<PAGE>
FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1994
[ ] 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...........
The registrant meets the conditions set forth in General Instruction J(1)(a)
and (b) of Form 10-K and is therefore filing this form with the reduced
disclosure format.
Commission file number 33-58862
HL FUNDING COMPANY, INC.
Incorporated in the State of Connecticut 06-1362143
(I.R.S. Employer Identification No.)
P.O. Box 2999, Hartford, Connecticut 06104-2999
(Principal Executive Offices)
Telephone number 203-843-8213
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days. Yes X No .
--- ---
As of March 24, 1995 there were outstanding 100 shares of common stock, $1 par
value per share, of the registrant, all of which were directly owned by Hartford
Life Insurance Company.
(1)
<PAGE>
HL FUNDING COMPANY, INC.
Annual Report for 1994 on Form 10-K
TABLE OF CONTENTS
Item Page
---- ----
Part I 1 Business of HL Funding Company, Inc.** 3
2 Properties 3
3 Legal Proceedings 3
4 *
Part II 5 Market for HL Funding Company's Common Stock
and Related Stockholder Matters 4
6 *
7 Management's Narrative Analysis of Results
of Operations** 4
8 Financial Statements and Supplementary Data 4
9 Disagreements on Accounting and Financial
Disclosure 4
Part III 10 *
11 *
12 *
13 *
Part IV 14 Exhibits, Financial Statements, Schedules and Reports on
Form 8-K 4
Signatures II-1
Exhibit Index II-2
* Omitted pursuant to General Instruction J(2) of
Form 10-K
** Item prepared in accordance with General Instruction
J(2) of Form 10-K.
(2)
<PAGE>
Part I
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. 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. Legal Proceedings
HLFC is not involved in any pending or threatened litigation in which claims for
monetary damages are or would be asserted.
(3)
<PAGE>
Part II
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. 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. Financial Statements and Supplementary Data
See Index to Financial Statements and Schedules.
Item 9. Disagreements on Accounting and Financial Disclosures
None.
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
1994
(4)
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants F-2
Statements of Income (Loss) for the year ended December 31, 1994
and the Period February 8, 1993 to December 31, 1993 F-3
Balance Sheets as of December 31, 1994 and December 31, 1993 F-4
Statements of Stockholder's Equity for the year ended
December 31, 1994 and the Period February 8, 1993 to
December 31, 1993 F-5
Statements of Cash Flow for the year ended December 31, 1994 and the
Period February 8, 1993 to December 31, 1993 F-6
Notes to Financial Statements F-7-8
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.
F-1
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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
F-2
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HL FUNDING COMPANY, INC.
STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
For the Period
For the Year Ended from Inception
December 31, (February 8, 1993) to
1994 December 31, 1993
------------------ ---------------------
<S> <C> <C>
Revenues:
Net Interest Income from Hartford
Liquid Asset Trust $ 8,347 $ 464
Other Income 427 0
------------------ ---------------------
8,774 464
Expenses:
Accounting and Administrative 266,612 0
Legal and State Fees 51,776 0
Other Operating Expenses 65,501 0
------------------ ---------------------
Total Expenses 383,889 0
------------------ ---------------------
Income (Loss) before tax (375,115) 464
Income Tax Expense (Benefit) (131,290) 162
------------------ ---------------------
Net Income (Loss) $ (243,825) $ 302
------------------ ---------------------
------------------ ---------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
HL FUNDING COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31,
ASSETS 1994 1993
---------------- ----------------
<S> <C> <C>
Cash $ 3,641 $ 1,000
Investment in Hartford Liquid Asset Trust 617,866 3,641
Premium loans receivable 18,473 0
Prepaid SEC registration fees 23,438 23,438
Interest receivable on loans 177 0
Intercompany Receivable 0 727
Organizational costs 67,939 93,407
Federal income tax receivable 115,288 0
Deferred tax asset 16,002 0
---------------- ----------------
Total Assets $ 862,824 $ 122,213
---------------- ----------------
---------------- ----------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Intercompany payable $ 337,874 $ 21,749
Intercompany loan payable 18,473 0
Federal income tax payable 0 162
---------------- ----------------
Total Liabilities 356,347 21,911
---------------- ----------------
Common stock, 100 shares authorized,
$1 par value, issued and
outstanding 100 shares 100 100
Capital surplus 749,900 99,900
Retained earnings (deficit) (243,523) 302
---------------- ----------------
Total Stockholder's Equity 506,477 100,302
---------------- ----------------
Total Liabilities and Stockholder's Equity $ 862,824 $ 122,213
---------------- ----------------
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
HL FUNDING COMPANY, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Total
Common Capital Retained Stockholder's
Stock Surplus Earnings (Deficit) Equity
-------------- -------------- ------------------ -------------
<S> <C> <C> <C> <C>
Balance February 8, 1993 $ - $ - $ - $ -
Capital contribution and stock issuance 100 99,900 - 100,000
Net income - - 302 302
-------------- -------------- ---------------- -------------
Balance December 31, 1993 100 99,900 302 100,302
-------------- -------------- ---------------- -------------
Net income (loss) - - (243,825) (243,825)
Capital contribution - 650,000 - 650,000
-------------- -------------- ---------------- -------------
Balance December 31, 1994 $ 100 $ 749,900 $ (243,523) $ 506,477
-------------- -------------- ---------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
HL FUNDING COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
For the Year Ended from Inception
December 31, (February 8, 1993) to
1994 December 31, 1993
------------------- ---------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (243,825) $ 302
Adjustments to net income:
Amortization of organizational costs 25,468 0
Decrease (Increase) in intercompany accounts 316,852 21,022
Decrease (Increase) in other assets and liabilities (177) (23,438)
Decrease (Increase) in Federal income tax receivable (115,288) 0
Decrease (Increase) in deferred tax asset (16,002) 0
Increase (Decrease) in Federal income tax payable (162) 162
------------------- ---------------------
Cash and cash equivalent (used for) provided by operating activities (33,134) (95,359)
------------------- ---------------------
INVESTING ACTIVITIES:
Premium loans (18,473) 0
Organizational costs 0 (93,407)
------------------- ---------------------
Cash and cash equivalent (used for) provided by investing activities (18,473) (93,407)
------------------- ---------------------
FINANCING ACTIVITIES:
Intercompany loans 18,473 0
Hartford Life capital contributions 650,000 100,000
------------------- ---------------------
Cash and cash equivalent (used for) provided by financing activities 668,473 100,000
------------------- ---------------------
Net increase in cash and cash equivalents 616,866 4,641
Cash and cash equivalent at beginning of period 4,641 0
------------------- ---------------------
Cash and cash equivalent at end of period $ 621,507 $ 4,641
------------------- ---------------------
------------------- ---------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
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.
F-7
<PAGE>
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:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Current $(115,288) $162
Deferred (16,002) -
---------- ----------
$(131,290) $162
---------- ----------
---------- ----------
</TABLE>
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.
F-8
<PAGE>
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.
II-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Location
------- ----------- --------
<S> <C> <C>
2 Plan of acquisition, reorganization, None
arrangement, liquidation or succession
3(A) Articles of Incorporation Incorporated by
reference to HL Funding
S-1 Registration Statement
filed March, 1994
(File No. 33-58862)
3(B) By-laws Incorporated by
reference to HL Funding
S-1 Registration Statement
filed March, 1994
(File No. 33-58862)
4 Instruments defining the rights of
security holders, including indentures None
9 Voting trust agreement None
10 Material contracts None
11 Statement of computation of per share earnings Not required to be filed
12 Statements of computation of ratios Not required to be filed
13 Annual report to security holder, Form None
10-K or quarterly report to security holder
18 Letter regarding change in accounting principles None
19 Previously unfiled documents None
22 Subsidiaries of the Registrant Not required to be filed
23 Published report regarding matters None
submitted to vote of security holder
24 Consents of experts and counsel None
25 Power of attorney Incorporated by
reference to HL Funding
S-1 Registration Statement
filed March, 1994
(File No. 33-58862)
28 Additional exhibits None
29 Information from reports furnished to Not required to be filed
state insurance regulatory authorities
</TABLE>
II-2
