurate for the
performance of the applicable duties.
Working capital in 1999 and in 1998 was provided by servicing fees from
collateral loans sold, loans from Jefferson-Pilot Corporation and interest
earned on investments. Working capital in 1997 was provided by Participants'
loan repayments, administrative fees for the placement and maintenance of
Programs and interest earned on investments.
Effective January 1, 1999, the Company changed certain of its assumptions
supporting the valuation of its interests retained from loan sales. The Company
has increased its estimate of early terminations from 15% to 26% to better
reflect the Company's actual experience. In addition, the Company has reduced
the discount rate used to value its retained interests from 17% to 15%, which
Management believes better reflects the risks associated with the securitized
assets.
Results of Operations
The Company concluded the year ended December 31, 1999 with net income of
$723,044 as compared to net income of $780,583 in 1998 and $597,624 in 1997.
Total revenues through December 31, 1999 were $1,350,657 versus $1,335,073 in
1998 and $5,279,533 in 1997. The decline in revenue resulted from the sale of
the Company's collateral loans on December 31, 1997 and throughout 1998 and
1999. The Company no longer earns interest on collateral loans sold to
investors. Beginning in 1998, the Company's revenues are derived from income on
its retained interest in the loans transferred to investors. The average
interest rate charged to each Participant's outstanding loan balance has
remained at 8.95% for the prior three years. Participant's accrued collateral
loan interest is capitalized and therefore, became part of the loans sold to
investors during 1999 and 1998.
Likewise, the Company's operating expenses declined in 1999 and 1998 as compared
to 1997 due to the elimination of collateral loan interest expense. As a result
of the sale of its collateral loans, the Company no longer requires a loan
agreement to finance Participant outstanding loans receivable. Interest expense
for the year ended December 31, 1999
7 of 33
<PAGE>
was $58,159 as compared to $19,969 in 1998 and $3,046,441 in 1997. The Company's
average cost of financing Participants' loans in 1997 was 5.88%.
The Company receives fee income for continuing to service sold receivables. The
Company capitalizes the present value of expected servicing fee income in excess
of the related cost of servicing over the estimated life of the sold
receivables. Prior to it Purchase Receivable Agreement, the Company's cost to
service its collateral loans receivable was included in General and
administrative.
Program fees include placement, administrative and termination fees as well as
charges for special services. For the years ended December 31, 1999, 1998 and
1997 the number of Programs administered by the Company were 3,952, 4,819 and
5,545, respectively.
In the future, the Company may realize a gain or loss on the securitization of
future collateral notes receivable which may impact future earnings.
Item 8 - Financial Statements and Supplementary Data
The financial statements included herein are listed in the following index.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page References
---------------
<S> <C>
Report of Independent Auditors 9
Statements of Financial Condition at December 31, 1999 and 1998 10
Statements of Income for each of the three years in the period 11
ended December 31, 1999
Statements of Changes in Stockholder's Equity for each of the three years 12
in the period ended December 31, 1999
Statements of Cash Flows for the each of the three years in the period 13
ended December 31, 1999
Notes to Financial Statements 14
</TABLE>
All schedules have been omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the financial statements, and
the notes thereto.
8 of 33
<PAGE>
Report of Independent Auditors
The Board of Directors
Hampshire Funding, Inc.
We have audited the accompanying statements of financial condition of Hampshire
Funding, Inc. as of December 31, 1999 and 1998, and the related statements of
income, changes in stockholder's equity and cash flows for each of the three
years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hampshire Funding, Inc. at
December 31, 1999 and 1998, and the results of its operations, changes in
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 17, 2000
9 of 33
<PAGE>
Hampshire Funding, Inc.
Statements of Financial Condition
<TABLE>
<CAPTION>
December 31
1999 1998
---------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $1,801,081 $1,284,375
Accounts receivable from customers 5,951 13,187
---------------------------------
Total current assets 1,807,032 1,297,562
Interests retained from loan sales 5,509,426 4,301,000
Deferred asset 204,420 262,825
---------------------------------
Total assets $7,520,878 $5,861,387
=================================
Liabilities and stockholder's equity
Liabilities:
Due to affiliates 1,531,050 1,125,058
Due to parent 1,200,000 1,200,000
Accrued expenses and other liabilities 518,503 155,373
---------------------------------
Total liabilities 3,249,553 2,480,431
---------------------------------
Stockholder's equity:
Common stock, par value $1 per share; authorized
100,000 shares; issued and outstanding 50,000 shares 50,000 50,000
Additional paid-in capital 789,811 789,811
Accumulated other comprehensive loss (258,860) (426,185)
Retained earnings 3,690,374 2,967,330
---------------------------------
Total stockholder's equity 4,271,325 3,380,956
---------------------------------
Total liabilities and stockholder's equity $7,520,878 $5,861,387
=================================
</TABLE>
See accompanying notes.
10 of 33
<PAGE>
Hampshire Funding, Inc.
Statements of Income
<TABLE>
<CAPTION>
Years ended December 31
1999 1998 1997
-----------------------------------------------------
<S> <C> <C> <C>
Revenues:
Interest income on securities $ 897,800 $ 582,261 $ 76,139
Interest on collateral notes receivable 4,776,636
Realized gain on sale of collateral loans 125,485 339,086
Program participant fees 327,372 413,726 426,758
-----------------------------------------------------
1,350,657 1,335,073 5,279,533
Operating expenses:
Interest on affiliate borrowings 58,159 19,969
Interest on loan agreements 3,046,441
General and administrative 1,215,059
-----------------------------------------------------
58,159 19,969 4,261,500
-----------------------------------------------------
Income before federal income tax 1,292,498 1,315,104 1,018,033
Income tax expense 569,454 534,521 420,409
-----------------------------------------------------
Net income $ 723,044 $ 780,583 $ 597,624
=====================================================
</TABLE>
See accompanying notes.
11 of 33
<PAGE>
Hampshire Funding, Inc.
Statements of Changes in Stockholder's Equity
Year Ended December 31, 1999
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-in Comprehensive Retained Stockholder's
Stock Capital Loss Earnings Equity
----------- ------------ ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $ 50,000 $ 550,000 $ -- $ 1,589,123 $ 2,189,123
Contributed paid-in capital 239,811 239,811
Comprehensive income and net
income 597,624 597,624
----------- ------------ ------------- --------------- --------------
Balance at December 31, 1997 50,000 789,811 -- 2,186,747 $ 3,026,558
==============
Comprehensive income
Net Income 780,583 780,583
Unrealized loss on securities
available for sale, net of tax of
($291,841) (426,185) (426,185)
--------------
Comprehensive income 354,398
----------- ------------ ------------- --------------- --------------
Balance at December 31, 1998 50,000 789,811 (426,185) 2,967,330 $ 3,380,956
==============
Comprehensive income
Net income 723,044 723,044
Unrealized gain on securities
available for sale, net of tax
of ($131,791) 167,325 167,325
--------------
Comprehensive income 890,369
----------- ------------ ------------- --------------- --------------
Balance at December 31, 1999 $ 50,000 $ 789,811 $ (258,860) $ 3,690,374 $ 4,271,325
============ ============== =============== ================ ==============
</TABLE>
See accompanying notes.
12 of 33
<PAGE>
Hampshire Funding, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31
1999 1998 1997
------------------------------------------------------------
Operating activities
<S> <C> <C> <C>
Net income $ 723,044 $ 780,583 $ 597,624
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Gain on sale (125,485) (339,086)
Net change in other assets and liabilities 11,822 55,257 112,843
Change in due to affiliates 274,200 (277,296) 306,018
Net originations of collateral notes receivable (4,169,889)
Increase in accrued interest receivable (159,832)
Decrease (increase) in deferred asset 58,405 66,175 (329,000)
Decrease in prepaid interest and interest
accrued on loan agreements (351,618)
------------------------------------------------------------
Net cash used by operating activities 941,986 285,633 (3,993,854)
Financing activities
Contributed paid-in capital 239,811
Proceeds from sale of collateral notes receivable 8,080,726 9,484,651 52,994,767
Loans originated (8,506,006) (9,983,843)
Proceeds from non-affiliated loan agreement 128,575,000
Principal payments on non-affiliated
loan agreements (179,075,000)
Proceeds from affiliated loan agreements 1,200,000
------------------------------------------------------------
Net cash used by financing activities (425,280) 700,808 2,734,578
------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 516,706 986,441 (1,259,276)
Cash and cash equivalents at beginning of year 1,284,375 297,934 1,557,210
------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,801,081 $ 1,284,375 $ 297,934
============================================================
</TABLE>
See accompanying notes.
13 of 33
<PAGE>
Hampshire Funding, Inc.
Notes to Financial Statements
December 31, 1999
1. Organization and Nature of Business
Incorporated in 1969, Hampshire Funding, Inc. (the Company) administers programs
that coordinate the acquisition of mutual fund shares and insurance (Programs).
Under the Programs, insurance premiums are paid by Participants through a series
of loans from the Company and secured by Participant's ownership of mutual fund
shares. The objective of a Program is the utilization of the appreciation, if
any, in the value of the mutual fund shares and the reinvestment of dividends or
capital gain distributions thereon to aid in offsetting the principal and
accumulated interest on the loans. All Programs are ten years in length and no
payments are due until Programs are terminated or mature.
Effective March 31, 1998 the Company discontinued the sale of these Programs.
The Company continues, however, to extend premium loans to current Participants
and administer Programs until their stated maturity or termination date.
On December 30, 1997, the Company sold its investment in its wholly-owned
subsidiary, Hampshire Syndications, Inc. to Jefferson-Pilot Investments, Inc.
Hampshire Syndication's net worth at December 30, 1997 was $239,811. The
transaction has been accounted for as a reorganization of entities under common
control.
On December 31, 1997, 100% of the Company's outstanding stock was sold by
Jefferson Pilot Life Insurance Company (formerly Chubb Life Insurance Company)
to Jefferson-Pilot Corporation.
Chubb Life Insurance Company of America (Chubb Life) and its subsidiaries were
acquired by Jefferson-Pilot Corporation from The Chubb Corporation, effective
April 30, 1997. As a wholly owned subsidiary of Chubb Life, the Company was
included in the acquisition. The fair market value of the Company was determined
to be its book value.
Affiliates of the Company include Jefferson Pilot Financial Insurance Company
(Jefferson Pilot Financial) and Jefferson Pilot Life America Insurance Company.
Other affiliates of the Company include Jefferson Pilot Investment Advisory
Corporation, and Jefferson Pilot Securities Corporation, are also 100% owned by
Jefferson-Pilot Corporation.
The Company administers Programs whereby Participants obtain life insurance
coverage solely from Jefferson Pilot Financial and Jefferson Pilot LifeAmerica.
Under the Programs, insurance premiums are paid by Participants through a series
of loans from the Company. Loans to Participants are secured by Participant's
ownership in mutual fund shares. Loans to Participants were partially funded
with proceeds from loan agreements with affiliates during 1996.
The fair value of a Participant's pledged mutual fund shares must exceed 150% of
the total loan balance plus accrued interest (Participant's Total Account
Indebtedness). If the value of the shares pledged declines below 130% of the
Participant's Total Account Indebtedness, the Company will terminate the Program
and liquidate shares sufficient to repay the Indebtedness.
14 of 33
<PAGE>
2. Summary of Significant Accounting Policies
General
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the Company's 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.
Program Loan Sales
Pursuant to a receivables purchase agreement, the Company sells the
Participants' Total Account indebtedness (Loans Receivable) to a third-party
bank sponsored commercial paper conduit. In connection with these sales, the
Company retains interests in the securitized assets that serve to absorb losses
related to the sold receivables and enhance credit to the third-party conduit.
Such retained interests include: (a) 5% of all Loans Receivable sold, which
includes capitalized interest (residual principal); (b) the excess of the
weighted average interest on the Loans Receivable securitized over the interest
rate on the commercial paper sold (interest-only strips receivable); and (c)
compensation for servicing the securitized assets on behalf of the purchaser.
Interest income on residual principal, interest-only strips receivable and
servicing assets is earned over time based on the outstanding balance of
serviced assets. The Company receives servicing fees monthly. Repayments of
residual principal and interest only strips will be received after full
amortization of the assets sold to third-parties.
Gains or losses for each qualifying sale of receivables are determined by
allocating the carrying value of the receivables sold between the portion sold
and the interests retained, based on their relative fair values. The Company
estimates the fair value of retained interests based on the present value of
future cash flows expected from the sold receivables, under management's best
estimates of key assumptions - credit losses, prepayment speeds, forward yield
curves and discount rates commensurate with the risks involved. The Company
estimates that credit losses associated with sold receivables will not be
material, as the loans are more than 100% secured by mutual fund shares. The
interest rate paid to the third party purchaser represents commercial paper
rates plus a margin of 2.25% (5.28%, 6.24% and 7.91% at December 31, 1999, 1998
and 1997, respectively). The Company estimates that 26% of Programs will
terminate early (15% and 11% at December 31, 1998 and 1997, respectively). As of
December 31, 1999, the Company lowered the discount rate used to value its
retained interests from 17% to 15%, which the Company believes is commensurate
with the duration and risks embedded in the particular assets retained from its
loan sales. The Company used a discount rate of 17% in 1998.
The company considers its interests retained from loan sales to be
available-for-sale. As such, unrealized gains and unrealized losses not deemed
to be other than temporary have been included in other comprehensive income and
the disclosure of total comprehensive income.
Transactions with Affiliates
In 1998, the Company entered into an intercompany loan agreement with
Jefferson-Pilot Corporation whereby the Company may borrow funds for working
capital needs at short-term interest rates. At December 31, 1999 the Company has
borrowed $1,200,000 which is included in amount due to affiliates. Interest paid
to affiliates, on its loan agreements was $58,159 in 1999 compared to $19,969 in
1998.
The Programs, and most mutual fund shares offered in conjunction with the
Programs, are sold through Jefferson Pilot Securities, a registered
broker-dealer.
Substantially all general and administrative expenses are allocated to the
Company by JP Life in accordance with mutually agreed upon cost allocation
methods that the Company and JP Life believe reflect a proportional allocation
of common expenses and which are commensurate for the performance of the
applicable duties. In accordance with Statement of Financial Accounting
Standards No. 125 (Statement No. 125), Accounting for Transfer and Servicing of
Financial Assets and Extinguishments of Liabilities, the Company has included
allocated expenses in its estimated
15 of 33
<PAGE>
future cash flows used to calculate the value of interest retained from loan
sales. The Company received gross service income of $1,004,364 and $1,028,796
and paid allocated expenses of $621,403 and $692,038 during the years ended
December 31, 1999 and 1998, respectively.
Recognition of Revenues
Interest on assets retained from loan sales and administrative fees charged to
Participants for establishing and maintaining Programs are recognized as revenue
when earned.
Cash Equivalents
Cash equivalents include short-term corporate notes carried at cost which
approximates market value.
Reclassifications
Certain amounts in the financial statements for prior years have been
reclassified to conform with the 1998 presentation.
3. Sale of Collateral Notes Receivable Portfolio
On December 31, 1997, the Company entered into a Receivables Purchase Agreement
(the Agreement) with Preferred Receivables Funding Corporation (PREFCO), wholly
owned subsidiary of First National Bank of Chicago (the Bank).
The Agreement provides for the initial and periodic purchase of the Company's
collateral loans receivable by PREFCO or other investors (for which the Bank
serves as agent). On June 29, 1999, the Agreement was amended to extend the
termination date to June 27, 2000 and decrease PREFCOs commitment from
$60,000,000 to $55,000,000. The Company anticipates the termination date will be
extended under the provisions of the Agreement. PREFCO finances purchases of the
Company's collateral loans receivables through the issuance of commercial paper.
The Company sold aggregate loans of $55,783,965 on December 31, 1997. The
Company received proceeds of $52,994,767 and retained a subordinated interest
and servicing rights in the assets transferred aggregating $2,789,198. The cash
flows related to the repayment of loans are used first to satisfy all principal
and variable interest rate obligations due to PREFCO, investors or the Bank. The
retained interest represents the fair value of the Company's estimated future
net cash flows that it will receive after all investor obligations are met. The
fair value of the Company's retained interest and servicing rights was
determined by discounting estimated cash flows from the assets.
During 1999 and 1998, The Company originated additional loans of $8,506,006 and
$9,983,843 which were sold to PREFCO. The Company received proceeds of
$8,080,726 in 1999 and $9,484,651 in 1998 representing a 95% undivided interest
in the loans. At December 31, 1999, the outstanding balance of loans sold by the
Company under the Agreement was $54,360,208 compared to $55,177,919 in 1998.
The fair value of the Company's retained interest and servicing rights at
December 31, 1999 was $5,509,426 compared to $4,301,000 in 1998, and $2,789,198
in 1997.
The Company is responsible for servicing, managing and collecting all
receivables, monitoring the underlying collateral and reporting all activity to
the Banks for which it receives an annual service fee (collected monthly in
arrears) calculated as 2% of outstanding receivables. The Company received fees
of $1,004,364 in 1999 and $1,208,796 in 1998 for services provided, compared to
1999 servicing costs of $621,403 and 1998 servicing costs of $692,038. In
addition to servicing fees, the Company earns other fee income from transactions
affecting the purchase of collateral notes receivable.
16 of 33
<PAGE>
During the years ended December 31, 1999 and 1998, the Company capitalized
$4,912,689 and $4,970,177 respectively, of interest receivable into the balance
of collateral notes receivable prior to the sale of such receivables.
4. Interest Retained from Receivable Sales, net
The Company has retained the following interests from sales of its loans. All
amounts except capitalized servicing rights are shown at the lower of amortized
initial fair value or fair value at the balance sheet date.
<TABLE>
<CAPTION>
December 31
1999 1998
--------------------- --------------------
<S> <C> <C>
Residual principal (includes capitalized interest) $1,886,533 $1,478,335
Interest-only strips receivable 3,344,877 2,433,132
Capitalized servicing rights, net 278,016 389,533
----------------------------------------
$5,509,426 $4,301,000
========================================
</TABLE>
Residual principal represents a 5% undivided interest in the receivables and
capitalized interest sold by the Company at the time of each sale. As the sold
principal is fully amortized prior to amortization of the retained principal,
the Company's undivided interest may not represent 5% of the total outstanding
receivables subsequent to the date of each sale.
Interest only strips receivable represent the Company's right to interest in
excess of the sum paid to the counter-party.
The Company receives fee income for continuing to service sold receivables.
Under Statement 125, the Company is allowed to capitalize the present value of
expected servicing fee income in excess of the related cost of servicing over
the estimated life of the sold receivables (net servicing income). To the extent
that net servicing income varies from management's estimates, the servicing
asset may amortize faster or slower than anticipated. The Company assesses the
carrying value of its servicing asset annually using anticipated future cash
flows associated with the asset. The asset will be written-down to the extent
that estimated fair value is less than carrying value at the balance sheet date.
No adjustment is recorded for fair values which exceed carrying values at the
balance sheet date.
All of the above interests retained are subordinated to the payment of principal
and interest to the bank-sponsored commercial paper conduit, and are initially
recorded at their respective fair values. In accordance with the provisions of
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities, the Company classifies interests
retained (other than capitalized servicing rights) as available-for-sale
securities. As a result, unrealized gain and unrealized losses not deemed to be
other-than-temporary are included in comprehensive income as a separate part of
stockholders equity.
Subsequent to initial recognition, capitalized servicing rights are carried at
the lower of amortized initial fair value or current fair value, as the Company
is required to assess the carrying value only for impairment or additional
obligation.
No adjustment for impairment or additional obligation with respect to
capitalized servicing rights was recorded by the Company during the fiscal years
ended December 31, 1999 and 1998.
The amortized cost and estimated fair value of the Company's interests retained
at December 31, 1999 and 1998 other than capitalized servicing rights, are shown
below. Expected maturities may differ from contractual maturities as the
Programs underlying the securities may be terminated prior to contractual
maturity.
<TABLE>
<CAPTION>
December 31, 1999
------------------------------------------------------------------------------
Unrealized Unrealized Fair Market
Cost Losses, gross Gains, gross Value
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Residual principal certificates due
five years through ten years $ 1,901,986 $ (15,453) $ -- $ 1,886,533
Interest only strip receivables due
five years through ten years $ 3,030,307 314,570 $ 3,344,877
------------------------------------------------------------------------------
$ 4,932,293 $ (15,453) $ 314,570 $ 5,231,410
==============================================================================
</TABLE>
17 of 33
<PAGE>
4. Interest Retained from Receivable Sales, net (continued)
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------------------------------------------
Unrealized
Unrealized Gains, Fair Market
Cost Losses, gross gross Value
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Residual principal certificates due
five years through ten years $ 1,206,957 $ (271,378) $ -- $ 1,478,335
Interest only strip receivables due
five years through ten years $ 1,986,483 (446,649) $ 2,433,132
-----------------------------------------------------------------------------
$ 3,193,440 $ (718,027) $ -- $ 3,911,467
=============================================================================
</TABLE>
5. Income Taxes
The operations of the Company are included in the consolidated federal income
tax return of Jefferson-Pilot Corporation. Federal income tax is allocated by
Jefferson-Pilot Corporation as if the Company filed a separate income tax
return. Deferred tax assets and liabilities are recognized for the expected
future tax effects attributable to temporary differences between the financial
reporting and tax bases of assets and liabilities, based on enacted tax rates
and other provisions of tax law. Federal income taxes have been provided at the
statutory rate of 35% in 1999, 1998 and 1997.
The Company made income tax payments of $488,686, $561,956, and $328,106, in
1999, 1998 and 1997, respectively.
The Company independently files state income tax returns and pays state income
taxes to the states in which it operates. State income taxes paid for 1999, 1998
and 1997 were $124,912, $113,100, and $98,611, respectively.
Significant components of income tax expense for the years ended December 31,
1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 389,331 $421,421 $295,813
State 180,123 113,100 90,710
------------------------------------------------------
Total 569,454 534,521 386,523
Deferred:
Federal 0 0 27,654
State 0 0 6,232
------------------------------------------------------
Total 0 0 33,886
Income tax expense from continuing operations $ 569,454 $ 534,521 $ 420,409
======================================================
</TABLE>
Included in due to affiliates are deferred tax assets of $160,050 as of December
31, 1999 and deferred tax assets of $291,841 as of December 31, 1998 and
deferred tax liabilities of $27,011 as of December 31, 1997.
Item 9 - Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not Applicable
18 of 33
<PAGE>
PART III
Item 10 - Directors and Executive Officers of the Registrant
The following sets forth information relating to Directors and Executive
Officers of the Company as of December 31, 1998.
<TABLE>
<CAPTION>
Name(1) Age Position(2)
---- --- --------
<S> <C> <C>
Ronald R. Angarella 41 President, Chairman and Director
Dennis R. Glass 50 Director
John C. Ingram 55 Director
John A. Weston 40 Treasurer
Russell C. Simpson 44 Vice President and Chief Financial Officer
Charles C. Cornelio 40 Vice President
Carol R. Hardiman 45 Vice President, Administration
Shari J. Lease 45 Secretary
Robert A. Reed 57 Vice President and Assistant Secretary
</TABLE>
Ronald R. Angarella was elected President and Chairman of the Company and Broker
Dealer in October 1995. Mr. Angarella was elected Senior Vice President of
Jefferson Pilot Financial and Vice Chairman of the Broker-Dealer in November
1994. Mr. Angarella served as Vice President, Staff Management of Jefferson
Pilot Financial from September 1992 to November 1994, and Assistant Vice
President, Staff Management of Jefferson Pilot Financial from February 1992 to
September 1992. From March 1990 to February 1992 he served as Assistant Vice
President, Marketing of the Broker-Dealer.
Dennis R. Glass was elected Director of the Company in May 1997. Since October
1993 Mr. Glass has served as Executive Vice President, Chief Financial Officer
and Treasurer of Jefferson-Pilot Corporation. From 1991 to October 1993, he was
associated with Protective Life Corporation, having last served as Executive
Vice President and CFO of the Company. From 1983 to 1991 he was associated with
the Portman Companies, having served as Executive Vice President and CFO.
John C. Ingram was elected Director of the Company in May 1999. In 1972, John
joined Jefferson Standard Life's Mortgage loan field as a district supervisor
and assistant regional supervisor based in Washington, DC. In 1974, he returned
to the home office Mortgage Loan Department as assistant vice president and
regional supervisor. In 1982 John transferred to the Securities Department as
second vice president, was named vice president in 1987, and then senior vice
president and manager of the Securities Department in 1988.
John A. Weston was elected Treasurer of the Company and the Broker-Dealer in
August 1988. His principal occupation since April of 1995 has been as Assistant
Vice President of Jefferson Pilot Financial until his election as Vice President
of Jefferson Pilot Financial in February 1999. He was elected Treasurer of
Jefferson Pilot Variable Fund, Inc. in April 1992, and Treasurer of Jefferson
Pilot Investment Advisory Corporation in May 1992. From July 1989 to April 1995
Mr. Weston was Mutual Fund Accounting Officer for Jefferson Pilot Financial.
Russell C. Simpson was elected Chief Financial Officer of the Company in
December 1997. Mr. Simpson serves as Vice President and Treasurer of Jefferson
Pilot Financial. He has served as Vice President since September 1990 and was
elected Treasurer in December 1994. From April 1988 to September 1990 Mr.
Simpson served as Assistant Vice President of Tax and Financial Reporting for
Jefferson Pilot Financial.
Charles C. Cornelio was elected Vice President of the Company in May 1997. From
May 1993 to May 1997 he was Vice President, General Counsel and Secretary. Mr.
Cornelio's principal occupation since May 1997 has been Executive Vice President
of Jefferson Pilot Financial and Senior Vice President of Jefferson-Pilot
Corporation. From
19 of 33
<PAGE>
September 1996 to May 1997 he was Executive Vice President and Chief
Administrative Officer. From December 1994 to September 1996 he served as Senior
Vice President and Chief Administrator for Jefferson Pilot Financial. From March
1992 to December 1994 he served as Vice President, Counsel and Assistant
Secretary for Jefferson Pilot Financial. He also serves as Executive Vice
President - Operations of Jefferson Pilot LifeAmerica and as Vice President,
General Counsel to Jefferson Pilot Variable Fund, Inc.
Carol R. Hardiman was elected Vice President, Administration of the Company and
the Broker-Dealer in June 1989. From October 1987 to May 1989, she was Assistant
Vice President of the Company and the Broker-Dealer.
Shari J. Lease was elected Secretary of the Company and Assistant Secretary of
the Broker-Dealer in December 1994. Her principal occupation since February 1998
has been as Vice President and Counsel of Jefferson Pilot Financial. Ms. Lease
served as Assistant Vice President and Counsel of Jefferson Pilot Financial from
April 1995 to February 1998. Ms. Lease was elected Secretary of Jefferson Pilot
Variable Fund, Inc. in April 1992. She served as Associate Counsel of Jefferson
Pilot Financial from April 1994 to April 1995, Assistant Counsel of Jefferson
Pilot Financial from October 1990 to April 1994 and Assistant Secretary of
Jefferson Pilot Variable Fund, Inc. from July 1991 to April 1992.
Robert A Reed was elected Vice President and Assistant Secretary of the Company
in December 1997. Mr. Reed serves as Vice President, Secretary and Assistant
General Counsel of Jefferson-Pilot Corporation and has held similar positions
with its principal life insurance subsidiaries since June 1994. Mr. Reed was
secretary and Assistant General Counsel of Aluminum Company of America for many
years prior thereto.
- ----------
(1) There are no family relationships existing between or among any of the
above-listed Directors or Executive Officers.
(2) The term of office of each of the foregoing Directors and Executive
Officers extends until the annual meetings of the shareholders and Board of
Directors or until removed by the Board of Directors.
20 of 33
<PAGE>
Hampshire Funding, Inc.
One Granite Place
Concord, New Hampshire 03301
Board of Directors
December 31, 1999
- --------------------------------------------------------------------------------
Ronald R. Angarella
22 Pepin Drive
Bow, NH 03304
Dennis R. Glass
Three Lockridge Court
Greensboro, NC 27408
John C. Ingram
3302 Wynnewood Drive
Greensboro, NC 27408
21 of 33
<PAGE>
Hampshire Funding, Inc.
One Granite Place
Concord, New Hampshire 03301
Officers
December 31, 1999
- --------------------------------------------------------------------------------
President Ronald R. Angarella
22 Pepin Drive
Bow, NH 03304
Vice President, Assistant Secretary Robert A. Reed
P. O. Box 21008
Greensboro, NC 27420
Vice President, Administration Carol R. Hardiman
1 Paradise Road
Chichester, NH 03234
Vice President Charles C. Cornelio
1802 Regents Park Lane
Greensboro, NC 27455
Vice President and Chief Financial Officer Russell C. Simpson
6002 Early Trail
Greensboro, NC 27358
Secretary Shari J. Lease
37 N. Curtisville Road
Concord, NH 03301
Treasurer John A. Weston
15 Merrimack Street
Concord, NH 03301
Vice President, Marketing David K. Booth
303 Main Street
Hopkinton, NH 03229
Assistant Treasurer Donna Wilbur
21 Dwinell Drive
Concord, NH 03301
Investment Operations Officer Michael F. Murray
6 Morgan Drive
Bow, NH 03304
22 of 33
<PAGE>
Item 11 - Executive Compensation
(a) General
The Company pays no remuneration to its Directors and Officers, nor
does it have any agreement, commitment, or plan to pay salaries or
compensation to any Director or Officer on other than a nominal basis.
The Service Company employs all of the personnel who perform business
functions for the Company, which personnel also perform functions for
affiliates of the Company.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
The table below sets forth ownership of the Company's issued and
outstanding common stock as of March 30, 1998.
<TABLE>
<CAPTION>
Title of Name and Address Amount and Nature of Percent of
Class of Beneficial Owner Beneficial Ownership Class
-------- ---------------- -------------------- ----------
<S> <C> <C> <C>
Common Jefferson-Pilot Corporation 50,000 shares of record 100
100 N. Greene Street
Greensboro, NC 27401
</TABLE>
(b) Security Ownership of Management
None.
Item 13 - Certain Relationships and Related Transactions
(a) Transactions With Management and Others
The Company, has an agreement with the JP Life whereby the JP Life
provides service and joint operations. In addition, the Company
utilizes furniture, equipment and fixtures owned by one or more of the
Insurance Companies. The Company pays the JP Life a fee, determined in
accordance with mutually agreed upon cost allocation methods, which the
Companies believe reflect a proportional allocation of common costs and
are commensurate for the performance of the applicable duties.
The Company has an intercompany loan agreement with Jefferson-Pilot
Corporation, whereby it may borrow money at short-term interest rates.
At December 31, 1999 the Company has $1,200,000 of loans outstanding.
On December 30, 1997, the Company sold its investment in its
wholly-owned subsidiary, Hampshire Syndications, Inc. to
Jefferson-Pilot Investments, Inc.
(b) Certain Business Relationships
See Item 10, Directors and Executive Officers of the Registrant.
23 of 33
<PAGE>
Part IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8K
(a) Documents filed as a part of this Report.
1. The following consolidated financial statements of Hampshire
Funding, Inc. are included in Item 8:
(i) Report of Independent Auditors
(ii) Statements of Financial Condition as of December 31,
1999 and 1998
(iii) Statements of Income for each of the three years in the
period ended December 31, 1999.
(iv) Statements of Changes in Stockholder's Equity for each
of the three years in the period ended December 31,
1999.
(v) Statements of Cash Flows for each of the three years in
the period ended December 31, 1999.
(vi) Notes to Financial Statements
2. Financial Statement Schedules
All Schedules have been omitted since the required information
is not present or is not present in amounts sufficient to
require submission of the schedule, or because the information
required is included in the financial statements and the notes
thereto.
3. Exhibits
(i) Pursuant to Rule 12b-23 and General Instruction G, the
following exhibits required to be filed with this Report
pursuant to the Instructions for Item 14 above are
incorporated by reference from the reference source
cited in the table below.
Reg S-K
Item 601
<TABLE>
<CAPTION>
Exhibit
Table No. Document Reference Source
--------- -------- ----------------
<S> <C> <C>
(1) Distribution Agreement Form 10-K, filed
between the Company and March 15, 1990, for the
Chubb Securities Corporation year ended December 31,
dated March 1, 1990 1989, pp. 23-24
(3) (i) Articles of Incorporation Form 10-K, filed
of Company March 15, 1990, for the
year ended December 31,
1989, pp. 25-27
(ii) By-Laws of Company Form 10-K, filed
March 15, 1990, for the
year ended December 31,
1989, pp. 28-46
24 of 33
<PAGE>
<CAPTION>
Exhibit
Table No. Document Reference Source
--------- -------- ----------------
<S> <C> <C>
(22) Subsidiaries of the Registrant Form 10-K, filed
March 15, 1990, for the
year ended December 31,
1989, pp. 66
(4) (i) Agency Agreement and Form 10-K, filed
Limited Power of Attorney March
19, 1997, for the year
ended December 31, 1996,
pp. 24-26
(ii) Change in Participant in Form 10-K, filed March 19,
Program 1997, for the year ended
December 31, 1996, pp. 27-28
(iii) Disclosure Statement Form 10-K, filed March
19, 1997, for the year
ended December 31, 1996,
p. 29
(10) (a) Revolving Credit Agreement Form 10-K, filed
between the Company and March 19, 1997, for the year
SunTrust Bank, dated ended December 31, 1996, pp.
October 23, 1996 30-44
(b) Revolving Credit Note Form 10-K, filed
between the Company and March 19, 1997, for the year
SunTrust Bank dated ended December 31, 1996, pp.
October 23, 1996 45-46
(c) Guaranty between Chubb Life Form 10-K, filed and
SunTrust Bank dated
March 19, 1997, for the
year October 23, 1996
ended December 31, 1996,
pp. 47-53
(d) Receivables Purchase Agreement Form 10-K, filed
among the Company, Investors, March 30, 1998, for the year
Preferred Receivables Funding ended December 31, 1997, pp
Corporation and First National 27-75
Bank of Chicago dated
December 31, 1997
(e) Performance Guarantee by Form 10-K, filed
Jefferson-Pilot Corporation March 30, 1998, for the year
ended December 31, 1997, pp
(f) Amendment No. 1 to the Receivables Form 10-K, filed
Receivables Purchase Agreement March 30, 1999, for the year
among the Company, Investors, ended December 31, 1998
Preferred Receivables Funding
Corporation and First National Bank
of Chicago dated June 29, 1998
(ii) Filed by enclosure.
Reg S-K
Item 601
</TABLE>
25 of 33
<PAGE>
<TABLE>
<S> <C> <C>
(10) (g) Amendment No. 2 to the Receivables pp. 31-33
Receivables Purchase Agreement
among the Company, Investors,
Preferred Receivables Funding
Corporation and First National Bank
of Chicago dated June 29, 1999
(27) Financial Data Schedule p. 34
(b) Reports on Form 8-K
The Company did not file Reports on Form 8-K during the
last quarter of the period covered by this report.
</TABLE>
26 of 33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DATE: March 30, 2000 HAMPSHIRE FUNDING, INC.
By: /s/ RONALD R. ANGARELLA
------------------------
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 dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ RONALD R. ANGARELLA President and Director March 30, 2000
- ------------------------------------
Ronald R. Angarella
/s/ DENNIS R. GLASS Director March 30, 2000
- ------------------------------------
Dennis R. Glass
/s/ JOHN C. INGRAM Director March 30, 2000
- ------------------------------------
John C. Ingram
/s/ JOHN A. WESTON Treasurer March 30, 2000
- ------------------------------------
John A. Weston
/s/ RUSSELL C. SIMPSON Vice President and March 30, 2000
- ------------------------------------ Chief Financial Officer
Russell C. Simpson
</TABLE>
27 of 33
AMENDMENT NO. 2 TO RECEIVABLES PURCHASE AGREEMENT
This Amendment No. 2 (the "Amendment") is dated as of June 29, 1999
among Hampshire Funding, Inc. (the "Seller" and the "Servicer"), the undersigned
Purchasers and The First National Bank of Chicago, as agent for the Purchasers
(the "Agent").
W I T N E S S E T H :
WHEREAS, the Seller, the Servicer, the Purchasers and the Agent are
parties to that certain Amended and Restated Receivables Purchase Agreement
dated as of May 5, 1998 (as previously amended, the "Agreement"); and
WHEREAS, the Seller, the Servicer, the undersigned Purchasers and the
Agent desire to extend the Liquidity Termination Date;
NOW, THEREFORE, in consideration of the premises herein contained, and
for other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used herein and not otherwise
defined shall have their meanings as attributed to such terms in the Agreement.
2. Amendment to the Agreement.
2.1 The second sentence of Section 1.2 of the Agreement is hereby
amended in its entirety to read as follows:
"Each Purchase Notice shall, except as set forth below, be irrevocable
and shall specify the requested Purchase Price (which shall not be less
than $100,000) and date of purchase (which date shall be a Settlement
Date), and, in the case of a purchase to be made by the Investors, the
requested Discount Rate."
2.2 Sections 1.3, 1.4 and 1.5 of the Agreement are hereby amended in
their entirety to read as follows:
"Section 1.3. Purchases by PREFCO. (a) CP Costs. The seller shall pay
CP Costs with respect to the Capital associated with each Receivable Interest of
PREFCO for each day that Capital in respect of such Receivable Interest is
outstanding. Each Receivable Interest funded substantially with Pooled Comercial
Paper will accrue CP Costs each day on a pro rata basis, based upon the
percentage share the Capital in respect of such Receivable Interest represents
in relation to all assets held by PREFCO and funded substantailly with Pooled
Commercial Paper.
(b) CP COSTS Payments. On each Settlement Date, Seller shall pay to the Agent
(for the benefit of PREFCO) an aggregate amount equal to all accrued and unpaid
CP Costs in respect of the Capital associated with all Receivable Interests of
PREFCO for the immediately preceding Settlement Period in accordance with
Sections 1.6 and 1.7.
(c) Calculation of CP Costs. On the 5th day after the last day of each
Settlement Period, PREFCO shall calculate the aggregate amount of CP Costs for
the applicable Settlement Preiod and shall notify the Seller of such aggregate
amount.
Section 1.4. Purchases by Investors. (a) Each Receivable Interest of the
Investors shall accrue Discount for each day during the Settlement Period at
either the LIBO Rate or the Base Rate in accordance with the terms and
conditions hereof. Until Seller gives notice to the Agent of another Discount
Rate in accordance with Section 1.4(c), the initial Discount Rate for any
Receivable Interest transferred to the Investors pursuant to the terms and
conditions hereof shall be the Base Rate.
28 of 33
<PAGE>
(b) Discount Payments. On the Settlement Date for each Receivable Interest of
the Investors, the Seller shall pay to the Agent (for the benefit of the
Investors) an aggregate amount equal to the accrued and unpaid Discount for the
entire Settlement Period of each such Receivable Interest in accordance with
Sections 1.6 and 1.7.
(c) Investor Discount Rates. The Seller may select the LIBO Rate or the Base
Rate for each Receivable Interest of the Investors. The Seller shall by 9:00
a.m. (Chicago time): (i) at least three (3) Business Days prior to the next
Settlement Date with respect to which the LIBO Rate is being requested as a new
Discount Rate and (ii) at least one (1) Business Day prior to next Settlement
Date with respect to which the Base Rate is being requested as a new Discount
Rate, give the Agent irrevocable notice of the new Discount Rate for the
Receivable Interest applicable until the next Settlement Date. In the absence of
any notice from the Seller, on each Settlement Date, the Agent shall determine
the Discount Rate applicable to the next Settlement Date.
(d) Supension of the LIBO Rate. If any Investor notifies the Agent that it has
determined that funding its Pro Rata Share of the Receivable Interest of the
Investors at a LIBO Rate would violate any applicable law, rule, regulation, or
directive of any governmental or regulatory authority, whether or not having the
force of law, or that (i) deposits of a type and maturity appropriate to match
fund its Receivable Interests at such LIBO Rate are not available or (ii) such
LIBO Rate does not accurately reflect the cost of acquiring or maintaining a
Receivable Interest at such LIBO Rate, then the Agent shall suspend the
availability of such LIBO Rate and require the Seller to select the Base Rate
for any Receivable Interest accruing Discount at such LIBO Rate.
Section 1.5 Decreases. The Seller shall provide the Agent with two (2) Business
Days' prior written notice of any written notice of any reduction from
Collections requested by Seller of Capital (a "Reduction Notice"). Such
Reduction Notice shall designate (i) the date (the "Proposed Reduction Date")
upon which any such reduction of Capital shall occur, and (ii) the aggregate
amount of Capital to be reduced which shall be applied ratably to the Receivable
Interests of PREFCO and the Investors in accordance with the amount of Capital
(if any) owing to PREFCO, on the one hand, and the amount of Capital (if any)
owing to the Investors (ratably, based on their respective Pro Rata Shares), on
the other hand (the "Agreegate Reduction"). Only one (1) Reduction Notice shall
be outstanding at any time. Notwithstanding the foregoing, the Aggregate
Reduction will not be made if the Termination Date shall have occured for any
reason on or prior to the Proposed Reduction Date."
2.3. Section 1.9(a) of the Agreement is hereby amended in its entirety
to read as follows: "(a) Intentionally Omitted."
2.4. Section 1.9(b) of the Agreement is hereby amended (i) by deleting
the subheading "(i)" from the second line thereof, (ii) by inserting the phrase
"CP Costs," immediately after the phrase "Discount," appearing in the fourth
line thereof, and (iii) by deleting the phrase "and (ii) for the account of
PREFCO, all dealer commissions, fees and other expenses in connection with the
issuance of Commercial Paper,".
2.5. The Commitment of The First National Bank of Chicago is hereby
amended by deleting the amount "$60,000,000" appearing opposite The First
National Bank of Chicago's signature on the Agreement and substituting therefor
the amount "$55,000,000".
2.6. The definition of Aggregate Unpaids appearing in Exhibit I to the
Agreement is hereby deleted in its entirety.
2.7. The definition of Conversion Rate appearing in Exhibit I to the
Agreement is hereby deleted in its entirety.
2.8. The definition of CP Rate appearing in Exhibit I to the Agreement
is hereby amended in its entirety to read as follows:
""CP Rate" means, for any period, the interest-bearing equivalent rate
per annum of the CP Costs, which equivalant rate shall be an amount
equal to the quotient of (i) CP Costs for such period, over (ii) the
average outstanding Captial of Receivable Interests of PREFCO during
such period."
29 of 33
<PAGE>
2.9. The definition of Early Collection Fee Appearing in Exhibit I to
the Agreement is hereby amended in its entirety to read as follows:
""Early Collection Fee" means for any Receivable Interest which: (i)
has its Capital reduced without compliance by the Seller with the
notice requirements hereunder or (ii) does not become subject to an
Aggregate Reduction following the delivery of any Reduction Notice or
(iii) is assigned under Article II or terminated prior to the date on
which it was originally scheduled to end; an amount equal to the
excess, if any, of (A) the CP Costs or Discount (as applicable) that
would have accrued during the remainder of the Settlement Periods or
the tranche periods for Commercial Paper determined by the Agent to
relate to such Receivable Interest (as applicable) subsequent to the
date of such reduction or termination (or in respect of clause (ii)
above, the date such Aggregate Reduction was designated to occur
pursuant to the Reduction Notice) of the Capital of such Receivable
Interest if such reduction, assignment or termination had not occurred
or such Reduction Notice had not been delivered, over (B) the sum of
(x) to the extent all or a portion of such Capital is allocated to
another Receivable Interest, the amount of CP Costs or Discount
actually accrued during the remainder of such period on such Capital
for the new Receivable Interest, and (y) to the extent such Capital is
not allocated to another Receivable Interest, the income, if any,
actually received during the remainder of such period by the holder of
such Receivable Interest from investing the portion of such Capital not
so allocated. In the event that the amount referred to in clause (B)
exceeds the amount referred to in clause (A), the relevant Purchaser or
Purchasers agree to pay to Seller the amount of such excess. All Early
Collection Fees shall be due and payable hereunder upon demand."
2.10. The definition of PREFCO Transfer Price is hereby amended by
deleting the word "Discount" appearing in the last line thereof and substituting
in lieu thereof the phrase "CP Costs".
2.11. The definition of Liquidity Termination Date appearing in Exhibit
I to the Agreement is hereby amended by deleting the date "June 29, 1999"
appearing therein and substituting therefor the date "June 27, 2000".
2.12. Exhibit I to the Agreement is hereby amended by adding the
following definitions in the appropriate alphabetical order therein:
""CP Costs" means, for each day, the sum of (i) discount accrued on
Pooled Commercial Paper on such day, plus (ii) any and all accrued
commissions in respect of placement agents and Commercial Paper
dealers, and issuing and paying agent fees incurred, in respect of such
Pooled Commercial Paper for such day, plus (iii) other costs associated
with funding small or odd-lot amounts with respect to all receivable
purchase facilities which are funded by Pooled Commercial Paper for
such day, minus (iv) any accrual of income net of expenses received on
such day from investment of collections received under all receivable
purchase facilities funded substantially with Pooled Commercial Paper,
minus (v) any payment received on such day net of expenses in respect
of Early Collection Fees related to the prepayment of any Receivables
Interest of PREFCO pursuant to the terms of any receivable purchase
facilities funded substantially with Pooled Commercial Paper. In
addition to the foregoing costs, if Seller shall request the Purchasers
to purchase Receivables during any period of time determined by the
Agent in its sole discretion to result in incrementally higher CP Costs
applicable to such purchase, the Capital associated with any such
purchase shall, during such period, be deemed to be funded by PREFCO in
a special pool (which may include capital associated with other
receivable purchase facilities) for purposes of determining such
additional CP Costs applicable only to such special pool and charged
each day during such period against such Capital.
"Pooled Commercial Paper" means Commercial Paper notes of PREFCO
subject to any particular pooling arrangement by PREFCO, but excluding
Commercial Paper issued by PREFCO for a tenor and in an amount
specifically requested by any Person in connection with any agreement
effected by PREFCO."
3. Ratification of Performance Guaranty. By acknowledging this
Amendment below, the Performance Guarantor acknowledges, agrees and confirms
that the Seller's obligations to the Purchasers and the Agent under the
Agreement as hereby amended are and remain unconditionally guaranteed by the
Performance Guarantor pursuant to the terms of the Performance Guaranty.
30 of 33
<PAGE>
4. Representations and Warranties. In order to induce the Agent and
the undersigned Purchasers to enter into this Amendment each of the Seller and
the Servicer represents and warrants that:
4.1. The representations and warranties set forth in Article III of the
Agreement, as hereby amended, are true, correct and complete on the date hereof
as if made on and as of the date hereof and there exists no Event of Default or
Potential Event of Default on the date hereof.
4.2. The execution and delivery by each of the Seller and the Servicer
of this Amendment has been duly authorized by proper corporate proceedings of
the Seller and the Servicer and this Amendment, and the Agreement, as amended by
this Amendment, constitutes the legal, valid and binding obligation of the
Seller and the Servicer enforceable against the Seller and the Servicer in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization or ther similar laws relating
to or limiting creditors' rights generally.
4.3. Neither the execution and delivery by the Seller or the Servicer
of this Amendment, nor the consummation of the transactions herein contemplated,
nor compliance with the provisions hereof will violate any law, rule,
regulation, order, writ, judgment, injunction, decree or award binding on the
Seller or the Servicer or the Seller's or the Servicer's certificate of
incorporation or by-laws or the provisions of any indenture, instrument or
agreement to which the Seller or the Servicer is a party or is subject, or by
which it or its property, is bound, or conflict with or constitute a default
thereunder.
5. Effective Date. This Amendment shall become effective as of the
date above first written upon receipt by the Agent of (i) counterparts of this
Amendment duly executed by the Seller, the Servicer and the Purchasers and (ii)
such other documents as the Agent or any Purchaser may request; provided,
however, that the amendments described in Sections 2.1, 2.2., 2.3, 2.4, 2.6,
2.7, 2.8, 2.9, 2.10 and 2.12 shall become effective on July 12, 1999.
6. Ratification. The Agreement, as amended hereby, is hereby
ratified, approved and confirmed in all respects.
7. Reference to Agreement. From and after the effective date hereof,
each reference in the Agreement to "this Agreement", "hereof", or "hereunder" or
words of like import, and all references to the Agreement in any and all
agreements, instruments, documents, notes, certificates and other writings of
every kind and nature shall be deemed to mean the Agreement, as amended by this
Amendment.
8. Costs and Expenses. The Seller agrees to pay all costs, fees, and
out-of-pocket expenses (including attorneys' fees and time charges of attorneys
for the Agent, which attorneys may be employees of the Agent) incurred by the
Agent in connection with the preparation, execution and enforcement of this
Amendment.
9. CHOICE OF LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS.
10. Execution in Counterparts. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
31 of 33
<PAGE>
IN WITNESS WHEREOF, the Seller, the Servicer, the undersigned
Purchasers and the Agent have executed this Amendment as of the date first above
written.
HAMPSHIRE FUNDING, INC., as Seller and Servicer
By: _____________________________
Title: __________________________
PREFERRED RECEIVABLES FUNDING CORPORATION
By: ____________________________
Title: Authorized Signatory
THE FIRST NATIONAL BANK OF CHICAGO,
individually as an Investor and as Agent
By: _____________________________
Title: __________________________
Acknowledged and confirmed by:
JEFFERSON-PILOT CORPORATION,
as Performance Guarantor
By: ________________________
Title:______________________
32 of 33
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000205422
<NAME> HAMPSHIRE FUNDING, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1801081
<SECURITIES> 5509426
<RECEIVABLES> 210371
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1807032
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7520878
<CURRENT-LIABILITIES> 3249553
<BONDS> 0
<COMMON> 50000
0
0
<OTHER-SE> 530951
<TOTAL-LIABILITY-AND-EQUITY> 7520878
<SALES> 0
<TOTAL-REVENUES> 1350657
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 58159
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1292498
<INCOME-TAX> 569454
<INCOME-CONTINUING> 723044
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 723044
<EPS-BASIC> 14.46
<EPS-DILUTED> 0
</TABLE>
