UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-08629
HARTFORD SERIES FUND, INC.
(Exact name of registrant as specified in charter)
5 Radnor Corporate Center, Suite 300, 100 Matsonford Road, Radnor, Pennsylvania 19087
(Address of Principal Executive Offices) (Zip Code)
Edward P. Macdonald, Esquire
Hartford Funds Management Company, LLC
5 Radnor Corporate Center, Suite 300
100 Matsonford Road
Radnor, Pennsylvania 19087
(Name and Address of Agent for Service)
Registrant’s telephone number, including area code: (610) 386-4068
Date of fiscal year end: December 31
Date of reporting period: December 31, 2014
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F. Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
HARTFORDFUNDS
![]() | HARTFORD BALANCED HLS FUND
2014 Annual Report |
A MESSAGE FROM THE PRESIDENT
Dear Fellow Shareholders:
Thank you for investing in Hartford HLS Funds.
Market Review
Nearly six years into a bull market, U.S. equities (as represented by the S&P 500 Index ) notched another positive year in 2014, finishing with a 13.69% gain. Progress was smooth for most of the year, with stocks generally rising amid little volatility. In the fourth quarter, however, the price of oil declined by nearly 40%, returning volatility to the market and paring some of the year’s returns.
As we enter 2015, the price of oil will likely continue playing an important role in market progress, as its effects are widespread. If prices remain low, consumers should benefit by paying less at the gas pump, which increases the amount of money available for discretionary spending. In contrast, low prices may be a detriment to the oil and natural gas industry in the U.S., as well as to the economies of countries that rely more heavily on oil exports.
Central-bank policies will also continue to influence the markets. The U.S. economy has continued to show self-sustaining growth, which has prompted the U.S. Federal Reserve to wind down the quantitative easing programs it initiated after the global financial crisis. In addition, gradual increases in interest rates are expected to begin in 2015, another sign of positive recovery and a return to pre-crisis policy. But in Europe, a slow recovery and fears of deflation have prompted the start of European Central Bank’s own version of quantitative easing to spur growth.
The final weeks of 2014 provided a stark reminder of how unpredictable market movements can be, and how important it is to maintain a diversified portfolio that’s in line with your time horizon and risk tolerance. As we begin 2015, take time to review your portfolio and your overall investment strategy with your financial advisor.
With more than 40 mutual-fund strategies that span a variety of asset classes and investment goals, your financial advisor can work with you to choose options within our fund family that can help you navigate today’s markets with confidence.
Thank you again for investing with Hartford HLS Funds.
James Davey
President
Hartford HLS Funds
1The S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
Table of Contents
This report is prepared for the general information of contract owners and qualified retirement plan participants. It is not an offer of contracts or of qualified retirement plans. It should not be used in connection with any offer, except in conjunction with the appropriate product prospectus which contains all pertinent information including the applicable sales, administrative and other charges.
The views expressed in the Fund’s Manager Discussion under ‘‘Why did the Fund perform this way?’’ and ‘‘What is the outlook?’’ are views of the Fund’s sub-adviser and portfolio management team through the end of the period and are subject to change based on market and other conditions. The Fund’s Manager Discussion is for informational purposes only and does not represent an offer, recommendation or solicitation to buy, hold or sell any security. The specific securities identified and described, if any, do not represent all of the securities purchased or sold and you should not assume that investments in the securities identified and discussed will be profitable.
Hartford Balanced HLS Fund inception 03/31/1983
(sub-advised by Wellington Management Company, LLP) |
Investment objective – The Fund seeks long-term total return.
Performance Overview 12/31/04 - 12/31/14
The chart above represents the hypothetical growth of a $10,000 investment in Class IA. Growth results in classes other than Class IA will vary from what is seen above due to difference in the expenses charged to those share classes.
Average Annual Total Returns (as of 12/31/14)
1 Year | 5 Years | 10 Years | |
Balanced IA | 9.79% | 11.23% | 6.74% |
Balanced IB | 9.51% | 10.95% | 6.47% |
Balanced HLS Fund Blended Index | 10.32% | 11.04% | 6.61% |
Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index | 0.03% | 0.09% | 1.54% |
Barclays Government/Credit Bond Index | 6.01% | 4.69% | 4.70% |
S&P 500 Index | 13.69% | 15.45% | 7.67% |
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of the investment will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain performance data current to the most recent month-end, please visit our website www.hartfordfunds.com.
Total returns presented above were calculated using the Fund’s net asset value available to shareholders for sale or redemption of Fund shares on December 31, 2014, which may exclude investment transactions as of this date. All share class returns assume the reinvestment of all distributions at net asset value and the deduction of all fund expenses.
Balanced HLS Fund Blended Index is calculated by Hartford Funds Management Company, LLC and represents the weighted return of 60% S&P 500 Index, 35% Barclays Government/Credit Bond Index and 5% Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index.
Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index is an unmanaged index that tracks the performance of U.S. dollar denominated U.S. Treasury bills publicly issued in the U.S. domestic markets with maturities of 90 days or less that assumes reinvestment of all income.
Barclays Government/Credit Bond Index is an unmanaged, market-value-weighted index of all debt obligations of the U.S. Treasury and U.S. Government agencies (excluding mortgaged-backed securities) and of all publicly-issued fixed-rate, nonconvertible, investment grade domestic corporate debt.
S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
The indices are unmanaged, and their results include reinvested dividends and/or distributions, but do not reflect the effect of sales charges, commissions, expenses or taxes.
You cannot invest directly in an index.
As shown in the Fund's current prospectus dated May 1, 2014, the total annual operating expense ratios for Class IA and Class IB were 0.65% and 0.90%, respectively. Actual expenses may be higher. Please see the accompanying Financial Highlights for expense ratios for the year ended December 31, 2014.
All investments are subject to risk including the possible loss of principal. For a discussion of the Fund’s risks, please see the Main Risks section of this report. For more detailed information on the risks associated with an investment in the Fund, please see the prospectus.
The chart and table do not reflect the deductions of taxes, sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees or expenses would lower the contract’s or plan’s performance.
2 |
Hartford Balanced HLS Fund |
Manager Discussion |
December 31, 2014 (Unaudited) |
Portfolio Managers | |
Karen H. Grimes, CFA | John C. Keogh |
Senior Managing Director and Equity Portfolio Manager | Senior Managing Director and Fixed Income Portfolio Manager |
How did the Fund perform?
The Class IA shares of the Hartford Balanced HLS Fund returned 9.79% for the twelve-month period ended December 31, 2014, underperforming the Fund’s custom benchmark, 60% S&P 500 Index, 35% Barclays Government/Credit Bond Index, and 5% Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index, which returned 10.32% for the same period. The S&P 500, Barclays Government/Credit Bond, and Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Indices returned 13.69%, 6.01%, and 0.03%, respectively. The Fund outperformed the 6.33% average return of the Lipper Mixed-Asset Target Allocation Growth Funds peer group, a group of funds that hold between 60%-80% in equity securities, with the remainder invested in bonds, cash, and cash equivalents.
Why did the Fund perform this way?
The S&P 500 Index rose for the eighth straight quarter finishing 2014 with a gain of 13.69%. The fourth quarter began on a volatile note as global recession fears dominated the first half of October. The tide turned amid a number of positive economic and corporate data points, including a solid corporate earnings season. In December, U.S. stocks hit an all-time high before falling 1.4% during the final two trading days of the year to end the month in the red. Within the S&P 500 Index, nine of the ten sectors posted positive gains. Utilities (+29%), Healthcare (+25%), and Information Technology (+20%) posted the largest gains while Energy (-8%), Telecommunication Services (+3%) and Materials (+7%) lagged the broader index.
Global government bonds rallied in the fourth quarter of 2014 against a backdrop of uneven global growth, falling inflation, and continued easy monetary policies. The U.S. economy proved relatively strong while growth in Europe, Japan, and China weakened. Falling commodity prices pushed inflation lower across the globe and oil experienced its largest annual decline since the financial crisis. Absolute returns in the major fixed income sectors were mixed as the decline in government bond yields was not enough to offset the credit-spread widening in sectors such as high yield and emerging markets. European government bond yields hit fresh lows on expectations of further monetary easing by the European Central Bank (ECB). In the U.S., short-term yields rose as policymakers began to consider raising rates, while longer-term Treasuries benefitted from a flattening of the Treasury yield curve.
The Barclays Government/Credit Bond Index returned 6.01% for the period. Globally, most credit spread sectors posted positive absolute returns while performance was mixed relative to duration-equivalent government bonds. The outperformance of the U.S. economy compared to its global counterparts led to rising volatility and a broad U.S.-dollar rally in the currency markets with the U.S.-dollar index hitting an eight-year high in December.
The Fund has three primary levers to generate investment performance: equity investments, fixed income investments, and asset allocation among stocks, bonds, and cash. During the period, the equity portion of the Fund underperformed the S&P 500 Index and the fixed income portion of the Fund slightly outperformed the Barclays Government/Credit Bond Index. Asset allocation contributed positively to relative performance during the period. The Fund was generally overweight equities and underweight fixed income and cash relative to the custom benchmark.
Equity underperformance versus the S&P 500 Index was driven by security selection. Selection was weakest in Consumer Staples, Financials, and Healthcare; this was partially offset by positive selection in Industrials and Telecommunication Services. Sector allocation contributed positively to relative performance over the period. An overweight to Healthcare and an underweight to Telecommunication Services aided results.
Stocks that detracted the most from relative returns in the equity portion of the Fund during the period were Allstar Co. (Consumer Discretionary), BG Group (Energy), and Apple (Information Technology). Our private placement position in Allstar Co., a U.S.-based apparel, fitness, and recreational products retailer, declined during the period driven by a change in the fair-value price derived from key comparable companies, a group that experienced declining earnings in aggregate. Shares of BG Group, a U.K.-based natural gas company, fell short of consensus expectations as upstream operating profits fell as production declined due to a slide in crude oil prices which reverberated through the oil and gas industry. Shares of Apple, a maker of an interconnected ecosystem of computing and mobile devices, rose after the company posted better-than-expected quarterly earnings, gave solid guidance for the fourth quarter, and had strong sales of its iPhone 6 and 6 Plus; our underweight in Apple relative to the S&P 500 Index detracted. Halliburton (Energy) also detracted from absolute results during the period.
Top contributors to relative performance in the equity portion of the Fund during the period were Covidien (Healthcare), Vertex Pharmaceuticals (Healthcare), and General Electric (Industrials). Covidien, a U.S.-based medical products, manufacturing and distribution company, outperformed over the period after medical device giant Medtronic agreed to acquire Covidien for a mix of cash and stock. Covidien also reported solid third quarter results as it continued to grow its key business segments. Shares of Vertex
3 |
Hartford Balanced HLS Fund |
Manager Discussion – (continued) |
December 31, 2014 (Unaudited) |
Pharmaceuticals, a biotechnology firm with a focus on cancer and neurodegenerative diseases, rose as the company launched its product to treat cystic fibrosis patients, putting the company in a good position to grow its platform in this treatment area. Not owning S&P 500 Index constituent General Electric, a U.S.-based multinational conglomerate operating in the technology infrastructure, capital finance, and consumer and industrial products industries, contributed to performance relative to the S&P 500 Index. The company’s stock declined as concerns around lower energy capital expeditures and deflationary commodity pricing, on top of declining growth expectations in Europe and China, weighed on the stock. The Fund’s holdings in Wells Fargo (Financials) and Cisco Systems (Information Technology) also contributed positively on an absolute basis.
Outperformance of the fixed income portion of the Fund relative to the Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index during the period was driven by security selection in corporate investment grade credit, particularly in Industrials, Financials, and Utilities. An underweight to Industrials was also additive. Allocations to agency Mortgage Backed Security (MBS) pass-throughs and Commercial Mortgage Backed Securities also contributed to relative outperformance. The Fund’s short duration positioning and yield curve posture detracted from results relative to the Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index as the yield curve flattened over the period.
Derivatives are not used in a significant manner in the Fund and did not have a material impact on performance during the period.
What is the outlook?
We think the outlook for 2015 is mixed with a significant number of positive data points and several areas of the economy that give us pause. We believe U.S. fundamentals remain supportive of moderate growth, but acknowledge some risks appear to have increased since the start of 2014 including geopolitical risks such as continued conflicts in the Middle East, tougher Russian sanctions, and the cyber-security attacks.
We believe the equity portion of the Fund is well-positioned to benefit from continued economic improvements. The Healthcare and Consumer Staples sectors represented our largest sector overweight and underweight, respectively, at the end of the period.
On the fixed income side, we ended the period with a moderately pro-cyclical risk posture, continuing to favor financial issuers within investment grade credit. We continued to hold an out-of-benchmark allocation to agency MBS.
At the end of the period, the Fund’s equity exposure was at 65% compared to 60% in the Fund’s custom benchmark and at the upper end of the Fund’s 50-70% range.
Diversification by Security Type | ||||
as of December 31, 2014 | ||||
Category | Percentage of Net Assets | |||
Equity Securities | ||||
Common Stocks | 64.7 | % | ||
Total | 64.7 | % | ||
Fixed Income Securities | ||||
Asset & Commercial Mortgage Backed Securities | 1.1 | % | ||
Corporate Bonds | 13.3 | |||
Foreign Government Obligations | 0.1 | |||
Municipal Bonds | 1.2 | |||
U.S. Government Agencies | 2.4 | |||
U.S. Government Securities | 16.7 | |||
Total | 34.8 | % | ||
Short-Term Investments | 0.7 | |||
Other Assets and Liabilities | (0.2 | ) | ||
Total | 100.0 | % |
Credit Exposure | ||||
as of December 31, 2014 | ||||
Credit Rating * | Percentage of Net Assets | |||
Aaa/ AAA | 3.1 | % | ||
Aa/ AA | 18.5 | |||
A | 6.0 | |||
Baa/ BBB | 6.4 | |||
Ba/ BB | 0.3 | |||
Not Rated | 0.5 | |||
Non-Debt Securities and Other Short-Term Instruments | 65.4 | |||
Other Assets and Liabilities | (0.2 | ) | ||
Total | 100.0 | % |
* | Credit exposure is the long-term credit ratings for the Fund's holdings, as of the date noted, as provided by Standard and Poor's (S&P) or Moody's Investors Service (Moody's) and typically range from AAA/Aaa (highest) to C/D (lowest). Presentation of S&P and Moody's credit ratings in this report have been selected for informational purposes for shareholders, as well as the Fund's consideration of industry practice. If Moody's and S&P assign different ratings, the lower rating is used. Fixed income securities that are not rated by either agency are listed as "Not Rated." Ratings do not apply to the Fund itself or to the Fund's shares. Ratings may change. |
4 |
Hartford Balanced HLS Fund |
Schedule of Investments |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount | Market Value ╪ | |||||||
Common Stocks - 64.7% | ||||||||
Automobiles and Components - 0.5% | ||||||||
988 | Ford Motor Co. | $ | 15,310 | |||||
Banks - 3.8% | ||||||||
405 | BB&T Corp. | 15,732 | ||||||
381 | PNC Financial Services Group, Inc. | 34,788 | ||||||
1,091 | Wells Fargo & Co. | 59,800 | ||||||
110,320 | ||||||||
Capital Goods - 4.2% | ||||||||
232 | 3M Co. | 38,119 | ||||||
345 | Eaton Corp. plc | 23,446 | ||||||
435 | Fortune Brands Home & Security, Inc. | 19,692 | ||||||
356 | Ingersoll-Rand plc | 22,561 | ||||||
174 | United Technologies Corp. | 20,009 | ||||||
123,827 | ||||||||
Consumer Durables and Apparel - 0.6% | ||||||||
130 | PVH Corp. | 16,701 | ||||||
Diversified Financials - 6.3% | ||||||||
137 | Ameriprise Financial, Inc. | 18,178 | ||||||
86 | BlackRock, Inc. | 30,646 | ||||||
626 | Citigroup, Inc. | 33,886 | ||||||
115 | Goldman Sachs Group, Inc. | 22,227 | ||||||
566 | Invesco Ltd. | 22,370 | ||||||
920 | JP Morgan Chase & Co. | 57,572 | ||||||
184,879 | ||||||||
Energy - 4.9% | ||||||||
234 | Anadarko Petroleum Corp. | 19,270 | ||||||
852 | BG Group plc | 11,397 | ||||||
222 | Chevron Corp. | 24,930 | ||||||
172 | EOG Resources, Inc. | 15,823 | ||||||
365 | Exxon Mobil Corp. | 33,747 | ||||||
402 | Halliburton Co. | 15,791 | ||||||
201 | Occidental Petroleum Corp. | 16,190 | ||||||
260 | Southwestern Energy Co. ● | 7,099 | ||||||
144,247 | ||||||||
Food and Staples Retailing - 1.1% | ||||||||
332 | CVS Health Corp. | 31,996 | ||||||
Food, Beverage and Tobacco - 2.9% | ||||||||
121 | Anheuser-Busch InBev N.V. ADR | 13,579 | ||||||
450 | Coca-Cola Co. | 18,986 | ||||||
132 | Diageo plc ADR | 15,106 | ||||||
316 | Kraft Foods Group, Inc. | 19,827 | ||||||
507 | Mondelez International, Inc. | 18,399 | ||||||
85,897 | ||||||||
Health Care Equipment and Services - 3.2% | ||||||||
238 | Baxter International, Inc. | 17,423 | ||||||
351 | Covidien plc | 35,936 | ||||||
207 | Medtronic, Inc. | 14,960 | ||||||
264 | UnitedHealth Group, Inc. | 26,689 | ||||||
95,008 | ||||||||
Insurance - 2.3% | ||||||||
404 | American International Group, Inc. | 22,624 | ||||||
610 | Marsh & McLennan Cos., Inc. | 34,939 | ||||||
261 | Unum Group | 9,096 | ||||||
66,659 | ||||||||
Materials - 1.8% | ||||||||
449 | Dow Chemical Co. | 20,476 | ||||||
369 | International Paper Co. | 19,745 | ||||||
229 | Nucor Corp. | 11,243 | ||||||
51,464 | ||||||||
Media - 2.9% | ||||||||
289 | CBS Corp. Class B | 15,974 | ||||||
411 | Comcast Corp. Class A | 23,846 | ||||||
422 | Thomson Reuters Corp. | 17,032 | ||||||
287 | Walt Disney Co. | 26,990 | ||||||
83,842 | ||||||||
Pharmaceuticals, Biotechnology and Life Sciences - 9.3% | ||||||||
281 | Agilent Technologies, Inc. | 11,504 | ||||||
164 | Amgen, Inc. | 26,044 | ||||||
296 | AstraZeneca plc ADR | 20,847 | ||||||
576 | Bristol-Myers Squibb Co. | 33,972 | ||||||
194 | Celgene Corp. ● | 21,714 | ||||||
255 | Gilead Sciences, Inc. ● | 23,999 | ||||||
105 | Johnson & Johnson | 10,978 | ||||||
817 | Merck & Co., Inc. | 46,384 | ||||||
77 | Roche Holding AG | 20,961 | ||||||
356 | UCB S.A. | 27,091 | ||||||
175 | Vertex Pharmaceuticals, Inc. ● | 20,809 | ||||||
177 | Zoetis, Inc. | 7,610 | ||||||
271,913 | ||||||||
Real Estate - 0.2% | ||||||||
281 | Paramount Group, Inc. | 5,216 | ||||||
Retailing - 2.9% | ||||||||
11,702 | Allstar Co. ⌂●† | 12,092 | ||||||
26 | AutoZone, Inc. ● | 16,264 | ||||||
273 | Home Depot, Inc. | 28,604 | ||||||
233 | Nordstrom, Inc. | 18,499 | ||||||
163 | Tory Burch LLC ⌂●† | 9,654 | ||||||
85,113 | ||||||||
Semiconductors and Semiconductor Equipment - 4.1% | ||||||||
432 | Analog Devices, Inc. | 23,998 | ||||||
1,036 | Intel Corp. | 37,585 | ||||||
1,604 | Marvell Technology Group Ltd. | 23,264 | ||||||
1,071 | Maxim Integrated Products, Inc. | 34,143 | ||||||
118,990 | ||||||||
Software and Services - 6.3% | ||||||||
290 | Accenture plc | 25,893 | ||||||
359 | eBay, Inc. ● | 20,161 | ||||||
69 | Google, Inc. Class C ● | 36,258 | ||||||
1,118 | Microsoft Corp. | 51,938 | ||||||
511 | Oracle Corp. | 22,998 | ||||||
1,072 | Symantec Corp. | 27,501 | ||||||
184,749 | ||||||||
Technology Hardware and Equipment - 5.0% | ||||||||
542 | Apple, Inc. | 59,808 | ||||||
1,967 | Cisco Systems, Inc. | 54,701 | ||||||
1,052 | EMC Corp. | 31,291 | ||||||
145,800 | ||||||||
Telecommunication Services - 0.3% | ||||||||
206 | Verizon Communications, Inc. | 9,644 | ||||||
Transportation - 0.9% | ||||||||
146 | FedEx Corp. | 25,434 | ||||||
The accompanying notes are an integral part of these financial statements.
5 |
Hartford Balanced HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount | Market Value ╪ | |||||||
Common Stocks - 64.7% - (continued) | ||||||||
Utilities - 1.2% | ||||||||
322 | NextEra Energy, Inc. | $ | 34,224 | |||||
Total Common Stocks | ||||||||
( Cost $1,253,823) | $ | 1,891,233 | ||||||
Asset and Commercial Mortgage Backed Securities - 1.1% | ||||||||
Finance and Insurance - 1.1% | ||||||||
Ally Master Owner Trust | ||||||||
$ | 4,885 | 1.54%, 09/15/2019 | $ | 4,848 | ||||
4,890 | 1.60%, 10/15/2019 | 4,877 | ||||||
Carmax Automotive Owner Trust | ||||||||
225 | 1.95%, 09/16/2019 | 224 | ||||||
First Investors Automotive Owner Trust | ||||||||
1,625 | 1.67%, 11/16/2020 ■ | 1,620 | ||||||
Ford Credit Floorplan Master Owner Trust | ||||||||
430 | 2.09%, 03/15/2022 ■ | 426 | ||||||
Hilton USA Trust | ||||||||
1,765 | 2.66%, 11/05/2030 ■ | 1,767 | ||||||
Hyundai Automotive Receivables Trust | ||||||||
515 | 2.48%, 03/15/2019 | 521 | ||||||
JP Morgan Chase Commercial Mortgage Securities | ||||||||
1,840 | 5.89%, 02/12/2049 Δ | 1,974 | ||||||
LB-UBS Commercial Mortgage Trust | ||||||||
685 | 6.32%, 04/15/2041 Δ | 755 | ||||||
Merrill Lynch/Countrywide Commercial Mortgage Trust | ||||||||
3,750 | 5.81%, 06/12/2050 Δ | 4,050 | ||||||
New Century Home Equity Loan Trust | ||||||||
8 | 0.75%, 03/25/2035 Δ | 8 | ||||||
Prestige Automotive Receivables Trust | ||||||||
600 | 1.91%, 04/15/2020 ■ | 598 | ||||||
Santander Drive Automotive Receivables Trust | ||||||||
675 | 2.25%, 06/17/2019 | 681 | ||||||
400 | 2.33%, 11/15/2019 | 402 | ||||||
2,420 | 2.36%, 04/15/2020 | 2,434 | ||||||
655 | 2.57%, 03/15/2019 | 663 | ||||||
SBA Tower Trust | ||||||||
1,565 | 2.90%, 10/15/2044 ■Δ | 1,569 | ||||||
Wachovia Bank Commercial Mortgage Trust | ||||||||
1,406 | 5.31%, 11/15/2048 | 1,490 | ||||||
Westlake Automobile Receivables Trust | ||||||||
1,815 | 0.97%, 10/16/2017 ■ | 1,815 | ||||||
30,722 | ||||||||
Total Asset and Commercial Mortgage Backed Securities | ||||||||
(Cost $30,816) | $ | 30,722 | ||||||
Corporate Bonds - 13.3% | ||||||||
Accommodation and Food Services - 0.0% | ||||||||
Sysco Corp. | ||||||||
$ | 415 | 3.00%, 10/02/2021 | $ | 421 | ||||
235 | 3.50%, 10/02/2024 | 242 | ||||||
663 | ||||||||
Air Transportation - 0.3% | ||||||||
Continental Airlines, Inc. | ||||||||
3,418 | 5.98%, 04/19/2022 | 3,751 | ||||||
Southwest Airlines Co. | ||||||||
2,700 | 5.75%, 12/15/2016 | 2,917 | ||||||
2,576 | 6.15%, 08/01/2022 | 2,957 | ||||||
9,625 | ||||||||
Arts, Entertainment and Recreation - 0.6% | ||||||||
21st Century Fox America | ||||||||
385 | 4.00%, 10/01/2023 | 409 | ||||||
Comcast Corp. | ||||||||
4,500 | 5.90%, 03/15/2016 | 4,771 | ||||||
DirecTV Holdings LLC | ||||||||
355 | 3.95%, 01/15/2025 | 358 | ||||||
2,185 | 4.45%, 04/01/2024 | 2,286 | ||||||
Discovery Communications, Inc. | ||||||||
280 | 3.25%, 04/01/2023 | 272 | ||||||
Grupo Televisa S.A.B. | ||||||||
420 | 5.00%, 05/13/2045 | 427 | ||||||
News America, Inc. | ||||||||
1,275 | 4.50%, 02/15/2021 | 1,396 | ||||||
Sky plc | ||||||||
490 | 2.63%, 09/16/2019 ■ | 490 | ||||||
1,020 | 3.75%, 09/16/2024 ■ | 1,026 | ||||||
Time Warner Cable, Inc. | ||||||||
4,120 | 5.85%, 05/01/2017 | 4,497 | ||||||
395 | 6.55%, 05/01/2037 | 509 | ||||||
250 | 7.30%, 07/01/2038 | 345 | ||||||
Viacom, Inc. | ||||||||
835 | 3.88%, 12/15/2021 | 864 | ||||||
17,650 | ||||||||
Beverage and Tobacco Product Manufacturing - 0.5% | ||||||||
Altria Group, Inc. | ||||||||
1,950 | 4.50%, 05/02/2043 | 1,964 | ||||||
1,995 | 4.75%, 05/05/2021 | 2,206 | ||||||
Anheuser-Busch InBev Worldwide, Inc. | ||||||||
3,205 | 7.75%, 01/15/2019 | 3,882 | ||||||
BAT International Finance plc | ||||||||
2,775 | 3.25%, 06/07/2022 ■ | 2,791 | ||||||
Coca-Cola Co. | ||||||||
500 | 3.30%, 09/01/2021 | 525 | ||||||
Coca-Cola Femsa S.A.B. de C.V. | ||||||||
1,176 | 2.38%, 11/26/2018 | 1,197 | ||||||
1,300 | 3.88%, 11/26/2023 | 1,365 | ||||||
Molson Coors Brewing Co. | ||||||||
60 | 2.00%, 05/01/2017 | 61 | ||||||
765 | 3.50%, 05/01/2022 | 773 | ||||||
495 | 5.00%, 05/01/2042 | 537 | ||||||
Philip Morris International, Inc. | ||||||||
270 | 5.65%, 05/16/2018 | 304 | ||||||
15,605 | ||||||||
Chemical Manufacturing - 0.0% | ||||||||
Monsanto Co. | ||||||||
300 | 4.70%, 07/15/2064 | 315 | ||||||
Computer and Electronic Product Manufacturing - 0.2% | ||||||||
Apple, Inc. | ||||||||
1,500 | 2.85%, 05/06/2021 | 1,534 | ||||||
1,360 | 3.45%, 05/06/2024 | 1,424 | ||||||
175 | 4.45%, 05/06/2044 | 193 | ||||||
EMC Corp. | ||||||||
1,851 | 1.88%, 06/01/2018 | 1,845 | ||||||
4,996 |
The accompanying notes are an integral part of these financial statements.
6 |
Hartford Balanced HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount | Market Value ╪ | |||||||
Corporate Bonds - 13.3% - (continued) | ||||||||
Couriers and Messengers - 0.1% | ||||||||
FedEx Corp. | ||||||||
$ | 270 | 2.63%, 08/01/2022 | $ | 264 | ||||
405 | 2.70%, 04/15/2023 | 394 | ||||||
845 | 4.90%, 01/15/2034 | 944 | ||||||
1,435 | 5.10%, 01/15/2044 | 1,657 | ||||||
3,259 | ||||||||
Finance and Insurance - 6.3% | ||||||||
ACE INA Holdings, Inc. | ||||||||
840 | 3.35%, 05/15/2024 | 849 | ||||||
American Express Centurion Bank | ||||||||
6,350 | 6.00%, 09/13/2017 | 7,077 | ||||||
American International Group, Inc. | ||||||||
925 | 4.13%, 02/15/2024 | 985 | ||||||
American Tower Corp. | ||||||||
975 | 3.45%, 09/15/2021 | 959 | ||||||
AvalonBay Communities, Inc. | ||||||||
760 | 3.63%, 10/01/2020 | 790 | ||||||
Bank of America Corp. | ||||||||
3,400 | 4.20%, 08/26/2024 | 3,463 | ||||||
1,655 | 5.00%, 05/13/2021 | 1,847 | ||||||
Barclays Bank plc | ||||||||
1,100 | 2.50%, 02/20/2019 | 1,115 | ||||||
1,300 | 3.75%, 05/15/2024 | 1,340 | ||||||
800 | 6.05%, 12/04/2017 ■ | 880 | ||||||
BNP Paribas | ||||||||
2,075 | 2.40%, 12/12/2018 | 2,095 | ||||||
305 | 3.25%, 03/03/2023 | 311 | ||||||
BP Capital Markets plc | ||||||||
140 | 3.99%, 09/26/2023 | 144 | ||||||
2,850 | 4.75%, 03/10/2019 | 3,118 | ||||||
BPCE S.A. | ||||||||
365 | 2.50%, 12/10/2018 | 370 | ||||||
1,000 | 2.50%, 07/15/2019 | 1,004 | ||||||
1,075 | 4.00%, 04/15/2024 | 1,123 | ||||||
1,275 | 5.15%, 07/21/2024 ■ | 1,314 | ||||||
Brandywine Operating Partnership L.P. | ||||||||
2,010 | 6.00%, 04/01/2016 | 2,120 | ||||||
Capital One Bank | ||||||||
1,655 | 2.15%, 11/21/2018 | 1,646 | ||||||
Capital One Financial Corp. | ||||||||
2,460 | 2.15%, 03/23/2015 | 2,467 | ||||||
2,875 | 3.75%, 04/24/2024 | 2,937 | ||||||
Caterpillar Financial Services Corp. | ||||||||
2,000 | 3.30%, 06/09/2024 | 2,040 | ||||||
CDP Financial, Inc. | ||||||||
3,475 | 4.40%, 11/25/2019 ■ | 3,826 | ||||||
Citigroup, Inc. | ||||||||
1,220 | 2.50%, 07/29/2019 | 1,221 | ||||||
1,000 | 4.95%, 11/07/2043 | 1,115 | ||||||
690 | 5.30%, 05/06/2044 | 756 | ||||||
1,850 | 5.85%, 08/02/2016 | 1,979 | ||||||
2,700 | 6.13%, 05/15/2018 | 3,056 | ||||||
520 | 8.13%, 07/15/2039 | 796 | ||||||
Compass Bank | ||||||||
505 | 2.75%, 09/29/2019 | 505 | ||||||
Credit Agricole S.A. | ||||||||
1,950 | 2.50%, 04/15/2019 ■ | 1,972 | ||||||
Credit Suisse New York | ||||||||
945 | 2.30%, 05/28/2019 | 944 | ||||||
855 | 3.00%, 10/29/2021 | 851 | ||||||
1,575 | 3.63%, 09/09/2024 | 1,602 | ||||||
Discover Financial Services | ||||||||
3,620 | 6.45%, 06/12/2017 | 4,000 | ||||||
Eaton Vance Corp. | ||||||||
614 | 6.50%, 10/02/2017 | 689 | ||||||
Fifth Third Bancorp | ||||||||
300 | 2.88%, 10/01/2021 | 300 | ||||||
Five Corners Funding Trust | ||||||||
1,440 | 4.42%, 11/15/2023 ■ | 1,523 | ||||||
Ford Motor Credit Co. LLC | ||||||||
2,985 | 2.38%, 03/12/2019 | 2,964 | ||||||
General Electric Capital Corp. | ||||||||
4,300 | 4.63%, 01/07/2021 | 4,793 | ||||||
5,000 | 5.88%, 01/14/2038 | 6,327 | ||||||
Goldman Sachs Group, Inc. | ||||||||
3,335 | 2.38%, 01/22/2018 | 3,369 | ||||||
2,975 | 5.63%, 01/15/2017 | 3,191 | ||||||
1,700 | 6.15%, 04/01/2018 | 1,908 | ||||||
2,590 | 6.25%, 02/01/2041 | 3,274 | ||||||
HCP, Inc. | ||||||||
2,030 | 6.00%, 01/30/2017 | 2,215 | ||||||
HSBC Holdings plc | ||||||||
3,010 | 6.10%, 01/14/2042 | 4,019 | ||||||
Huntington National Bank | ||||||||
760 | 2.20%, 04/01/2019 | 755 | ||||||
ING Bank N.V. | ||||||||
5,200 | 3.75%, 03/07/2017 ■ | 5,442 | ||||||
JP Morgan Chase & Co. | ||||||||
2,240 | 3.25%, 09/23/2022 | 2,253 | ||||||
850 | 3.38%, 05/01/2023 | 841 | ||||||
2,000 | 4.95%, 03/25/2020 | 2,209 | ||||||
1,080 | 5.40%, 01/06/2042 | 1,270 | ||||||
Korea Development Bank | ||||||||
2,600 | 2.50%, 03/11/2020 | 2,587 | ||||||
Korea Finance Corp. | ||||||||
965 | 2.88%, 08/22/2018 | 986 | ||||||
Liberty Mutual Group, Inc. | ||||||||
550 | 4.25%, 06/15/2023 ■ | 567 | ||||||
Loews Corp. | ||||||||
835 | 2.63%, 05/15/2023 | 789 | ||||||
Merrill Lynch & Co., Inc. | ||||||||
1,000 | 6.40%, 08/28/2017 | 1,114 | ||||||
6,000 | 6.88%, 04/25/2018 | 6,892 | ||||||
MetLife, Inc. | ||||||||
305 | 1.90%, 12/15/2017 | 306 | ||||||
2,385 | 3.60%, 04/10/2024 | 2,448 | ||||||
1,210 | 4.88%, 11/13/2043 | 1,366 | ||||||
Morgan Stanley | ||||||||
4,875 | 2.50%, 01/24/2019 | 4,879 | ||||||
1,000 | 3.70%, 10/23/2024 | 1,014 | ||||||
250 | 5.63%, 09/23/2019 | 282 | ||||||
National City Corp. | ||||||||
4,250 | 6.88%, 05/15/2019 | 4,993 | ||||||
Postal Square L.P. | ||||||||
11,291 | 8.95%, 06/15/2022 | 13,921 | ||||||
Prudential Financial, Inc. | ||||||||
1,500 | 3.50%, 05/15/2024 | 1,525 | ||||||
3,000 | 5.50%, 03/15/2016 | 3,160 |
The accompanying notes are an integral part of these financial statements.
7 |
Hartford Balanced HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount | Market Value ╪ | |||||||
Corporate Bonds - 13.3% - (continued) | ||||||||
Finance and Insurance - 6.3% - (continued) | ||||||||
Rabobank Nederland | ||||||||
$ | 3,900 | 3.20%, 03/11/2015 ■ | $ | 3,919 | ||||
Republic New York Capital I | ||||||||
500 | 7.75%, 11/15/2026 | 504 | ||||||
Scentre Group | ||||||||
1,735 | 2.38%, 11/05/2019 ■ | 1,722 | ||||||
Sovereign Bancorp, Inc. | ||||||||
4,795 | 8.75%, 05/30/2018 | 5,711 | ||||||
State Grid Overseas Investment | ||||||||
1,795 | 2.75%, 05/07/2019 ■ | 1,803 | ||||||
Synchrony Financial | ||||||||
355 | 3.00%, 08/15/2019 | 359 | ||||||
Teachers Insurance & Annuity Association of America | ||||||||
505 | 4.90%, 09/15/2044 ■ | 563 | ||||||
U.S. Bancorp | ||||||||
780 | 3.70%, 01/30/2024 | 820 | ||||||
UBS AG Stamford CT | ||||||||
235 | 5.88%, 12/20/2017 | 262 | ||||||
Wachovia Corp. | ||||||||
1,000 | 5.75%, 06/15/2017 | 1,104 | ||||||
Wellpoint, Inc. | ||||||||
421 | 3.30%, 01/15/2023 | 421 | ||||||
Wells Fargo & Co. | ||||||||
10,344 | 4.48%, 01/16/2024 | 11,029 | ||||||
185,005 | ||||||||
Food Manufacturing - 0.2% | ||||||||
ConAgra Foods, Inc. | ||||||||
265 | 1.90%, 01/25/2018 | 263 | ||||||
Grupo Bimbo S.A.B. de C.V. | ||||||||
630 | 3.88%, 06/27/2024 ■ | 632 | ||||||
Kraft Foods Group, Inc. | ||||||||
555 | 2.25%, 06/05/2017 | 564 | ||||||
300 | 3.50%, 06/06/2022 | 308 | ||||||
Mondelez International, Inc. | ||||||||
165 | 4.00%, 02/01/2024 | 173 | ||||||
3,800 | 4.13%, 02/09/2016 | 3,941 | ||||||
Tyson Foods, Inc. | ||||||||
300 | 2.65%, 08/15/2019 | 303 | ||||||
6,184 | ||||||||
Health Care and Social Assistance - 0.9% | ||||||||
Actavis Funding SCS | ||||||||
1,200 | 4.85%, 06/15/2044 | 1,218 | ||||||
Bayer Finance LLC | ||||||||
260 | 2.38%, 10/08/2019 ■ | 261 | ||||||
1,215 | 3.00%, 10/08/2021 ■ | 1,225 | ||||||
395 | 3.38%, 10/08/2024 ■ | 402 | ||||||
Cardinal Health, Inc. | ||||||||
990 | 2.40%, 11/15/2019 | 987 | ||||||
880 | 3.50%, 11/15/2024 | 877 | ||||||
1,035 | 4.50%, 11/15/2044 | 1,066 | ||||||
Catholic Health Initiatives | ||||||||
765 | 2.60%, 08/01/2018 | 775 | ||||||
Celgene Corp. | ||||||||
230 | 2.25%, 05/15/2019 | 228 | ||||||
535 | 3.63%, 05/15/2024 | 546 | ||||||
CVS Caremark Corp. | ||||||||
2,350 | 4.00%, 12/05/2023 | 2,487 | ||||||
Dignity Health | ||||||||
180 | 2.64%, 11/01/2019 | 181 | ||||||
380 | 3.81%, 11/01/2024 | 392 | ||||||
Eli Lilly & Co. | ||||||||
1,015 | 4.65%, 06/15/2044 | 1,138 | ||||||
Express Scripts Holding Co. | ||||||||
1,525 | 2.25%, 06/15/2019 | 1,509 | ||||||
2,195 | 3.50%, 06/15/2024 | 2,187 | ||||||
Forest Laboratories, Inc. | ||||||||
305 | 4.88%, 02/15/2021 ■ | 327 | ||||||
Gilead Sciences, Inc. | ||||||||
935 | 3.50%, 02/01/2025 | 960 | ||||||
930 | 3.70%, 04/01/2024 | 975 | ||||||
405 | 4.50%, 02/01/2045 | 433 | ||||||
Kaiser Foundation Hospitals | ||||||||
326 | 3.50%, 04/01/2022 | 336 | ||||||
640 | 4.88%, 04/01/2042 | 738 | ||||||
McKesson Corp. | ||||||||
100 | 2.85%, 03/15/2023 | 95 | ||||||
990 | 3.80%, 03/15/2024 | 1,017 | ||||||
Medtronic, Inc. | ||||||||
545 | 2.50%, 03/15/2020 ■ | 546 | ||||||
775 | 3.15%, 03/15/2022 ■ | 785 | ||||||
1,230 | 3.50%, 03/15/2025 ■ | 1,258 | ||||||
310 | 3.63%, 03/15/2024 | 322 | ||||||
795 | 4.38%, 03/15/2035 ■ | 843 | ||||||
270 | 4.63%, 03/15/2045 ■ | 293 | ||||||
Merck & Co., Inc. | ||||||||
1,640 | 2.80%, 05/18/2023 | 1,629 | ||||||
630 | 4.15%, 05/18/2043 | 670 | ||||||
Zoetis, Inc. | ||||||||
150 | 3.25%, 02/01/2023 | 148 | ||||||
180 | 4.70%, 02/01/2043 | 183 | ||||||
27,037 | ||||||||
Information - 0.8% | ||||||||
America Movil S.A.B. de C.V. | ||||||||
635 | 3.13%, 07/16/2022 | 626 | ||||||
530 | 4.38%, 07/16/2042 | 508 | ||||||
AT&T, Inc. | ||||||||
2,510 | 6.80%, 05/15/2036 | 3,323 | ||||||
COX Communications, Inc. | ||||||||
1,500 | 4.80%, 02/01/2035 ■ | 1,563 | ||||||
Orange S.A. | ||||||||
3,200 | 4.13%, 09/14/2021 | 3,428 | ||||||
Verizon Communications, Inc. | ||||||||
425 | 3.45%, 03/15/2021 | 435 | ||||||
2,415 | 3.50%, 11/01/2021 | 2,469 | ||||||
4,795 | 4.50%, 09/15/2020 | 5,206 | ||||||
715 | 4.75%, 11/01/2041 | 733 | ||||||
3,590 | 6.40%, 09/15/2033 | 4,422 | ||||||
22,713 | ||||||||
Machinery Manufacturing - 0.1% | ||||||||
Caterpillar, Inc. | ||||||||
835 | 3.40%, 05/15/2024 | 858 | ||||||
450 | 4.30%, 05/15/2044 | 481 | ||||||
Hutchison Whampoa International Ltd. | ||||||||
1,000 | 3.63%, 10/31/2024 ■ | 1,004 | ||||||
Parker-Hannifin Corp. | ||||||||
450 | 4.45%, 11/21/2044 | 485 | ||||||
2,828 |
The accompanying notes are an integral part of these financial statements.
8 |
Hartford Balanced HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount | Market Value ╪ | |||||||
Corporate Bonds - 13.3% - (continued) | ||||||||
Mining - 0.1% | ||||||||
BHP Billiton Finance USA Ltd. | ||||||||
$ | 1,720 | 3.85%, 09/30/2023 | $ | 1,811 | ||||
Rio Tinto Finance USA Ltd. | ||||||||
1,905 | 3.75%, 09/20/2021 | 1,958 | ||||||
3,769 | ||||||||
Miscellaneous Manufacturing - 0.0% | ||||||||
United Technologies Corp. | ||||||||
365 | 3.10%, 06/01/2022 | 372 | ||||||
Motor Vehicle and Parts Manufacturing - 0.2% | ||||||||
Daimler Finance NA LLC | ||||||||
5,600 | 2.63%, 09/15/2016 ■ | 5,737 | ||||||
Volkswagen Group of America Finance LLC | ||||||||
580 | 2.45%, 11/20/2019 ■ | 584 | ||||||
6,321 | ||||||||
Petroleum and Coal Products Manufacturing - 0.8% | ||||||||
Atmos Energy Corp. | ||||||||
5,875 | 6.35%, 06/15/2017 | 6,561 | ||||||
BG Energy Capital plc | ||||||||
2,450 | 4.00%, 10/15/2021 ■ | 2,520 | ||||||
ConocoPhillips | ||||||||
200 | 2.88%, 11/15/2021 | 202 | ||||||
395 | 4.30%, 11/15/2044 | 413 | ||||||
Devon Energy Corp. | ||||||||
370 | 3.25%, 05/15/2022 | 363 | ||||||
EnCana Corp. | ||||||||
305 | 5.90%, 12/01/2017 | 333 | ||||||
Gazprom Neft OAO via GPN Capital S.A. | ||||||||
350 | 4.38%, 09/19/2022 ■ | 255 | ||||||
Phillips 66 | ||||||||
845 | 4.88%, 11/15/2044 | 865 | ||||||
Schlumberger Investment S.A. | ||||||||
1,625 | 3.65%, 12/01/2023 | 1,699 | ||||||
Shell International Finance B.V. | ||||||||
500 | 4.38%, 03/25/2020 | 548 | ||||||
Statoil ASA | ||||||||
340 | 2.25%, 11/08/2019 | 340 | ||||||
160 | 2.45%, 01/17/2023 | 153 | ||||||
145 | 2.65%, 01/15/2024 | 141 | ||||||
495 | 2.75%, 11/10/2021 | 496 | ||||||
1,850 | 2.90%, 11/08/2020 | 1,892 | ||||||
210 | 3.25%, 11/10/2024 | 211 | ||||||
45 | 3.70%, 03/01/2024 | 47 | ||||||
Suncor Energy, Inc. | ||||||||
615 | 3.60%, 12/01/2024 | 608 | ||||||
Total Capital S.A. | ||||||||
1,375 | 2.70%, 01/25/2023 | 1,331 | ||||||
Western Gas Partners | ||||||||
2,470 | 4.00%, 07/01/2022 | 2,504 | ||||||
21,482 | ||||||||
Pipeline Transportation - 0.3% | ||||||||
Enterprise Products Operating LLC | ||||||||
950 | 5.10%, 02/15/2045 | 1,021 | ||||||
Kinder Morgan Energy Partners L.P. | ||||||||
5,000 | 6.95%, 01/15/2038 | 5,771 | ||||||
Plains All American Pipeline L.P. | ||||||||
1,000 | 4.90%, 02/15/2045 | 1,016 | ||||||
7,808 | ||||||||
Real Estate, Rental and Leasing - 0.2% | ||||||||
ERAC USA Finance Co. | ||||||||
655 | 2.35%, 10/15/2019 ■ | 650 | ||||||
340 | 2.75%, 03/15/2017 ■ | 349 | ||||||
1,800 | 4.50%, 08/16/2021 ■ | 1,925 | ||||||
1,500 | 5.63%, 03/15/2042 ■ | 1,751 | ||||||
WEA Finance, LLC / Westfiled UK & Europe Finance plc | ||||||||
480 | 1.75%, 09/15/2017 ■ | 477 | ||||||
730 | 2.70%, 09/17/2019 ■ | 730 | ||||||
5,882 | ||||||||
Retail Trade - 0.4% | ||||||||
Amazon.com, Inc. | ||||||||
1,550 | 2.50%, 11/29/2022 | 1,467 | ||||||
465 | 4.80%, 12/05/2034 | 488 | ||||||
570 | 4.95%, 12/05/2044 | 589 | ||||||
AutoZone, Inc. | ||||||||
900 | 3.13%, 07/15/2023 | 885 | ||||||
1,908 | 3.70%, 04/15/2022 | 1,963 | ||||||
Home Depot, Inc. | ||||||||
325 | 4.40%, 03/15/2045 | 355 | ||||||
Kroger (The) Co. | ||||||||
620 | 3.30%, 01/15/2021 | 629 | ||||||
1,065 | 4.00%, 02/01/2024 | 1,118 | ||||||
Lowe's Cos., Inc. | ||||||||
3,400 | 4.63%, 04/15/2020 | 3,748 | ||||||
�� | 11,242 | |||||||
Soap, Cleaning Compound and Toilet Manufacturing - 0.3% | ||||||||
Procter & Gamble Co. | ||||||||
7,769 | 9.36%, 01/01/2021 | 9,592 | ||||||
Utilities - 0.9% | ||||||||
Berkshire Hathaway Energy Co. | ||||||||
1,700 | 4.50%, 02/01/2045 ■ | 1,779 | ||||||
Consolidated Edison Co. of NY | ||||||||
4,605 | 5.30%, 12/01/2016 | 4,978 | ||||||
Dominion Resources, Inc. | ||||||||
2,850 | 3.63%, 12/01/2024 | 2,887 | ||||||
Electricitie De France | ||||||||
2,375 | 4.88%, 01/22/2044 ■ | 2,636 | ||||||
2,375 | 5.63%, 01/22/2024 ■♠ | 2,503 | ||||||
Indianapolis Power and Light | ||||||||
3,750 | 6.60%, 06/01/2037 ■ | 5,333 | ||||||
NiSource Finance Corp. | ||||||||
340 | 4.80%, 02/15/2044 | 362 | ||||||
Pacific Gas & Electric Co. | ||||||||
695 | 3.85%, 11/15/2023 | 724 | ||||||
435 | 5.13%, 11/15/2043 | 498 | ||||||
Southern California Edison Co. | ||||||||
4,000 | 5.55%, 01/15/2037 | 4,979 | ||||||
26,679 | ||||||||
Wholesale Trade - 0.1% | ||||||||
Heineken N.V. | ||||||||
1,330 | 2.75%, 04/01/2023 ■ | 1,282 | ||||||
50 | 4.00%, 10/01/2042 ■ | 49 | ||||||
1,331 | ||||||||
Total Corporate Bonds | ||||||||
(Cost $361,913) | $ | 390,358 |
The accompanying notes are an integral part of these financial statements.
9 |
Hartford Balanced HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount | Market Value ╪ | |||||||
Foreign Government Obligations - 0.1% | ||||||||
Mexico - 0.1% | ||||||||
Mexico (United Mexican States) | ||||||||
$ | 1,674 | 3.50%, 01/21/2021 | $ | 1,709 | ||||
2,375 | 3.60%, 01/30/2025 | 2,367 | ||||||
$ | 4,076 | |||||||
Total Foreign Government Obligations | ||||||||
(Cost $4,022) | $ | 4,076 | ||||||
Municipal Bonds - 1.2% | ||||||||
General Obligations - 0.3% | ||||||||
California State GO, Taxable, | ||||||||
$ | 1,235 | 7.55%, 04/01/2039 | $ | 1,906 | ||||
Chicago, IL, Metropolitan Water Reclamation GO, | ||||||||
685 | 5.72%, 12/01/2038 | 852 | ||||||
Illinois State, GO, | ||||||||
775 | 5.10%, 06/01/2033 | 769 | ||||||
Los Angeles, CA, USD GO, | ||||||||
4,300 | 5.75%, 07/01/2034 | 5,426 | ||||||
8,953 | ||||||||
Health Care/Services - 0.1% | ||||||||
University of California, Regents MedCenter Pooled Rev, | ||||||||
1,935 | 6.58%, 05/15/2049 | 2,643 | ||||||
Higher Education (Univ., Dorms, etc.) - 0.1% | ||||||||
University of California, Build America Bonds Rev, | ||||||||
1,960 | 5.77%, 05/15/2043 | 2,519 | ||||||
Tax Allocation - 0.1% | ||||||||
Dallas, TX, Area Rapid Transit Sales Tax Rev, | ||||||||
2,200 | 6.00%, 12/01/2044 | 2,999 | ||||||
Transportation - 0.5% | ||||||||
Bay Area, CA, Toll Auth Bridge Rev, | ||||||||
3,100 | 6.26%, 04/01/2049 | 4,368 | ||||||
Illinois State Toll Highway Auth, Taxable Rev, | ||||||||
1,875 | 6.18%, 01/01/2034 | 2,427 | ||||||
Maryland State Transportation Auth, | ||||||||
1,350 | 5.89%, 07/01/2043 | 1,785 | ||||||
New York and New Jersey PA, Taxable Rev, | ||||||||
975 | 5.86%, 12/01/2024 | 1,201 | ||||||
570 | 6.04%, 12/01/2029 | 722 | ||||||
North Texas Tollway Auth Rev, | ||||||||
3,400 | 6.72%, 01/01/2049 | 4,922 | ||||||
15,425 | ||||||||
Utilities - Combined - 0.0% | ||||||||
Utility Debt Securitization Auth, New York, | ||||||||
485 | 3.44%, 12/15/2025 | 507 | ||||||
Utilities - Electric - 0.1% | ||||||||
Municipal Elec Auth Georgia, | ||||||||
775 | 6.64%, 04/01/2057 | 1,027 | ||||||
Total Municipal Bonds | ||||||||
(Cost $26,158) | $ | 34,073 | ||||||
U.S. Government Agencies - 2.4% | ||||||||
FHLMC - 0.4% | ||||||||
$ | 88 | 2.28%, 04/01/2029 Δ | $ | 91 | ||||
49 | 4.00%, 03/01/2041 | 52 | ||||||
10,085 | 4.50%, 08/01/2033 - 01/01/2044 | 10,966 | ||||||
11,109 | ||||||||
FNMA - 1.7% | ||||||||
46,024 | 4.50%, 11/01/2023 - 10/01/2044 ☼Ð | 50,009 | ||||||
84 | 5.00%, 02/01/2019 - 04/01/2019 | 90 | ||||||
1 | 7.00%, 02/01/2029 | 1 | ||||||
50,100 | ||||||||
GNMA - 0.3% | ||||||||
223 | 5.00%, 07/15/2037 | 247 | ||||||
2,235 | 6.00%, 06/15/2024 - 06/15/2035 | 2,547 | ||||||
710 | 6.50%, 03/15/2026 - 02/15/2035 | 811 | ||||||
3,279 | 7.00%, 11/15/2031 - 11/15/2033 | 3,896 | ||||||
160 | 7.50%, 09/16/2035 | 184 | ||||||
664 | 8.00%, 09/15/2026 - 02/15/2031 | 730 | ||||||
19 | 9.00%, 07/20/2016 - 06/15/2022 | 19 | ||||||
8,434 | ||||||||
Total U.S. Government Agencies | ||||||||
(Cost $68,138) | $ | 69,643 | ||||||
U.S. Government Securities - 16.7% | ||||||||
Other Direct Federal Obligations - 0.8% | ||||||||
Tennessee Valley Authority - 0.8% | ||||||||
$ | 22,300 | 4.38%, 06/15/2015 | $ | 22,699 | ||||
U.S. Treasury Securities - 15.9% | ||||||||
U.S. Treasury Bonds - 2.4% | ||||||||
18,211 | 2.88%, 05/15/2043 ‡ | 18,626 | ||||||
10,932 | 3.13%, 02/15/2043 - 08/15/2044 | 11,768 | ||||||
9,510 | 3.38%, 05/15/2044 | 10,706 | ||||||
22,000 | 4.38%, 02/15/2038 □ | 28,787 | ||||||
1,750 | 6.00%, 02/15/2026 | 2,399 | ||||||
72,286 | ||||||||
U.S. Treasury Notes - 13.5% | ||||||||
15,800 | 0.38%, 05/31/2016 | 15,790 | ||||||
80,000 | 0.50%, 08/31/2016 | 79,969 | ||||||
33,300 | 0.63%, 05/31/2017 - 08/31/2017 | 33,014 | ||||||
5,343 | 0.88%, 01/31/2017 | 5,358 | ||||||
18,800 | 1.00%, 09/15/2017 - 05/31/2018 | 18,739 | ||||||
8,300 | 1.25%, 11/30/2018 | 8,242 | ||||||
36,835 | 1.38%, 09/30/2018 | 36,800 | ||||||
28,700 | 1.50%, 06/30/2016 | 29,133 | ||||||
37,000 | 1.63%, 07/31/2019 | 37,058 | ||||||
41,035 | 1.75%, 09/30/2019 | 41,275 | ||||||
3,100 | 2.00%, 04/30/2016 | 3,165 | ||||||
700 | 2.25%, 11/15/2024 | 705 | ||||||
13,095 | 2.38%, 08/15/2024 | 13,338 | ||||||
43,000 | 2.75%, 02/15/2019 - 02/15/2024 | 45,246 | ||||||
24,575 | 3.88%, 05/15/2018 | 26,718 | ||||||
394,550 | ||||||||
466,836 | ||||||||
Total U.S. Government Securities | ||||||||
(Cost $472,399) | $ | 489,535 | ||||||
Total Long-Term Investments | ||||||||
(Cost $2,217,269) | $ | 2,909,640 |
The accompanying notes are an integral part of these financial statements.
10 |
Hartford Balanced HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount | Market Value ╪ | |||||||||||
Short-Term Investments - 0.7% | ||||||||||||
Repurchase Agreements - 0.7% | ||||||||||||
Bank of America Merrill Lynch Repurchase Agreement (maturing on 01/02/2015 in the amount of $21, collateralized by U.S. Treasury Note 0.75%, 2018, value of $21) | ||||||||||||
$ | 21 | 0.05%, 12/31/2014 | $ | 21 | ||||||||
Bank of America Merrill Lynch TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $108, collateralized by U.S. Treasury Note 2.50%, 2024, value of $110) | ||||||||||||
108 | 0.07%, 12/31/2014 | 108 | ||||||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $2,809, collateralized by U.S. Treasury Bond 3.88% - 5.25%, 2029 - 2040, U.S. Treasury Note 0.25% - 4.63%, 2015 - 2022, value of $2,865) | ||||||||||||
2,809 | 0.06%, 12/31/2014 | 2,809 | ||||||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $1,224, collateralized by FHLMC 2.00% - 5.50%, 2019 - 2044, FNMA 2.00% - 4.00%, 2024 - 2042, GNMA 3.00%, 2043, U.S. Treasury Bill 0.07%, 2015, value of $1,248) | ||||||||||||
1,224 | 0.07%, 12/31/2014 | 1,224 | ||||||||||
Barclays Capital TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $3,008, collateralized by U.S. Treasury Bond 3.63%, 2043, U.S. Treasury Note 0.88% - 2.00%, 2017 - 2020, value of $3,069) | ||||||||||||
3,008 | 0.05%, 12/31/2014 | 3,008 | ||||||||||
Citigroup Global Markets, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $5,377, collateralized by U.S. Treasury Bond 3.63% - 9.88%, 2015 - 2043, U.S. Treasury Note 0.25% - 2.75%, 2015 - 2022, value of $5,484) | ||||||||||||
5,377 | 0.06%, 12/31/2014 | 5,377 | ||||||||||
Deutsche Bank Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $873, collateralized by FHLMC 2.00% - 10.50%, 2015 - 2047, FNMA 2.00% - 9.50%, 2015 - 2049, GNMA 2.50% - 10.00%, 2016 - 2055, value of $890) | ||||||||||||
873 | 0.12%, 12/31/2014 | 873 | ||||||||||
RBS Securities, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $229, collateralized by U.S. Treasury Note 0.38% - 2.13%, 2015 - 2016, value of $233) | ||||||||||||
229 | 0.07%, 12/31/2014 | 229 | ||||||||||
Societe Generale TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $2,558, collateralized by U.S. Treasury Bond 8.75%, 2020, U.S. Treasury Note 0.25% - 2.88%, 2015 - 2022, value of $2,609) | ||||||||||||
2,558 | 0.07%, 12/31/2014 | 2,558 | ||||||||||
TD Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $5,478, collateralized by FHLMC 3.00% - 4.00%, 2026 - 2044, FNMA 2.50% - 5.00%, 2025 - 2044, value of $5,588) | ||||||||||||
5,478 | 0.08%, 12/31/2014 | 5,478 | ||||||||||
21,685 | ||||||||||||
Total Short-Term Investments | ||||||||||||
(Cost $21,685) | $ | 21,685 | ||||||||||
Total Investments | ||||||||||||
(Cost $2,238,954) ▲ | 100.2 | % | $ | 2,931,325 | ||||||||
Other Assets and Liabilities | (0.2 | )% | (7,301 | ) | ||||||||
Total Net Assets | 100.0 | % | $ | 2,924,024 |
The accompanying notes are an integral part of these financial statements.
11 |
Hartford Balanced HLS Fund |
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Note: Percentage of investments as shown is the ratio of the total market value to total net assets.
Prices of foreign equities that are principally traded on certain foreign markets may be adjusted daily pursuant to a fair value pricing service approved by the Board of Directors in order to reflect an adjustment for factors occurring after the close of certain foreign markets but before the close of the New York Stock Exchange. | |
The Fund may refer to any one or more of the industry classifications used by one or more widely recognized market indices, ratings group indices and/or as defined by Fund management. Industry classifications may not be identical across all security types. | |
Equity industry classifications used in this report are the Global Industry Classification Standard, which was developed by and is the exclusive property and service mark of MSCI, Inc. and Standard & Poor’s. | |
For Fund compliance purposes, the Fund may not use the same classification system shown in this report as these classifications are used for reporting ease. |
▲ | At December 31, 2014, the cost of securities for federal income tax purposes was $2,249,398 and the aggregate gross unrealized appreciation and depreciation based on that cost were: |
Unrealized Appreciation | $ | 706,178 | ||
Unrealized Depreciation | (24,251 | ) | ||
Net Unrealized Appreciation | $ | 681,927 |
† | These securities were valued in good faith at fair value as determined under policies and procedures established by and under the supervision of the Board of Directors. At December 31, 2014, the aggregate fair value of these securities was $21,746, which represents 0.7% of total net assets. This amount excludes securities that are principally traded in certain foreign markets and whose prices are adjusted pursuant to a third party pricing service methodology approved by the Board of Directors. |
● | Non-income producing. |
Δ | Variable rate securities; the rate reported is the coupon rate in effect at December 31, 2014. |
■ | Securities issued within terms of a private placement memorandum, exempt from registration under Rule 144A under the Securities Act of 1933, as amended, and may be sold only to qualified institutional buyers. Unless otherwise noted, these holdings are determined to be liquid. At December 31, 2014, the aggregate value of these securities was $73,332, which represents 2.5% of total net assets. |
⌂ | The following securities are considered illiquid. Illiquid securities are often purchased in private placement transactions, are often not registered under the Securities Act of 1933, as amended, and may have contractual restrictions on resale. Illiquid securities may lack a readily available market or their valuation has not changed for a certain period of time. |
Period Acquired | Shares/ Par | Security | Cost Basis | |||||||
08/2011 | 11,702 | Allstar Co. | $ | 5,091 | ||||||
11/2013 | 163 | Tory Burch LLC | 12,794 |
At December 31, 2014, the aggregate value of these securities was $21,746, which represents 0.7% of total net assets. |
♠ | Perpetual maturity security. Maturity date shown is the next call date or final legal maturity date, whichever comes first. |
☼ | This security, or a portion of this security, was purchased on a when-issued or delayed-delivery basis. The cost of these securities was $14,769 at December 31, 2014. |
‡ | This security, or a portion of this security, has been segregated to cover funding requirements on investment transactions settling in the future. |
□ | This security, or a portion of this security, has been pledged as collateral in connection with futures contracts. |
Ð | Represents or includes a TBA transaction. |
The accompanying notes are an integral part of these financial statements.
12 |
Hartford Balanced HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Futures Contracts Outstanding at December 31, 2014
Number of | Expiration | Notional | Market | Unrealized Appreciation/(Depreciation) | Variation Margin | |||||||||||||||||||||||||
Description | Contracts* | Date | Amount | Value ╪ | Asset | Liability | Asset | Liability | ||||||||||||||||||||||
Long position contracts: | ||||||||||||||||||||||||||||||
U.S. Treasury 10-Year Note Future | 257 | 03/20/2015 | $ | 32,637 | $ | 32,587 | $ | — | $ | (50 | ) | $ | 56 | $ | — | |||||||||||||||
U.S. Treasury CME Ultra Long Term Bond Future | 21 | 03/20/2015 | 3,313 | 3,469 | 156 | — | 7 | — | ||||||||||||||||||||||
Total | �� | $ | 156 | $ | (50 | ) | $ | 63 | $ | — | ||||||||||||||||||||
Short position contracts: | ||||||||||||||||||||||||||||||
U.S. Treasury 5-Year Note Future | 230 | 03/31/2015 | $ | 27,311 | $ | 27,354 | $ | — | $ | (43 | ) | $ | — | $ | (36 | ) | ||||||||||||||
Total futures contracts | $ | 156 | $ | (93 | ) | $ | 63 | $ | (36 | ) |
* The number of contracts does not omit 000's.
╪ | See Significant Accounting Policies of accompanying Notes to Financial Statements regarding valuation of securities. |
GLOSSARY: (abbreviations used in preceding Schedule of Investments) | |
Municipal Bond Abbreviations: | |
GO | General Obligation |
PA | Port Authority |
Rev | Revenue |
USD | United School District |
Other Abbreviations: | |
ADR | American Depositary Receipt |
FHLMC | Federal Home Loan Mortgage Corp. |
FNMA | Federal National Mortgage Association |
GNMA | Government National Mortgage Association |
TBA | To Be Announced |
The accompanying notes are an integral part of these financial statements.
13 |
Hartford Balanced HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Investment Valuation Hierarchy Level Summary
December 31, 2014
Total | Level 1 ♦ | Level 2 ♦ | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Asset and Commercial Mortgage Backed Securities | $ | 30,722 | $ | — | $ | 30,714 | $ | 8 | ||||||||
Common Stocks ‡ | 1,891,233 | 1,810,038 | 59,449 | 21,746 | ||||||||||||
Corporate Bonds | 390,358 | — | 369,729 | 20,629 | ||||||||||||
Foreign Government Obligations | 4,076 | — | 4,076 | — | ||||||||||||
Municipal Bonds | 34,073 | — | 34,073 | — | ||||||||||||
U.S. Government Agencies | 69,643 | — | 69,643 | — | ||||||||||||
U.S. Government Securities | 489,535 | — | 489,535 | — | ||||||||||||
Short-Term Investments | 21,685 | — | 21,685 | — | ||||||||||||
Total | $ | 2,931,325 | $ | 1,810,038 | $ | 1,078,904 | $ | 42,383 | ||||||||
Futures * | $ | 156 | $ | 156 | $ | — | $ | — | ||||||||
Total | $ | 156 | $ | 156 | $ | — | $ | — | ||||||||
Liabilities: | ||||||||||||||||
Futures * | $ | 93 | $ | 93 | $ | — | $ | — | ||||||||
Total | $ | 93 | $ | 93 | $ | — | $ | — |
♦ | For the year ended December 31, 2014, investments valued at $21,767 were transferred from Level 1 to Level 2, and there were no transfers from Level 2 to Level 1. Investments are transferred between Level 1 and Level 2 for a variety of reasons including, but not limited to: |
1) | Foreign equities for which a fair value price is more representative of exit value than the local market close (transfer into Level 2). Foreign equities for which the local market close is more representative of exit value (transfer into Level 1). | |
2) | U.S. Treasury securities that no longer represent the most recent issue (transfer into Level 2). | |
3) | Equity investments with no observable trading but a bid or mean price is used (transfer into Level 2). Equity investments using observable quoted prices in an active market (transfer into Level 1). |
‡ | The Fund has all or primarily all of the equity securities categorized in a particular level. Refer to the Schedule of Investments for further industry breakout. |
* | Derivative instruments (excluding purchased and written options, if applicable) are valued at the unrealized appreciation/depreciation on the investments. |
Following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
Balance as of December 31, 2013 | Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Net Amortization | Purchases | Sales | Transfers Into Level 3 | Transfers Out of Level 3 | Balance as of December 31, 2014 | ||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||
Asset & Commercial Mortgage Backed Securities | $ | 8 | $ | — | $ | — | * | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 8 | |||||||||||||||||
Common Stocks | 38,005 | — | (14,435 | )† | — | — | (1,824 | ) | — | — | 21,746 | |||||||||||||||||||||||||
Corporate Bonds | 22,994 | (90 | ) | (832 | )‡ | (103 | ) | — | (1,340 | ) | — | — | 20,629 | |||||||||||||||||||||||
Total | $ | 61,007 | $ | (90 | ) | $ | (15,267 | ) | $ | (103 | ) | $ | — | $ | (3,164 | ) | $ | — | $ | — | $ | 42,383 |
* | Change in unrealized appreciation (depreciation) in the current period relating to assets still held at December 31, 2014 rounds to zero. |
† | Change in unrealized appreciation (depreciation) in the current period relating to assets still held at December 31, 2014 was $(14,435). |
‡ | Change in unrealized appreciation (depreciation) in the current period relating to assets still held at December 31, 2014 was $(831). |
Note: | For purposes of reporting transfers between different hierarchy levels, both transfers in and out of each level, as applicable, are shown as if they occurred at the beginning of the period. |
The accompanying notes are an integral part of these financial statements.
14 |
Hartford Balanced HLS Fund |
Statement of Assets and Liabilities |
December 31, 2014 |
(000’s Omitted) |
Assets: | ||||
Investments in securities, at market value (cost $2,238,954) | $ | 2,931,325 | ||
Cash | 11 | |||
Receivables: | ||||
Investment securities sold | 13,951 | |||
Fund shares sold | 134 | |||
Dividends and interest | 10,006 | |||
Variation margin on financial derivative instruments | 63 | |||
Total assets | 2,955,490 | |||
Liabilities: | ||||
Payables: | ||||
Investment securities purchased | 28,542 | |||
Fund shares redeemed | 2,323 | |||
Investment management fees | 398 | |||
Distribution fees | 20 | |||
Variation margin on financial derivative instruments | 36 | |||
Accrued expenses | 147 | |||
Other liabilities | — | |||
Total liabilities | 31,466 | |||
Net assets | $ | 2,924,024 | ||
Summary of Net Assets: | ||||
Capital stock and paid-in-capital | $ | 2,640,585 | ||
Undistributed net investment income | 12,146 | |||
Accumulated net realized loss | (421,083 | ) | ||
Unrealized appreciation of investments and the translations of assets and liabilities denominated in foreign currency | 692,376 | |||
Net assets | $ | 2,924,024 | ||
Shares authorized | 9,700,000 | |||
Par value | $ | 0.001 | ||
Class IA: Net asset value per share | $ | 27.09 | ||
Shares outstanding | 94,568 | |||
Net assets | $ | 2,561,814 | ||
Class IB: Net asset value per share | $ | 27.45 | ||
Shares outstanding | 13,194 | |||
Net assets | $ | 362,210 |
The accompanying notes are an integral part of these financial statements.
15 |
Hartford Balanced HLS Fund |
Statement of Operations |
For the Year Ended December 31, 2014 |
(000’s Omitted) |
Investment Income: | ||||
Dividends | $ | 44,235 | ||
Interest | 28,628 | |||
Less: Foreign tax withheld | (567 | ) | ||
Total investment income, net | 72,296 | |||
Expenses: | ||||
Investment management fees | 18,661 | |||
Transfer agent fees | 6 | |||
Distribution fees - Class IB | 945 | |||
Custodian fees | 20 | |||
Accounting services fees | 485 | |||
Board of Directors' fees | 78 | |||
Audit fees | 43 | |||
Other expenses | 404 | |||
Total expenses (before fees paid indirectly) | 20,642 | |||
Commission recapture | (2 | ) | ||
Custodian fee offset | — | |||
Total fees paid indirectly | (2 | ) | ||
Total expenses, net | 20,640 | |||
Net Investment Income | 51,656 | |||
Net Realized Gain on Investments, Other Financial Instruments and Foreign Currency Transactions: | ||||
Net realized gain on investments | 275,753 | |||
Net realized loss on TBA sale transactions | (71 | ) | ||
Net realized gain on futures contracts | 434 | |||
Net realized gain on swap contracts | 185 | |||
Net realized gain on foreign currency contracts | 122 | |||
Net realized loss on other foreign currency transactions | (71 | ) | ||
Net Realized Gain on Investments, Other Financial Instruments and Foreign Currency Transactions | 276,352 | |||
Net Changes in Unrealized Depreciation of Investments, Other Financial Instruments and Foreign Currency Transactions: | ||||
Net unrealized depreciation of investments | (47,388 | ) | ||
Net unrealized depreciation of TBA sale commitments | (4 | ) | ||
Net unrealized appreciation of futures contracts | 63 | |||
Net unrealized depreciation of swap contracts | (158 | ) | ||
Net unrealized depreciation on translation of other assets and liabilities in foreign currencies | (80 | ) | ||
Net Changes in Unrealized Depreciation of Investments, Other Financial Instruments and Foreign Currency Transactions | (47,567 | ) | ||
Net Gain on Investments, Other Financial Instruments and Foreign Currency Transactions | 228,785 | |||
Net Increase in Net Assets Resulting from Operations | $ | 280,441 |
The accompanying notes are an integral part of these financial statements.
16 |
Hartford Balanced HLS Fund |
Statement of Changes in Net Assets |
(000’s Omitted) |
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Operations: | ||||||||
Net investment income | $ | 51,656 | $ | 55,047 | ||||
Net realized gain on investments, other financial instruments and foreign currency transactions | 276,352 | 249,371 | ||||||
Net unrealized appreciation (depreciation) of investments, other financial instruments and foreign currency transactions | (47,567 | ) | 311,490 | |||||
Net Increase in Net Assets Resulting from Operations | 280,441 | 615,908 | ||||||
Distributions to Shareholders: | ||||||||
From net investment income | ||||||||
Class IA | (45,324 | ) | (40,827 | ) | ||||
Class IB | (5,428 | ) | (4,827 | ) | ||||
Total distributions | (50,752 | ) | (45,654 | ) | ||||
Capital Share Transactions: | ||||||||
Class IA | ||||||||
Sold | 26,556 | 66,768 | ||||||
Issued on reinvestment of distributions | 45,324 | 40,827 | ||||||
Redeemed | (493,777 | ) | (576,929 | ) | ||||
Total capital share transactions | (421,897 | ) | (469,334 | ) | ||||
Class IB | ||||||||
Sold | 3,393 | 32,394 | ||||||
Issued on reinvestment of distributions | 5,428 | 4,827 | ||||||
Redeemed | (74,968 | ) | (116,032 | ) | ||||
Total capital share transactions | (66,147 | ) | (78,811 | ) | ||||
Net decrease from capital share transactions | (488,044 | ) | (548,145 | ) | ||||
Net Increase (Decrease) in Net Assets | (258,355 | ) | 22,109 | |||||
Net Assets: | ||||||||
Beginning of period | 3,182,379 | 3,160,270 | ||||||
End of period | $ | 2,924,024 | $ | 3,182,379 | ||||
Undistributed (distributions in excess of) net investment income | $ | 12,146 | $ | 10,106 | ||||
Shares: | ||||||||
Class IA | ||||||||
Sold | 1,016 | 2,884 | ||||||
Issued on reinvestment of distributions | 1,666 | 1,648 | ||||||
Redeemed | (18,918 | ) | (24,684 | ) | ||||
Total share activity | (16,236 | ) | (20,152 | ) | ||||
Class IB | ||||||||
Sold | 127 | 1,370 | ||||||
Issued on reinvestment of distributions | 197 | 192 | ||||||
Redeemed | (2,838 | ) | (4,918 | ) | ||||
Total share activity | (2,514 | ) | (3,356 | ) |
The accompanying notes are an integral part of these financial statements.
17 |
Hartford Balanced HLS Fund |
Notes to Financial Statements |
December 31, 2014 |
(000’s Omitted) |
Organization:
Hartford Balanced HLS Fund (the "Fund") serves as an underlying investment option for certain variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company (“HLIC”) and its affiliates and certain qualified retirement plans. The Fund may also serve as an underlying investment option for certain variable annuity and variable life separate accounts of other insurance companies. Owners of variable annuity contracts and policyholders of variable life insurance contracts may choose the funds permitted in the variable insurance contract prospectus. In addition, participants in certain qualified retirement plans may choose the Fund if permitted by their plans.
Hartford Series Fund, Inc. (the “Company”) is an open-end registered management investment company comprised of fifteen portfolios. Financial statements for the Fund, a series of the Company, are included in this report.
The Company is organized under the laws of the State of Maryland and is registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (“1940 Act”). The Fund is a diversified open-end management investment company. The Fund is an investment company and applies specialized accounting and reporting under Accounting Standards Codification Topic 946, Financial Services - Investment Companies.
The Fund is divided into Class IA, Class IB and Class IC shares. Each class is offered at the per share net asset value (“NAV”) without a sales charge and is subject to the same expenses, except that the Class IB and Class IC shares are subject to distribution and service fees charged pursuant to a Distribution Plan adopted in accordance with Rule 12b-1 under the 1940 Act and Class IC shares are also subject to an administrative service fee. Class IC shares have not commenced operations as of the date of this report.
Significant Accounting Policies:
The following is a summary of significant accounting policies of the Fund in the preparation of its financial statements, which are in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The preparation of financial statements in accordance with U.S. GAAP may require 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
Determination of Net Asset Value – The NAV of each class of the Fund's shares is determined as of the close of regular trading (normally 4:00 p.m. Eastern Time) (the “NYSE Close”) on each day that the New York Stock Exchange (the “Exchange”) is open (“Valuation Date”). Information that becomes known to the Fund after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the NAV determined earlier that day.
Investment Valuation and Fair Value Measurements – For purposes of calculating the NAV, portfolio investments and other assets held by the Fund's portfolio for which market quotes are readily available are valued at market value. Market value is generally determined on the basis of last reported sales prices or official close price. If no sales are reported, market value is based on quotes obtained from a quotation reporting system, established market makers, or independent pricing services. If market prices are not readily available or are deemed unreliable, the Fund will use the fair value of the investment as determined in good faith under policies and procedures established by and under the supervision of the Company's Board of Directors. Market quotes are considered not readily available where there is an absence of current or reliable market-based data (e.g., trade information or indicative market quotes), including where events occur after the close of the relevant market, but prior to the NYSE Close, that materially affect the values of the Fund's portfolio investments or assets. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the investments trade do not open for trading for the entire day and no other market prices are available. In addition, prices of foreign equities that are principally traded on certain foreign markets may be adjusted daily pursuant to a fair value pricing service approved by the Board of Directors in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close. Investments that are primarily traded on foreign markets may trade on days that are not business days of the Fund. The value of the foreign investments in which the Fund invests may change on days when a shareholder will not be able to purchase or redeem shares of the Fund. Fair value pricing is subjective in nature and the use of fair value pricing by the Fund may cause the NAV of its shares to differ significantly from the NAV that would have been calculated using market prices at the close of the exchange on which a portfolio investment is primarily
18 |
Hartford Balanced HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
traded. There can be no assurance that the Fund could obtain the fair market value assigned to an investment if the Fund were to sell the investment at approximately the time at which the Fund determines its NAV.
Fixed income investments (other than short-term obligations), non-exchange traded derivatives and centrally cleared swaps held by the Fund are normally valued on the basis of quotes obtained from independent pricing services or brokers and dealers in accordance with procedures established by the Company's Board of Directors. Prices obtained from independent pricing services use information provided by market makers or estimates of market values through accepted market modeling, trading and pricing conventions. Inputs to the models may include, but are not limited to, prepayment speeds, pricing spread, yield, trade information, dealer quotes, market color, cash flow models and the investment’s terms and conditions. Generally, the Fund may use fair valuation in regard to fixed income investments when the Fund holds defaulted or distressed investments or investments in a company in which a reorganization is pending. Short-term investments maturing in 60 days or less are generally valued at amortized cost, if their original term to maturity was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if the original term to maturity exceeded 60 days, which approximates fair value.
Exchange traded options, futures and options on futures are valued at the settlement price or last trade price determined by the relevant exchange as of the NYSE Close. If the last trade price for exchange traded options does not fall between the bid and ask prices, the value will be the mean of the bid and ask prices as of the NYSE Close. If a last trade price is not available, the value will be the mean of the bid and ask prices as of the NYSE Close. If a mean of the bid and ask prices cannot be calculated for the day, the value will be the bid price as of the NYSE Close. In the case of over-the-counter ("OTC") options and such instruments that do not trade on an exchange, values may be supplied by a pricing service using a formula or other objective method that may take into consideration the style, direction, expiration, strike price, notional value and volatility or other special adjustments.
Investments valued in currencies other than U.S. dollars are converted to U.S. dollars using exchange rates obtained from independent pricing services for calculation of the NAV. As a result, the NAV of the Fund’s shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of investments traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that the NYSE is closed and the market value may change on days when an investor is not able to purchase, redeem or exchange shares of the Fund.
Foreign currency contracts represent agreements to exchange currencies on specific future dates at predetermined rates. Foreign currency contracts are valued using foreign currency exchange rates and forward rates as provided by an independent pricing service on the Valuation Date.
Financial instruments for which prices are not available from an independent pricing service may be valued using market quotations obtained from one or more dealers that make markets in the respective financial instrument in accordance with procedures established by the Company's Board of Directors.
U.S. GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants. The U.S. GAAP fair value measurement standards require disclosure of a fair value hierarchy for each major category of assets and liabilities. Various inputs are used in determining the fair value of the Fund’s investments. These inputs are summarized into three broad hierarchy levels. This hierarchy is based on whether the valuation inputs are observable or unobservable. These levels are:
Level 1 – Quoted prices in active markets for identical investments. Level 1 may include exchange traded instruments, such as domestic equities, some foreign equities, options, futures, mutual funds, exchange traded funds, rights and warrants.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar investments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 2 may include debt investments that are traded less frequently than exchange traded instruments and which are valued using independent pricing services; foreign equities, which are principally traded on certain foreign markets and are adjusted daily pursuant to a fair value pricing service in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close; senior floating rate interests, which are valued using an aggregate of dealer bids; short-term investments, which are valued at amortized cost; and swaps, which are valued based upon the terms of each swap contract.
19 |
Hartford Balanced HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Level 3 – Significant unobservable inputs that are supported by limited or no market activity. Level 3 may include financial instruments whose values are determined using indicative market quotes or require significant management judgment or estimation. These unobservable valuation inputs may include estimates for current yields, maturity/duration, prepayment speed, and indicative market quotes for comparable investments along with other assumptions relating to credit quality, collateral value, complexity of the investment structure, general market conditions and liquidity. This category may include investments where trading has been halted or there are certain restrictions on trading. While these investments are priced using unobservable inputs, the valuation of these investments reflects the best available data and management believes the prices are a reasonable representation of exit price.
The Board of Directors of the Company generally reviews and approves the “Procedures for Valuation of Portfolio Securities” at least once a year. These procedures define how investments are to be valued, including the formation and activities of a Valuation Committee. The Valuation Committee is responsible for determining in good faith the fair value of investments when the value cannot be obtained from primary pricing services or alternative sources or if the valuation of an investment as provided by the primary pricing service or alternative source is believed not to reflect the investment’s fair value as of the Valuation Date. Voting members of the Valuation Committee include the Fund's Treasurer or designee and a Vice President of the investment manager or designee. An Assistant Vice President of the Fund with legal expertise or designee is also included on the Valuation Committee as a non-voting advisory member. In addition, the Fund’s Chief Compliance Officer shall designate a member of the compliance group to attend Valuation Committee meetings as a non-voting resource, to monitor for and provide guidance with respect to compliance with these procedures. Two members of the Valuation Committee or their designees, representing different departments, shall constitute a quorum for purposes of permitting the Valuation Committee to take action. The Valuation Committee will consider all relevant factors in determining an investment’s fair value, and may seek the advice of the Fund’s sub-adviser, knowledgeable brokers, and legal counsel in making such determination. The Valuation Committee reports to the Audit Committee of the Company's Board of Directors. The Audit Committee receives quarterly written reports which include details of all fair-valued investments, including the reason for the fair valuation, and an indication, when possible, of the accuracy of the valuation by disclosing the next available reliable public price quotation or the disposition price of such investments (the “look-back” test). The Board of Directors then must consider for ratification all of the fair value determinations made during the previous quarter.
Valuation levels are not necessarily indicative of the risk associated with investing in such investments. Individual investments within any of the above mentioned asset classes may be assigned a different hierarchical level than those presented above, as individual circumstances dictate.
For additional information, refer to the Investment Valuation Hierarchy Level Summary and the Level 3 roll-forward reconciliation, if applicable, which is included in the Schedule of Investments.
Investment Transactions and Investment Income – Investment transactions are recorded as of the trade date (the date the order to buy or sell is executed) for financial reporting purposes. Investments purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Realized gains and losses are determined on the basis of identified cost.
Dividend income from domestic securities is accrued on the ex-dividend date. In general, dividend income from foreign securities is recorded on the ex-date; however, dividend notifications in certain foreign jurisdictions may not be available in a timely manner and as a result, the Fund will record the dividend as soon as the relevant details (i.e., rate per share, payment date, shareholders of record, etc.) are publicly available. Interest income, including amortization of premium, accretion of discounts, inflation adjustments and additional principal received in-kind in lieu of cash, is accrued on a daily basis. Paydown gains and losses on mortgage related and other asset backed securities are included in interest income in the Statement of Operations, as applicable.
Foreign Currency Transactions – Assets and liabilities denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates in effect on the valuation date. Purchases and sales of investments, income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions.
20 |
Hartford Balanced HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
The Fund does not isolate that portion of portfolio investment valuation resulting from fluctuations in the foreign currency exchange rates from the fluctuations arising from changes in the market prices of investments held. Exchange rate fluctuations are included with the net realized and unrealized gain or loss on investments in the accompanying financial statements.
Net realized foreign exchange gains or losses arise from sales of foreign currencies and the difference between asset and liability amounts initially stated in foreign currencies and the U.S. dollar value of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of other assets and liabilities at the end of the reporting period, resulting from changes in the exchange rates.
Joint Trading Account – The Fund may invest cash balances into a joint trading account that may be invested in one or more repurchase agreements.
Fund Share Valuation and Dividend Distributions to Shareholders – Orders for the Fund’s shares are executed in accordance with the investment instructions of the contract holders and plan participants. The NAV of the Fund’s shares is determined as of the close of business on each business day of the Exchange. The NAV is determined separately for each class of shares of the Fund by dividing the Fund’s net assets attributable to that class by the number of shares of the class outstanding. Each class of shares offered by the Fund has equal rights as to assets and voting privileges (except that shareholders of a class have exclusive voting rights regarding any matter relating solely to that class of shares). Income and non-class specific expenses are allocated daily to each class on the basis of the relative net assets of the class. Realized and unrealized gains and losses are allocated daily based on the relative net assets of each class of shares of the Fund.
Orders for the purchase of the Fund’s shares received prior to the close of the Exchange on any day the Exchange is open for business are priced at the NAV determined as of the close of the Exchange. Orders received after the close of the Exchange, or on a day on which the Exchange and/or the Fund is not open for business, are priced at the next determined NAV.
Dividends are declared pursuant to a policy adopted by the Company's Board of Directors based upon the investment performance of the Fund. The policy of the Fund is to pay dividends from net investment income and realized gains, if any, at least once a year.
Net investment income, dividends and distributions from net realized gains and capital are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP with respect to character and timing (see Federal Income Taxes: Distributions and Components of Distributable Earnings and Reclassification of Capital Accounts).
Securities and Other Investments:
Repurchase Agreements – A repurchase agreement is an agreement by which a counterparty agrees to sell an investment and agrees to repurchase the investment sold from the buyer at a mutually agreed upon time and price. During the period of the repurchase agreement, the counterparty will deposit cash and or securities in a third party custodial account to serve as collateral. At the time the Fund enters into a repurchase agreement, the value of the underlying collateral, including accrued interest, will be equal to or exceed the value of the repurchase agreement. Repurchase agreements expose the Fund to counterparty risk - that is, the risk that the counterparty will not fulfill its obligations. To minimize counterparty risk, the investments that serve to collateralize the repurchase agreement are held by the Fund’s custodian in book entry or physical form in the custodial account of the Fund or in a third party custodial account. Repurchase agreements are valued at cost plus accrued interest, which approximates fair value. Repurchase agreements have master netting arrangements which allow the Fund to offset amounts owed to a counterparty with amounts owed by the counterparty, including any collateral. Upon an event of default under a master repurchase agreement, the non-defaulting party may close out all transactions traded under such agreement and net amounts owed under each transaction to one net amount payable by one party to the other. Absent an event of default, the master repurchase agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty. The Fund, as shown on the Schedule of Investments, had outstanding repurchase agreements and related collateral as of December 31, 2014.
Illiquid and Restricted Investments – The Fund is permitted to invest up to 15% of its net assets in illiquid investments. Illiquid investments are those that may not be sold or disposed of in the ordinary course of business within seven days, at approximately the
21 |
Hartford Balanced HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
price used to determine the Fund’s NAV. The Fund may not be able to sell illiquid investments when its sub-adviser considers it desirable to do so or may have to sell such investments at a price that is lower than the price that could be obtained if the investments were more liquid. A sale of illiquid investments may require more time and may result in higher dealer discounts and other selling expenses than does the sale of those that are liquid. Illiquid investments also may be more difficult to value due to the unavailability of reliable market quotations for such investments, and an investment in them may have an adverse impact on the Fund’s NAV. The Fund may also purchase certain restricted investments that can only be resold to certain qualified investors and may be determined to be liquid pursuant to policies and guidelines established by the Company's Board of Directors. The Fund, as shown on the Schedule of Investments, had illiquid or restricted investments as of December 31, 2014.
Investments Purchased on a When-Issued or Delayed-Delivery Basis – Delivery and payment for investments that have been purchased by the Fund on a forward commitment, or when-issued or delayed-delivery basis, take place beyond the customary settlement period. The Fund may dispose of or renegotiate a delayed-delivery transaction after it is entered into, and may sell delayed-delivery investments before they are delivered, which may result in a realized gain or loss. During this period, such investments are subject to market fluctuations, and the Fund identifies investments segregated in its records with a value at least equal to the amount of the commitment. The Fund, as shown on the Schedule of Investments, had when-issued or delayed-delivery investments as of December 31, 2014.
In connection with the Fund’s ability to purchase investments on a when-issued or forward commitment basis, the Fund may enter into to-be-announced (“TBA”) commitments. TBA commitments are forward agreements for the purchase or sale of mortgage backed securities for a fixed price, with payment and delivery on an agreed-upon future settlement date. The specific securities to be delivered are not identified at the trade date; however, delivered securities must meet specified terms, including issuer, rate and mortgage terms. Although the Fund may enter into TBA commitments with the intention of acquiring or delivering securities for its portfolio, the Fund can extend the settlement date, roll the transaction, or dispose of a commitment prior to settlement if deemed appropriate to do so. If the TBA commitment is closed through the acquisition of an offsetting TBA commitment, the Fund realizes a gain or loss. In a TBA roll transaction, the Fund generally purchases or sells the initial TBA commitment prior to the agreed upon settlement date and enters into a new TBA commitment for future delivery or receipt of the mortgage backed securities. TBA commitments involve a risk of loss if the value of the security to be purchased or sold declines or increases, respectively, prior to settlement date.
The Fund may enter into “dollar rolls” in which the Fund sells securities and contracts with the same counterparty to repurchase substantially similar securities (for example, same issuer, coupon and maturity) on a specified future date at an agreed upon price. The Fund gives up the right to receive interest paid on the investments sold. The Fund would benefit to the extent of any differences between the price received for the security and the lower forward price for the future purchase. Dollar rolls involve the risk that the market value of the securities that the Fund is required to purchase may decline below the agreed upon repurchase price of those securities. The Fund records dollar roll transactions as purchases and sales and realizes gains and losses on these transactions. These transactions are excluded from the Fund’s portfolio turnover rate. The Fund, as shown on the Schedule of Investments, had open TBA commitments as of December 31, 2014, which may be a part of dollar roll transactions.
Mortgage Related and Other Asset Backed Securities – The Fund may invest in mortgage related and other asset backed securities. These securities include mortgage pass-through securities, collateralized mortgage obligations, commercial mortgage backed securities, stripped mortgage backed securities, asset backed securities, collateralized debt obligations and other securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property. Mortgage related securities are created from pools of residential or commercial mortgage loans, including mortgage loans made by savings and loan institutions, mortgage bankers, commercial banks and other similar financial institutions. Asset backed securities are created from many types of assets, including auto loans, credit card receivables, home equity loans, and student loans. These securities provide a monthly payment that consists of both interest and principal payments. Interest payments may be determined by fixed or adjustable rates. The rate of pre-payments on underlying mortgages will affect the price and volatility of a mortgage related security, and may have the effect of shortening or extending the effective duration of the security relative to what was anticipated at the time of purchase. The timely payment of principal and interest of certain mortgage related securities is guaranteed by the full faith and credit of the United States Government. Mortgage related and other asset backed securities created and guaranteed by non-governmental issuers, including government-sponsored corporations, may be supported by various forms of insurance or guarantees, but there can be no assurance that the private insurers or guarantors can meet their obligations under the insurance policies or guarantee
22 |
Hartford Balanced HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
arrangements. The Fund, as shown on the Schedule of Investments, had outstanding mortgage related and other asset backed securities as of December 31, 2014.
Financial Derivative Instruments:
The following disclosures contain information on how and why the Fund uses derivative instruments, the credit-risk-related contingent features in certain derivative instruments and how derivative instruments affect the Fund’s financial position and results of operations. The location and fair value amounts of these instruments on the Statement of Assets and Liabilities and the realized gains and losses and changes in unrealized gains and losses on the Statement of Operations, each categorized by type of derivative contract, are included in the following Additional Derivative Instrument Information footnote. The derivative instruments outstanding as of year-end are disclosed in the notes to the Schedule of Investments, if applicable. The amounts of realized gains and losses and changes in unrealized gains and losses on derivative instruments during the year are disclosed in the Statement of Operations.
Foreign Currency Contracts – The Fund may enter into foreign currency contracts that obligate the Fund to purchase or sell currencies at specified future dates. Foreign currency contracts are used to hedge the currency exposure associated with some or all of the Fund’s investments and/or as part of an investment strategy. Foreign currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. The Fund will record a realized gain or loss when the foreign currency contract is settled.
Foreign currency contracts involve elements of market risk in excess of the amounts reflected in the Statement of Assets and Liabilities. In addition, risks may arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of the contracts and from unanticipated movements in the value of the foreign currencies relative to the U.S. dollar. The Fund had no outstanding foreign currency contracts as of December 31, 2014.
Futures Contracts – The Fund may enter into futures contracts. A futures contract is an agreement between two parties to buy or sell an asset at a set price on a future date. The Fund uses futures contracts to manage or obtain exposure to the investment markets, commodities, or movements in interest rates and currency values. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the investments held by the Fund and the prices of futures contracts and the possibility of an illiquid market. Upon entering into a futures contract, the Fund is required to deposit with a futures commission merchant (“FCM”) an amount of cash or U.S. Government or Agency Obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily at the most recent settlement price reported by an exchange on which, over time, they are traded most extensively, and an appropriate payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed on the Statement of Assets and Liabilities; however, the Fund seeks to reduce this risk through the use of an FCM. The Fund, as shown on the Schedule of Investments, had outstanding futures contracts as of December 31, 2014.
Swap Contracts – The Fund may invest in swap contracts. Swap contracts are agreements to exchange or swap investment cash flows, assets, foreign currencies or market-linked returns at specified, future intervals. Swap contracts are either privately negotiated in the over-the-counter market (“OTC swaps”) or cleared in a central clearing house (“centrally cleared swaps”). The Fund may enter into credit default, total return, cross-currency, interest rate, inflation and other forms of swap contracts to manage its exposure to credit, currency, interest rate, commodity and inflation risk. Swap contracts are also used to gain exposure to certain markets. In connection with these contracts, investments or cash may be identified as collateral or margin in accordance with the terms of the respective swap contracts and/or master netting arrangement to provide assets of value and recourse in the event of default or bankruptcy/insolvency.
Swaps are valued based on custom valuations furnished by an independent pricing service. Swaps for which prices are not available from an independent pricing service are valued in accordance with procedures established by the Company's Board of Directors. Changes in market value, if any, are reflected as a component of net changes in unrealized appreciation or depreciation on the Statement of Operations. Daily changes in valuation of centrally cleared swaps, if any, are recorded as a receivable or payable for the change in value (“variation margin”) on the Statement of Assets and Liabilities. Realized gains or losses on centrally cleared swaps are recorded upon the termination of the swap. OTC swap payments received or paid at the beginning of the measurement period are
23 |
Hartford Balanced HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
reflected as such on the Statement of Assets and Liabilities and represent premiums paid or received upon entering into the swap contract to compensate for differences between the stated terms of the swap contract and prevailing market conditions (credit spreads, currency exchange rates, interest rates and other relevant factors). These upfront premiums are recorded as realized gains or losses on the Statement of Operations upon termination or maturity of the swap. A liquidation payment received or made at the termination or maturity of the swap is recorded as a realized gain or loss on the Statement of Operations. Net periodic payments received or paid by the Fund are included as part of realized gains or losses on the Statement of Operations.
Entering into these contracts involves, to varying degrees, elements of liquidation, counterparty, credit and market risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these contracts, that the counterparty to the contracts may default on its obligation to perform or disagree as to the meaning of contractual terms in the contracts, and that there may be unfavorable changes in market conditions (credit spreads, currency exchange rates, interest rates and other relevant factors).
The Fund’s maximum risk of loss from counterparty risk for OTC swaps is the net value of the discounted cash flows to be received from the counterparty over the contract’s remaining life, and current market value, to the extent that amount is positive. The risk is mitigated by having a master netting arrangement between the Fund and the counterparty, which allows for the netting of payments made or received (although such amounts are presented on a gross basis within the Statement of Assets and Liabilities, as applicable) as well as the posting of collateral to the Fund to cover the Fund’s exposure to the counterparty. In a centrally cleared swap, while the Fund enters into an agreement with a clearing broker to execute contracts with a counterparty, the performance of the swap is guaranteed by the central clearinghouse, which reduces the Fund’s exposure to counterparty risk. The Fund is still exposed to the counterparty risk through the clearing broker and clearinghouse. The clearinghouse attempts to minimize this risk to its participants through the use of mandatory margin requirements, daily cash settlements and other procedures. Likewise, the clearing broker reduces its risk through margin requirements and required segregation of customer balances.
Credit Default Swap Contracts – The credit default swap market allows the Fund to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults of corporate and sovereign issuers, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. Certain credit default swaps involve the exchange of a fixed rate premium for protection against the loss in value of an underlying investment or index in the event of a credit event, such as payment default or bankruptcy.
Under a credit default swap contract, one party acts as guarantor by receiving the fixed periodic payment in exchange for the commitment to purchase the underlying investment at par if the defined credit event occurs. Upon the occurrence of a defined credit event, the difference between the value of the reference obligation and the swap’s notional amount is recorded as realized gain or loss on swap transactions in the Statement of Operations. A “buyer” of credit protection agrees to pay a counterparty to assume the credit risk of an issuer upon the occurrence of certain events. The “seller” of the protection receives periodic payments and agrees to assume the credit risk of an issuer upon the occurrence of certain events. Although specified events are contract specific, credit events are generally defined as bankruptcy, failure to pay, restructuring, obligation acceleration, obligation default or repudiation/moratorium. A “seller’s” exposure is limited to the total notional amount of the credit default swap contract. These potential amounts would be partially offset by any recovery values of the respective referenced obligations or upfront payments received upon entering into the contract.
Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap contracts on corporate issues, sovereign government issues or U.S. municipal issues as of year-end are disclosed in the notes to the Schedule of Investments, as applicable, and serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and there may also be upfront payments required to be made to enter into the contract. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the contract. For credit default swap contracts on credit indices, the quoted market prices and resulting values serve as the indicator of the current status of the payment/performance risk. Increasing market values, in absolute terms when compared to the notional amount of the swap, represent a deterioration of the referenced equity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the contract. The Fund had no outstanding credit default swap contracts as of December 31, 2014.
24 |
Hartford Balanced HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Additional Derivative Instrument Information:
Fair Value of Derivative Instruments on the Statement of Assets and Liabilities as of December 31, 2014:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts | Foreign Exchange Contracts | Credit Contracts | Equity Contracts | Commodity Contracts | Other Contracts | Total | ||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||
Variation margin receivable * | $ | 63 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 63 | ||||||||||||||
Total | $ | 63 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 63 | ||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||
Variation margin payable * | $ | 36 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 36 | ||||||||||||||
Total | $ | 36 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 36 |
* | Only current day's variation margin is reported within the Statement of Assets and Liabilities. The variation margin is included in the open futures net cumulative appreciation of $63 as reported in the Schedule of Investments. |
The volume of derivatives that is presented in the Schedule of Investments is consistent with the derivative activity during the year ended December 31, 2014.
The Effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2014:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts | Foreign Exchange Contracts | Credit Contracts | Equity Contracts | Commodity Contracts | Other Contracts | Total | ||||||||||||||||||||||
Realized Gain on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net realized gain on futures contracts | $ | 434 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 434 | ||||||||||||||
Net realized gain on swap contracts | — | — | 185 | — | — | — | 185 | |||||||||||||||||||||
Net realized gain on foreign currency contracts | — | 122 | — | — | — | — | 122 | |||||||||||||||||||||
Total | $ | 434 | $ | 122 | $ | 185 | $ | — | $ | — | $ | — | $ | 741 | ||||||||||||||
Net Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net change in unrealized appreciation of futures contracts | $ | 63 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 63 | ||||||||||||||
Net change in unrealized depreciation of swap contracts | — | — | (158 | ) | — | — | — | (158 | ) | |||||||||||||||||||
Total | $ | 63 | $ | — | $ | (158 | ) | $ | — | $ | — | $ | — | $ | (95 | ) |
Balance Sheet Offsetting Information - The following discloses both gross information and net information about instruments and transactions eligible for offset in the financial statements, and instruments and transactions that are subject to a master netting arrangement, as well as amounts related to margin, reflected as financial collateral (including cash collateral), held at clearing brokers, counterparties and the Fund’s custodian. The master netting arrangements allow the clearing brokers to net any collateral held in or on behalf of the Fund, or liabilities or payment obligations of the clearing brokers to the Fund, against any liabilities or payment obligations of the Fund to the clearing brokers. The Fund is required to deposit financial collateral (including cash collateral) at the FCM's custodian on behalf of clearing brokers and counterparties to continually meet the original and maintenance requirements established by the clearing brokers and counterparties for certain derivative types. Such requirements are specific to the respective clearing broker or counterparty. Certain master netting arrangements may not be enforceable in the bankruptcy proceedings of a counterparty.
25 |
Hartford Balanced HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Offsetting of Financial Assets and Derivative Assets as of December 31, 2014:
Gross Amounts* of Assets Presented in Statement of Assets and Liabilities | Financial Instruments with Allowable Netting | Non-cash Collateral Received | Cash Collateral Received | Net Amount (not less than $0) | ||||||||||||||||
Description | ||||||||||||||||||||
Futures contracts - variation margin receivable | $ | 63 | $ | (36 | ) | $ | — | $ | — | $ | 27 | |||||||||
Total subject to a master netting or similar arrangement | $ | 63 | $ | (36 | ) | $ | — | $ | — | $ | 27 |
* Gross amounts are presented here as there are no amounts netted within the Statement of Assets and Liabilities.
Offsetting of Financial Liabilities and Derivative Liabilities as of December 31, 2014:
Gross Amounts* of Liabilities Presented in Statement of Assets and Liabilities | Financial Instruments with Allowable Netting | Non-cash Collateral Pledged | Cash Collateral Pledged | Net Amount (not less than $0) | ||||||||||||||||
Description | ||||||||||||||||||||
Futures contracts - variation margin payable | $ | 36 | $ | (36 | ) | $ | (563 | ) | $ | — | $ | — | ||||||||
Total subject to a master netting or similar arrangement | $ | 36 | $ | (36 | ) | $ | (563 | ) | $ | — | $ | — |
* Gross amounts are presented here as there are no amounts netted within the Statement of Assets and Liabilities.
Principal Risks:
Credit risk depends largely on the perceived financial health of bond issuers. In general, the credit rating is inversely related to the credit risk of the issuer. Higher rated bonds generally are deemed to have less credit risk, while lower or unrated bonds are deemed to have higher risk of default. The share price, yield and total return of a fund that holds securities with higher credit risk may be more volatile than those of a fund that holds bonds with lower credit risk. Similar to credit risk, the Fund may be exposed to counterparty risk, or the risk that an institution or other entity with which the Fund has unsettled or open transactions will default.
The Fund’s investments expose the Fund to various risks including, but not limited to, interest rate, prepayment, extension, foreign currency and equity risks. Interest rate risk is the risk that fixed income securities will decline in value because of changes in interest rates. As nominal interest rates rise, the values of certain fixed income securities held by the Fund are likely to decrease. A nominal interest rate can be described as the sum of a real interest rate and an expected inflation rate. Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. Duration is useful primarily as a measure of the sensitivity of a fixed income security’s market price to interest rate (i.e., yield) movements. Rising interest rates may cause prepayments to occur at a slower than expected rate, thereby effectively lengthening the maturity of the security and making the security more sensitive to interest rate changes. Prepayment and extension risk are major risks of mortgage backed securities and certain asset backed securities. For certain asset backed securities, the actual maturity may be less than the stated maturity shown in the Schedule of Investments, if applicable. As a result, the timing of income recognition relating to these securities may vary based upon the actual maturity.
If the Fund invests directly in foreign currencies or in securities that trade in, and receive revenues in, foreign currencies, or in derivatives that provide exposure to foreign currencies, it will be subject to the risk that those currencies will decline in value relative to the base currency (U.S. dollars) of the Fund, or, in the case of hedging positions, that the Fund’s base currency will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities, such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad. As a result, the Fund’s investments in foreign currency denominated securities may reduce the returns of the Fund. The market values of equity securities, such as common stocks and preferred stocks, or equity
26 |
Hartford Balanced HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
related investments, such as futures and options, may decline due to general market conditions which are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. The market value of equity securities may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities and equity related investments generally have greater market price volatility than fixed income securities.
Federal Income Taxes:
Federal Income Taxes – For federal income tax purposes, the Fund intends to continue to qualify as a Regulated Investment Company ("RIC") under Subchapter M of the Internal Revenue Code (“IRC”) by distributing substantially all of its taxable net investment income and net realized capital gains to its shareholders and otherwise complying with the requirements of the IRC. The Fund has distributed substantially all of its income and capital gains in prior years, if applicable, and intends to distribute substantially all of its income and capital gains prior to the next fiscal year-end. Accordingly, no provision for federal income or excise taxes has been made in the accompanying financial statements. Distributions from short-term capital gains are treated as ordinary income distributions for federal income tax purposes.
Net Investment Income (Loss), Net Realized Gains (Losses) and Distributions – Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of losses deferred due to wash sale adjustments, foreign currency gains and losses, adjustments related to Passive Foreign Investment Companies ("PFICs"), Real Estate Investment Trusts ("REITs"), RICs, certain derivatives and partnerships. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund.
Distributions and Components of Distributable Earnings – The tax character of distributions paid by the Fund for the periods indicated is as follows (as adjusted for dividends payable, if applicable):
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Ordinary Income | $ | 50,752 | $ | 45,654 |
As of December 31, 2014, the Fund’s components of distributable earnings (deficit) on a tax basis are as follows:
Amount | ||||
Undistributed Ordinary Income | $ | 12,146 | ||
Accumulated Capital and Other Losses* | (410,576 | ) | ||
Unrealized Appreciation† | 681,869 | |||
Total Accumulated Earnings | $ | 283,439 |
* | The Fund has capital loss carryforwards that are identified in the Capital Loss Carryforward note that follows. |
† | Differences between book-basis and tax-basis unrealized appreciation (depreciation) may be attributable to the losses deferred due to wash sale adjustments, foreign currency gains and losses and adjustments related to PFICs, REITs, RICs, certain derivatives and partnerships. |
27 |
Hartford Balanced HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Reclassification of Capital Accounts – The Fund may record reclassifications in its capital accounts. These reclassifications have no impact on the total net assets of the Fund. The reclassifications are a result of permanent differences between U.S. GAAP and tax accounting for such items as foreign currency, PFICs, expiration or utilization of capital loss carryforwards or net operating losses. Adjustments are made to reflect the impact these items have on current and future distributions to shareholders. Therefore, the source of the Fund’s distributions may be shown in the accompanying Statement of Changes in Net Assets as from undistributed net investment income, from accumulated net realized gains on investments or from capital depending on the type of book and tax differences that exist. For the year ended December 31, 2014, the Fund recorded reclassifications to increase (decrease) the accounts listed below:
Amount | ||||
Undistributed Net Investment Income (Loss) | $ | 1,136 | ||
Accumulated Net Realized Gain (Loss) | (1,136 | ) |
Capital Loss Carryforward – On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which made changes to the capital loss carryforward rules. The changes are effective for taxable years beginning after the date of enactment. Under the Act, funds are permitted to carry forward capital losses for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital loss carryforwards retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under prior regulation.
At December 31, 2014 (tax year end), the Fund had capital loss carryforwards for U.S. federal income tax purposes as follows:
Year of Expiration | Amount | |||
2017 | $ | 410,576 | ||
Total | $ | 410,576 |
During the year ended December 31, 2014, the Fund utilized $272,973 of prior year capital loss carryforwards.
Accounting for Uncertainty in Income Taxes – The Fund has adopted financial reporting rules that require the Fund to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions. Generally, tax authorities can examine all tax returns filed for the last three years. The Fund does not have an examination in progress.
The Fund has reviewed all open tax years and major jurisdictions and concluded that these financial reporting rules had no effect on the Fund’s financial position or results of operations. There is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on the tax return for the fiscal year ended December 31, 2014. The Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Expenses:
Investment Management Agreement – Hartford Funds Management Company, LLC ("HFMC") serves as the Fund’s investment manager pursuant to an Investment Management Agreement with the Company. HFMC is an indirect wholly owned subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford"). The investment manager has overall investment supervisory responsibility for the Fund. In addition, the investment manager provides administrative personnel, services, equipment, facilities and office space for proper operation of the Fund. HFMC has contracted with Wellington Management Company, LLP ("Wellington Management") under a sub-advisory agreement for the provision of day-to-day investment management services to the Fund in accordance with the Fund’s investment objective and policies. The Fund pays a fee to the investment manager, a portion of which may be used to compensate Wellington Management.
28 |
Hartford Balanced HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
The schedule below reflects the rates of compensation paid to the investment manager for investment management services rendered as of December 31, 2014; the rates are accrued daily and paid monthly:
Average Daily Net Assets | Annual Fee |
On first $250 million | 0.6800% |
On next $250 million | 0.6550% |
On next $500 million | 0.6450% |
On next $4 billion | 0.5950% |
On next $5 billion | 0.5925% |
Over $10 billion | 0.5900% |
Effective January 1, 2015, the investment manager has voluntarily agreed to waive investment management fees of 0.02% of average daily net assets until December 31, 2015.
Accounting Services Agreement – Pursuant to the Fund Accounting Agreement between HFMC and the Company, on behalf of the Fund, HFMC provides accounting services to the Fund and receives monthly compensation based on the Fund’s average daily net assets at the rates set forth below. The Fund’s accounting services fees are accrued daily and paid monthly.
Average Daily Net Assets | Annual Fee |
On first $5 billion | 0.016% |
On next $5 billion | 0.013% |
Over $10 billion | 0.010% |
Operating Expenses – Allocable expenses incurred by the Company are allocated to each Fund and allocated to classes within a Fund in proportion to the average daily net assets of the Fund and each class, except where allocation of certain expenses is more fairly made directly to the Fund or to specific classes within a Fund.
Fees Paid Indirectly – The Company, on behalf of the Fund, has entered into agreements with State Street Global Markets, LLC and Russell Implementation Services, Inc. to partially recapture non-discounted trade commissions. Such rebates are used to pay a portion of the Fund’s expenses. In addition, the Fund's custodian has agreed to reduce its fees when the Fund maintains cash on deposit in a non-interest-bearing custody account. For the year ended December 31, 2014, these amounts, if any, are included in the Statement of Operations.
The ratio of expenses to average net assets in the accompanying financial highlights excludes the reduction in expenses related to fees paid indirectly. The annualized expense ratio after waivers for the period listed below reflecting the reduction for fees paid indirectly is as follows:
Year Ended December 31, 2014 | ||||
Class IA | 0.65% | |||
Class IB | 0.90 |
Distribution Plan for Class IB Shares – Hartford Funds Distributors, LLC (“HFD”), an indirect wholly owned subsidiary of The Hartford, is the principal underwriter and distributor of the Fund. The Company, on behalf of the Fund, has adopted a Distribution Plan pursuant to Rule 12b-1 of the 1940 Act for Class IB shares.
The Distribution Plan provides that the Fund may pay annually up to 0.25% of the average daily net assets of the Fund attributable to its Class IB shares for activities primarily intended to result in the sale of Class IB shares. The Board has the authority to suspend or reduce these payments at any point in time. Under the terms of the Distribution Plan and the principal underwriting agreement, the Fund is authorized to make payments monthly to the distributor that may be used to pay or reimburse entities providing distribution and shareholder servicing with respect to the Class IB shares for such entities’ fees or expenses incurred or paid in that regard. The
29 |
Hartford Balanced HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
distribution fees paid during the period can be found on the Statement of Operations. These fees are accrued daily and paid monthly or at such other intervals as the Board of Directors may determine.
Other Related Party Transactions – Certain officers of the Fund are directors and/or officers of HFMC and/or The Hartford or its subsidiaries. For the year ended December 31, 2014, a portion of the Fund's Chief Compliance Officer's compensation was paid by all the investment companies in the Hartford fund complex. The portion allocated to the Fund, as represented in other expenses on the Statement of Operations, was in the amount of $4. Hartford Administrative Services Company ("HASCO"), an indirect wholly owned subsidiary of The Hartford, provides transfer agent services to the Fund. Effective December 1, 2014, pursuant to a sub-transfer agency agreement between HASCO and Boston Financial Data Services, Inc. (“BFDS”), HASCO delegated certain transfer agent, dividend disbursing agent and shareholder servicing agent functions to BFDS. HASCO is compensated by the Fund based on the number of classes plus out of pocket expenses for providing such services, a portion of which may be used to compensate BFDS. The amount paid to HASCO can be found in the Statement of Operations. These fees are accrued daily and paid monthly.
Investment Transactions:
For the year ended December 31, 2014, the cost of purchases and proceeds from sales of investment securities (excluding short-term investments) were as follows:
Excluding U.S. Government Obligations | U.S. Government Obligations | Total | ||||||||||
Cost of Purchases | $ | 1,188,407 | $ | 287,666 | $ | 1,476,073 | ||||||
Sales Proceeds | 1,656,230 | 258,716 | 1,914,946 |
Line of Credit:
The Fund is one of several Hartford Funds that participate in a $500 million committed revolving line of credit facility. The facility is to be used for temporary or emergency purposes. Under the arrangement, the funds are required to own securities having a market value in excess of 300% of the total bank borrowings. The interest rate on borrowings varies depending on the nature of the loan. The facility also requires a fee to be paid based on the amount of the commitment. This commitment fee is allocated to all the funds participating in the line of credit based on the average net assets of the funds. During the year ended December 31, 2014, the Fund did not have any borrowings under this facility.
Indemnifications:
Under the Company's organizational documents, the Company shall indemnify its officers and directors to the full extent required or permitted under Maryland General Corporation Law and the federal securities laws. In addition, the Company, on behalf of the Fund, may enter into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, as of the date of these financial statements, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Pending Legal Proceedings:
On February 25, 2011, Jennifer L. Kasilag, Louis Mellinger, Judith M. Menendez, Jacqueline M. Robinson, and Linda A. Russell filed a derivative lawsuit against Hartford Investment Financial Services, LLC (“HIFSCO”) (now known as HFD) on behalf of six Hartford retail mutual funds in the United States District Court for the District of New Jersey, alleging that HIFSCO received excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the 1940 Act when serving as investment manager and principal underwriter, respectively, to the Hartford retail mutual funds. Although this action was purportedly filed on behalf of certain of the Hartford Funds, none of the Hartford Funds is itself a defendant to the suit. HIFSCO moved to dismiss and, in September 2011, the motion was granted in part and denied in part, with leave to amend the complaint. In November 2011, plaintiffs filed an amended complaint on behalf of certain Hartford retail mutual funds, The Hartford Global Health Fund (now known as The Hartford Healthcare Fund), The Hartford Conservative Allocation Fund, The Hartford Growth Opportunities Fund, The Hartford Inflation Plus Fund, The Hartford Advisers
30 |
Hartford Balanced HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Fund (now known as The Hartford Balanced Fund), and The Hartford Capital Appreciation Fund. Plaintiffs seek to rescind the investment management agreements and distribution plans between HIFSCO and these funds and to recover the total fees charged thereunder or, in the alternative, to recover any improper compensation HIFSCO received, in addition to lost earnings. HIFSCO filed a partial motion to dismiss the amended complaint and, in December 2012, the court dismissed without prejudice the claims regarding distribution fees and denied the motion with respect to the advisory fees claims. HIFSCO disputes the allegations and intends to defend vigorously.
In March 2014, the plaintiffs filed a new complaint that added as new plaintiffs The Hartford Floating Rate Fund and The Hartford Small Company Fund, two Hartford retail mutual funds, and named as a defendant HFMC, which assumed the role as investment manager to the funds as of January 2013. HFMC and HIFSCO dispute the allegations and intend to defend vigorously.
This action concerns the activities of HIFSCO in its capacity as investment manager and principal underwriter to the Hartford retail mutual funds and does not concern HIFSCO’s activities in its capacity as principal underwriter to the HLS funds. For this reason, no accrual for litigation relating to this matter has been recorded in the financial statements of the Fund.
Recent Accounting Pronouncement:
In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, modifying Accounting Standards Codification Topic 860. The amended guidance changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. The guidance also requires new disclosures for certain transfers accounted for as sales and collateral supporting transactions that are accounted for as secured borrowings. ASU 2014-11 is effective for annual and interim periods beginning after December 15, 2014, except for the disclosures related to secured borrowings, which are effective for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The adoption of ASU 2014-11 is not expected to have a material impact on the Fund’s results of operations or financial position, but may impact the Fund’s disclosures.
Subsequent Event:
Effective on or after January 1, 2015, pursuant to an agreement between the Hartford Funds and State Street Bank and Trust Company ("State Street"), State Street replaced, or is scheduled to replace, JP Morgan Chase Bank, N.A. ("JP Morgan Chase") as the Fund's primary custodian. JP Morgan Chase may serve as custodian of certain Fund assets. In addition, on or after the same date, HFMC has delegated, or will delegate, certain accounting and administrative services functions to State Street. The costs and expenses of such delegation will be borne by HFMC, not by the Funds, and HFMC will compensate State Street for its services out of its own resources.
31 |
Hartford Balanced HLS Fund |
Financial Highlights |
─ Selected Per-Share Data(A) ─ | ─ Ratios and Supplemental Data ─_ | |||||||||||||||||||||||||||||||||||||||||||||||||||
Class | Net Asset Value at Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Investment Operations | Dividends from Net Investment Income | Distributions from Realized Capital Gains | Total Dividends and Distributions | Net Asset Value at End of Period | Total Return(B) | Net Assets at End of Period (000s) | Ratio of Expenses to Average Net Assets Before Adjust- ments(C) | Ratio of Expenses to Average Net Assets After Adjust- ments(C) | Ratio of Net Investment Income (Loss) to Average Net Assets | |||||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 25.11 | $ | 0.45 | $ | 2.01 | $ | 2.46 | $ | (0.48 | ) | $ | — | $ | (0.48 | ) | $ | 27.09 | 9.79 | % | $ | 2,561,814 | 0.65 | % | 0.65 | % | 1.73 | % | ||||||||||||||||||||||||
IB | 25.44 | 0.39 | 2.03 | 2.42 | (0.41 | ) | — | (0.41 | ) | 27.45 | 9.51 | 362,210 | 0.90 | 0.90 | 1.49 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 21.03 | $ | 0.41 | $ | 4.04 | $ | 4.45 | $ | (0.37 | ) | $ | — | $ | (0.37 | ) | $ | 25.11 | 21.19 | % | $ | 2,782,698 | 0.65 | % | 0.65 | % | 1.75 | % | ||||||||||||||||||||||||
IB | 21.30 | 0.35 | 4.10 | 4.45 | (0.31 | ) | — | (0.31 | ) | 25.44 | 20.88 | 399,681 | 0.90 | 0.90 | 1.50 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2012 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 19.34 | $ | 0.47 | $ | 1.85 | $ | 2.32 | $ | (0.63 | ) | $ | — | $ | (0.63 | ) | $ | 21.03 | 12.02 | % | $ | 2,754,114 | 0.65 | % | 0.65 | % | 1.98 | % | ||||||||||||||||||||||||
IB | 19.58 | 0.43 | 1.86 | 2.29 | (0.57 | ) | — | (0.57 | ) | 21.30 | 11.74 | 406,156 | 0.90 | 0.90 | 1.73 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2011 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 19.32 | $ | 0.41 | $ | (0.06 | ) | $ | 0.35 | $ | (0.33 | ) | $ | — | $ | (0.33 | ) | $ | 19.34 | 1.86 | % | $ | 2,959,019 | 0.64 | % | 0.64 | % | 1.84 | % | |||||||||||||||||||||||
IB | 19.55 | 0.36 | (0.05 | ) | 0.31 | (0.28 | ) | — | (0.28 | ) | 19.58 | 1.61 | 455,939 | 0.89 | 0.89 | 1.59 | ||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2010 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 17.47 | $ | 0.30 | $ | 1.82 | $ | 2.12 | $ | (0.27 | ) | $ | — | $ | (0.27 | ) | $ | 19.32 | 12.14 | % | $ | 3,539,983 | 0.65 | % | 0.65 | % | 1.68 | % | ||||||||||||||||||||||||
IB | 17.68 | 0.26 | 1.83 | 2.09 | (0.22 | ) | — | (0.22 | ) | 19.55 | 11.86 | 556,169 | 0.90 | 0.90 | 1.43 | |||||||||||||||||||||||||||||||||||||
(A) | Information presented relates to a share outstanding throughout the indicated period. Net investment income (loss) per share amounts are calculated based on average shares outstanding unless otherwise noted. |
(B) | The figures do not include sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees would lower the Fund's performance. |
(C) | Adjustments include waivers and reimbursements, if applicable. Ratios do not include fees paid indirectly (see Expenses in the accompanying Notes to Financial Statements). |
(D) | Net investment income (loss) per share amounts have been calculated using the SEC method. |
Portfolio Turnover Rate for All Share Classes | ||||
For the Year Ended December 31, 2014 | 29% | |||
For the Year Ended December 31, 2013 | 31 | |||
For the Year Ended December 31, 2012 | 28 | |||
For the Year Ended December 31, 2011 | 34 | |||
For the Year Ended December 31, 2010 | 65(A) |
(A) | During the year ended December 31, 2010, the Fund incurred $204.5 million in purchases associated with the transition of assets from Hartford Global Advisers HLS Fund, which merged into the Fund on March 19, 2010. These purchases were excluded from the portfolio turnover calculation. |
32 |
Report of Independent Registered Public Accounting Firm |
The Board of Directors and Shareholders of |
Hartford Series Fund, Inc. |
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Hartford Balanced HLS Fund (one of the portfolios constituting Hartford Series Fund, Inc. (the Funds)) as of December 31, 2014, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Hartford Balanced HLS Fund of the Hartford Series Fund, Inc. at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
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Minneapolis, Minnesota
February 13, 2015
33 |
Hartford Balanced HLS Fund |
Directors and Officers (Unaudited) |
The Board of Directors of the Company (the "Directors") appoints officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the Directors. Each Director serves until his or her death, resignation, or retirement or until the next annual meeting of shareholders is held or until his or her successor is elected and qualifies.
Directors and officers who are employed by or who have a financial interest in The Hartford Financial Services Group, Inc. ("The Hartford") are considered “interested” persons of the Fund pursuant to the 1940 Act. The "interested" Directors and officers are reflected in the chart below. Each Director serves as a director for The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., Hartford Series Fund, Inc., and Hartford HLS Series Fund II, Inc., and as a trustee for The Hartford Alternative Strategies Fund, which, as of December 31, 2014, collectively consist of 66 funds. Correspondence may be sent to Directors and officers c/o Hartford Funds, 5 Radnor Corporate Center, Suite 300, 100 Matsonford Road, Radnor, Pennsylvania 19087, except that correspondence to Mr. Annoni, Mr. Dressen and Ms. Quade may be sent to 500 Bielenberg Drive, Suite 500, Woodbury, Minnesota 55125.
The table below sets forth, for each Director and officer, his or her name, year of birth, current position with the Company and date first elected or appointed to Hartford Series Fund, Inc. ("HSF") and Hartford HLS Series Fund II, Inc. ("HSF2"), principal occupation, and, for Directors, other directorships held. The Fund’s Statement of Additional Information contains further information on the Directors and is available free of charge by calling 1-888-843-7824 or writing to: Hartford HLS Funds, c/o Hartford Life Insurance Company/Hartford Life and Annuity Insurance Company, P.O. Box 14293, Lexington, KY 40512-4293 for variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates; Hartford Funds, P.O. Box 55022, Boston, MA 02205-5022 for all shareholders except variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates.
Information on the aggregate remuneration paid to the directors of the Company can be found in the Statement of Operations herein. The Fund pays to The Hartford a portion of the Chief Compliance Officer’s compensation, but does not pay salaries or compensation to any of its other officers or Directors who are employed by The Hartford.
Non-Interested Directors
Hilary E. Ackermann (1956) Director since September 23, 2014
Ms. Ackermann served as Chief Risk Officer at Goldman Sachs Bank USA from October 2008 to November 2011 and serves as a Director of Dynegy, Inc., an independent power company, from October 2012 to present.
Lynn S. Birdsong (1946) Director since 2003, Chairman of the Investment Committee since 2014
Mr. Birdsong is a private investor. Mr. Birdsong currently serves as a Director of Aberdeen Global and Aberdeen Global II (investment funds) (September 2014 to present) and as an Independent Director of Nomura Partners Funds, Inc. (formerly, The Japan Fund) (April 2003 to present). Mr. Birdsong served as Director of the Sovereign High Yield Investment Company (April 2010 to September 2014). From 2003 to March 2005, Mr. Birdsong was an Independent Director of the Atlantic Whitehall Funds. From 1979 to 2002, Mr. Birdsong was a Managing Director of Zurich Scudder Investments, an investment management firm. During his employment with Scudder, Mr. Birdsong was an Interested Director of The Japan Fund. Mr. Birdsong served as Co-Chairman of the Investment Committee of The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., HSF, HSF2 and The Hartford Alternative Strategies Fund from 2005 to 2014.
Robert M. Gavin, Jr. (1940) Director since 2002 (HSF) and 1986 (HSF2), Chairman of the Board for each since 2004
Dr. Gavin is an educational consultant. Prior to September 1, 2001, he was President of Cranbrook Education Community and prior to July 1996, he was President of Macalester College, St. Paul, Minnesota.
Duane E. Hill (1945) Director since 2001 (HSF) and 2002 (HSF2), Chairman of the Nominating Committee since 2003
Mr. Hill is a Partner of TSG Ventures L.P., a private equity investment company. Mr. Hill is a former partner of TSG Capital Group, a private equity investment firm that served as sponsor and lead investor in leveraged buyouts of middle market companies.
Sandra S. Jaffee (1941) Director since 2005
Ms. Jaffee is the founder and Chief Executive Officer of a private company, Homeworks Concierge, LLC, which provides residential property management services in Westchester County, New York (January 2012 to present). Ms. Jaffee served as Chairman (2008 to 2009) and Chief Executive Officer of Fortent (formerly Searchspace Group), a leading provider of compliance/regulatory technology to financial institutions from August 2005 to August 2009. From August 2004 to August 2005, Ms. Jaffee served as an Entrepreneur in Residence with Warburg Pincus, a private equity firm. Prior to joining Warburg Pincus, Ms. Jaffee served as Executive Vice President at Citigroup, from September 1995 to July 2004, where she was President and Chief Executive Officer of Citibank’s Global Securities
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Hartford Balanced HLS Fund |
Directors and Officers (Unaudited) – (continued) |
Services (1995 to 2003). Ms. Jaffee served as a member of the Board of Directors of Broadridge Financial Solutions (November 2010 to November 2014). Ms. Jaffee currently serves as a member of the Board of Directors of Global Camps Africa (a non-profit organization) (January 2015 to present) as well as a Trustee of Muhlenberg College (September 2007 to present).
William P. Johnston (1944) Director since 2005, Chairman of the Compliance Committee since 2005
In June 2006, Mr. Johnston was appointed as Senior Advisor to The Carlyle Group, a global private equity and other alternative asset investment firm and currently serves as an Operating Executive. In July 2006, Mr. Johnston was elected to the Board of Directors of MultiPlan, Inc. and served as a Director (July 2006 to August 2010). In August 2007, Mr. Johnston was elected to the Board of Directors of LifeCare Holdings, Inc. and served as a Director (August 2007 to June 2013). In February 2008, Mr. Johnston was elected to the Board of Directors of HCR-ManorCare, Inc. In May 2006, Mr. Johnston was elected to the Supervisory Board of Fresenius Medical Care AG & Co. KGaA, after its acquisition of Renal Care Group, Inc. in March 2006. Mr. Johnston joined Renal Care Group in November 2002 as a member of the Board of Directors and served as Chairman of the Board from March 2003 through March 2006. From 2002 through 2013, Mr. Johnston served as a Board member of the Georgia O’Keefe Museum. From September 1987 to December 2002, Mr. Johnston was with Equitable Securities Corporation (and its successors, SunTrust Equitable Securities and SunTrust Robinson Humphrey) serving in various investment banking and managerial positions, including Managing Director and Head of Investment Banking, Chief Executive Officer and Vice Chairman.
Phillip O. Peterson (1944) Director since 2002 (HSF) and 2000 (HSF2), Chairman of the Audit Committee since 2002
Mr. Peterson is a mutual fund industry consultant. He was a partner of KPMG LLP (an accounting firm) until July 1999. Mr. Peterson joined William Blair Funds in February 2007 as a member of the Board of Trustees. From February 2012 to February 2014, Mr. Peterson served as a Trustee of Symetra Variable Mutual Funds. From January 2004 to April 2005, Mr. Peterson served as Independent President of the Strong Mutual Funds.
Lemma W. Senbet (1946) Director since 2005
Dr. Senbet is the William E. Mayer Chair Professor of Finance at the University of Maryland, Robert H. Smith School of Business. He was chair of the Finance Department of the University of Maryland, Robert H. Smith School of Business from 1998 to 2006. Since June 2013, he has been on leave from the University to serve as Executive Director of African Economic Research Consortium which focuses on economic policy research and training. Previously, he was a chaired professor of finance at the University of Wisconsin-Madison. Also, he was a Director of the Fortis Funds from March 2000 to July 2002. Dr. Senbet served as Director of the American Finance Association and President of the Western Finance Association. In 2006, Dr. Senbet was inducted Fellow of Financial Management Association International for his career-long distinguished scholarship and professional service.
Interested Directors and Officers
James E. Davey (1964) Director since 2012, President and Chief Executive Officer since 2010
Mr. Davey serves as Executive Vice President of Hartford Life Insurance Company (“HLIC”) and The Hartford. Additionally, Mr. Davey serves as Chairman of the Board, Manager and Senior Managing Director of Hartford Funds Distributors, LLC (“HFD”). He also currently serves as Director, Chairman of the Board, President and Senior Managing Director of Hartford Administrative Services Company (“HASCO”). Mr. Davey also serves as Manager, Chairman of the Board and Senior Managing Director for Hartford Funds Management Company, LLC (“HFMC”) and Director, Chairman of the Board and Senior Managing Director for Hartford Funds Management Group, Inc. ("HFMG"). Mr. Davey has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Davey joined The Hartford in 2002.
Lowndes A. Smith* (1939) Director since 1996 (HSF) and 2002 (HSF2), Co-Chairman of the Investment Committee since 2005
Mr. Smith served as Vice Chairman of The Hartford from February 1997 to January 2002, as President and Chief Executive Officer of Hartford Life, Inc. from February 1997 to January 2002, and as President and Chief Operating Officer of The Hartford Life Insurance Companies from January 1989 to January 2002. Mr. Smith serves as a Director of White Mountains Insurance Group Ltd. (October 2003 to current); One Beacon Insurance (October 2006 to current); Symetra Financial (August 2007 to current) and is a Managing Director of Whittington Gray Associates (January 2007 to current).
* Mr. Smith resigned as a Director of Hartford Mutual Funds, Inc., Hartford Mutual Funds II, Inc., HSF and HSF2 and as a Trustee of The Hartford Alternative Strategies Fund effective September 17, 2014.
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Hartford Balanced HLS Fund |
Directors and Officers (Unaudited) – (continued) |
Other Officers
Mark A. Annoni (1964) Vice President, Controller and Treasurer since 2012
Mr. Annoni currently serves as the Assistant Vice President of HLIC (February 2004 to present) and Senior Vice President of HFMG (December 2013 to present). Mr. Annoni has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Annoni joined The Hartford in 2001.
Michael R. Dressen (1963) AML Compliance Officer since 2011
Mr. Dressen currently serves as Assistant Vice President of HLIC. He also serves as Chief Compliance Officer and AML Compliance Officer of HASCO and as AML Officer of HFD. Mr. Dressen has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
Edward P. Macdonald (1967) Vice President, Secretary and Chief Legal Officer since 2005
Mr. Macdonald currently serves as Assistant Secretary, Executive Vice President and Deputy General Counsel of HFD, HASCO, HFMC and HFMG. He also serves as Vice President of HLIC. Mr. Macdonald has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Macdonald joined The Hartford in 2005.
Joseph G. Melcher (1973) Vice President and Chief Compliance Officer since 2013
Mr. Melcher currently serves as Executive Vice President of HFD, HFMG and HASCO. Mr. Melcher also currently serves as Executive Vice President and Chief Compliance Officer of HFMC. Mr. Melcher has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds since joining The Hartford in 2012. Prior to joining The Hartford, Mr. Melcher worked at Touchstone Investments, a member of the Western & Southern Financial Group, where he held the position of Vice President and Chief Compliance Officer from 2010 through 2012 and Assistant Vice President, Compliance from 2005 to 2010.
Vernon J. Meyer (1964) Vice President since 2006
Mr. Meyer currently serves as Senior Vice President of HLIC. He also currently serves as Managing Director and Chief Investment Officer of HFMC and Managing Director of HFMG. Mr. Meyer has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Meyer joined The Hartford in 2004.
Laura S. Quade (1969) Vice President since 2012
Ms. Quade currently serves as Vice President of HASCO, HFD and HFMG. She is the Head of Operations of HASCO and formerly served as Director, Enterprise Operations of HLIC. Ms. Quade has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Ms. Quade joined The Hartford in 2001.
Martin A. Swanson** (1962) Vice President since 2010
Mr. Swanson currently serves as Vice President of HLIC. Mr. Swanson also serves as Managing Director, Chief Marketing Officer and Principal of HFD and Managing Director of HFMG. Mr. Swanson has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
** Mr. Swanson resigned as an officer effective November 6, 2014.
HOW TO OBTAIN A COPY OF THE FUND’S PROXY VOTING POLICIES AND VOTING RECORDS (UNAUDITED)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information about how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov. The Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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Hartford Balanced HLS Fund |
Expense Example (Unaudited) |
Your Fund's Expenses
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including investment management fees, distribution and/or service (12b-1) fees, if any, and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period of June 30, 2014 through December 31, 2014.
Actual Expenses
The first set of columns of the table below provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second set of columns of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as taxes, sales charges (loads), or fees which may be applied at the variable life insurance, variable annuity, or qualified retirement plan product level. Therefore, the second set of columns of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would be higher. Expenses are equal to the Fund's annualized expense ratios multiplied by average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
Actual return | Hypothetical (5% return before expenses) | |||||||||||||||||||||||||||||||||||
Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Annualized expense ratio | Days in the current 1/2 year | Days in the full year | ||||||||||||||||||||||||||||
Class IA | $ | 1,000.00 | $ | 1,036.40 | $ | 3.34 | $ | 1,000.00 | $ | 1,021.93 | $ | 3.31 | 0.65 | % | 184 | 365 | ||||||||||||||||||||
Class IB | $ | 1,000.00 | $ | 1,035.20 | $ | 4.62 | $ | 1,000.00 | $ | 1,020.67 | $ | 4.58 | 0.90 | 184 | 365 |
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Hartford Balanced HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) |
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of directors, including a majority of those directors who are not “interested persons” of the mutual fund, as defined in the 1940 Act (the “Independent Directors”), annually review and consider the continuation of the mutual fund’s investment advisory and sub-advisory agreements. At its meeting held on August 5-6, 2014, the Board of Directors (the “Board”) of Hartford Series Fund, Inc., including each of the Independent Directors, unanimously voted to approve the continuation of the investment management agreement for Hartford Balanced HLS Fund (the “Fund”) with Hartford Funds Management Company, LLC (“HFMC”) and the continuation of the investment sub-advisory agreement between HFMC and the Fund’s sub-adviser, Wellington Management Company, LLP (the “Sub-adviser,” and together with HFMC, the “Advisers”) (collectively, the “Agreements”).
In the months preceding the August 5-6, 2014 meeting, the Board requested, received and reviewed written responses from the Advisers to questions posed to them on behalf of the Independent Directors and supporting materials relating to those questions and responses. The Board considered information furnished to the Board at its meetings throughout the year, as well as information specifically prepared in connection with the annual approval of the Agreements at the Board’s meetings held on June 17-18, 2014 and August 5-6, 2014. Information provided to the Board at its meetings throughout the year included, among other things, reports on Fund performance, legal and compliance matters, sales and marketing activity, shareholder services, and the other services provided to the Fund by the Advisers and their affiliates. The Board also received in-person presentations by Fund officers and representatives of HFMC at the Board’s meetings on June 17-18, 2014 and August 5-6, 2014 concerning the Agreements.
The Independent Directors, advised by independent legal counsel, engaged service providers to assist them with evaluating the Agreements with respect to the Fund. Lipper Inc. (“Lipper”), an independent provider of investment company data, was retained to provide the Board with reports on how the Fund’s contractual management fees, actual management fees, other non-management fees, overall expense ratios and investment performance compared to those of mutual funds with similar investment objectives. The Independent Directors also engaged an independent financial services consultant (the “Consultant”) to assist them in evaluating the Fund’s management fees, sub-advisory fees, other non-management fees, overall expense ratios and investment performance. In addition, the Consultant reviewed the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement.
In determining whether to continue the Agreements for the Fund, the members of the Board reviewed and evaluated information and factors they believed to be relevant and appropriate in light of the information that the Board deemed necessary and appropriate through the exercise of its reasonable business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination to continue the Agreements was based on a comprehensive consideration of all information provided to the Board throughout the year and specifically with respect to the continuation of the Agreements. A more detailed discussion of the factors the Board considered with respect to its approval of the Agreements is provided below.
Nature, Extent and Quality of Services Provided by the Advisers
The Board requested and considered information concerning the nature, extent and quality of the services provided to the Fund by the Advisers. The Board considered, among other things, the terms of the Agreements and the range of services provided by the Advisers. The Board considered the Advisers’ professional personnel who provide services to the Fund, including each Adviser’s ability and experience in attracting and retaining qualified personnel to service the Fund. The Board considered each Adviser’s reputation and overall financial strength, as well as its willingness to consider and implement organizational and operational changes designed to enhance services to the Hartford Funds. In addition, the Board considered the quality of each Adviser’s communications with the Board and responsiveness to Board inquiries and requests made from time to time with respect to the Fund and other Hartford Funds.
The Board also requested and evaluated information concerning each Adviser’s regulatory and compliance environment. In this regard, the Board requested and reviewed information on each Adviser’s compliance policies and procedures, compliance history, and a report from the Fund’s Chief Compliance Officer on each Adviser’s compliance with applicable laws and regulations, including responses to regulatory developments and compliance issues raised by regulators. The Board also noted the Advisers’ support of the Fund’s compliance control structure, particularly the resources devoted by the Advisers in support of the Fund’s obligations pursuant to Rule 38a-1 under the 1940 Act.
With respect to HFMC, the Board noted that under the Agreements, HFMC is responsible for the management of the Fund, including oversight of fund operations and service providers, as well as investment advisory services in connection with selecting, monitoring and supervising the Sub-adviser. The Board considered HFMC’s ongoing monitoring of people, process and performance, including its quarterly reviews of each of the Hartford Funds, semi-annual meetings with the leaders of each Fund’s portfolio management team, and oversight of the Hartford Funds’
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Hartford Balanced HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) - (continued) |
approximately 37 portfolio managers. The Board recognized that HFMC has demonstrated a record of making changes to the management and/or strategies of the Hartford Funds when warranted. The Board considered HFMC’s oversight of the Sub-adviser’s investment approach and results, process for monitoring best execution of portfolio trades by the Sub-adviser, and approach to risk management with respect to the Fund and the service providers to the Fund. The Board also considered HFMC’s oversight of compliance with the Fund’s objective and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over time led to an increase in the scope of HFMC’s services in this regard.
In addition, the Board considered HFMC’s ongoing commitment to review and rationalize the Hartford Funds product line-up and the expenses that HFMC had incurred in connection with fund combinations in recent years. The Board considered that HFMC or its affiliates are responsible for providing the Fund’s officers. The Board also noted that Hartford Life Insurance Company (“HLIC”) provides administrative services to the Fund. The Board considered its experiences with HFMC and HLIC with respect to each of these services.
With respect to the Sub-adviser, which provides certain day-to-day portfolio management services for the Fund, the Board considered the quality of the Fund’s portfolio managers, the Sub-adviser’s other investment personnel, its investment philosophy and process, investment research capabilities and resources, performance record, trade execution capabilities and experience. The Board considered the experience of the Fund’s portfolio managers, the number of accounts managed by the portfolio managers, and the Sub-adviser’s method for compensating the portfolio managers.
Based on these considerations, the Board concluded that it was satisfied with the nature, extent and quality of the services provided to the Fund by HFMC and the Sub-adviser.
Performance of the Fund and the Advisers
The Board considered the investment performance of the Fund. In this regard, the Board reviewed the performance of the Fund over different time periods presented in the materials and evaluated HFMC’s analysis of the Fund’s performance for these time periods. The Board considered information and materials provided to the Board by the Advisers concerning Fund performance, as well as information from Lipper comparing the investment performance of the Fund to an appropriate benchmark and universe of peer funds. The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-, 3- and 5-year periods. The Board also noted that the Fund’s performance was above its blended custom benchmark for the 1-year period and in line with its blended custom benchmark for the 3- and 5-year periods.
The Board considered the detailed investment analytics reports provided by Hartford Funds’ Investment Advisory Group throughout the year. These reports include, among other things, information on the Fund’s gross and net returns, the Fund’s investment performance relative to an appropriate benchmark and peer group, various statistics concerning the Fund’s portfolio, and a narrative summary of various factors affecting Fund performance. The Board considered the Advisers’ cooperation with the Investment Committee, which assists the Board in evaluating the performance of the Fund at periodic meetings throughout the year. The Board also considered the analysis provided by the Consultant relating to the Fund’s performance track record.
In light of all the considerations noted above, the Board concluded that it had continued confidence in HFMC’s and the Sub-adviser’s overall capabilities to manage the Fund.
Costs of the Services and Profitability of the Advisers
The Board reviewed information regarding HFMC’s cost to provide investment management and related services to the Fund and HFMC’s profitability, both overall and for the Fund, on a pre-tax basis without regard to distribution expenses. The Board also requested and reviewed information about the profitability to HFMC and its affiliates from all services provided to the Fund and all aspects of their relationship with the Fund. The Board also requested and received information relating to the operations and profitability of the Sub-adviser.
The Board considered the Consultant’s review of the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement, noting the Consultant’s view that Hartford Funds’ process for calculating and reporting Fund profitability is reasonable. In this regard, the Board noted that the Consultant performed a full review of this process in light of the recent restructuring of the Hartford Funds business and reported that the approach to analyzing Fund profitability, including the use of common expense allocation methodologies, is reasonable, sound and well within common industry practice.
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Hartford Balanced HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) - (continued) |
Based on these considerations, the Board concluded that the profits anticipated to be realized by the Advisers and their affiliates from their relationships with the Fund would not be excessive.
Comparison of Fees and Services Provided by the Advisers
The Board considered comparative information with respect to the management fees to be paid by the Fund to HFMC and the total expense ratios of the Fund. The Board also considered comparative information with respect to the sub-advisory fees to be paid by HFMC to the Sub-adviser. In this regard, the Board requested and reviewed information from HFMC and the Sub-adviser relating to the management and sub-advisory fees, including the sub-advisory fee schedule for the Fund, and total operating expenses for the Fund. The Board considered that the management fee for the Fund includes the fee paid to HLIC for providing certain administrative services to the Fund. With respect to the sub-advisory fee schedule, the Board considered representations from HFMC and the Sub-adviser that the Sub-adviser’s fees were negotiated at arm’s length on a fund-by-fund basis. The Board also reviewed information from Lipper comparing the Fund’s contractual management fees, actual management fees and overall expense ratios relative to a group of funds selected by Lipper, in consultation with the Consultant, and a broader universe of funds selected by Lipper. The Board noted that the Fund’s contractual management fee was in the 5th quintile of its expense group, while its actual management fee and total expenses (less 12b-1 and shareholder service fees) were in the 4th quintile. The Board also noted that in response to a request from the Board, HFMC had agreed to waive 0.02% of its contractual management fee for the Fund from January 1, 2015 to December 31, 2015.
While the Board recognized that comparisons between the Fund and peer funds may be imprecise, given the different service levels and characteristics of mutual funds and the different business models and cost structures of the Advisers, the comparative information provided by Lipper assisted the Board in evaluating the reasonableness of the Fund’s management and sub-advisory fees and total operating expenses. In addition, the Board considered the analysis and recommendations of the Consultant relating to the Fund’s management and sub-advisory fees and total operating expenses.
Based on these considerations, the Board concluded that the Fund’s fees and total operating expenses, in conjunction with the information about quality of services, profitability, economies of scale, and other matters discussed, were reasonable in light of the services provided.
Economies of Scale
The Board requested and considered information regarding the Advisers’ realization of economies of scale with respect to the Fund and whether the fee levels reflect these economies of scale for the benefit of the Fund’s shareholders. The Board reviewed the breakpoints in the management fee schedule for the Fund, which reduce fee rates as Fund assets grow over time. The Board recognized that a fund with assets beyond the highest breakpoint level will continue to benefit from economies of scale because additional assets are charged the lowest breakpoint fee resulting in lower overall effective management fee rates. The Board also recognized that a fee schedule that reaches a lower breakpoint quickly provides shareholders with the benefit of anticipated or potential economies of scale. The Board noted the effect of the sale and run-off of the variable annuity business on the HLS Funds.
The Board reviewed and evaluated materials from Lipper and the Consultant showing how management fee schedules of peer funds reflect economies of scale for the benefit of shareholders as a peer fund’s assets hypothetically increase over time. Based on information provided by HFMC, Lipper, and the Consultant, the Board recognized that there is no uniform methodology for establishing breakpoints or uniform pattern in asset levels that trigger breakpoints or the amounts of breakpoints triggered.
After considering all of the information available to it, the Board concluded that it was satisfied with the extent to which economies of scale would be shared for the benefit of the Fund’s shareholders based on currently available information and the effective advisory fees and expense ratios for the Fund at its current and reasonably anticipated asset levels. The Board noted, however, that it would continue to monitor future growth in Fund assets and the appropriateness of additional breakpoints.
Other Benefits
The Board considered other benefits to the Advisers and their affiliates from their relationships with the Fund, including the role of the Fund in supporting the variable life insurance and variable annuity products offered by The Hartford.
The Board noted that HLIC, an affiliate of HFMC, receives fees for providing certain administrative services to the Fund and that HFMC receives fees for fund accounting and related services from the Fund. The Board considered information on profits to HLIC and HFMC for such services.
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Hartford Balanced HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) - (continued) |
The Board also considered that Hartford Administrative Services Company (“HASCO”), the Fund’s transfer agent and an affiliate of HFMC, receives transfer agency compensation from the Fund, and the Board reviewed information on the profitability of the Fund’s transfer agency function to HASCO. The Board considered information provided by HASCO indicating that the transfer agent fees charged by HASCO to the Fund were fair and reasonable based on publicly available information.
The Board also considered that Hartford Funds Distributors, LLC (“HFD”), an affiliate of HFMC, serves as principal underwriter of the Fund. As principal underwriter, HFD receives 12b-1 fees from the Fund. The Board also noted that certain affiliates of HFD distribute shares of the Fund and receive compensation in that connection.
The Board considered benefits to the Sub-adviser from its use of the Fund’s brokerage commissions to obtain soft dollar research, and representations from HFMC and the Sub-adviser that the Sub-adviser would not make any revenue-sharing payments or any other type of distribution payments to HFMC or its affiliates.
The Board considered the benefits to shareholders of being part of the Hartford Funds family of funds. The Board considered HFMC’s efforts to provide investors in the family with a broad range of investment styles and asset classes.
* * * *
Based upon its review of these various factors, among others, the Board concluded that it is in the best interests of the Fund and its shareholders for the Board to approve the Agreements for an additional year. In reaching this decision, the Board did not assign relative weights to the factors discussed above or deem any one or group of them to be controlling in and of themselves. In connection with their deliberations, the Independent Directors met separately in executive session on several occasions, with independent legal counsel and the Consultant, to review the relevant materials and consider their responsibilities under relevant laws and regulations.
41 |
Hartford Balanced HLS Fund |
Main Risks (Unaudited) |
The main risks of investing in the Fund are described below.
Market, Selection and Strategy Risk: The Fund’s share price may fluctuate due to market risk and/or security selections that may underperform the market or relevant benchmarks. If the sub-adviser's investment strategy does not perform as expected, the Fund could underperform its peers or lose money. There is no guarantee the Fund will achieve its stated objective.
Asset Allocation Strategy Risk: The portfolio managers' asset allocation strategy may not always work as intended, and asset allocation does not guarantee better performance or reduce the risk of investment loss.
Fixed Income Risk: The Fund is subject to interest rate risk (the risk that the value of an investment decreases when interest rates rise), credit risk (the risk that the issuing company of a security is unable to pay interest and principal when due) and call risk (the risk that an investment may be redeemed early).
Mortgage-Backed Securities Risk: Mortgage-backed securities are subject to interest rate risk, credit risk, prepayment risk, extension risk, and the risk that an investment’s value may be reduced or become worthless if it receives interest or income payments only after other investments in the same pool.
42 |
THIS PRIVACY POLICY IS NOT PART OF THIS REPORT
Privacy Policy and Practices of The Hartford Financial Services Group, Inc. and its Affiliates
(herein called “we, our and us”)
This Privacy Policy applies to our United States Operations
We value your trust. We are committed to the responsible: a) management; b) use; and c) protection; of Personal Information.
This notice describes how we collect, disclose, and protect Personal Information.
We collect Personal Information to: a) service your Transactions with us; and b) support our business functions.
We may obtain Personal Information from: a) You; b) your Transactions with us; and c) third parties such as a consumer-reporting agency.
Based on the type of product or service You apply for or get from us, Personal Information such as: a) your name; b) your address; c) your income; d) your payment; or e) your credit history; may be gathered from sources such as applications, Transactions, and consumer reports.
To serve You and service our business, we may share certain Personal Information. We will share Personal Information, only as allowed by law, with affiliates such as: a) our insurance companies; b) our employee agents; c) our brokerage firms; and d) our administrators.
As allowed by law, we may share Personal Financial Information with our affiliates to: a) market our products; or b) market our services; to You without providing You with an option to prevent these disclosures.
| We may also share Personal Information, only as allowed by law, with unaffiliated third parties including: a) independent agents; b) brokerage firms; c) insurance companies; d) administrators; and e) service providers; who help us serve You and service our business.
When allowed by law, we may share certain Personal Financial Information with other unaffiliated third parties who assist us by performing services or functions such as: a) taking surveys; b) marketing our products or services; or c) offering financial products or services under a joint agreement between us and one or more financial institutions.
We, and third parties we partner with, may track some of the pages You visit through the use of: a) cookies; b) pixel tagging; or c) other technologies; and currently do not process or comply with any web browser’s “do not track” signal or similar mechanism that indicates a request to disable online tracking of individual users who visit our websites or use our services.
We will not sell or share your Personal Financial Information with anyone for purposes unrelated to our business functions without offering You the opportunity to: a) “opt-out;” or b) “opt-in;” as required by law.
We only disclose Personal Health Information with: a) your proper written authorization; or b) as otherwise allowed or required by law.
Our employees have access to Personal Information in the course of doing their jobs, such as: a) underwriting policies; b) paying claims; c) developing new products; or d) advising customers of our products and services. |
We use manual and electronic security procedures to maintain: a) the confidentiality; and b) the integrity of; Personal Information that we have. We use these procedures to guard against unauthorized access.
Some techniques we use to protect Personal Information include: a) secured files; b) user authentication; c) encryption; d) firewall technology; and e) the use of detection software.
We are responsible for and must: a) identify information to be protected; b) provide an adequate level of protection for that data; c) grant access to protected data only to those people who must use it in the performance of their job-related duties.
Employees who violate our Privacy Policy will be subject to discipline, which may include ending their employment with us.
At the start of our business relationship, we will give You a copy of our current Privacy Policy.
We will also give You a copy of our current Privacy Policy once a year if You maintain a continuing business relationship with us.
We will continue to follow our Privacy Policy regarding Personal Information even when a business relationship no longer exists between us. | As used in this Privacy Notice:
Application means your request for our product or service.
Personal Financial Information means financial information such as: a) credit history; b) income; c) financial benefits; or d) policy or claim information.
Personal Health Information means health information such as: a) your medical records; or b) information about your illness, disability or injury.
Personal Information means information that identifies You personally and is not otherwise available to the public. It includes: a) Personal Financial Information; and b) Personal Health Information.
Transaction means your business dealings with us, such as: a) your Application; b) your request for us to pay a claim; and c) your request for us to take an action on your account.
You means an individual who has given us Personal Information in conjunction with: a) asking about; b) applying for; or c) obtaining; a financial product or service from us if the product or service is used mainly for personal, family, or household purposes. |
This Privacy Policy is being provided on behalf of the following affiliates of The Hartford Financial Services Group, Inc.:
1stAGChoice, Inc.; Access CoverageCorp, Inc.; Access CoverageCorp Technologies, Inc.; American Maturity Life Insurance Company; Archway 60 R, LLC; Business Management Group, Inc.; DMS R, LLC; First State Insurance Company; Fountain Investors I LLC; Fountain Investors II LLC; Fountain Investors III LLC; Fountain Investors IV LLC; FTC Resolution Company LLC; Hart Re Group L.L.C.; Hartford Accident and Indemnity Company; Hartford Administrative Services Company; Hartford Casualty General Agency, Inc.; Hartford Casualty Insurance Company; Hartford Financial Services, LLC; Hartford Fire General Agency, Inc.; Hartford Fire Insurance Company; Hartford Funds Distributors, LLC; Hartford Funds Management Company, LLC; Hartford Funds Management Group, Inc.; Hartford Holdings, Inc.; Hartford HLS Series Fund II, Inc.; Hartford Insurance Company of Illinois; Hartford Insurance Company of the Midwest; Hartford Insurance Company of the Southeast; Hartford Integrated Technologies, Inc.; Hartford International Life Reassurance Corporation; Hartford Investment Management Company; Hartford Life and Accident Insurance Company; Hartford Life and Annuity Insurance Company; Hartford Life Insurance Company; Hartford Life, Inc.; Hartford Life International Holding Company; Hartford Life Private Placement, LLC; Hartford Lloyd’s Corporation; Hartford Lloyd’s Insurance Company; Hartford of Texas General Agency, Inc.; Hartford Residual Market, L.C.C.; Hartford Securities Distribution Company, Inc.; Hartford Series Fund, Inc.; Hartford Specialty Insurance Services of Texas, LLC; Hartford Strategic Investments, LLC; Hartford Underwriters General Agency, Inc.; Hartford Underwriters Insurance Company; Hartford-Comprehensive Employee Benefit Service Company; HDC R, LLC.; Heritage Holdings, Inc.; HIMCO Distribution Services Company; HIMCO Variable Insurance Trust; HLA LLC; HL Investment Advisors, LLC; Horizon Management Group, LLC; HRA Brokerage Services, Inc.; Lanidex Class B, LLC; New England Insurance Company; New England Reinsurance Corporation; Nutmeg Insurance Agency, Inc.; Nutmeg Insurance Company; Pacific Insurance Company, Limited; Planco, LLC; Property and Casualty Insurance Company of Hartford; Revere R, LLC; RVR R, LLC; Sentinel Insurance Company, Ltd.; Sunstone R, LLC; Symphony R, LLC; The Evergreen Group Incorporated; The Hartford Alternative Strategies Fund; The Hartford Mutual Funds, Inc.; The Hartford Mutual Funds II, Inc.; Trumbull Flood Management, L.L.C.; Trumbull Insurance Company; Twin City Fire Insurance Company.
HPP Revised February 2015
HARTFORD HLS FUNDS
P.O. Box 14293
Lexington, KY 40512-4293
HARTFORDFUNDS
hartfordfunds.com
Hartford HLS Funds are underwritten and distributed by Hartford Funds Distributors, LLC.
Hartford Series Fund, Inc. is not a subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford") but is underwritten, distributed by and advised by subsidiaries of The Hartford. Investments in Hartford Series Fund, Inc. are not guaranteed by The Hartford or any other entity.
This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution unless preceded or accompanied by a current prospectus for the Fund.
Investors should carefully consider the investment objectives, risks, charges, and expenses of Hartford Funds before investing. This and other information can be found in the prospectus and summary prospectus, which can be obtained by calling 888-843-7824 (or 800-279-1541 for institutional investors). Investors should read them carefully before they invest.
HLSAR-B14 2-15 115336-2 Printed in U.S.A.
HARTFORDFUNDS
![]() | HARTFORD CAPITAL
APPRECIATION HLS FUND
2014 Annual Report |
A MESSAGE FROM THE PRESIDENT
Dear Fellow Shareholders:
Thank you for investing in Hartford HLS Funds.
Market Review
Nearly six years into a bull market, U.S. equities (as represented by the S&P 500 Index ) notched another positive year in 2014, finishing with a 13.69% gain. Progress was smooth for most of the year, with stocks generally rising amid little volatility. In the fourth quarter, however, the price of oil declined by nearly 40%, returning volatility to the market and paring some of the year’s returns.
As we enter 2015, the price of oil will likely continue playing an important role in market progress, as its effects are widespread. If prices remain low, consumers should benefit by paying less at the gas pump, which increases the amount of money available for discretionary spending. In contrast, low prices may be a detriment to the oil and natural gas industry in the U.S., as well as to the economies of countries that rely more heavily on oil exports.
Central-bank policies will also continue to influence the markets. The U.S. economy has continued to show self-sustaining growth, which has prompted the U.S. Federal Reserve to wind down the quantitative easing programs it initiated after the global financial crisis. In addition, gradual increases in interest rates are expected to begin in 2015, another sign of positive recovery and a return to pre-crisis policy. But in Europe, a slow recovery and fears of deflation have prompted the start of European Central Bank’s own version of quantitative easing to spur growth.
The final weeks of 2014 provided a stark reminder of how unpredictable market movements can be, and how important it is to maintain a diversified portfolio that’s in line with your time horizon and risk tolerance. As we begin 2015, take time to review your portfolio and your overall investment strategy with your financial advisor.
With more than 40 mutual-fund strategies that span a variety of asset classes and investment goals, your financial advisor can work with you to choose options within our fund family that can help you navigate today’s markets with confidence.
Thank you again for investing with Hartford HLS Funds.
James Davey
President
Hartford HLS Funds
1The S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
Hartford Capital Appreciation HLS Fund
Table of Contents
This report is prepared for the general information of contract owners and qualified retirement plan participants. It is not an offer of contracts or of qualified retirement plans. It should not be used in connection with any offer, except in conjunction with the appropriate product prospectus which contains all pertinent information including the applicable sales, administrative and other charges.
The views expressed in the Fund’s Manager Discussion under ‘‘Why did the Fund perform this way?’’ and ‘‘What is the outlook?’’ are views of the Fund’s sub-adviser and portfolio management team through the end of the period and are subject to change based on market and other conditions. The Fund’s Manager Discussion is for informational purposes only and does not represent an offer, recommendation or solicitation to buy, hold or sell any security. The specific securities identified and described, if any, do not represent all of the securities purchased or sold and you should not assume that investments in the securities identified and discussed will be profitable.
Hartford Capital Appreciation HLS Fund inception 04/02/1984
(sub-advised by Wellington Management Company, LLP)
Investment objective – The Fund seeks growth of capital.
Performance Overview 12/31/04 - 12/31/14
The chart above represents the hypothetical growth of a $10,000 investment in Class IA. Growth results in classes other than Class IA will vary from what is seen above due to differences in the expenses charged to those share classes.
Average Annual Total Returns (as of 12/31/14) |
1 Year | 5 Years | 10 Years | ||||
Capital Appreciation IA | 7.31% | 12.76% | 8.56% | |||
Capital Appreciation IB | 7.04% | 12.48% | 8.29% | |||
Capital Appreciation IC | 6.79% | 12.20% | 8.03% | |||
Russell 3000 Index | 12.56% | 15.63% | 7.94% | |||
S&P 500 Index | 13.69% | 15.45% | 7.67% |
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of the investment will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain performance data current to the most recent month-end, please visit our website www.hartfordfunds.com.
Total returns presented above were calculated using the Fund’s net asset value available to shareholders for sale or redemption of Fund shares on December 31, 2014, which may exclude investment transactions as of this date. All share class returns assume the reinvestment of all distributions at net asset value and the deduction of all fund expenses.
Class IC shares commenced operations on April 30, 2014. Class IC share performance prior to that date reflects Class IA share performance adjusted to reflect the 12b-1 fee of 0.25% and the administrative services fee of 0.25% applicable to Class IC shares. The performance after such date reflects actual Class IC share performance.
Russell 3000 Index is an unmanaged index that measures the performance of the 3,000 largest U.S. companies based on total market capitalization.
S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
The indices are unmanaged, and their results include reinvested dividends and/or distributions, but do not reflect the effect of sales charges, commissions, expenses or taxes.
You cannot invest directly in an index.
As shown in the Fund's current prospectus dated May 1, 2014, the total annual operating expense ratios for Class IA, Class IB and IC were 0.67%, 0.92% and 1.17%, respectively. Actual expenses may be higher. Please see the accompanying Financial Highlights for expense ratios for the year ended December 31, 2014.
All investments are subject to risk including the possible loss of principal. For a discussion of the Fund’s risks, please see the Main Risks section of this report. For more detailed information on the risks associated with an investment in the Fund, please see the prospectus.
The chart and table do not reflect the deductions of taxes, sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees or expenses would lower the contract’s or plan’s performance.
2 |
Hartford Capital Appreciation HLS Fund
Manager Discussion
December 31, 2014 (Unaudited)
Portfolio Managers | ||
Saul J. Pannell, CFA | Gregg R. Thomas, CFA | Kent M. Stahl, CFA |
Senior Managing Director and Equity Portfolio Manager | Senior Managing Director and Director of Risk Management | Senior Managing Director and Director of Investments and Risk Management |
Francis J. Boggan, CFA | Nicolas M. Choumenkovitch | Peter I. Higgins, CFA |
Senior Managing Director and Equity Portfolio Manager | Senior Managing Director and Equity Portfolio Manager | Senior Managing Director and Equity Portfolio Manager |
Donald J. Kilbride | Paul E. Marrkand, CFA* | Stephen Mortimer |
Senior Managing Director and Equity Portfolio Manager | Senior Managing Director and Equity Portfolio Manager | Senior Managing Director and Equity Portfolio Manager |
David W. Palmer, CFA | Philip W. Ruedi, CFA* | |
Senior Managing Director and Equity Portfolio Manager | Senior Managing Director and Equity Porfolio Manager | |
* Effective June 3, 2014, Philip W. Ruedi replaced Paul E. Marrkand as a portfolio manager. |
How did the Fund perform?
The Class IA shares of the Hartford Capital Appreciation HLS Fund returned 7.31% for the twelve-month period ended December 31, 2014, underperforming the Fund’s benchmarks, the Russell 3000 Index and the S&P 500 Index, which returned 12.56% and 13.69%, respectively, for the same period. The Fund also underperformed the 9.73% average return of the Lipper Multi-Cap Core Funds peer group, a group of funds with investment strategies similar to those of the Fund.
Why did the Fund perform this way?
U.S. equities surged during the period, despite bouts of significant volatility. After finishing their best year since 1997, U.S. stocks began 2014 with their worst month in nearly two years. Worries about an economic slowdown in China and general angst surrounding emerging markets overshadowed a fairly benign domestic environment. However, robust merger and acquisition activity, an uncontested increase in the debt ceiling from Congress, renewed signs of life in the housing market, and the best payroll gain in more than two years helped stoke investors' risk appetites in the first half of the period. A pullback in July ended a streak of five consecutive monthly gains. Fear gripped the market as heightened geopolitical risks, a potential Portuguese banking crisis, and worries of U.S. Federal Reserve (Fed) tightening took center stage. Stocks rebounded in August based on encouraging economic data, headlined by better-than-expected gross domestic product (GDP) growth and signs that the housing recovery still had legs. However, the reality of quantitative easing ending and the prospect of higher federal funds rates in mid-2015 contributed to increased risk aversion levels. Stocks rebounded again in October, hitting an all-time high on the heels of a positive earnings season and generally solid economic data. The rally continued in November after Republicans took control of the U.S. Senate but stocks pulled back slightly near month-end, led by weakness in the energy sector associated with the significant decline in oil prices. In December, U.S. equities closed at an all-time high on December 29th but fell 1.4% during the final two trading days of the year. The Fed helped to support riskier assets at the end of the year after it stated it can be "patient" with regards to starting the process of bringing interest rates to normal levels.
Returns also varied noticeably by market-cap, as small- and mid-cap stocks underperformed large-cap stocks. Within the Russell 3000 Index, nine of ten sectors posted positive gains. Utilities (+27%), Healthcare (+25%), and Information Technology (+18%) led the Russell 3000 index higher while Energy (-10%), Telecommunication Services (+2%), and Materials (+6%) lagged on a relative basis.
The Fund underperformed the Russell 3000 Index primarily due to security selection. Security selection was weakest within the Financials, Energy, and Industrials sectors. This was partially offset by strong selection within the Healthcare sector. Sector allocation modestly detracted from performance relative to the Russell 3000 Index during the period. An underweight to the Utilities sector and an overweight to the Consumer Discretionary sector detracted from returns relative to the Russell 3000 Index, which was partially offset by an overweight to Information Technology and an underweight to Telecommunication Services.
The largest detractors from returns relative to the Russell 3000 Index were Standard Chartered (Financials), Apple (Information Technology), and Pioneer Natural Resource (Energy). Standard Chartered, a U.K.-based global bank serving retail and commercial clients, underperformed after the bank posted a drop in third-quarter profits from a year ago as impairments for bad loans almost doubled and regulatory compliance costs increased. Shares of Apple, a U.S.-based designer and manufacturer of consumer electronics, software, and computers, hit record highs during the period driven primarily by strong demand for the iPhone 6 and iPhone 6 Plus. Our relative underweight position in the strong performing Russell 3000 Index constituent detracted from returns relative to the Russell 3000 Index during the period. Shares of Pioneer Natural Resource, a U.S.-based oil and production company, underperformed as the oil sector saw the sharpest sell-off in three years following the Organization of
3 |
Hartford Capital Appreciation HLS Fund
Manager Discussion – (continued)
December 31, 2014 (Unaudited)
the Petroleum Exporting Countries’ (OPEC’s) decision not to cut production amidst declining oil prices. Best Buy (Consumer Discretionary) and BG Group (Energy) were among top absolute detractors during the period.
The top contributors to performance relative to the Russell 3000 Index during the quarter included Micron Technology (Information Technology), NXP Semiconductors (Information Technology) and Gilead Sciences (Healthcare). Shares of Micron Technology, a semiconductor manufacturer specializing in NAND Flash, DRAM, and NOR Flash memory devices, rose during the period due to improving expectations for demand for the company's products and solid execution. Shares of NXP Semiconductors, a Netherlands-based semiconductor company, outperformed as the company continued to show strong earnings quality, cash flow quality, operating efficiency, and balance sheet quality. Shares of Gilead Sciences, a U.S.-based biopharmaceutical company, outperformed after the company reported better-than-expected quarterly revenue and earnings driven by strong sales of Sovaldi (a hepatitis C drug). Bristol-Myers (Healthcare) was among top absolute contributors during the period.
Derivatives are not used in a significant manner in the Fund and did not have a material impact on performance during the period.
What is the outlook?
Despite challenging valuations, we remain constructive on the U.S. In our view, the economy is now experiencing what we believe is a self-sustaining expansion. We believe GDP is likely to get a modest net boost from the oil price decline, and the labor market continues to appear robust, which is suggestive of higher wages going forward. This balance between strong fundamentals and challenging valuations leaves us positive but alert for any changes to the growth outlook. Also, given our outlook for inflation, a v-shaped trajectory with the second quarter of 2015 likely acting as a bottom, we are closely monitoring the actions of the Fed. We believe the focus on what happens to wages and core inflation, which is inflation measured excluding Consumer Price Index items that have volatile prices, will be their guide to moving policy. As a result, we expect a gradual increase in policy rates in the second half of 2015.
At the end of the period the Fund was most overweight the Information Technology, Healthcare, and Consumer Discretionary sectors relative to the Russell 3000 Index. The Fund was most underweight the Financials, Consumer Staples, and Utilities sectors at the end of the period relative to the Russell 3000 Index.
Diversification by Sector
as of December 31, 2014
Sector | Percentage of Net Assets | |||
Equity Securities | ||||
Consumer Discretionary | 14.9 | % | ||
Consumer Staples | 5.3 | |||
Energy | 6.3 | |||
Financials | 14.3 | |||
Health Care | 16.2 | |||
Industrials | 11.0 | |||
Information Technology | 24.5 | |||
Materials | 4.2 | |||
Services | 0.9 | |||
Utilities | 1.1 | |||
Total | 98.7 | % | ||
Short-Term Investments | 1.3 | |||
Other Assets and Liabilities | 0.0 | |||
Total | 100.0 | % |
A sector may be comprised of several industries. For Fund compliance purposes, the Fund may not use the same classification system and these sector classifications are used for reporting ease.
4 |
Hartford Capital Appreciation HLS Fund
Schedule of Investments
December 31, 2014
(000’s Omitted)
Shares or Principal Amount | Market Value ╪ | |||||||
Common Stocks - 98.1% | ||||||||
Automobiles and Components - 1.6% | ||||||||
76 | Delphi Automotive plc | $ | 5,535 | |||||
3,658 | Dongfeng Motor Group Co., Ltd. | 5,117 | ||||||
125 | Fiat Chrysler Automobiles | 1,448 | ||||||
514 | Fiat Chrysler Automobiles N.V. ● | 5,971 | ||||||
2,162 | Goodyear (The) Tire & Rubber Co. | 61,769 | ||||||
508 | Harley-Davidson, Inc. | 33,495 | ||||||
113,335 | ||||||||
Banks - 2.6% | ||||||||
6,908 | Alpha Bank A.E. ● | 3,881 | ||||||
22,993 | Bank of Ireland ● | 8,629 | ||||||
170 | First Republic Bank | 8,865 | ||||||
884 | ICICI Bank Ltd. | 10,215 | ||||||
118 | M&T Bank Corp. | 14,833 | ||||||
2,052 | Mitsubishi UFJ Financial Group, Inc. | 11,273 | ||||||
19,357 | Mizuho Financial Group, Inc. | 32,449 | ||||||
688 | PNC Financial Services Group, Inc. | 62,790 | ||||||
56 | South State Corp. | 3,777 | ||||||
507 | Wells Fargo & Co. | 27,802 | ||||||
184,514 | ||||||||
Capital Goods - 6.4% | ||||||||
55 | 3M Co. | 8,991 | ||||||
48 | Acuity Brands, Inc. | 6,773 | ||||||
588 | AECOM Technology Corp. ● | 17,861 | ||||||
260 | AMETEK, Inc. | 13,672 | ||||||
147 | Assa Abloy Ab | 7,743 | ||||||
340 | Belden, Inc. | 26,767 | ||||||
6,083 | Capstone Turbine Corp. ● | 4,497 | ||||||
66 | Danaher Corp. | 5,685 | ||||||
123 | DigitalGlobe, Inc. ● | 3,808 | ||||||
436 | Eaton Corp. plc | 29,634 | ||||||
182 | Fastenal Co. | 8,634 | ||||||
245 | Generac Holdings, Inc. ● | 11,463 | ||||||
319 | HD Supply Holdings, Inc. ● | 9,398 | ||||||
130 | Lockheed Martin Corp. | 25,049 | ||||||
364 | Nidec Corp. | 23,496 | ||||||
157 | Northrop Grumman Corp. | 23,118 | ||||||
311 | Owens Corning, Inc. | 11,154 | ||||||
86 | Polypore International, Inc. ● | 4,034 | ||||||
725 | Raytheon Co. | 78,454 | ||||||
249 | Rexel S.A. | 4,463 | ||||||
498 | Safran S.A. | 30,725 | ||||||
114 | Schneider Electric S.A. | 8,337 | ||||||
33 | Sulzer AG | 3,493 | ||||||
62 | Teledyne Technologies, Inc. ● | 6,362 | ||||||
138 | Textron, Inc. | 5,805 | ||||||
141 | TransDigm Group, Inc. | 27,599 | ||||||
212 | United Technologies Corp. | 24,334 | ||||||
373 | Vallourec S.A. | 10,099 | ||||||
241 | WESCO International, Inc. ● | 18,383 | ||||||
459,831 | ||||||||
Commercial and Professional Services - 1.1% | ||||||||
192 | Clean Harbors, Inc. ● | 9,203 | ||||||
601 | Enernoc, Inc. ● | 9,283 | ||||||
285 | Equifax, Inc. | 23,056 | ||||||
337 | Herman Miller, Inc. | 9,921 | ||||||
48 | IHS, Inc. ● | 5,435 | ||||||
550 | Knoll, Inc. | 11,637 | ||||||
100 | Manpowergroup, Inc. | 6,810 | ||||||
82 | Robert Half International, Inc. | 4,789 | ||||||
80,134 | ||||||||
Consumer Durables and Apparel - 2.5% | ||||||||
569 | D.R. Horton, Inc. | 14,380 | ||||||
580 | Electrolux AB Series B | 16,935 | ||||||
93 | Fossil Group, Inc. ● | 10,349 | ||||||
100 | GoPro, Inc. ● | 6,303 | ||||||
47 | Harman International Industries, Inc. | 5,048 | ||||||
442 | Kate Spade & Co. ● | 14,135 | ||||||
106 | Lennar Corp. | 4,745 | ||||||
177 | Luxottica Group S.p.A. | 9,706 | ||||||
1,975 | Pulte Group, Inc. | 42,386 | ||||||
156 | PVH Corp. | 19,941 | ||||||
1,278 | Sony Corp. | 26,091 | ||||||
271 | Vera Bradley, Inc. ● | 5,514 | ||||||
41 | Whirlpool Corp. | 8,018 | ||||||
183,551 | ||||||||
Consumer Services - 2.4% | ||||||||
470 | American Public Education, Inc. ● | 17,347 | ||||||
11 | Chipotle Mexican Grill, Inc. ● | 7,759 | ||||||
313 | Grand Canyon Education, Inc. ● | 14,605 | ||||||
585 | Hilton Worldwide Holdings, Inc. ● | 15,257 | ||||||
348 | Las Vegas Sands Corp. | 20,257 | ||||||
329 | McDonald's Corp. | 30,798 | ||||||
139 | Norwegian Cruise Line Holdings Ltd. ● | 6,481 | �� | |||||
20 | Outerwall, Inc. ● | 1,490 | ||||||
44 | Panera Bread Co. Class A ● | 7,693 | ||||||
705 | Sands China Ltd. | 3,433 | ||||||
71 | Starbucks Corp. | 5,790 | ||||||
482 | Wyndham Worldwide Corp. | 41,359 | ||||||
172,269 | ||||||||
Diversified Financials - 5.5% | ||||||||
71 | Ameriprise Financial, Inc. | 9,333 | ||||||
219 | Banca Generali S.p.A. | 6,081 | ||||||
148 | BlackRock, Inc. | 52,990 | ||||||
1,771 | Citigroup, Inc. | 95,830 | ||||||
307 | Hong Kong Exchanges & Clearing Ltd. | 6,786 | ||||||
25 | Intercontinental Exchange, Inc. | 5,460 | ||||||
1,865 | JP Morgan Chase & Co. | 116,706 | ||||||
698 | Julius Baer Group Ltd. | 31,851 | ||||||
212 | Legg Mason, Inc. | 11,323 | ||||||
127 | Northern Trust Corp. | 8,545 | ||||||
334 | Platform Specialty Products Corp. ● | 7,756 | ||||||
217 | PRA Group, Inc. ● | 12,545 | ||||||
127 | Raymond James Financial, Inc. | 7,264 | ||||||
163 | Santander Consumer USA Holdings, Inc. | 3,189 | ||||||
75 | Solar Cayman Ltd. ⌂■●† | 5 | ||||||
422 | Waddell & Reed Financial, Inc. Class A | 21,049 | ||||||
396,713 | ||||||||
Energy - 6.3% | ||||||||
163 | Anadarko Petroleum Corp. | 13,407 | ||||||
237 | Atwood Oceanics, Inc. ● | 6,736 | ||||||
2,544 | BG Group plc | 34,048 | ||||||
608 | Cabot Oil & Gas Corp. | 18,005 | ||||||
802 | Cameco Corp. | 13,152 | ||||||
107 | Cameron International Corp. ● | 5,353 | ||||||
244 | Canadian Natural Resources Ltd. ADR | 7,542 | ||||||
407 | Chesapeake Energy Corp. | 7,960 | ||||||
145 | Chevron Corp. | 16,222 | ||||||
1,705 | Cobalt International Energy, Inc. ● | 15,159 | ||||||
162 | Continental Resources, Inc. ● | 6,214 | ||||||
49 | Diamondback Energy, Inc. ● | 2,955 | ||||||
175 | Energen Corp. | 11,156 |
The accompanying notes are an integral part of these financial statements.
5 |
Hartford Capital Appreciation HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Shares or Principal Amount | Market Value ╪ | |||||||
Common Stocks - 98.1% - (continued) | ||||||||
Energy - 6.3% - (continued) | ||||||||
114 | EQT Corp. | $ | 8,640 | |||||
141 | Exxon Mobil Corp. | 13,048 | ||||||
1,691 | Halliburton Co. | 66,524 | ||||||
167 | HollyFrontier Corp. | 6,248 | ||||||
683 | Imperial Oil Ltd. | 29,408 | ||||||
3,246 | Karoon Gas Australia Ltd. ● | 6,351 | ||||||
1,540 | McDermott International, Inc. ● | 4,481 | ||||||
159 | National Oilwell Varco, Inc. | 10,430 | ||||||
80 | Occidental Petroleum Corp. | 6,429 | ||||||
494 | Patterson-UTI Energy, Inc. | 8,198 | ||||||
1,003 | Petroleo Brasileiro S.A. ADR | 7,321 | ||||||
428 | Pioneer Natural Resources Co. | 63,657 | ||||||
186 | QEP Resources, Inc. | 3,771 | ||||||
88 | Range Resources Corp. | 4,680 | ||||||
99 | Rice Energy, Inc. ● | 2,084 | ||||||
240 | Royal Dutch Shell plc Class B | 8,290 | ||||||
610 | Southwestern Energy Co. ● | 16,659 | ||||||
311 | Suncor Energy, Inc. | 9,868 | ||||||
1,898 | Trican Well Service Ltd. | 9,098 | ||||||
1,588 | Tsakos Energy Navigation Ltd. | 11,083 | ||||||
167 | YPF Sociedad Anonima ADR | 4,428 | ||||||
458,605 | ||||||||
Food and Staples Retailing - 1.1% | ||||||||
518 | CVS Health Corp. | 49,902 | ||||||
239 | �� | Seven & I Holdings Co., Ltd. | 8,581 | |||||
207 | Wal-Mart Stores, Inc. | 17,740 | ||||||
120 | Whole Foods Market, Inc. | 6,055 | ||||||
82,278 | ||||||||
Food, Beverage and Tobacco - 3.8% | ||||||||
173 | Anheuser-Busch InBev N.V. | 19,437 | ||||||
224 | Anheuser-Busch InBev N.V. ADR | 25,175 | ||||||
155 | British American Tobacco plc | 8,414 | ||||||
973 | Coca-Cola Co. | 41,082 | ||||||
240 | Diageo Capital plc | 6,862 | ||||||
61 | Diageo plc ADR | 6,943 | ||||||
30 | Diamond Foods, Inc. ● | 856 | ||||||
915 | Freshpet, Inc. ● | 15,603 | ||||||
46 | Hershey Co. | 4,832 | ||||||
383 | Imperial Tobacco Group plc | 16,843 | ||||||
310 | Kraft Foods Group, Inc. | 19,428 | ||||||
1,590 | Mondelez International, Inc. | 57,739 | ||||||
353 | Monster Beverage Corp. ● | 38,214 | ||||||
67 | Philip Morris International, Inc. | 5,458 | ||||||
156 | Post Holdings, Inc. ● | 6,520 | ||||||
1,153 | Treasury Wine Estates Ltd. | 4,449 | ||||||
277,855 | ||||||||
Health Care Equipment and Services - 3.6% | ||||||||
180 | Aetna, Inc. | 15,981 | ||||||
68 | Anthem, Inc. | 8,583 | ||||||
328 | Becton, Dickinson & Co. | 45,595 | ||||||
286 | Cardinal Health, Inc. | 23,125 | ||||||
10,083 | CareView Communications, Inc. ●† | 3,330 | ||||||
99 | Cerner Corp. ● | 6,369 | ||||||
72 | Covidien plc | 7,395 | ||||||
169 | Dexcom, Inc. ● | 9,320 | ||||||
147 | Envision Healthcare Holdings ● | 5,091 | ||||||
305 | Express Scripts Holding Co. ● | 25,833 | ||||||
422 | HCA Holdings, Inc. ● | 30,952 | ||||||
65 | Heartware International, Inc. ● | 4,790 | ||||||
477 | IMS Health Holdings, Inc. ● | 12,218 | ||||||
271 | Medtronic, Inc. | 19,579 | ||||||
265 | UnitedHealth Group, Inc. | 26,759 | ||||||
91 | Universal Health Services, Inc. Class B | 10,125 | ||||||
141 | Veeva Systems, Inc. ● | 3,723 | ||||||
258,768 | ||||||||
Household and Personal Products - 0.4% | ||||||||
92 | Procter & Gamble Co. | 8,380 | ||||||
1,074 | Svenska Cellulosa AB Class B | 23,155 | ||||||
31,535 | ||||||||
Insurance - 5.0% | ||||||||
397 | ACE Ltd. | 45,559 | ||||||
1,239 | AIA Group Ltd. | 6,833 | ||||||
1,544 | American International Group, Inc. | 86,474 | ||||||
794 | Assicurazioni Generali S.p.A. | 16,295 | ||||||
380 | Assured Guaranty Ltd. | 9,871 | ||||||
473 | Delta Lloyd N.V. | 10,396 | ||||||
24 | Fairfax Financial Holdings Ltd. | 12,402 | ||||||
262 | Lincoln National Corp. | 15,088 | ||||||
22 | Markel Corp. ● | 14,690 | ||||||
674 | Marsh & McLennan Cos., Inc. | 38,596 | ||||||
729 | MetLife, Inc. | 39,432 | ||||||
283 | Principal Financial Group, Inc. | 14,688 | ||||||
432 | Prudential Financial, Inc. | 39,088 | ||||||
202 | Tokio Marine Holdings, Inc. | 6,574 | ||||||
23 | Zurich Financial Services AG | 7,330 | ||||||
363,316 | ||||||||
Materials - 4.2% | ||||||||
101 | Air Liquide | 12,504 | ||||||
130 | Akzo Nobel N.V. | 8,994 | ||||||
55 | Allegheny Technologies, Inc. | 1,902 | ||||||
1,077 | Barrick Gold Corp. | 11,583 | ||||||
58 | Berry Plastics Group, Inc. ● | 1,840 | ||||||
98 | Cabot Corp. | 4,294 | ||||||
201 | Celanese Corp. | 12,072 | ||||||
301 | Constellium N.V. ● | 4,952 | ||||||
164 | Dow Chemical Co. | 7,470 | ||||||
65 | Eagle Materials, Inc. | 4,913 | ||||||
1,713 | Fortescue Metals Group Ltd. | 3,761 | ||||||
886 | Gold Resource Corp. | 2,995 | ||||||
374 | Headwaters, Inc. ● | 5,609 | ||||||
545 | Holcim Ltd. | 38,987 | ||||||
214 | Huntsman Corp. | 4,870 | ||||||
124 | International Paper Co. | 6,669 | ||||||
4,751 | Ivanhoe Mines Ltd. ● | 4,171 | ||||||
866 | JSR Corp. | 14,862 | ||||||
65 | Lafarge S.A. | 4,557 | ||||||
211 | Louisiana-Pacific Corp. ● | 3,488 | ||||||
146 | Methanex Corp. ADR | 6,669 | ||||||
443 | Norbord, Inc. | 9,856 | ||||||
549 | Packaging Corp. of America | 42,813 | ||||||
221 | Praxair, Inc. | 28,610 | ||||||
225 | Reliance Steel & Aluminum | 13,784 | ||||||
140 | Rio Tinto plc ADR | 6,425 | ||||||
123 | Vulcan Materials Co. | 8,055 | ||||||
259 | Wacker Chemie AG | 28,435 | ||||||
305,140 | ||||||||
Media - 1.1% | ||||||||
286 | CBS Corp. Class B | 15,851 | ||||||
30 | DISH Network Corp. ● | 2,212 | ||||||
30 | Harvey Weinstein Co. Holdings Class A-1 ⌂●†∞ | — |
The accompanying notes are an integral part of these financial statements.
6 |
Hartford Capital Appreciation HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Shares or Principal Amount | Market Value ╪ | |||||||
Common Stocks - 98.1% - (continued) | ||||||||
Media - 1.1% - (continued) | ||||||||
134 | Imax Corp. ● | $ | 4,144 | |||||
156 | McGraw Hill Financial, Inc. | 13,916 | ||||||
869 | Pandora Media, Inc. ● | 15,495 | ||||||
304 | Quebecor, Inc. | 8,344 | ||||||
90 | Tribune Media Co. - Class A ● | 5,363 | ||||||
337 | Twenty-First Century Fox, Inc. | 12,931 | ||||||
78,256 | ||||||||
Pharmaceuticals, Biotechnology and Life Sciences - 12.6% | ||||||||
455 | Actavis plc ● | 117,162 | ||||||
95 | Alkermes plc ● | 5,545 | ||||||
204 | Almirall S.A. ● | 3,361 | ||||||
54 | Amgen, Inc. | 8,570 | ||||||
1,165 | Arena Pharmaceuticals, Inc. ● | 4,042 | ||||||
1,388 | AstraZeneca plc | 98,027 | ||||||
70 | AstraZeneca plc ADR | 4,912 | ||||||
191 | Biogen Idec, Inc. ● | 64,849 | ||||||
3,929 | Bristol-Myers Squibb Co. | 231,939 | ||||||
186 | Celgene Corp. ● | 20,783 | ||||||
226 | Gilead Sciences, Inc. ● | 21,319 | ||||||
64 | H. Lundbeck A/S | 1,266 | ||||||
287 | Incyte Corp. ● | 20,969 | ||||||
313 | Johnson & Johnson | 32,737 | ||||||
261 | Medivation, Inc. ● | 25,990 | ||||||
1,895 | Merck & Co., Inc. | 107,596 | ||||||
436 | Pfizer, Inc. | 13,569 | ||||||
171 | Portola Pharmaceuticals, Inc. ● | 4,853 | ||||||
77 | Regeneron Pharmaceuticals, Inc. ● | 31,478 | ||||||
42 | Regulus Therapeutics, Inc. ● | 671 | ||||||
106 | Roche Holding AG | 28,805 | ||||||
129 | Tesaro, Inc. ● | 4,794 | ||||||
4,481 | TherapeuticsMD, Inc. ● | 19,939 | ||||||
268 | Vertex Pharmaceuticals, Inc. ● | 31,868 | ||||||
114 | Zoetis, Inc. | 4,913 | ||||||
909,957 | ||||||||
Real Estate - 1.2% | ||||||||
70 | AvalonBay Communities, Inc. REIT | 11,412 | ||||||
68 | Boston Properties, Inc. REIT | 8,773 | ||||||
215 | CBRE Group, Inc. ● | 7,378 | ||||||
247 | Columbia Property Trust, Inc. | 6,261 | ||||||
236 | Deutsche Annington Immobile | 7,997 | ||||||
7,662 | Macquarie Mexico Real Estate Management S.A. de C. V. REIT | 13,124 | ||||||
286 | Mitsui Fudosan Co., Ltd. | 7,667 | ||||||
303 | Paramount Group, Inc. | 5,632 | ||||||
112 | Plum Creek Timber Co., Inc. REIT | 4,784 | ||||||
165 | Realogy Holdings Corp. ● | 7,341 | ||||||
136 | Weyerhaeuser Co. REIT | 4,863 | ||||||
23 | Zillow, Inc. ● | 2,460 | ||||||
87,692 | ||||||||
Retailing - 7.1% | ||||||||
407 | Advance Automotive Parts, Inc. | 64,779 | ||||||
8,452 | Allstar Co. ⌂●† | 8,733 | ||||||
57 | Amazon.com, Inc. ● | 17,701 | ||||||
303 | CarMax, Inc. ● | 20,154 | ||||||
1,061 | Chico's FAS, Inc. | 17,197 | ||||||
746 | Coupons.com, Inc. ● | 13,246 | ||||||
138 | Dollar Tree, Inc. ● | 9,696 | ||||||
168 | GameStop Corp. Class A | 5,665 | ||||||
139 | GNC Holdings, Inc. | 6,539 | ||||||
2,824 | Groupon, Inc. ● | 23,324 | ||||||
243 | Home Depot, Inc. | 25,543 | ||||||
17 | Honest (The) Co. ⌂●† | 475 | ||||||
662 | L Brands, Inc. | 57,308 | ||||||
582 | Lowe's Cos., Inc. | 40,030 | ||||||
394 | Michaels (The) Cos., Inc. ● | 9,736 | ||||||
42 | Netflix, Inc. ● | 14,319 | ||||||
602 | Office Depot, Inc. ● | 5,164 | ||||||
10 | Priceline (The) Group, Inc. ● | 11,174 | ||||||
45 | Ross Stores, Inc. | 4,218 | ||||||
283 | Signet Jewelers Ltd. | 37,192 | ||||||
1,192 | TJX Cos., Inc. | 81,741 | ||||||
281 | Tory Burch LLC ⌂●† | 16,589 | ||||||
180 | TripAdvisor, Inc. ● | 13,452 | ||||||
111 | Wayfair, Inc. ● | 2,201 | ||||||
228 | Zulily, Inc. ● | 5,330 | ||||||
511,506 | ||||||||
Semiconductors and Semiconductor Equipment - 6.9% | ||||||||
2,550 | Applied Materials, Inc. | 63,543 | ||||||
112 | First Solar, Inc. ● | 4,976 | ||||||
77,701 | GCL-Poly Energy Holdings Ltd. ● | 18,048 | ||||||
159 | Hynix Semiconductor, Inc. ● | 6,801 | ||||||
2,872 | Intel Corp. | 104,238 | ||||||
728 | Marvell Technology Group Ltd. | 10,551 | ||||||
846 | Maxim Integrated Products, Inc. | 26,950 | ||||||
2,776 | Micron Technology, Inc. ● | 97,175 | ||||||
1,113 | NXP Semiconductors N.V. ● | 85,027 | ||||||
123 | RF Micro Devices, Inc. ● | 2,038 | ||||||
5 | Samsung Electronics Co., Ltd. | 6,579 | ||||||
104 | Spansion, Inc. Class A ● | 3,568 | ||||||
966 | Sumco Corp. | 13,836 | ||||||
1,050 | SunEdison, Inc. ● | 20,490 | ||||||
1,510 | SunPower Corp. ● | 39,002 | ||||||
502,822 | ||||||||
Software and Services - 9.8% | ||||||||
280 | Accenture plc | 25,010 | ||||||
4,785 | Activision Blizzard, Inc. | 96,414 | ||||||
202 | Adobe Systems, Inc. ● | 14,718 | ||||||
435 | Akamai Technologies, Inc. ● | 27,359 | ||||||
249 | Alibaba Group Holding Ltd. ● | 25,917 | ||||||
136 | Angie's List, Inc. ● | 849 | ||||||
270 | AOL, Inc. ● | 12,450 | ||||||
237 | Automatic Data Processing, Inc. | 19,761 | ||||||
137 | Baidu, Inc. ADR ● | 31,164 | ||||||
233 | Cadence Design Systems, Inc. ● | 4,417 | ||||||
200 | Cognizant Technology Solutions Corp. ● | 10,532 | ||||||
2,513 | Corindus Vascular Robotics, Inc. ⌂●† | 10,402 | ||||||
106 | CoStar Group, Inc. ● | 19,467 | ||||||
185 | Dropbox, Inc. ⌂●† | 3,180 | ||||||
52 | Ellie Mae, Inc. ● | 2,093 | ||||||
26 | Equinix, Inc. | 5,859 | ||||||
87 | Everyday Health, Inc. ● | 1,280 | ||||||
351 | Facebook, Inc. ● | 27,418 | ||||||
19 | Google, Inc. Class A ● | 10,189 | ||||||
200 | Google, Inc. Class C ● | 105,404 | ||||||
108 | IAC/InterActiveCorp. | 6,545 | ||||||
215 | iGate Corp. ● | 8,488 | ||||||
178 | Intuit, Inc. | 16,426 | ||||||
2,303 | Microsoft Corp. | 106,981 | ||||||
1,886 | Monster Worldwide, Inc. ● | 8,712 | ||||||
3 | New Relic, Inc. | 94 |
The accompanying notes are an integral part of these financial statements.
7 |
Hartford Capital Appreciation HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Shares or Principal Amount | Market Value ╪ | |||||||
Common Stocks - 98.1% - (continued) | ||||||||
Software and Services - 9.8% - (continued) | ||||||||
31 | New Relic, Inc. Private Placement ⌂●† | $ | 975 | |||||
2,019 | Optimal Payments plc ● | 10,716 | ||||||
182 | Rovi Corp. ● | 4,105 | ||||||
111 | Salesforce.com, Inc. ● | 6,576 | ||||||
23 | ServiceNow, Inc. ● | 1,558 | ||||||
558 | Symantec Corp. | 14,317 | ||||||
269 | Tangoe, Inc. ● | 3,503 | ||||||
109 | Teradata Corp. ● | 4,758 | ||||||
41 | Tyler Corp. ● | 4,432 | ||||||
166 | Verint Systems, Inc. ● | 9,697 | ||||||
238 | VeriSign, Inc. ● | 13,547 | ||||||
14 | Visa, Inc. | 3,778 | ||||||
768 | Web.com Group, Inc. ● | 14,575 | ||||||
286 | Yelp, Inc. ● | 15,663 | ||||||
709,329 | ||||||||
Technology Hardware and Equipment - 7.4% | ||||||||
682 | Alcatel - Lucent ADR ● | 2,420 | ||||||
275 | Amphenol Corp. Class A | 14,824 | ||||||
1,647 | Apple, Inc. | 181,753 | ||||||
88 | Arista Networks, Inc. ● | 5,323 | ||||||
154 | Arris Group, Inc. ● | 4,634 | ||||||
782 | Aruba Networks, Inc. ● | 14,219 | ||||||
2,683 | Brocade Communications Systems, Inc. | 31,764 | ||||||
486 | CDW Corp. of Delaware | 17,096 | ||||||
3,061 | Cisco Systems, Inc. | 85,152 | ||||||
144 | Cognex Corp. ● | 5,948 | ||||||
689 | EMC Corp. | 20,483 | ||||||
112 | F5 Networks, Inc. ● | 14,565 | ||||||
684 | Hewlett-Packard Co. | 27,433 | ||||||
732 | Hitachi Ltd. | 5,403 | ||||||
438 | Mobileye N.V. ⌂●† | 17,486 | ||||||
102 | Motorola Solutions, Inc. | 6,846 | ||||||
3,411 | NEC Corp. | 9,912 | ||||||
4,930 | ParkerVision, Inc. ● | 4,486 | ||||||
285 | Qualcomm, Inc. | 21,210 | ||||||
410 | TE Connectivity Ltd. | 25,928 | ||||||
398 | Trimble Navigation Ltd. ● | 10,571 | ||||||
84 | Western Digital Corp. | 9,261 | ||||||
536,717 | ||||||||
Telecommunication Services - 0.9% | ||||||||
888 | Gogo, Inc. ● | 14,683 | ||||||
2,444 | Koninklijke (Royal) KPN N.V. | 7,717 | ||||||
150 | Nippon Telegraph & Telephone Corp. | 7,667 | ||||||
605 | NTT DoCoMo, Inc. | 8,809 | ||||||
120 | SoftBank Corp. | 7,119 | ||||||
264 | Telenor ASA | 5,338 | ||||||
233 | Verizon Communications, Inc. | 10,913 | ||||||
62,246 | ||||||||
Transportation - 3.5% | ||||||||
25,891 | AirAsia Berhad | 20,141 | ||||||
191 | Canadian National Railway Co. | 13,184 | ||||||
514 | CSX Corp. | 18,619 | ||||||
265 | FedEx Corp. | 46,000 | ||||||
1,708 | Hertz Global Holdings, Inc. ● | 42,593 | ||||||
42 | Kansas City Southern | 5,118 | ||||||
130 | Norfolk Southern Corp. | 14,268 | ||||||
102 | Spirit Airlines, Inc. ● | 7,694 | ||||||
953 | Swift Transportation Co. ● | 27,287 | ||||||
75 | United Continental Holdings, Inc. ● | 4,991 | ||||||
422 | United Parcel Service, Inc. Class B | 46,914 | ||||||
371 | UTI Worldwide, Inc. ● | 4,474 | ||||||
251,283 | ||||||||
Utilities - 1.1% | ||||||||
13,383 | China Longyuan Power Group Corp. | 13,801 | ||||||
192 | Duke Energy Corp. | 16,069 | ||||||
1,064 | ENN Energy Holdings Ltd. | 6,019 | ||||||
381 | National Grid plc | 5,409 | ||||||
144 | PG&E Corp. | 7,677 | ||||||
1,362 | Snam S.p.A. | 6,739 | ||||||
94 | UGI Corp. | 3,580 | ||||||
650 | Xcel Energy, Inc. | 23,354 | ||||||
82,648 | ||||||||
Total Common Stocks | ||||||||
( Cost $6,484,420) | $ | 7,100,300 | ||||||
Preferred Stocks - 0.6% | ||||||||
Consumer Durables and Apparel - 0.1% | ||||||||
57 | Cloudera, Inc. ⌂●† | $ | 1,684 | |||||
128 | One Kings Lane, Inc. ⌂●† | 1,896 | ||||||
3,580 | ||||||||
Media - 0.1% | ||||||||
240 | ProSieben Sat.1 Media AG | 10,035 | ||||||
Retailing - 0.0% | ||||||||
41 | Honest (The) Co. Series C ⌂●†β | 1,107 | ||||||
Software and Services - 0.3% | ||||||||
815 | Uber Technologies, Inc. ⌂●† | 24,443 | ||||||
Technology Hardware and Equipment - 0.1% | ||||||||
467 | Pure Storage, Inc. ⌂●† | 6,609 | ||||||
Telecommunication Services - 0.0% | ||||||||
77 | DocuSign, Inc. ⌂●† | 1,253 | ||||||
1,253 | ||||||||
Total Preferred Stocks | ||||||||
(Cost $35,927) | $ | 47,027 | ||||||
Total Long-Term Investments | ||||||||
(Cost $6,520,347) | $ | 7,147,327 | ||||||
Short-Term Investments - 1.3% | ||||||||
Repurchase Agreements - 1.3% | ||||||||
Bank of America Merrill Lynch Repurchase Agreement (maturing on 01/02/2015 in the amount of $89, collateralized by U.S. Treasury Note 0.75%, 2018, value of $91) | ||||||||
$ | 89 | 0.05%, 12/31/2014 | $ | 89 | ||||
Bank of America Merrill Lynch TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $456, collateralized by U.S. Treasury Note 2.50%, 2024, value of $465) | ||||||||
456 | 0.07%, 12/31/2014 | 456 | ||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $11,887, collateralized by U.S. Treasury Bond 3.88% - 5.25%, 2029 - 2040, U.S. Treasury Note 0.25% - 4.63%, 2015 - 2022, value of $12,124) | ||||||||
11,886 | 0.06%, 12/31/2014 | 11,886 |
The accompanying notes are an integral part of these financial statements.
8 |
Hartford Capital Appreciation HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Shares or Principal Amount | Market Value ╪ | |||||||||||
Short-Term Investments - 1.3% - (continued) | ||||||||||||
Repurchase Agreements - 1.3% - (continued) | ||||||||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $5,179, collateralized by FHLMC 2.00% - 5.50%, 2019 - 2044, FNMA 2.00% - 4.00%, 2024 - 2042, GNMA 3.00%, 2043, U.S. Treasury Bill 0.07%, 2015, value of $5,283) | ||||||||||||
$ | 5,179 | 0.07%, 12/31/2014 | $ | 5,179 | ||||||||
Barclays Capital TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $12,731, collateralized by U.S. Treasury Bond 3.63%, 2043, U.S. Treasury Note 0.88% - 2.00%, 2017 - 2020, value of $12,985) | ||||||||||||
12,731 | 0.05%, 12/31/2014 | 12,731 | ||||||||||
Citigroup Global Markets, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $22,753, collateralized by U.S. Treasury Bond 3.63% - 9.88%, 2015 - 2043, U.S. Treasury Note 0.25% - 2.75%, 2015 - 2022, value of $23,208) | ||||||||||||
22,753 | 0.06%, 12/31/2014 | 22,753 | ||||||||||
Deutsche Bank Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $3,693, collateralized by FHLMC 2.00% - 10.50%, 2015 - 2047, FNMA 2.00% - 9.50%, 2015 - 2049, GNMA 2.50% - 10.00%, 2016 - 2055, value of $3,767) | ||||||||||||
3,693 | 0.12%, 12/31/2014 | 3,693 | ||||||||||
RBS Securities, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $969, collateralized by U.S. Treasury Note 0.38% - 2.13%, 2015 - 2016, value of $988) | ||||||||||||
968 | 0.07%, 12/31/2014 | 968 | ||||||||||
Societe Generale TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $10,825, collateralized by U.S. Treasury Bond 8.75%, 2020, U.S. Treasury Note 0.25% - 2.88%, 2015 - 2022, value of $11,041) | ||||||||||||
10,825 | 0.07%, 12/31/2014 | 10,825 | ||||||||||
TD Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $23,183, collateralized by FHLMC 3.00% - 4.00%, 2026 - 2044, FNMA 2.50% - 5.00%, 2025 - 2044, value of $23,646) | ||||||||||||
23,183 | 0.08%, 12/31/2014 | 23,183 | ||||||||||
91,763 | ||||||||||||
Total Short-Term Investments | ||||||||||||
(Cost $91,763) | $ | 91,763 | ||||||||||
Total Investments | ||||||||||||
(Cost $6,612,110) ▲ | 100.0 | % | $ | 7,239,090 | ||||||||
Other Assets and Liabilities | — | % | (497 | ) | ||||||||
Total Net Assets | 100.0 | % | $ | 7,238,593 |
The accompanying notes are an integral part of these financial statements.
9 |
Hartford Capital Appreciation HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Note: Percentage of investments as shown is the ratio of the total market value to total net assets.
Prices of foreign equities that are principally traded on certain foreign markets may be adjusted daily pursuant to a fair value pricing service approved by the Board of Directors in order to reflect an adjustment for factors occurring after the close of certain foreign markets but before the close of the New York Stock Exchange.
Equity industry classifications used in this report are the Global Industry Classification Standard, which was developed by and is the exclusive property and service mark of MSCI, Inc. and Standard & Poor’s.
For Fund compliance purposes, the Fund may not use the same classification system shown in this report as these classifications are used for reporting ease.
▲ | At December 31, 2014, the cost of securities for federal income tax purposes was $6,641,374 and the aggregate gross unrealized appreciation and depreciation based on that cost were: |
Unrealized Appreciation | $ | 980,472 | ||
Unrealized Depreciation | (382,756 | ) | ||
Net Unrealized Appreciation | $ | 597,716 |
† | These securities were valued in good faith at fair value as determined under policies and procedures established by and under the supervision of the Board of Directors. At December 31, 2014, the aggregate fair value of these securities was $98,167, which represents 1.4% of total net assets. This amount excludes securities that are principally traded in certain foreign markets and whose prices are adjusted pursuant to a third party pricing service methodology approved by the Board of Directors. |
● | Non-income producing. |
■ | Securities issued within terms of a private placement memorandum, exempt from registration under Rule 144A under the Securities Act of 1933, as amended, and may be sold only to qualified institutional buyers. Unless otherwise noted, these holdings are determined to be liquid. At December 31, 2014, the aggregate value of these securities was $5, which rounds to zero percent of total net assets. |
∞ | Securities exempt from registration under Regulation D of the Securities Act of 1933, as amended. The Fund may only be able to resell these securities if they are subsequently registered or if an exemption from registration under the federal and state securities laws is available. Unless otherwise indicated, these holdings are determined to be liquid. At December 31, 2014, the aggregate value and percentage of net assets of these securities rounds to zero. |
⌂ | The following securities are considered illiquid. Illiquid securities are often purchased in private placement transactions, are often not registered under the Securities Act of 1933, as amended, and may have contractual restrictions on resale. Illiquid securities may lack a readily available market or their valuation has not changed for a certain period of time. |
Period Acquired | Shares/ Par | Security | Cost Basis | |||||||
08/2011 | 8,452 | Allstar Co. | $ | 3,677 | ||||||
02/2014 | 57 | Cloudera, Inc. Preferred | 826 | |||||||
09/2014 | 2,513 | Corindus Vascular Robotics, Inc. | 6,281 | |||||||
02/2014 | 77 | DocuSign, Inc. Preferred | 1,012 | |||||||
05/2012 | 185 | Dropbox, Inc. | 1,674 | |||||||
10/2005 | 30 | Harvey Weinstein Co. Holdings Class A-1 - Reg D | 27,951 | |||||||
08/2014 | 17 | Honest (The) Co. | 470 | |||||||
08/2014 | 41 | Honest (The) Co. Series C Preferred | 1,098 | |||||||
08/2013 | 438 | Mobileye N.V. | 3,055 | |||||||
04/2014 | 31 | New Relic, Inc. Private Placement | 873 | |||||||
01/2014 | 128 | One Kings Lane, Inc. Preferred | 1,972 | |||||||
04/2014 | 467 | Pure Storage, Inc. Preferred | 7,343 | |||||||
03/2007 | 75 | Solar Cayman Ltd. - 144A | 22 | |||||||
11/2013 | 281 | Tory Burch LLC | 21,985 | |||||||
06/2014 | 815 | Uber Technologies, Inc. Preferred | 12,646 |
At December 31, 2014, the aggregate value of these securities was $94,837, which represents 1.3% of total net assets.
β | Convertible security. |
The accompanying notes are an integral part of these financial statements.
10 |
Hartford Capital Appreciation HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Foreign Currency Contracts Outstanding at December 31, 2014 | ||||||||||||||||||||||
Unrealized Appreciation/(Depreciation) | ||||||||||||||||||||||
Currency | Buy / Sell | Delivery Date | Counterparty | Contract Amount | Market Value ╪ | Asset | Liability | |||||||||||||||
CAD | Buy | 01/06/2015 | SSG | $ | 520 | $ | 520 | $ | – | $ | – | |||||||||||
CAD | Sell | 01/02/2015 | JPM | 511 | 512 | – | (1 | ) | ||||||||||||||
CAD | Sell | 01/06/2015 | SSG | 672 | 672 | – | – | |||||||||||||||
EUR | Buy | 01/02/2015 | SSG | 152 | 151 | – | (1 | ) | ||||||||||||||
EUR | Sell | 03/18/2015 | CBK | 66,795 | 64,806 | 1,989 | – | |||||||||||||||
EUR | Sell | 03/18/2015 | NAB | 33,100 | 32,353 | 747 | – | |||||||||||||||
JPY | Sell | 03/18/2015 | BCLY | 86,923 | 85,571 | 1,352 | – | |||||||||||||||
JPY | Sell | 03/18/2015 | GSC | 7,375 | 7,369 | 6 | – | |||||||||||||||
SEK | Buy | 01/05/2015 | BCLY | 814 | 809 | – | (5 | ) | ||||||||||||||
SEK | Buy | 01/02/2015 | GSC | 810 | 814 | 4 | – | |||||||||||||||
Total | $ | 4,098 | $ | (7 | ) |
╪ | See Significant Accounting Policies of accompanying Notes to Financial Statements regarding valuation of securities. |
GLOSSARY: (abbreviations used in preceding Schedule of Investments) | |
Counterparty Abbreviations: | |
BCLY | Barclays |
CBK | Citibank NA |
GSC | Goldman Sachs & Co. |
JPM | JP Morgan Chase & Co. |
NAB | National Australia Bank Limited |
SSG | State Street Global Markets LLC |
Currency Abbreviations: | |
CAD | Canadian Dollar |
EUR | EURO |
JPY | Japanese Yen |
SEK | Swedish Krona |
Other Abbreviations: | |
ADR | American Depositary Receipt |
FHLMC | Federal Home Loan Mortgage Corp. |
FNMA | Federal National Mortgage Association |
GNMA | Government National Mortgage Association |
REIT | Real Estate Investment Trust |
The accompanying notes are an integral part of these financial statements.
11 |
Hartford Capital Appreciation HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Investment Valuation Hierarchy Level Summary
December 31, 2014
Total | Level 1 ♦ | Level 2 ♦ | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Common Stocks | ||||||||||||||||
Automobiles and Components | $ | 113,335 | $ | 102,247 | $ | 11,088 | $ | – | ||||||||
Banks | 184,514 | 128,282 | 56,232 | – | ||||||||||||
Capital Goods | 459,831 | 371,475 | 88,356 | – | ||||||||||||
Commercial and Professional Services | 80,134 | 80,134 | – | – | ||||||||||||
Consumer Durables and Apparel | 183,551 | 130,819 | 52,732 | – | ||||||||||||
Consumer Services | 172,269 | 168,836 | 3,433 | – | ||||||||||||
Diversified Financials | 396,713 | 351,989 | 44,719 | 5 | ||||||||||||
Energy | 458,605 | 409,916 | 48,689 | – | ||||||||||||
Food and Staples Retailing | 82,278 | 73,697 | 8,581 | – | ||||||||||||
Food, Beverage and Tobacco | 277,855 | 221,850 | 56,005 | – | ||||||||||||
Health Care Equipment and Services | 258,768 | 258,768 | – | – | ||||||||||||
Household and Personal Products | 31,535 | 8,380 | 23,155 | – | ||||||||||||
Insurance | 363,316 | 315,888 | 47,428 | – | ||||||||||||
Materials | 305,140 | 193,040 | 112,100 | – | ||||||||||||
Media | 78,256 | 78,256 | – | – | ||||||||||||
Pharmaceuticals, Biotechnology and Life Sciences | 909,957 | 778,498 | 131,459 | – | ||||||||||||
Real Estate | 87,692 | 72,028 | 15,664 | – | ||||||||||||
Retailing | 511,506 | 485,709 | – | 25,797 | ||||||||||||
Semiconductors and Semiconductor Equipment | 502,822 | 457,558 | 45,264 | – | ||||||||||||
Software and Services | 709,329 | 684,056 | 10,716 | 14,557 | ||||||||||||
Technology Hardware and Equipment | 536,717 | 503,916 | 15,315 | 17,486 | ||||||||||||
Telecommunication Services | 62,246 | 25,596 | 36,650 | – | ||||||||||||
Transportation | 251,283 | 251,283 | – | – | ||||||||||||
Utilities | 82,648 | 50,680 | 31,968 | – | ||||||||||||
Total | 7,100,300 | 6,202,901 | 839,554 | 57,845 | ||||||||||||
Preferred Stocks | 47,027 | – | 10,035 | 36,992 | ||||||||||||
Short-Term Investments | 91,763 | – | 91,763 | – | ||||||||||||
Total | $ | 7,239,090 | $ | 6,202,901 | $ | 941,352 | $ | 94,837 | ||||||||
Foreign Currency Contracts* | $ | 4,098 | $ | – | $ | 4,098 | $ | – | ||||||||
Total | $ | 4,098 | $ | – | $ | 4,098 | $ | – | ||||||||
Liabilities: | ||||||||||||||||
Foreign Currency Contracts* | $ | 7 | $ | – | $ | 7 | $ | – | ||||||||
Total | $ | 7 | $ | – | $ | 7 | $ | – |
♦ | For the year ended December 31, 2014, investments valued at $5,601 were transferred from Level 1 to Level 2, and there were no transfers from Level 2 to Level 1. Investments are transferred between Level 1 and Level 2 for a variety of reasons including, but not limited to: |
1) | Foreign equities for which a fair value price is more representative of exit value than the local market close (transfer into Level 2). Foreign equities for which the local market close is more representative of exit value (transfer into Level 1). |
2) | U.S. Treasury securities that no longer represent the most recent issue (transfer into Level 2). |
3) | Equity investments with no observable trading but a bid or mean price is used (transfer into Level 2). Equity investments using observable quoted prices in an active market (transfer into Level 1). |
* | Derivative instruments (excluding purchased and written options, if applicable) are valued at the unrealized appreciation/depreciation on the investments. |
The accompanying notes are an integral part of these financial statements.
12 |
Hartford Capital Appreciation HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
Balance as of December 31, 2013 | Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Net Amortization | Purchases | Sales | Transfers Into Level 3 * | Transfers Out of Level 3 * | Balance as of December 31, 2014 | ||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||
Common Stocks | $ | 56,067 | $ | 233 | $ | 5,855 | † | $ | — | $ | 7,624 | $ | (1,762 | ) | $ | — | $ | (10,172 | ) | $ | 57,845 | |||||||||||||||
Preferred Stocks | — | — | 12,096 | ‡ | — | 24,896 | — | — | — | 36,992 | ||||||||||||||||||||||||||
Warrants | 147 | — | — | — | — | — | — | (147 | ) | — | ||||||||||||||||||||||||||
Total | $ | 56,214 | $ | 233 | $ | 17,951 | $ | — | $ | 32,520 | $ | (1,762 | ) | $ | — | $ | (10,319 | ) | $ | 94,837 |
* | Investments are transferred into and out of Level 3 for a variety of reasons including, but not limited to: |
1) | Investments where trading has been halted (transfer into Level 3) or investments where trading has resumed (transfer out of Level 3). |
2) | Broker quoted investments (transfer into Level 3) or quoted prices in active markets (transfer out of Level 3). |
3) | Investments that have certain restrictions on trading (transfer into Level 3) or investments where trading restrictions have expired (transfer out of Level 3). |
† | Change in unrealized appreciation (depreciation) in the current period relating to assets still held at December 31, 2014 was $5,855. |
‡ | Change in unrealized appreciation (depreciation) in the current period relating to assets still held at December 31, 2014 was $12,096. |
Note: | For purposes of reporting transfers between different hierarchy levels, both transfers in and out of each level, as applicable, are shown as if they occurred at the beginning of the period. |
The accompanying notes are an integral part of these financial statements.
13 |
Hartford Capital Appreciation HLS Fund
Statement of Assets and Liabilities
December 31, 2014
(000’s Omitted)
Assets: | ||||
Investments in securities, at market value (cost $6,612,110) | $ | 7,239,090 | ||
Cash | 458 | |||
Unrealized appreciation on foreign currency contracts | 4,098 | |||
Receivables: | ||||
Investment securities sold | 12,352 | |||
Fund shares sold | 487 | |||
Dividends and interest | 7,546 | |||
Total assets | 7,264,031 | |||
Liabilities: | ||||
Unrealized depreciation on foreign currency contracts | 7 | |||
Payables: | ||||
Investment securities purchased | 19,900 | |||
Fund shares redeemed | 4,180 | |||
Investment management fees | 1,014 | |||
Administrative fees | — | |||
Distribution fees | 43 | |||
Accrued expenses | 294 | |||
Total liabilities | 25,438 | |||
Net assets | $ | 7,238,593 | ||
Summary of Net Assets: | ||||
Capital stock and paid-in-capital | $ | 5,368,902 | ||
Undistributed net investment income | 11,138 | |||
Accumulated net realized gain | 1,227,634 | |||
Unrealized appreciation of investments and the translations of assets and liabilities denominated in foreign currency | 630,919 | |||
Net assets | $ | 7,238,593 | ||
Shares authorized | 5,450,000 | |||
Par value | $ | 0.001 | ||
Class IA: Net asset value per share | $ | 54.71 | ||
Shares outstanding | 118,264 | |||
Net assets | $ | 6,470,599 | ||
Class IB: Net asset value per share | $ | 54.20 | ||
Shares outstanding | 14,105 | |||
Net assets | $ | 764,541 | ||
Class IC: Net asset value per share | $ | 54.59 | ||
Shares outstanding | 63 | |||
Net assets | $ | 3,453 |
The accompanying notes are an integral part of these financial statements.
14 |
Hartford Capital Appreciation HLS Fund
Statement of Operations
For the Year Ended December 31, 2014
(000’s Omitted)
Investment Income: | ||||
Dividends | $ | 127,934 | ||
Interest | 101 | |||
Less: Foreign tax withheld | (5,055 | ) | ||
Total investment income, net | 122,980 | |||
Expenses: | ||||
Investment management fees | 47,823 | |||
Administrative service fees - Class IC* | 2 | |||
Transfer agent fees | 9 | |||
Distribution fees - Class IB | 2,104 | |||
Distribution fees - Class IC* | 2 | |||
Custodian fees | 155 | |||
Accounting services fees | 1,260 | |||
Board of Directors' fees | 192 | |||
Audit fees | 85 | |||
Other expenses | 685 | |||
Total expenses (before fees paid indirectly) | 52,317 | |||
Commission recapture | (191 | ) | ||
Custodian fee offset | — | |||
Total fees paid indirectly | (191 | ) | ||
Total expenses, net | 52,126 | |||
Net Investment Income | 70,854 | |||
Net Realized Gain on Investments and Foreign Currency Transactions: | ||||
Net realized gain on investments | 1,304,969 | |||
Less: Foreign taxes paid on realized capital gains | (686 | ) | ||
Net realized loss on purchased option contracts | (460 | ) | ||
Net realized gain on foreign currency contracts | 18,124 | |||
Net realized gain on other foreign currency transactions | 8 | |||
Net Realized Gain on Investments and Foreign Currency Transactions | 1,321,955 | |||
Net Changes in Unrealized Depreciation of Investments and Foreign Currency Transactions: | ||||
Net unrealized depreciation of investments | (862,592 | ) | ||
Net unrealized appreciation of purchased option contracts | 361 | |||
Net unrealized appreciation of foreign currency contracts | 168 | |||
Net unrealized depreciation on translation of other assets and liabilities in foreign currencies | (218 | ) | ||
Net Changes in Unrealized Depreciation of Investments and Foreign Currency Transactions | (862,281 | ) | ||
Net Gain on Investments and Foreign Currency Transactions | 459,674 | |||
Net Increase in Net Assets Resulting from Operations | $ | 530,528 |
* For the period April 30, 2014 (commencement of Class IC operations) through December 31, 2014.
The accompanying notes are an integral part of these financial statements.
15 |
Hartford Capital Appreciation HLS Fund
Statement of Changes in Net Assets
(000’s Omitted)
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Operations: | ||||||||
Net investment income | $ | 70,854 | $ | 68,026 | ||||
Net realized gain on investments and foreign currency transactions | 1,321,955 | 1,589,271 | ||||||
Net unrealized appreciation (depreciation) of investments and foreign currency transactions | (862,281 | ) | 984,486 | |||||
Net Increase in Net Assets Resulting from Operations | 530,528 | 2,641,783 | ||||||
Distributions to Shareholders: | ||||||||
From net investment income | ||||||||
Class IA | (58,029 | ) | (59,301 | ) | ||||
Class IB | (4,923 | ) | (6,059 | ) | ||||
Class IC | (22 | ) | — | |||||
Total from net investment income | (62,974 | ) | (65,360 | ) | ||||
From net realized gain on investments | ||||||||
Class IA | (939,864 | ) | (17,709 | ) | ||||
Class IB | (115,099 | ) | (2,473 | ) | ||||
Class IC | (95 | ) | — | |||||
Total from net realized gain on investments | (1,055,058 | ) | (20,182 | ) | ||||
Total distributions | (1,118,032 | ) | (85,542 | ) | ||||
Capital Share Transactions: | ||||||||
Class IA | ||||||||
Sold | 401,262 | 232,572 | ||||||
Issued on reinvestment of distributions | 997,893 | 77,010 | ||||||
Redeemed | (1,433,686 | ) | (3,293,542 | ) | ||||
Total capital share transactions | (34,531 | ) | (2,983,960 | ) | ||||
Class IB | ||||||||
Sold | 10,782 | 67,775 | ||||||
Issued on reinvestment of distributions | 120,022 | 8,532 | ||||||
Redeemed | (272,505 | ) | (275,086 | ) | ||||
Total capital share transactions | (141,701 | ) | (198,779 | ) | ||||
Class IC | ||||||||
Sold | 3,444 | — | ||||||
Issued on reinvestment of distributions | 117 | — | ||||||
Redeemed | (44 | ) | — | |||||
Total capital share transactions | 3,517 | — | ||||||
Net decrease from capital share transactions | (172,715 | ) | (3,182,739 | ) | ||||
Net Decrease in Net Assets | (760,219 | ) | (626,498 | ) | ||||
Net Assets: | ||||||||
Beginning of period | 7,998,812 | 8,625,310 | ||||||
End of period | $ | 7,238,593 | $ | 7,998,812 | ||||
Undistributed (distributions in excess of) net investment income | $ | 11,138 | $ | 6,200 | ||||
Shares: | ||||||||
Class IA | ||||||||
Sold | 6,701 | 4,446 | ||||||
Issued on reinvestment of distributions | 18,007 | 1,320 | ||||||
Redeemed | (24,280 | ) | (66,631 | ) | ||||
Total share activity | 428 | (60,865 | ) | |||||
Class IB | ||||||||
Sold | 189 | 1,338 | ||||||
Issued on reinvestment of distributions | 2,189 | 147 | ||||||
Redeemed | (4,657 | ) | (5,413 | ) | ||||
Total share activity | (2,279 | ) | (3,928 | ) | ||||
Class IC | ||||||||
Sold | 62 | — | ||||||
Issued on reinvestment of distributions | 2 | — | ||||||
Redeemed | (1 | ) | — | |||||
Total share activity | 63 | — |
The accompanying notes are an integral part of these financial statements.
16 |
Hartford Capital Appreciation HLS Fund
Notes to Financial Statements
December 31, 2014
(000’s Omitted)
Organization:
Hartford Capital Appreciation HLS Fund (the "Fund") serves as an underlying investment option for certain variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company (“HLIC”) and its affiliates and certain qualified retirement plans. The Fund may also serve as an underlying investment option for certain variable annuity and variable life separate accounts of other insurance companies. Owners of variable annuity contracts and policyholders of variable life insurance contracts may choose the funds permitted in the variable insurance contract prospectus. In addition, participants in certain qualified retirement plans may choose the Fund if permitted by their plans.
Hartford Series Fund, Inc. (the “Company”) is an open-end registered management investment company comprised of fifteen portfolios. Financial statements for the Fund, a series of the Company, are included in this report.
The Company is organized under the laws of the State of Maryland and is registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (“1940 Act”). The Fund is a diversified open-end management investment company. The Fund is an investment company and applies specialized accounting and reporting under Accounting Standards Codification Topic 946, Financial Services - Investment Companies.
The Fund is divided into Class IA, Class IB and Class IC shares. Each class is offered at the per share net asset value (“NAV”) without a sales charge and is subject to the same expenses, except that the Class IB and Class IC shares are subject to distribution and service fees charged pursuant to a Distribution Plan adopted in accordance with Rule 12b-1 under the 1940 Act and Class IC shares are also subject to an administrative service fee.
Significant Accounting Policies:
The following is a summary of significant accounting policies of the Fund in the preparation of its financial statements, which are in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The preparation of financial statements in accordance with U.S. GAAP may require 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
Determination of Net Asset Value – The NAV of each class of the Fund's shares is determined as of the close of regular trading (normally 4:00 p.m. Eastern Time) (the “NYSE Close”) on each day that the New York Stock Exchange (the “Exchange”) is open (“Valuation Date”). Information that becomes known to the Fund after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the NAV determined earlier that day.
Investment Valuation and Fair Value Measurements – For purposes of calculating the NAV, portfolio investments and other assets held by the Fund's portfolio for which market quotes are readily available are valued at market value. Market value is generally determined on the basis of last reported sales prices or official close price. If no sales are reported, market value is based on quotes obtained from a quotation reporting system, established market makers, or independent pricing services. If market prices are not readily available or are deemed unreliable, the Fund will use the fair value of the investment as determined in good faith under policies and procedures established by and under the supervision of the Company's Board of Directors. Market quotes are considered not readily available where there is an absence of current or reliable market-based data (e.g., trade information or indicative market quotes), including where events occur after the close of the relevant market, but prior to the NYSE Close, that materially affect the values of the Fund's portfolio investments or assets. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the investments trade do not open for trading for the entire day and no other market prices are available. In addition, prices of foreign equities that are principally traded on certain foreign markets may be adjusted daily pursuant to a fair value pricing service approved by the Board of Directors in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close. Investments that are primarily traded on foreign markets may trade on days that are not business days of the Fund. The value of the foreign investments in which the Fund invests may change on days when a shareholder will not be able to purchase or redeem shares of the Fund. Fair value pricing is subjective in nature and the use of fair value pricing by the Fund may cause the NAV of its shares to differ significantly from the NAV that would have been calculated using market prices at the close of the exchange on which a portfolio investment is primarily
17 |
Hartford Capital Appreciation HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
traded. There can be no assurance that the Fund could obtain the fair market value assigned to an investment if the Fund were to sell the investment at approximately the time at which the Fund determines its NAV.
Fixed income investments (other than short-term obligations), non-exchange traded derivatives and centrally cleared swaps held by the Fund are normally valued on the basis of quotes obtained from independent pricing services or brokers and dealers in accordance with procedures established by the Company's Board of Directors. Prices obtained from independent pricing services use information provided by market makers or estimates of market values through accepted market modeling, trading and pricing conventions. Inputs to the models may include, but are not limited to, prepayment speeds, pricing spread, yield, trade information, dealer quotes, market color, cash flow models and the investment’s terms and conditions. Generally, the Fund may use fair valuation in regard to fixed income investments when the Fund holds defaulted or distressed investments or investments in a company in which a reorganization is pending. Short-term investments maturing in 60 days or less are generally valued at amortized cost, if their original term to maturity was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if the original term to maturity exceeded 60 days, which approximates fair value.
Exchange traded options, futures and options on futures are valued at the settlement price or last trade price determined by the relevant exchange as of the NYSE Close. If the last trade price for exchange traded options does not fall between the bid and ask prices, the value will be the mean of the bid and ask prices as of the NYSE Close. If a last trade price is not available, the value will be the mean of the bid and ask prices as of the NYSE Close. If a mean of the bid and ask prices cannot be calculated for the day, the value will be the bid price as of the NYSE Close. In the case of over-the-counter ("OTC") options and such instruments that do not trade on an exchange, values may be supplied by a pricing service using a formula or other objective method that may take into consideration the style, direction, expiration, strike price, notional value and volatility or other special adjustments.
Investments valued in currencies other than U.S. dollars are converted to U.S. dollars using exchange rates obtained from independent pricing services for calculation of the NAV. As a result, the NAV of the Fund’s shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of investments traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that the NYSE is closed and the market value may change on days when an investor is not able to purchase, redeem or exchange shares of the Fund.
Foreign currency contracts represent agreements to exchange currencies on specific future dates at predetermined rates. Foreign currency contracts are valued using foreign currency exchange rates and forward rates as provided by an independent pricing service on the Valuation Date.
Financial instruments for which prices are not available from an independent pricing service may be valued using market quotations obtained from one or more dealers that make markets in the respective financial instrument in accordance with procedures established by the Company's Board of Directors.
U.S. GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants. The U.S. GAAP fair value measurement standards require disclosure of a fair value hierarchy for each major category of assets and liabilities. Various inputs are used in determining the fair value of the Fund’s investments. These inputs are summarized into three broad hierarchy levels. This hierarchy is based on whether the valuation inputs are observable or unobservable. These levels are:
Level 1 – Quoted prices in active markets for identical investments. Level 1 may include exchange traded instruments, such as domestic equities, some foreign equities, options, futures, mutual funds, exchange traded funds, rights and warrants.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar investments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 2 may include debt investments that are traded less frequently than exchange traded instruments and which are valued using independent pricing services; foreign equities, which are principally traded on certain foreign markets and are adjusted daily pursuant to a fair value pricing service in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close; senior floating rate interests, which are valued using an aggregate of dealer bids; short-term investments, which are valued at amortized cost; and swaps, which are valued based upon the terms of each swap contract.
18 |
Hartford Capital Appreciation HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Level 3 – Significant unobservable inputs that are supported by limited or no market activity. Level 3 may include financial instruments whose values are determined using indicative market quotes or require significant management judgment or estimation. These unobservable valuation inputs may include estimates for current yields, maturity/duration, prepayment speed, and indicative market quotes for comparable investments along with other assumptions relating to credit quality, collateral value, complexity of the investment structure, general market conditions and liquidity. This category may include investments where trading has been halted or there are certain restrictions on trading. While these investments are priced using unobservable inputs, the valuation of these investments reflects the best available data and management believes the prices are a reasonable representation of exit price.
The Board of Directors of the Company generally reviews and approves the “Procedures for Valuation of Portfolio Securities” at least once a year. These procedures define how investments are to be valued, including the formation and activities of a Valuation Committee. The Valuation Committee is responsible for determining in good faith the fair value of investments when the value cannot be obtained from primary pricing services or alternative sources or if the valuation of an investment as provided by the primary pricing service or alternative source is believed not to reflect the investment’s fair value as of the Valuation Date. Voting members of the Valuation Committee include the Fund's Treasurer or designee and a Vice President of the investment manager or designee. An Assistant Vice President of the Fund with legal expertise or designee is also included on the Valuation Committee as a non-voting advisory member. In addition, the Fund’s Chief Compliance Officer shall designate a member of the compliance group to attend Valuation Committee meetings as a non-voting resource, to monitor for and provide guidance with respect to compliance with these procedures. Two members of the Valuation Committee or their designees, representing different departments, shall constitute a quorum for purposes of permitting the Valuation Committee to take action. The Valuation Committee will consider all relevant factors in determining an investment’s fair value, and may seek the advice of the Fund’s sub-adviser, knowledgeable brokers, and legal counsel in making such determination. The Valuation Committee reports to the Audit Committee of the Company's Board of Directors. The Audit Committee receives quarterly written reports which include details of all fair-valued investments, including the reason for the fair valuation, and an indication, when possible, of the accuracy of the valuation by disclosing the next available reliable public price quotation or the disposition price of such investments (the “look-back” test). The Board of Directors then must consider for ratification all of the fair value determinations made during the previous quarter.
Valuation levels are not necessarily indicative of the risk associated with investing in such investments. Individual investments within any of the above mentioned asset classes may be assigned a different hierarchical level than those presented above, as individual circumstances dictate.
For additional information, refer to the Investment Valuation Hierarchy Level Summary and the Level 3 roll-forward reconciliation, if applicable, which is included in the Schedule of Investments.
Investment Transactions and Investment Income – Investment transactions are recorded as of the trade date (the date the order to buy or sell is executed) for financial reporting purposes. Investments purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Realized gains and losses are determined on the basis of identified cost.
Dividend income from domestic securities is accrued on the ex-dividend date. In general, dividend income from foreign securities is recorded on the ex-date; however, dividend notifications in certain foreign jurisdictions may not be available in a timely manner and as a result, the Fund will record the dividend as soon as the relevant details (i.e., rate per share, payment date, shareholders of record, etc.) are publicly available. Interest income, including amortization of premium, accretion of discounts, inflation adjustments and additional principal received in-kind in lieu of cash, is accrued on a daily basis.
Taxes – The Fund may be subject to taxes imposed on realized gains on securities of certain foreign countries in which the Fund invests. The amount of foreign tax expense is included on the accompanying Statement of Operations as a reduction to net realized gain on investments in these securities.
Foreign Currency Transactions – Assets and liabilities denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates in effect on the valuation date. Purchases and sales of investments, income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions.
19 |
Hartford Capital Appreciation HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
The Fund does not isolate that portion of portfolio investment valuation resulting from fluctuations in the foreign currency exchange rates from the fluctuations arising from changes in the market prices of investments held. Exchange rate fluctuations are included with the net realized and unrealized gain or loss on investments in the accompanying financial statements.
Net realized foreign exchange gains or losses arise from sales of foreign currencies and the difference between asset and liability amounts initially stated in foreign currencies and the U.S. dollar value of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of other assets and liabilities at the end of the reporting period, resulting from changes in the exchange rates.
Joint Trading Account – The Fund may invest cash balances into a joint trading account that may be invested in one or more repurchase agreements.
Fund Share Valuation and Dividend Distributions to Shareholders – Orders for the Fund’s shares are executed in accordance with the investment instructions of the contract holders and plan participants. The NAV of the Fund’s shares is determined as of the close of business on each business day of the Exchange. The NAV is determined separately for each class of shares of the Fund by dividing the Fund’s net assets attributable to that class by the number of shares of the class outstanding. Each class of shares offered by the Fund has equal rights as to assets and voting privileges (except that shareholders of a class have exclusive voting rights regarding any matter relating solely to that class of shares). Income and non-class specific expenses are allocated daily to each class on the basis of the relative net assets of the class. Realized and unrealized gains and losses are allocated daily based on the relative net assets of each class of shares of the Fund.
Orders for the purchase of the Fund’s shares received prior to the close of the Exchange on any day the Exchange is open for business are priced at the NAV determined as of the close of the Exchange. Orders received after the close of the Exchange, or on a day on which the Exchange and/or the Fund is not open for business, are priced at the next determined NAV.
Dividends are declared pursuant to a policy adopted by the Company's Board of Directors based upon the investment performance of the Fund. The policy of the Fund is to pay dividends from net investment income and realized gains, if any, at least once a year.
Net investment income, dividends and distributions from net realized gains and capital are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP with respect to character and timing (see Federal Income Taxes: Distributions and Components of Distributable Earnings and Reclassification of Capital Accounts).
Securities and Other Investments:
Repurchase Agreements – A repurchase agreement is an agreement by which a counterparty agrees to sell an investment and agrees to repurchase the investment sold from the buyer at a mutually agreed upon time and price. During the period of the repurchase agreement, the counterparty will deposit cash and or securities in a third party custodial account to serve as collateral. At the time the Fund enters into a repurchase agreement, the value of the underlying collateral, including accrued interest, will be equal to or exceed the value of the repurchase agreement. Repurchase agreements expose the Fund to counterparty risk - that is, the risk that the counterparty will not fulfill its obligations. To minimize counterparty risk, the investments that serve to collateralize the repurchase agreement are held by the Fund’s custodian in book entry or physical form in the custodial account of the Fund or in a third party custodial account. Repurchase agreements are valued at cost plus accrued interest, which approximates fair value. Repurchase agreements have master netting arrangements which allow the Fund to offset amounts owed to a counterparty with amounts owed by the counterparty, including any collateral. Upon an event of default under a master repurchase agreement, the non-defaulting party may close out all transactions traded under such agreement and net amounts owed under each transaction to one net amount payable by one party to the other. Absent an event of default, the master repurchase agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty. The Fund, as shown on the Schedule of Investments, had outstanding repurchase agreements and related collateral as of December 31, 2014.
Illiquid and Restricted Investments – The Fund is permitted to invest up to 15% of its net assets in illiquid investments. Illiquid investments are those that may not be sold or disposed of in the ordinary course of business within seven days, at approximately the
20 |
Hartford Capital Appreciation HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
price used to determine the Fund’s NAV. The Fund may not be able to sell illiquid investments when its sub-adviser considers it desirable to do so or may have to sell such investments at a price that is lower than the price that could be obtained if the investments were more liquid. A sale of illiquid investments may require more time and may result in higher dealer discounts and other selling expenses than does the sale of those that are liquid. Illiquid investments also may be more difficult to value due to the unavailability of reliable market quotations for such investments, and an investment in them may have an adverse impact on the Fund’s NAV. The Fund may also purchase certain restricted investments that can only be resold to certain qualified investors and may be determined to be liquid pursuant to policies and guidelines established by the Company's Board of Directors. The Fund, as shown on the Schedule of Investments, had illiquid or restricted investments as of December 31, 2014.
Investments Purchased on a When-Issued or Delayed-Delivery Basis – Delivery and payment for investments that have been purchased by the Fund on a forward commitment, or when-issued or delayed-delivery basis, take place beyond the customary settlement period. The Fund may dispose of or renegotiate a delayed-delivery transaction after it is entered into, and may sell delayed-delivery investments before they are delivered, which may result in a realized gain or loss. During this period, such investments are subject to market fluctuations, and the Fund identifies investments segregated in its records with a value at least equal to the amount of the commitment. The Fund had no when-issued or delayed-delivery investments as of December 31, 2014.
Financial Derivative Instruments:
The following disclosures contain information on how and why the Fund uses derivative instruments, the credit-risk-related contingent features in certain derivative instruments and how derivative instruments affect the Fund’s financial position and results of operations. The location and fair value amounts of these instruments on the Statement of Assets and Liabilities and the realized gains and losses and changes in unrealized gains and losses on the Statement of Operations, each categorized by type of derivative contract, are included in the following Additional Derivative Instrument Information footnote. The derivative instruments outstanding as of year-end are disclosed in the notes to the Schedule of Investments, if applicable. The amounts of realized gains and losses and changes in unrealized gains and losses on derivative instruments during the year are disclosed in the Statement of Operations.
Foreign Currency Contracts – The Fund may enter into foreign currency contracts that obligate the Fund to purchase or sell currencies at specified future dates. Foreign currency contracts are used to hedge the currency exposure associated with some or all of the Fund’s investments and/or as part of an investment strategy. Foreign currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. The Fund will record a realized gain or loss when the foreign currency contract is settled.
Foreign currency contracts involve elements of market risk in excess of the amounts reflected in the Statement of Assets and Liabilities. In addition, risks may arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of the contracts and from unanticipated movements in the value of the foreign currencies relative to the U.S. dollar. The Fund, as shown on the Schedule of Investments, had outstanding foreign currency contracts as of December 31, 2014.
Options Contracts – An option contract is a contract sold by one party to another party that offers the buyer the right, but not the obligation, to buy (call) or sell (put) an investment or other financial asset at an agreed-upon price during a specific period of time or on a specific date. Options contracts are either privately negotiated in the over-the-counter market ("OTC options") or executed in a registered exchange ("exchange traded options"). The Fund may write (sell) covered call and put options on futures, swaps (“swaptions”), securities, commodities or currencies. “Covered” means that so long as the Fund is obligated as the writer of an option, it will own either the underlying investments or currency or an option to purchase the same underlying investments or currency having an expiration date of the covered option and an exercise price equal to or less than the exercise price of the covered option, or will pledge cash or other liquid investments having a value equal to or greater than the fluctuating market value of the option investment or currency. Writing put options increases the Fund’s exposure to the underlying instrument. Writing call options decreases the Fund’s exposure to the underlying instrument. Premiums received from writing options that expire are treated as realized gains. Premiums received from writing options that are exercised or closed are added to the proceeds or offset amounts paid on the underlying futures, swap, investment or currency transaction to determine the realized gain or loss. The Fund as a writer of an option has no control over whether the underlying instrument may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the instrument underlying the written option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. The Fund may also purchase put and call options. Purchasing call options increases the
21 |
Hartford Capital Appreciation HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Fund’s exposure to the underlying instrument. Purchasing put options decreases the Fund’s exposure to the underlying instrument. The Fund pays a premium, which is included on the Fund’s Statement of Assets and Liabilities as an investment and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Certain options may be purchased with premiums to be determined on a future date. The premiums for these options are based upon implied volatility parameters at specified terms. The risk associated with purchasing put and call options is generally limited to the premium paid. Premiums paid for purchasing options that are exercised or closed are added to the amounts paid or offset against the proceeds on the underlying investment transaction to determine the realized gain or loss. Entering into over-the-counter options also exposes the Fund to counterparty risk. Counterparty risk is the possibility that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements.
As of December 31, 2014 the Fund had no outstanding purchased option or written option contracts. There were no transactions involving written option contracts during the year ended December 31, 2014.
Additional Derivative Instrument Information:
Fair Value of Derivative Instruments on the Statement of Assets and Liabilities as of December 31, 2014:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts | Foreign Exchange Contracts | Credit Contracts | Equity Contracts | Commodity Contracts | Other Contracts | Total | ||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||
Unrealized appreciation on foreign currency contracts | $ | — | $ | 4,098 | $ | — | $ | — | $ | — | $ | — | $ | 4,098 | ||||||||||||||
Total | $ | — | $ | 4,098 | $ | — | $ | — | $ | — | $ | — | $ | 4,098 | ||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||
Unrealized depreciation on foreign currency contracts | $ | — | $ | 7 | $ | — | $ | — | $ | — | $ | — | $ | 7 | ||||||||||||||
Total | $ | — | $ | 7 | $ | — | $ | — | $ | — | $ | — | $ | 7 |
The volume of derivatives that is presented in the Schedule of Investments is consistent with the derivative activity during the year ended December 31, 2014.
The Effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2014:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts | Foreign Exchange Contracts | Credit Contracts | Equity Contracts | Commodity Contracts | Other Contracts | Total | ||||||||||||||||||||||
Realized Gain (Loss) on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net realized loss on purchased option contracts | $ | — | $ | — | $ | — | $ | (460 | ) | $ | — | $ | — | $ | (460 | ) | ||||||||||||
Net realized gain on foreign currency contracts | — | 18,124 | — | — | — | — | 18,124 | |||||||||||||||||||||
Total | $ | — | $ | 18,124 | $ | — | $ | (460 | ) | $ | — | $ | — | $ | 17,664 | |||||||||||||
Net Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net change in unrealized appreciation of investments in purchased option contracts | $ | — | $ | — | $ | — | $ | 361 | $ | — | $ | — | $ | 361 | ||||||||||||||
Net change in unrealized appreciation of foreign currency contracts | — | 168 | — | — | — | — | 168 | |||||||||||||||||||||
Total | $ | — | $ | 168 | $ | — | $ | 361 | $ | — | $ | — | $ | 529 |
Balance Sheet Offsetting Information - The following discloses both gross information and net information about instruments and transactions eligible for offset in the financial statements, and instruments and transactions that are subject to a master netting arrangement, as well as amounts related to margin, reflected as financial collateral (including cash collateral), held at clearing brokers, counterparties and the Fund’s custodian. The master netting arrangements allow the clearing brokers to net any collateral held in or on behalf of the Fund, or liabilities or payment obligations of the clearing brokers to the Fund, against any liabilities or payment obligations of the Fund to the clearing brokers. The Fund is required to deposit financial collateral (including cash collateral) at the
22 |
Hartford Capital Appreciation HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Futures Commission Merchant's ("FCM") custodian on behalf of clearing brokers and counterparties to continually meet the original and maintenance requirements established by the clearing brokers and counterparties for certain derivative types. Such requirements are specific to the respective clearing broker or counterparty. Certain master netting arrangements may not be enforceable in the bankruptcy proceedings of a counterparty.
Offsetting of Financial Assets and Derivative Assets as of December 31, 2014:
Gross Amounts* of Assets Presented in Statement of Assets and Liabilities | Financial Instruments with Allowable Netting | Non-cash Collateral Received | Cash Collateral Received | Net Amount (not less than $0) | ||||||||||||||||
Description | ||||||||||||||||||||
Unrealized appreciation on foreign currency contracts | $ | 4,094 | $ | — | $ | — | $ | — | $ | 4,094 | ||||||||||
Total subject to a master netting or similar arrangement | $ | 4,094 | $ | — | $ | — | $ | — | $ | 4,094 |
* Gross amounts are presented here as there are no amounts netted within the Statement of Assets and Liabilities.
Certain derivatives held by the Fund, as of December 31, 2014, are not subject to a master netting arrangement and are excluded from the table above.
Principal Risks:
Credit risk depends largely on the perceived financial health of bond issuers. In general, the credit rating is inversely related to the credit risk of the issuer. Higher rated bonds generally are deemed to have less credit risk, while lower or unrated bonds are deemed to have higher risk of default. The share price, yield and total return of a fund that holds securities with higher credit risk may be more volatile than those of a fund that holds bonds with lower credit risk. Similar to credit risk, the Fund may be exposed to counterparty risk, or the risk that an institution or other entity with which the Fund has unsettled or open transactions will default.
The Fund’s investments expose the Fund to various risks including, but not limited to, interest rate, prepayment, extension, foreign currency and equity risks. Interest rate risk is the risk that fixed income securities will decline in value because of changes in interest rates. As nominal interest rates rise, the values of certain fixed income securities held by the Fund are likely to decrease. A nominal interest rate can be described as the sum of a real interest rate and an expected inflation rate. Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. Duration is useful primarily as a measure of the sensitivity of a fixed income security’s market price to interest rate (i.e., yield) movements. Rising interest rates may cause prepayments to occur at a slower than expected rate, thereby effectively lengthening the maturity of the security and making the security more sensitive to interest rate changes. Prepayment and extension risk are major risks of mortgage backed securities and certain asset backed securities. For certain asset backed securities, the actual maturity may be less than the stated maturity shown in the Schedule of Investments, if applicable. As a result, the timing of income recognition relating to these securities may vary based upon the actual maturity.
If the Fund invests directly in foreign currencies or in securities that trade in, and receive revenues in, foreign currencies, or in derivatives that provide exposure to foreign currencies, it will be subject to the risk that those currencies will decline in value relative to the base currency (U.S. dollars) of the Fund, or, in the case of hedging positions, that the Fund’s base currency will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities, such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad. As a result, the Fund’s investments in foreign currency denominated securities may reduce the returns of the Fund. The market values of equity securities, such as common stocks and preferred stocks, or equity related investments, such as futures and options, may decline due to general market conditions which are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. The market value of equity securities may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive
23 |
Hartford Capital Appreciation HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
conditions within an industry. Equity securities and equity related investments generally have greater market price volatility than fixed income securities.
Federal Income Taxes:
Federal Income Taxes – For federal income tax purposes, the Fund intends to continue to qualify as a Regulated Investment Company ("RIC") under Subchapter M of the Internal Revenue Code (“IRC”) by distributing substantially all of its taxable net investment income and net realized capital gains to its shareholders and otherwise complying with the requirements of the IRC. The Fund has distributed substantially all of its income and capital gains in prior years, if applicable, and intends to distribute substantially all of its income and capital gains prior to the next fiscal year-end. Accordingly, no provision for federal income or excise taxes has been made in the accompanying financial statements. Distributions from short-term capital gains are treated as ordinary income distributions for federal income tax purposes.
Net Investment Income (Loss), Net Realized Gains (Losses) and Distributions – Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of losses deferred due to wash sale adjustments, foreign currency gains and losses, adjustments related to Passive Foreign Investment Companies ("PFICs"), Real Estate Investment Trusts ("REITs"), RICs, certain derivatives and partnerships. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund.
Distributions and Components of Distributable Earnings – The tax character of distributions paid by the Fund for the periods indicated is as follows (as adjusted for dividends payable, if applicable):
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Ordinary Income | $ | 461,904 | $ | 85,542 | ||||
Long-Term Capital Gains* | 656,128 | — |
* | The Fund designates these distributions as long-term capital gain dividends pursuant to IRC Sec. 852(b)(3)(C). |
As of December 31, 2014, the Fund’s components of distributable earnings (deficit) on a tax basis are as follows:
Amount | ||||
Undistributed Ordinary Income | $ | 331,819 | ||
Undistributed Long-Term Capital Gain | 940,311 | |||
Unrealized Appreciation* | 597,561 | |||
Total Accumulated Earnings | $ | 1,869,691 |
* | Differences between book-basis and tax-basis unrealized appreciation (depreciation) may be attributable to the losses deferred due to wash sale adjustments, foreign currency gains and losses and adjustments related to PFICs, REITs, RICs, certain derivatives and partnerships. |
24 |
Hartford Capital Appreciation HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Reclassification of Capital Accounts – The Fund may record reclassifications in its capital accounts. These reclassifications have no impact on the total net assets of the Fund. The reclassifications are a result of permanent differences between U.S. GAAP and tax accounting for such items as foreign currency, PFICs, expiration or utilization of capital loss carryforwards or net operating losses. Adjustments are made to reflect the impact these items have on current and future distributions to shareholders. Therefore, the source of the Fund’s distributions may be shown in the accompanying Statement of Changes in Net Assets as from undistributed net investment income, from accumulated net realized gains on investments or from capital depending on the type of book and tax differences that exist. For the year ended December 31, 2014, the Fund recorded reclassifications to increase (decrease) the accounts listed below:
Amount | ||||
Undistributed Net Investment Income (Loss) | $ | (2,942 | ) | |
Accumulated Net Realized Gain (Loss) | 2,942 |
Capital Loss Carryforward – On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which made changes to the capital loss carryforward rules. The changes are effective for taxable years beginning after the date of enactment. Under the Act, funds are permitted to carry forward capital losses for an unlimited period. Additionally, capital loss carryforwards retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under prior regulation.
The Fund had no capital loss carryforward for U.S. federal income tax purposes as of December 31, 2014.
Accounting for Uncertainty in Income Taxes – The Fund has adopted financial reporting rules that require the Fund to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions. Generally, tax authorities can examine all tax returns filed for the last three years. The Fund does not have an examination in progress.
The Fund has reviewed all open tax years and major jurisdictions and concluded that these financial reporting rules had no effect on the Fund’s financial position or results of operations. There is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on the tax return for the fiscal year ended December 31, 2014. The Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Expenses:
Investment Management Agreement – Hartford Funds Management Company, LLC ("HFMC") serves as the Fund’s investment manager pursuant to an Investment Management Agreement with the Company. HFMC is an indirect wholly owned subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford"). The investment manager has overall investment supervisory responsibility for the Fund. In addition, the investment manager provides administrative personnel, services, equipment, facilities and office space for proper operation of the Fund. HFMC has contracted with Wellington Management Company, LLP ("Wellington Management") under a sub-advisory agreement for the provision of day-to-day investment management services to the Fund in accordance with the Fund’s investment objective and policies. The Fund pays a fee to the investment manager, a portion of which may be used to compensate Wellington Management.
25 |
Hartford Capital Appreciation HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
The schedule below reflects the rates of compensation paid to the investment manager for investment management services rendered as of December 31, 2014; the rates are accrued daily and paid monthly:
Average Daily Net Assets | Annual Fee | |
On first $250 million | 0.7750% | |
On next $250 million | 0.7250% | |
On next $500 million | 0.6750% | |
On next $1.5 billion | 0.6250% | |
On next $2.5 billion | 0.6200% | |
On next $5 billion | 0.6150% | |
Over $10 billion | 0.6100% |
Accounting Services Agreement – Pursuant to the Fund Accounting Agreement between HFMC and the Company, on behalf of the Fund, HFMC provides accounting services to the Fund and receives monthly compensation based on the Fund’s average daily net assets at the rates set forth below. The Fund’s accounting services fees are accrued daily and paid monthly.
Average Daily Net Assets | Annual Fee | |
On first $5 billion | 0.018% | |
On next $5 billion | 0.014% | |
Over $10 billion | 0.010% |
Operating Expenses – Allocable expenses incurred by the Company are allocated to each Fund and allocated to classes within a Fund in proportion to the average daily net assets of the Fund and each class, except where allocation of certain expenses is more fairly made directly to the Fund or to specific classes within a Fund.
Fees Paid Indirectly – The Company, on behalf of the Fund, has entered into agreements with State Street Global Markets, LLC and Russell Implementation Services, Inc. to partially recapture non-discounted trade commissions. Such rebates are used to pay a portion of the Fund’s expenses. In addition, the Fund's custodian has agreed to reduce its fees when the Fund maintains cash on deposit in a non-interest-bearing custody account. For the year ended December 31, 2014, these amounts, if any, are included in the Statement of Operations.
The ratio of expenses to average net assets in the accompanying financial highlights excludes the reduction in expenses related to fees paid indirectly. The annualized expense ratio after waivers for the period listed below reflecting the reduction for fees paid indirectly is as follows:
Year Ended | ||
Class IA | 0.66% | |
Class IB | 0.91 | |
Class IC | 1.16* | |
* | Annualized, from April 30, 2014 (commencement of operations) through December 31, 2014. |
Distribution Plan for Class IB and IC Shares – Hartford Funds Distributors, LLC (“HFD”), an indirect wholly owned subsidiary of The Hartford, is the principal underwriter and distributor of the Fund. The Company, on behalf of the Fund, has adopted Distribution Plans pursuant to Rule 12b-1 of the 1940 Act for Class IB and Class IC shares.
The Distribution Plans provide that the Fund may pay annually up to 0.25% of the average daily net assets of the Fund attributable to its Class IB and Class IC shares for activities primarily intended to result in the sale of Class IB and Class IC shares. The Board has the authority to suspend or reduce these payments at any point in time. Under the terms of the Distribution Plans and the principal underwriting agreement, the Fund is authorized to make payments monthly to the distributor that may be used to pay or reimburse
26 |
Hartford Capital Appreciation HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
entities providing distribution and shareholder servicing with respect to the Class IB shares, and distribution services for Class IC shares, for such entities' fees or expenses incurred or paid in that regard. The distribution fees paid during the period can be found on the Statement of Operations. These fees are accrued daily and paid monthly or at such other intervals as the Board of Directors may determine.
Administrative Services Fee for Class IC Shares – The Fund may pay an administrative services fee to third party insurance companies annually up to 0.25% of the average daily net assets of the Fund attributable to its Class IC shares for recordkeeping and/or other administrative services provided to such Class IC shares. The total administrative services fees paid during the period are shown on the Statement of Operations. This fee is accrued daily and paid monthly.
Other Related Party Transactions – Certain officers of the Fund are directors and/or officers of HFMC and/or The Hartford or its subsidiaries. For the year ended December 31, 2014, a portion of the Fund's Chief Compliance Officer's compensation was paid by all the investment companies in the Hartford fund complex. The portion allocated to the Fund, as represented in other expenses on the Statement of Operations, was in the amount of $10. Hartford Administrative Services Company ("HASCO"), an indirect wholly owned subsidiary of The Hartford, provides transfer agent services to the Fund. Effective December 1, 2014, pursuant to a sub-transfer agency agreement between HASCO and Boston Financial Data Services, Inc. (“BFDS”), HASCO delegated certain transfer agent, dividend disbursing agent and shareholder servicing agent functions to BFDS. HASCO is compensated by the Fund based on the number of classes plus out of pocket expenses for providing such services, a portion of which may be used to compensate BFDS. The amount paid to HASCO can be found in the Statement of Operations. These fees are accrued daily and paid monthly.
Affiliate Holdings:
As of December 31, 2014, affiliates of The Hartford had ownership of shares as a result of the seed money invested in the Fund as follows:
Percentage of | Percentage of | |||
Class IC | 3 % | — * |
* | Percentage rounds to zero. |
Investment Transactions:
For the year ended December 31, 2014, the cost of purchases and proceeds from sales of investment securities (excluding short-term investments) were as follows:
Excluding U.S. Government Obligations | U.S. Government Obligations | Total | ||||||||||
Cost of Purchases | $ | 6,922,738 | $ | — | $ | 6,922,738 | ||||||
Sales Proceeds | 7,994,410 | — | 7,994,410 |
Line of Credit:
The Fund is one of several Hartford Funds that participate in a $500 million committed revolving line of credit facility. The facility is to be used for temporary or emergency purposes. Under the arrangement, the funds are required to own securities having a market value in excess of 300% of the total bank borrowings. The interest rate on borrowings varies depending on the nature of the loan. The facility also requires a fee to be paid based on the amount of the commitment. This commitment fee is allocated to all the funds participating in the line of credit based on the average net assets of the funds. During the year ended December 31, 2014, the Fund did not have any borrowings under this facility.
27 |
Hartford Capital Appreciation HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Indemnifications:
Under the Company's organizational documents, the Company shall indemnify its officers and directors to the full extent required or permitted under Maryland General Corporation Law and the federal securities laws. In addition, the Company, on behalf of the Fund, may enter into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, as of the date of these financial statements, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Pending Legal Proceedings:
On February 25, 2011, Jennifer L. Kasilag, Louis Mellinger, Judith M. Menendez, Jacqueline M. Robinson, and Linda A. Russell filed a derivative lawsuit against Hartford Investment Financial Services, LLC (“HIFSCO”) (now known as HFD) on behalf of six Hartford retail mutual funds in the United States District Court for the District of New Jersey, alleging that HIFSCO received excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the 1940 Act when serving as investment manager and principal underwriter, respectively, to the Hartford retail mutual funds. Although this action was purportedly filed on behalf of certain of the Hartford Funds, none of the Hartford Funds is itself a defendant to the suit. HIFSCO moved to dismiss and, in September 2011, the motion was granted in part and denied in part, with leave to amend the complaint. In November 2011, plaintiffs filed an amended complaint on behalf of certain Hartford retail mutual funds, The Hartford Global Health Fund (now known as The Hartford Healthcare Fund), The Hartford Conservative Allocation Fund, The Hartford Growth Opportunities Fund, The Hartford Inflation Plus Fund, The Hartford Advisers Fund (now known as The Hartford Balanced Fund), and The Hartford Capital Appreciation Fund. Plaintiffs seek to rescind the investment management agreements and distribution plans between HIFSCO and these funds and to recover the total fees charged thereunder or, in the alternative, to recover any improper compensation HIFSCO received, in addition to lost earnings. HIFSCO filed a partial motion to dismiss the amended complaint and, in December 2012, the court dismissed without prejudice the claims regarding distribution fees and denied the motion with respect to the advisory fees claims. HIFSCO disputes the allegations and intends to defend vigorously.
In March 2014, the plaintiffs filed a new complaint that added as new plaintiffs The Hartford Floating Rate Fund and The Hartford Small Company Fund, two Hartford retail mutual funds, and named as a defendant HFMC, which assumed the role as investment manager to the funds as of January 2013. HFMC and HIFSCO dispute the allegations and intend to defend vigorously.
This action concerns the activities of HIFSCO in its capacity as investment manager and principal underwriter to the Hartford retail mutual funds and does not concern HIFSCO’s activities in its capacity as principal underwriter to the HLS funds. For this reason, no accrual for litigation relating to this matter has been recorded in the financial statements of the Fund.
Recent Accounting Pronouncement:
In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, modifying Accounting Standards Codification Topic 860. The amended guidance changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. The guidance also requires new disclosures for certain transfers accounted for as sales and collateral supporting transactions that are accounted for as secured borrowings. ASU 2014-11 is effective for annual and interim periods beginning after December 15, 2014, except for the disclosures related to secured borrowings, which are effective for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The adoption of ASU 2014-11 is not expected to have a material impact on the Fund’s results of operations or financial position, but may impact the Fund’s disclosures.
Subsequent Event:
Effective on or after January 1, 2015, pursuant to an agreement between the Hartford Funds and State Street Bank and Trust Company ("State Street"), State Street replaced, or is scheduled to replace, JP Morgan Chase Bank, N.A. ("JP Morgan Chase") as the Fund's primary custodian. JP Morgan Chase may serve as custodian of certain Fund assets. In addition, on or after the same date, HFMC has delegated, or will delegate, certain accounting and administrative services functions to State Street. The costs and expenses of such delegation will be borne by HFMC, not by the Funds, and HFMC will compensate State Street for its services out of its own resources.
28 |
Hartford Capital Appreciation HLS Fund
Financial Highlights
─ Selected Per-Share Data(A) ─ | ─ Ratios and Supplemental Data ─ | |||||||||||||||||||||||||||||||||||||||||||||||||||
Class | Net Asset Value at Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Investment Operations | Dividends from Net Investment Income | Distributions from Realized Capital Gains | Total Dividends and Distributions | Net Asset Value at End of Period | Total Return(B) | Net Assets at End of Period (000s) | Ratio of Expenses to Average Net Assets Before Adjust- ments(C) | Ratio of Expenses to Average Net Assets After Adjust- ments(C) | Ratio of Net Investment Income (Loss) to Average Net Assets | |||||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 59.65 | $ | 0.56 | $ | 3.81 | $ | 4.37 | $ | (0.50 | ) | $ | (8.81 | ) | $ | (9.31 | ) | $ | 54.71 | 7.31 | % | $ | 6,470,599 | 0.66 | % | 0.66 | % | 0.96 | % | |||||||||||||||||||||||
IB | 59.18 | 0.42 | 3.77 | 4.19 | (0.36 | ) | (8.81 | ) | (9.17 | ) | 54.20 | 7.04 | 764,541 | 0.91 | 0.91 | 0.72 | ||||||||||||||||||||||||||||||||||||
IC(D) | 60.21 | 0.09 | 3.53 | 3.62 | (0.43 | ) | (8.81 | ) | (9.24 | ) | 54.59 | 5.97 | (E) | 3,453 | 1.16 | (F) | 1.16 | (F) | 0.23 | (F) | ||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 43.37 | $ | 0.45 | $ | 16.49 | $ | 16.94 | $ | (0.51 | ) | $ | (0.15 | ) | $ | (0.66 | ) | $ | 59.65 | 39.08 | % | $ | 7,029,201 | 0.67 | % | 0.67 | % | 0.88 | % | |||||||||||||||||||||||
IB | 43.05 | 0.32 | 16.33 | 16.65 | (0.37 | ) | (0.15 | ) | (0.52 | ) | 59.18 | 38.72 | 969,611 | 0.92 | 0.92 | 0.63 | ||||||||||||||||||||||||||||||||||||
�� | ||||||||||||||||||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2012 (G) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 37.20 | $ | 0.57 | $ | 6.24 | $ | 6.81 | $ | (0.64 | ) | $ | – | $ | (0.64 | ) | $ | 43.37 | 18.34 | % | $ | 7,750,924 | 0.67 | % | 0.67 | % | 1.24 | % | ||||||||||||||||||||||||
IB | 36.90 | 0.52 | 6.14 | 6.66 | (0.51 | ) | – | (0.51 | ) | 43.05 | 18.04 | 874,386 | 0.92 | 0.92 | 0.99 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2011 (G) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 42.36 | $ | 0.37 | $ | (5.20 | ) | $ | (4.83 | ) | $ | (0.33 | ) | $ | – | $ | (0.33 | ) | $ | 37.20 | (11.41 | )% | $ | 8,169,178 | 0.67 | % | 0.67 | % | 0.95 | % | ||||||||||||||||||||||
IB | 42.00 | 0.32 | (5.20 | ) | (4.88 | ) | (0.22 | ) | – | (0.22 | ) | 36.90 | (11.62 | ) | 1,102,054 | 0.92 | 0.92 | 0.71 | ||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2010 (G) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 36.63 | $ | 0.30 | $ | 5.72 | $ | 6.02 | $ | (0.29 | )(H) | $ | – | $ | (0.29 | ) | $ | 42.36 | 16.50 | % | $ | 8,889,906 | 0.67 | % | 0.67 | % | 0.77 | % | ||||||||||||||||||||||||
IB | 36.32 | 0.21 | 5.66 | 5.87 | (0.19 | )(H) | – | (0.19 | ) | 42.00 | 16.21 | 1,522,218 | 0.92 | 0.92 | 0.52 |
(A) | Information presented relates to a share outstanding throughout the indicated period. Net investment income (loss) per share amounts are calculated based on average shares outstanding unless otherwise noted. |
(B) | The figures do not include sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees would lower the Fund's performance. |
(C) | Adjustments include waivers and reimbursements, if applicable. Ratios do not include fees paid indirectly (see Expenses in the accompanying Notes to Financial Statements). |
(D) | Commenced operations on April 30, 2014. |
(E) | Not annualized. |
(F) | Annualized. |
(G) | Net investment income (loss) per share amounts have been calculated using the SEC method. |
(H) | Included in this amount are tax distributions from capital of ($0.03). |
Portfolio Turnover Rate for All Share Classes | ||||
For the Year Ended December 31, 2014 | 89% | |||
For the Year Ended December 31, 2013 | 86 | |||
For the Year Ended December 31, 2012 | 142 | |||
For the Year Ended December 31, 2011 | 113 | |||
For the Year Ended December 31, 2010 | 95 |
29 |
Report of independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Hartford Series Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Hartford Capital Appreciation HLS Fund (one of the portfolios constituting Hartford Series Fund, Inc. (the Funds)) as of December 31, 2014, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Hartford Capital Appreciation HLS Fund of the Hartford Series Fund, Inc. at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Minneapolis, Minnesota
February 13, 2015
30 |
Hartford Capital Appreciation HLS Fund
Directors and Officers (Unaudited)
The Board of Directors of the Company (the "Directors") appoints officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the Directors. Each Director serves until his or her death, resignation, or retirement or until the next annual meeting of shareholders is held or until his or her successor is elected and qualifies.
Directors and officers who are employed by or who have a financial interest in The Hartford Financial Services Group, Inc. ("The Hartford") are considered “interested” persons of the Fund pursuant to the 1940 Act. The "interested" Directors and officers are reflected in the chart below. Each Director serves as a director for The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., Hartford Series Fund, Inc., and Hartford HLS Series Fund II, Inc., and as a trustee for The Hartford Alternative Strategies Fund, which, as of December 31, 2014, collectively consist of 66 funds. Correspondence may be sent to Directors and officers c/o Hartford Funds, 5 Radnor Corporate Center, Suite 300, 100 Matsonford Road, Radnor, Pennsylvania 19087, except that correspondence to Mr. Annoni, Mr. Dressen and Ms. Quade may be sent to 500 Bielenberg Drive, Suite 500, Woodbury, Minnesota 55125.
The table below sets forth, for each Director and officer, his or her name, year of birth, current position with the Company and date first elected or appointed to Hartford Series Fund, Inc. ("HSF") and Hartford HLS Series Fund II, Inc. ("HSF2"), principal occupation, and, for Directors, other directorships held. The Fund’s Statement of Additional Information contains further information on the Directors and is available free of charge by calling 1-888-843-7824 or writing to: Hartford HLS Funds, c/o Hartford Life Insurance Company/Hartford Life and Annuity Insurance Company, P.O. Box 14293, Lexington, KY 40512-4293 for variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates; Hartford Funds, P.O. Box 55022, Boston, MA 02205-5022 for all shareholders except variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates.
Information on the aggregate remuneration paid to the directors of the Company can be found in the Statement of Operations herein. The Fund pays to The Hartford a portion of the Chief Compliance Officer’s compensation, but does not pay salaries or compensation to any of its other officers or Directors who are employed by The Hartford.
Non-Interested Directors
Hilary E. Ackermann (1956) Director since September 23, 2014
Ms. Ackermann served as Chief Risk Officer at Goldman Sachs Bank USA from October 2008 to November 2011 and serves as a Director of Dynegy, Inc., an independent power company, from October 2012 to present.
Lynn S. Birdsong (1946) Director since 2003, Chairman of the Investment Committee since 2014
Mr. Birdsong is a private investor. Mr. Birdsong currently serves as a Director of Aberdeen Global and Aberdeen Global II (investment funds) (September 2014 to present) and as an Independent Director of Nomura Partners Funds, Inc. (formerly, The Japan Fund) (April 2003 to present). Mr. Birdsong served as Director of the Sovereign High Yield Investment Company (April 2010 to September 2014). From 2003 to March 2005, Mr. Birdsong was an Independent Director of the Atlantic Whitehall Funds. From 1979 to 2002, Mr. Birdsong was a Managing Director of Zurich Scudder Investments, an investment management firm. During his employment with Scudder, Mr. Birdsong was an Interested Director of The Japan Fund. Mr. Birdsong served as Co-Chairman of the Investment Committee of The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., HSF, HSF2 and The Hartford Alternative Strategies Fund from 2005 to 2014.
Robert M. Gavin, Jr. (1940) Director since 2002 (HSF) and 1986 (HSF2), Chairman of the Board for each since 2004
Dr. Gavin is an educational consultant. Prior to September 1, 2001, he was President of Cranbrook Education Community and prior to July 1996, he was President of Macalester College, St. Paul, Minnesota.
Duane E. Hill (1945) Director since 2001 (HSF) and 2002 (HSF2), Chairman of the Nominating Committee since 2003
Mr. Hill is a Partner of TSG Ventures L.P., a private equity investment company. Mr. Hill is a former partner of TSG Capital Group, a private equity investment firm that served as sponsor and lead investor in leveraged buyouts of middle market companies.
Sandra S. Jaffee (1941) Director since 2005
Ms. Jaffee is the founder and Chief Executive Officer of a private company, Homeworks Concierge, LLC, which provides residential property management services in Westchester County, New York (January 2012 to present). Ms. Jaffee served as Chairman (2008 to 2009) and Chief Executive Officer of Fortent (formerly Searchspace Group), a leading provider of compliance/regulatory technology to financial institutions from August 2005 to August 2009. From August 2004 to August 2005, Ms. Jaffee served as an Entrepreneur in Residence with Warburg Pincus, a private equity firm. Prior to joining Warburg Pincus, Ms. Jaffee served as Executive Vice President at Citigroup, from September 1995 to July 2004, where she was President and Chief Executive Officer of Citibank’s Global Securities
31 |
Hartford Capital Appreciation HLS Fund
Directors and Officers (Unaudited) – (continued)
Services (1995 to 2003). Ms. Jaffee served as a member of the Board of Directors of Broadridge Financial Solutions (November 2010 to November 2014). Ms. Jaffee currently serves as a member of the Board of Directors of Global Camps Africa (a non-profit organization) (January 2015 to present) as well as a Trustee of Muhlenberg College (September 2007 to present).
William P. Johnston (1944) Director since 2005, Chairman of the Compliance Committee since 2005
In June 2006, Mr. Johnston was appointed as Senior Advisor to The Carlyle Group, a global private equity and other alternative asset investment firm and currently serves as an Operating Executive. In July 2006, Mr. Johnston was elected to the Board of Directors of MultiPlan, Inc. and served as a Director (July 2006 to August 2010). In August 2007, Mr. Johnston was elected to the Board of Directors of LifeCare Holdings, Inc. and served as a Director (August 2007 to June 2013). In February 2008, Mr. Johnston was elected to the Board of Directors of HCR-ManorCare, Inc. In May 2006, Mr. Johnston was elected to the Supervisory Board of Fresenius Medical Care AG & Co. KGaA, after its acquisition of Renal Care Group, Inc. in March 2006. Mr. Johnston joined Renal Care Group in November 2002 as a member of the Board of Directors and served as Chairman of the Board from March 2003 through March 2006. From 2002 through 2013, Mr. Johnston served as a Board member of the Georgia O’Keefe Museum. From September 1987 to December 2002, Mr. Johnston was with Equitable Securities Corporation (and its successors, SunTrust Equitable Securities and SunTrust Robinson Humphrey) serving in various investment banking and managerial positions, including Managing Director and Head of Investment Banking, Chief Executive Officer and Vice Chairman.
Phillip O. Peterson (1944) Director since 2002 (HSF) and 2000 (HSF2), Chairman of the Audit Committee since 2002
Mr. Peterson is a mutual fund industry consultant. He was a partner of KPMG LLP (an accounting firm) until July 1999. Mr. Peterson joined William Blair Funds in February 2007 as a member of the Board of Trustees. From February 2012 to February 2014, Mr. Peterson served as a Trustee of Symetra Variable Mutual Funds. From January 2004 to April 2005, Mr. Peterson served as Independent President of the Strong Mutual Funds.
Lemma W. Senbet (1946) Director since 2005
Dr. Senbet is the William E. Mayer Chair Professor of Finance at the University of Maryland, Robert H. Smith School of Business. He was chair of the Finance Department of the University of Maryland, Robert H. Smith School of Business from 1998 to 2006. Since June 2013, he has been on leave from the University to serve as Executive Director of African Economic Research Consortium which focuses on economic policy research and training. Previously, he was a chaired professor of finance at the University of Wisconsin-Madison. Also, he was a Director of the Fortis Funds from March 2000 to July 2002. Dr. Senbet served as Director of the American Finance Association and President of the Western Finance Association. In 2006, Dr. Senbet was inducted Fellow of Financial Management Association International for his career-long distinguished scholarship and professional service.
Interested Directors and Officers
James E. Davey (1964) Director since 2012, President and Chief Executive Officer since 2010
Mr. Davey serves as Executive Vice President of Hartford Life Insurance Company (“HLIC”) and The Hartford. Additionally, Mr. Davey serves as Chairman of the Board, Manager and Senior Managing Director of Hartford Funds Distributors, LLC (“HFD”). He also currently serves as Director, Chairman of the Board, President and Senior Managing Director of Hartford Administrative Services Company (“HASCO”). Mr. Davey also serves as Manager, Chairman of the Board and Senior Managing Director for Hartford Funds Management Company, LLC (“HFMC”) and Director, Chairman of the Board and Senior Managing Director for Hartford Funds Management Group, Inc. ("HFMG"). Mr. Davey has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Davey joined The Hartford in 2002.
Lowndes A. Smith* (1939) Director since 1996 (HSF) and 2002 (HSF2), Co-Chairman of the Investment Committee since 2005
Mr. Smith served as Vice Chairman of The Hartford from February 1997 to January 2002, as President and Chief Executive Officer of Hartford Life, Inc. from February 1997 to January 2002, and as President and Chief Operating Officer of The Hartford Life Insurance Companies from January 1989 to January 2002. Mr. Smith serves as a Director of White Mountains Insurance Group Ltd. (October 2003 to current); One Beacon Insurance (October 2006 to current); Symetra Financial (August 2007 to current) and is a Managing Director of Whittington Gray Associates (January 2007 to current).
* Mr. Smith resigned as a Director of Hartford Mutual Funds, Inc., Hartford Mutual Funds II, Inc., HSF and HSF2 and as a Trustee of The Hartford Alternative Strategies Fund effective September 17, 2014.
32 |
Hartford Capital Appreciation HLS Fund
Directors and Officers (Unaudited) – (continued)
Other Officers
Mark A. Annoni (1964) Vice President, Controller and Treasurer since 2012
Mr. Annoni currently serves as the Assistant Vice President of HLIC (February 2004 to present) and Senior Vice President of HFMG (December 2013 to present). Mr. Annoni has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Annoni joined The Hartford in 2001.
Michael R. Dressen (1963) AML Compliance Officer since 2011
Mr. Dressen currently serves as Assistant Vice President of HLIC. He also serves as Chief Compliance Officer and AML Compliance Officer of HASCO and as AML Officer of HFD. Mr. Dressen has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
Edward P. Macdonald (1967) Vice President, Secretary and Chief Legal Officer since 2005
Mr. Macdonald currently serves as Assistant Secretary, Executive Vice President and Deputy General Counsel of HFD, HASCO, HFMC and HFMG. He also serves as Vice President of HLIC. Mr. Macdonald has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Macdonald joined The Hartford in 2005.
Joseph G. Melcher (1973) Vice President and Chief Compliance Officer since 2013
Mr. Melcher currently serves as Executive Vice President of HFD, HFMG and HASCO. Mr. Melcher also currently serves as Executive Vice President and Chief Compliance Officer of HFMC. Mr. Melcher has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds since joining The Hartford in 2012. Prior to joining The Hartford, Mr. Melcher worked at Touchstone Investments, a member of the Western & Southern Financial Group, where he held the position of Vice President and Chief Compliance Officer from 2010 through 2012 and Assistant Vice President, Compliance from 2005 to 2010.
Vernon J. Meyer (1964) Vice President since 2006
Mr. Meyer currently serves as Senior Vice President of HLIC. He also currently serves as Managing Director and Chief Investment Officer of HFMC and Managing Director of HFMG. Mr. Meyer has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Meyer joined The Hartford in 2004.
Laura S. Quade (1969) Vice President since 2012
Ms. Quade currently serves as Vice President of HASCO, HFD and HFMG. She is the Head of Operations of HASCO and formerly served as Director, Enterprise Operations of HLIC. Ms. Quade has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Ms. Quade joined The Hartford in 2001.
Martin A. Swanson** (1962) Vice President since 2010
Mr. Swanson currently serves as Vice President of HLIC. Mr. Swanson also serves as Managing Director, Chief Marketing Officer and Principal of HFD and Managing Director of HFMG. Mr. Swanson has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
** Mr. Swanson resigned as an officer effective November 6, 2014.
HOW TO OBTAIN A COPY OF THE FUND’S PROXY VOTING POLICIES AND VOTING RECORDS (UNAUDITED)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information about how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov. The Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
33 |
Hartford Capital Appreciation HLS Fund
Expense Example (Unaudited)
Your Fund's Expenses
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including investment management fees, distribution and/or service (12b-1) fees, if any, and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period of June 30, 2014 through December 31, 2014.
Actual Expenses
The first set of columns of the table below provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second set of columns of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as taxes, sales charges (loads), or fees which may be applied at the variable life insurance, variable annuity, or qualified retirement plan product level. Therefore, the second set of columns of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would be higher. Expenses are equal to the Fund's annualized expense ratios multiplied by average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
Actual return | Hypothetical (5% return before expenses) | |||||||||||||||||||||||||||||||||||
Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Annualized expense ratio | Days in the current 1/2 year | Days in the full year | ||||||||||||||||||||||||||||
Class IA | $ | 1,000.00 | $ | 1,016.50 | $ | 3.35 | $ | 1,000.00 | $ | 1,021.88 | $ | 3.36 | 0.66 | % | 184 | 365 | ||||||||||||||||||||
Class IB | $ | 1,000.00 | $ | 1,015.30 | $ | 4.62 | $ | 1,000.00 | $ | 1,020.62 | $ | 4.63 | 0.91 | 184 | 365 | |||||||||||||||||||||
Class IC | $ | 1,000.00 | $ | 1,014.10 | $ | 5.89 | $ | 1,000.00 | $ | 1,019.36 | $ | 5.90 | 1.16 | 184 | 365 |
34 |
Hartford Capital Appreciation HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited)
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of directors, including a majority of those directors who are not “interested persons” of the mutual fund, as defined in the 1940 Act (the “Independent Directors”), annually review and consider the continuation of the mutual fund’s investment advisory and sub-advisory agreements. At its meeting held on August 5-6, 2014, the Board of Directors (the “Board”) of Hartford Series Fund, Inc., including each of the Independent Directors, unanimously voted to approve the continuation of the investment management agreement for Hartford Capital Appreciation HLS Fund (the “Fund”) with Hartford Funds Management Company, LLC (“HFMC”) and the continuation of the investment sub-advisory agreement between HFMC and the Fund’s sub-adviser, Wellington Management Company, LLP (the “Sub-adviser,” and together with HFMC, the “Advisers”) (collectively, the “Agreements”).
In the months preceding the August 5-6, 2014 meeting, the Board requested, received and reviewed written responses from the Advisers to questions posed to them on behalf of the Independent Directors and supporting materials relating to those questions and responses. The Board considered information furnished to the Board at its meetings throughout the year, as well as information specifically prepared in connection with the annual approval of the Agreements at the Board’s meetings held on June 17-18, 2014 and August 5-6, 2014. Information provided to the Board at its meetings throughout the year included, among other things, reports on Fund performance, legal and compliance matters, sales and marketing activity, shareholder services, and the other services provided to the Fund by the Advisers and their affiliates. The Board also received in-person presentations by Fund officers and representatives of HFMC at the Board’s meetings on June 17-18, 2014 and August 5-6, 2014 concerning the Agreements.
The Independent Directors, advised by independent legal counsel, engaged service providers to assist them with evaluating the Agreements with respect to the Fund. Lipper Inc. (“Lipper”), an independent provider of investment company data, was retained to provide the Board with reports on how the Fund’s contractual management fees, actual management fees, other non-management fees, overall expense ratios and investment performance compared to those of mutual funds with similar investment objectives. The Independent Directors also engaged an independent financial services consultant (the “Consultant”) to assist them in evaluating the Fund’s management fees, sub-advisory fees, other non-management fees, overall expense ratios and investment performance. In addition, the Consultant reviewed the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement.
In determining whether to continue the Agreements for the Fund, the members of the Board reviewed and evaluated information and factors they believed to be relevant and appropriate in light of the information that the Board deemed necessary and appropriate through the exercise of its reasonable business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination to continue the Agreements was based on a comprehensive consideration of all information provided to the Board throughout the year and specifically with respect to the continuation of the Agreements. A more detailed discussion of the factors the Board considered with respect to its approval of the Agreements is provided below.
Nature, Extent and Quality of Services Provided by the Advisers
The Board requested and considered information concerning the nature, extent and quality of the services provided to the Fund by the Advisers. The Board considered, among other things, the terms of the Agreements and the range of services provided by the Advisers. The Board considered the Advisers’ professional personnel who provide services to the Fund, including each Adviser’s ability and experience in attracting and retaining qualified personnel to service the Fund. The Board considered each Adviser’s reputation and overall financial strength, as well as its willingness to consider and implement organizational and operational changes designed to enhance services to the Hartford Funds. In addition, the Board considered the quality of each Adviser’s communications with the Board and responsiveness to Board inquiries and requests made from time to time with respect to the Fund and other Hartford Funds.
The Board also requested and evaluated information concerning each Adviser’s regulatory and compliance environment. In this regard, the Board requested and reviewed information on each Adviser’s compliance policies and procedures, compliance history, and a report from the Fund’s Chief Compliance Officer on each Adviser’s compliance with applicable laws and regulations, including responses to regulatory developments and compliance issues raised by regulators. The Board also noted the Advisers’ support of the Fund’s compliance control structure, particularly the resources devoted by the Advisers in support of the Fund’s obligations pursuant to Rule 38a-1 under the 1940 Act.
With respect to HFMC, the Board noted that under the Agreements, HFMC is responsible for the management of the Fund, including oversight of fund operations and service providers, as well as investment advisory services in connection with selecting, monitoring and supervising the Sub-adviser. The Board considered HFMC’s ongoing monitoring of people, process and performance, including its quarterly reviews of each of the Hartford Funds, semi-annual meetings with the leaders of each Fund’s portfolio management team, and oversight of the Hartford Funds’ approximately 37 portfolio managers. The Board recognized that HFMC has demonstrated a record of making changes to the management
35 |
Hartford Capital Appreciation HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
and/or strategies of the Hartford Funds when warranted. The Board considered HFMC’s oversight of the Sub-adviser’s investment approach and results, process for monitoring best execution of portfolio trades by the Sub-adviser, and approach to risk management with respect to the Fund and the service providers to the Fund. The Board also considered HFMC’s oversight of compliance with the Fund’s objective and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over time led to an increase in the scope of HFMC’s services in this regard.
In addition, the Board considered HFMC’s ongoing commitment to review and rationalize the Hartford Funds product line-up and the expenses that HFMC had incurred in connection with fund combinations in recent years. The Board considered that HFMC or its affiliates are responsible for providing the Fund’s officers. The Board also noted that Hartford Life Insurance Company (“HLIC”) provides administrative services to the Fund. The Board considered its experiences with HFMC and HLIC with respect to each of these services.
With respect to the Sub-adviser, which provides certain day-to-day portfolio management services for the Fund, the Board considered the quality of the Fund’s portfolio managers, the Sub-adviser’s other investment personnel, its investment philosophy and process, investment research capabilities and resources, performance record, trade execution capabilities and experience. The Board considered the experience of the Fund’s portfolio managers, the number of accounts managed by the portfolio managers, and the Sub-adviser’s method for compensating the portfolio managers.
Based on these considerations, the Board concluded that it was satisfied with the nature, extent and quality of the services provided to the Fund by HFMC and the Sub-adviser.
Performance of the Fund and the Advisers
The Board considered the investment performance of the Fund. In this regard, the Board reviewed the performance of the Fund over different time periods presented in the materials and evaluated HFMC’s analysis of the Fund’s performance for these time periods. The Board considered information and materials provided to the Board by the Advisers concerning Fund performance, as well as information from Lipper comparing the investment performance of the Fund to an appropriate benchmark and universe of peer funds. The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1- and 5- year periods and the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was above its benchmark for the 1- and 5-year periods and below its benchmark for the 3-year period. The Board considered that in response to questions concerning the Fund’s performance, HFMC stated that it has confidence in the Fund’s portfolio management team. The Board noted recent changes to the Fund’s portfolio management team.
The Board considered the detailed investment analytics reports provided by Hartford Funds’ Investment Advisory Group throughout the year. These reports include, among other things, information on the Fund’s gross and net returns, the Fund’s investment performance relative to an appropriate benchmark and peer group, various statistics concerning the Fund’s portfolio, and a narrative summary of various factors affecting Fund performance. The Board considered the Advisers’ cooperation with the Investment Committee, which assists the Board in evaluating the performance of the Fund at periodic meetings throughout the year. The Board also considered the analysis provided by the Consultant relating to the Fund’s performance track record.
In light of all the considerations noted above, the Board concluded that it had continued confidence in HFMC’s and the Sub-adviser’s overall capabilities to manage the Fund.
Costs of the Services and Profitability of the Advisers
The Board reviewed information regarding HFMC’s cost to provide investment management and related services to the Fund and HFMC’s profitability, both overall and for the Fund, on a pre-tax basis without regard to distribution expenses. The Board also requested and reviewed information about the profitability to HFMC and its affiliates from all services provided to the Fund and all aspects of their relationship with the Fund. The Board also requested and received information relating to the operations and profitability of the Sub-adviser.
The Board considered the Consultant’s review of the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement, noting the Consultant’s view that Hartford Funds’ process for calculating and reporting Fund profitability is reasonable. In this regard, the Board noted that the Consultant performed a full review of this process in light of the recent restructuring of the Hartford Funds business and reported that the approach to analyzing Fund profitability, including the use of common expense allocation methodologies, is reasonable, sound and well within common industry practice.
36 |
Hartford Capital Appreciation HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
Based on these considerations, the Board concluded that the profits anticipated to be realized by the Advisers and their affiliates from their relationships with the Fund would not be excessive.
Comparison of Fees and Services Provided by the Advisers
The Board considered comparative information with respect to the management fees to be paid by the Fund to HFMC and the total expense ratios of the Fund. The Board also considered comparative information with respect to the sub-advisory fees to be paid by HFMC to the Sub-adviser. In this regard, the Board requested and reviewed information from HFMC and the Sub-adviser relating to the management and sub-advisory fees, including the sub-advisory fee schedule for the Fund, and total operating expenses for the Fund. The Board considered that the management fee for the Fund includes the fee paid to HLIC for providing certain administrative services to the Fund. With respect to the sub-advisory fee schedule, the Board considered representations from HFMC and the Sub-adviser that the Sub-adviser’s fees were negotiated at arm’s length on a fund-by-fund basis. The Board also reviewed information from Lipper comparing the Fund’s contractual management fees, actual management fees and overall expense ratios relative to a group of funds selected by Lipper, in consultation with the Consultant, and a broader universe of funds selected by Lipper. The Board noted that the Fund’s contractual management fee was in the 3rd quintile of its expense group, while its actual management fee and total expenses (less 12b-1 and shareholder service fees) were in the 2nd quintile.
While the Board recognized that comparisons between the Fund and peer funds may be imprecise, given the different service levels and characteristics of mutual funds and the different business models and cost structures of the Advisers, the comparative information provided by Lipper assisted the Board in evaluating the reasonableness of the Fund’s management and sub-advisory fees and total operating expenses. In addition, the Board considered the analysis and recommendations of the Consultant relating to the Fund’s management and sub-advisory fees and total operating expenses.
Based on these considerations, the Board concluded that the Fund’s fees and total operating expenses, in conjunction with the information about quality of services, profitability, economies of scale, and other matters discussed, were reasonable in light of the services provided.
Economies of Scale
The Board requested and considered information regarding the Advisers’ realization of economies of scale with respect to the Fund and whether the fee levels reflect these economies of scale for the benefit of the Fund’s shareholders. The Board reviewed the breakpoints in the management fee schedule for the Fund, which reduce fee rates as Fund assets grow over time. The Board recognized that a fund with assets beyond the highest breakpoint level will continue to benefit from economies of scale because additional assets are charged the lowest breakpoint fee resulting in lower overall effective management fee rates. The Board also recognized that a fee schedule that reaches a lower breakpoint quickly provides shareholders with the benefit of anticipated or potential economies of scale. The Board noted the effect of the sale and run-off of the variable annuity business on the HLS Funds.
The Board reviewed and evaluated materials from Lipper and the Consultant showing how management fee schedules of peer funds reflect economies of scale for the benefit of shareholders as a peer fund’s assets hypothetically increase over time. Based on information provided by HFMC, Lipper, and the Consultant, the Board recognized that there is no uniform methodology for establishing breakpoints or uniform pattern in asset levels that trigger breakpoints or the amounts of breakpoints triggered.
After considering all of the information available to it, the Board concluded that it was satisfied with the extent to which economies of scale would be shared for the benefit of the Fund’s shareholders based on currently available information and the effective advisory fees and expense ratios for the Fund at its current and reasonably anticipated asset levels. The Board noted, however, that it would continue to monitor future growth in Fund assets and the appropriateness of additional breakpoints.
Other Benefits
The Board considered other benefits to the Advisers and their affiliates from their relationships with the Fund, including the role of the Fund in supporting the variable life insurance and variable annuity products offered by The Hartford.
The Board noted that HLIC, an affiliate of HFMC, receives fees for providing certain administrative services to the Fund and that HFMC receives fees for fund accounting and related services from the Fund. The Board considered information on profits to HLIC and HFMC for such services. The Board also considered that Hartford Administrative Services Company (“HASCO”), the Fund’s transfer agent and an affiliate of HFMC,
37 |
Hartford Capital Appreciation HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
receives transfer agency compensation from the Fund, and the Board reviewed information on the profitability of the Fund’s transfer agency function to HASCO. The Board considered information provided by HASCO indicating that the transfer agent fees charged by HASCO to the Fund were fair and reasonable based on publicly available information.
The Board also considered that Hartford Funds Distributors, LLC (“HFD”), an affiliate of HFMC, serves as principal underwriter of the Fund. As principal underwriter, HFD receives 12b-1 fees from the Fund. The Board also noted that certain affiliates of HFD distribute shares of the Fund and receive compensation in that connection.
The Board considered benefits to the Sub-adviser from its use of the Fund’s brokerage commissions to obtain soft dollar research, and representations from HFMC and the Sub-adviser that the Sub-adviser would not make any revenue-sharing payments or any other type of distribution payments to HFMC or its affiliates.
The Board considered the benefits to shareholders of being part of the Hartford Funds family of funds. The Board considered HFMC’s efforts to provide investors in the family with a broad range of investment styles and asset classes.
* * * *
Based upon its review of these various factors, among others, the Board concluded that it is in the best interests of the Fund and its shareholders for the Board to approve the Agreements for an additional year. In reaching this decision, the Board did not assign relative weights to the factors discussed above or deem any one or group of them to be controlling in and of themselves. In connection with their deliberations, the Independent Directors met separately in executive session on several occasions, with independent legal counsel and the Consultant, to review the relevant materials and consider their responsibilities under relevant laws and regulations.
38 |
Hartford Capital Appreciation HLS Fund
Main Risks (Unaudited)
The main risks of investing in the Fund are described below.
Market, Selection and Strategy Risk: The Fund’s share price may fluctuate due to market risk and/or security selections that may underperform the market or relevant benchmarks. If the sub-adviser's investment strategy does not perform as expected, the Fund could underperform its peers or lose money. There is no guarantee the Fund will achieve its stated objective.
Small/Mid-Cap Stock Risk: Small- and mid-cap stocks are generally more volatile and risky and may be less liquid than large-cap stocks because they may have limited operating histories, narrow product lines, and focus on niche markets.
Foreign Investment and Emerging Markets Risk: Investments in foreign securities may be riskier than investments in U.S. securities. Potential risks include the risks of illiquidity, increased price volatility, less government regulation, less extensive and less frequent accounting and other reporting requirements, unfavorable changes in currency exchange rates, and economic and political disruptions. These risks are generally greater for investments in emerging markets.
Asset Allocation Strategy Risk: The portfolio managers' asset allocation strategy may not always work as intended, and asset allocation does not guarantee better performance or reduce the risk of investment loss. The investment styles employed by the portfolio managers may not be complementary, which could adversely affect the performance of the Fund.
Active Trading Risk: Actively trading investments may result in higher costs (thus affecting performance).
39 |
THIS PRIVACY POLICY IS NOT PART OF THIS REPORT
Privacy Policy and Practices of The Hartford Financial Services Group, Inc. and its Affiliates
(herein called “we, our and us”)
This Privacy Policy applies to our United States Operations
We value your trust. We are committed to the responsible: a) management; b) use; and c) protection; of Personal Information.
This notice describes how we collect, disclose, and protect Personal Information.
We collect Personal Information to: a) service your Transactions with us; and b) support our business functions.
We may obtain Personal Information from: a) You; b) your Transactions with us; and c) third parties such as a consumer-reporting agency.
Based on the type of product or service You apply for or get from us, Personal Information such as: a) your name; b) your address; c) your income; d) your payment; or e) your credit history; may be gathered from sources such as applications, Transactions, and consumer reports.
To serve You and service our business, we may share certain Personal Information. We will share Personal Information, only as allowed by law, with affiliates such as: a) our insurance companies; b) our employee agents; c) our brokerage firms; and d) our administrators.
As allowed by law, we may share Personal Financial Information with our affiliates to: a) market our products; or b) market our services; to You without providing You with an option to prevent these disclosures.
| We may also share Personal Information, only as allowed by law, with unaffiliated third parties including: a) independent agents; b) brokerage firms; c) insurance companies; d) administrators; and e) service providers; who help us serve You and service our business.
When allowed by law, we may share certain Personal Financial Information with other unaffiliated third parties who assist us by performing services or functions such as: a) taking surveys; b) marketing our products or services; or c) offering financial products or services under a joint agreement between us and one or more financial institutions.
We, and third parties we partner with, may track some of the pages You visit through the use of: a) cookies; b) pixel tagging; or c) other technologies; and currently do not process or comply with any web browser’s “do not track” signal or similar mechanism that indicates a request to disable online tracking of individual users who visit our websites or use our services.
We will not sell or share your Personal Financial Information with anyone for purposes unrelated to our business functions without offering You the opportunity to: a) “opt-out;” or b) “opt-in;” as required by law.
We only disclose Personal Health Information with: a) your proper written authorization; or b) as otherwise allowed or required by law.
Our employees have access to Personal Information in the course of doing their jobs, such as: a) underwriting policies; b) paying claims; c) developing new products; or d) advising customers of our products and services.
|
We use manual and electronic security procedures to maintain: a) the confidentiality; and b) the integrity of; Personal Information that we have. We use these procedures to guard against unauthorized access.
Some techniques we use to protect Personal Information include: a) secured files; b) user authentication; c) encryption; d) firewall technology; and e) the use of detection software.
We are responsible for and must: a) identify information to be protected; b) provide an adequate level of protection for that data; c) grant access to protected data only to those people who must use it in the performance of their job-related duties.
Employees who violate our Privacy Policy will be subject to discipline, which may include ending their employment with us.
At the start of our business relationship, we will give You a copy of our current Privacy Policy.
We will also give You a copy of our current Privacy Policy once a year if You maintain a continuing business relationship with us.
We will continue to follow our Privacy Policy regarding Personal Information even when a business relationship no longer exists between us. | As used in this Privacy Notice:
Application means your request for our product or service.
Personal Financial Information means financial information such as: a) credit history; b) income; c) financial benefits; or d) policy or claim information.
Personal Health Information means health information such as: a) your medical records; or b) information about your illness, disability or injury.
Personal Information means information that identifies You personally and is not otherwise available to the public. It includes: a) Personal Financial Information; and b) Personal Health Information .
Transaction means your business dealings with us, such as: a) your Application; b) your request for us to pay a claim; and c) your request for us to take an action on your account.
You means an individual who has given us Personal Information in conjunction with: a) asking about; b) applying for; or c) obtaining; a financial product or service from us if the product or service is used mainly for personal, family, or household purposes. |
This Privacy Policy is being provided on behalf of the following affiliates of The Hartford Financial Services Group, Inc.:
1stAGChoice, Inc.; Access CoverageCorp, Inc.; Access CoverageCorp Technologies, Inc.; American Maturity Life Insurance Company; Archway 60 R, LLC; Business Management Group, Inc.; DMS R, LLC; First State Insurance Company; Fountain Investors I LLC; Fountain Investors II LLC; Fountain Investors III LLC; Fountain Investors IV LLC; FTC Resolution Company LLC; Hart Re Group L.L.C.; Hartford Accident and Indemnity Company; Hartford Administrative Services Company; Hartford Casualty General Agency, Inc.; Hartford Casualty Insurance Company; Hartford Financial Services, LLC; Hartford Fire General Agency, Inc.; Hartford Fire Insurance Company; Hartford Funds Distributors, LLC; Hartford Funds Management Company, LLC; Hartford Funds Management Group, Inc.; Hartford Holdings, Inc.; Hartford HLS Series Fund II, Inc.; Hartford Insurance Company of Illinois; Hartford Insurance Company of the Midwest; Hartford Insurance Company of the Southeast; Hartford Integrated Technologies, Inc.; Hartford International Life Reassurance Corporation; Hartford Investment Management Company; Hartford Life and Accident Insurance Company; Hartford Life and Annuity Insurance Company; Hartford Life Insurance Company; Hartford Life, Inc.; Hartford Life International Holding Company; Hartford Life Private Placement, LLC; Hartford Lloyd’s Corporation; Hartford Lloyd’s Insurance Company; Hartford of Texas General Agency, Inc.; Hartford Residual Market, L.C.C.; Hartford Securities Distribution Company, Inc.; Hartford Series Fund, Inc.; Hartford Specialty Insurance Services of Texas, LLC; Hartford Strategic Investments, LLC; Hartford Underwriters General Agency, Inc.; Hartford Underwriters Insurance Company; Hartford-Comprehensive Employee Benefit Service Company; HDC R, LLC .; Heritage Holdings, Inc.; HIMCO Distribution Services Company; HIMCO Variable Insurance Trust; HLA LLC; HL Investment Advisors, LLC; Horizon Management Group, LLC; HRA Brokerage Services, Inc.; Lanidex Class B, LLC; New England Insurance Company; New England Reinsurance Corporation; Nutmeg Insurance Agency, Inc.; Nutmeg Insurance Company; Pacific Insurance Company, Limited; Planco, LLC; Property and Casualty Insurance Company of Hartford; Revere R, LLC; RVR R, LLC; Sentinel Insurance Company, Ltd.; Sunstone R, LLC; Symphony R, LLC; The Evergreen Group Incorporated; The Hartford Alternative Strategies Fund; The Hartford Mutual Funds, Inc.; The Hartford Mutual Funds II, Inc.; Trumbull Flood Management, L.L.C.; Trumbull Insurance Company; Twin City Fire Insurance Company.
HPP Revised February 2015
HARTFORD HLS FUNDS
P.O. Box 14293
Lexington, KY 40512-4293
HARTFORDFUNDS
hartfordfunds.com
Hartford HLS Funds are underwritten and distributed by Hartford Funds Distributors, LLC.
Hartford Series Fund, Inc. is not a subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford") but is underwritten, distributed by and advised by subsidiaries of The Hartford. Investments in Hartford Series Fund, Inc. are not guaranteed by The Hartford or any other entity.
This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution unless preceded or accompanied by a current prospectus for the Fund.
Investors should carefully consider the investment objectives, risks, charges, and expenses of Hartford Funds before investing. This and other information can be found in the prospectus and summary prospectus, which can be obtained by calling 888-843-7824 (or 800-279-1541 for institutional investors). Investors should read them carefully before they invest.
HLSAR-CA14 2-15 115337-2 Printed in U.S.A.
HARTFORDFUNDS
![]() | HARTFORD DISCIPLINED EQUITY |
A MESSAGE FROM THE PRESIDENT
Dear Fellow Shareholders:
Thank you for investing in Hartford HLS Funds.
Market Review
Nearly six years into a bull market, U.S. equities (as represented by the S&P 500 Index ) notched another positive year in 2014, finishing with a 13.69% gain. Progress was smooth for most of the year, with stocks generally rising amid little volatility. In the fourth quarter, however, the price of oil declined by nearly 40%, returning volatility to the market and paring some of the year’s returns.
As we enter 2015, the price of oil will likely continue playing an important role in market progress, as its effects are widespread. If prices remain low, consumers should benefit by paying less at the gas pump, which increases the amount of money available for discretionary spending. In contrast, low prices may be a detriment to the oil and natural gas industry in the U.S., as well as to the economies of countries that rely more heavily on oil exports.
Central-bank policies will also continue to influence the markets. The U.S. economy has continued to show self-sustaining growth, which has prompted the U.S. Federal Reserve to wind down the quantitative easing programs it initiated after the global financial crisis. In addition, gradual increases in interest rates are expected to begin in 2015, another sign of positive recovery and a return to pre-crisis policy. But in Europe, a slow recovery and fears of deflation have prompted the start of European Central Bank’s own version of quantitative easing to spur growth.
The final weeks of 2014 provided a stark reminder of how unpredictable market movements can be, and how important it is to maintain a diversified portfolio that’s in line with your time horizon and risk tolerance. As we begin 2015, take time to review your portfolio and your overall investment strategy with your financial advisor.
With more than 40 mutual-fund strategies that span a variety of asset classes and investment goals, your financial advisor can work with you to choose options within our fund family that can help you navigate today’s markets with confidence.
Thank you again for investing with Hartford HLS Funds.
James Davey
President
Hartford HLS Funds
1 The S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
Hartford Disciplined Equity HLS Fund
Table of Contents
This report is prepared for the general information of contract owners and qualified retirement plan participants. It is not an offer of contracts or of qualified retirement plans. It should not be used in connection with any offer, except in conjunction with the appropriate product prospectus which contains all pertinent information including the applicable sales, administrative and other charges.
The views expressed in the Fund’s Manager Discussion under ‘‘Why did the Fund perform this way?’’ and ‘‘What is the outlook?’’ are views of the Fund’s sub-adviser and portfolio management team through the end of the period and are subject to change based on market and other conditions. The Fund’s Manager Discussion is for informational purposes only and does not represent an offer, recommendation or solicitation to buy, hold or sell any security. The specific securities identified and described, if any, do not represent all of the securities purchased or sold and you should not assume that investments in the securities identified and discussed will be profitable.
Hartford Disciplined Equity HLS Fund inception 05/29/1998 |
(sub-advised by Wellington Management Company, LLP) |
Investment objective – The Fund seeks growth of capital. |
Performance Overview 12/31/04 - 13/31/14
The chart above represents the hypothetical growth of a $10,000 investment in Class IA. Growth results in classes other than Class IA will vary from what is seen above due to differences in the expenses charged to those share classes.
Average Annual Total Returns (as of 12/31/14)
1 Year | 5 Years | 10 Years | |
Disciplined Equity IA | 16.18% | 16.45% | 8.16% |
Disciplined Equity IB | 15.87% | 16.15% | 7.89% |
S&P 500 Index | 13.69% | 15.45% | 7.67% |
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of the investment will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain performance data current to the most recent month-end, please visit our website www.hartfordfunds.com.
Total returns presented above were calculated using the Fund’s net asset value available to shareholders for sale or redemption of Fund shares on December 31, 2014, which may exclude investment transactions as of this date. All share class returns assume the reinvestment of all distributions at net asset value and the deduction of all fund expenses.
S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
The index is unmanaged, and its results include reinvested dividends and/or distributions, but do not reflect the effect of sales charges, commissions, expenses or taxes.
You cannot invest directly in an index.
As shown in the Fund's current prospectus dated May 1, 2014, the total annual operating expense ratios for Class IA and Class IB were 0.76% and 1.01%, respectively. Actual expenses may be higher. Please see the accompanying Financial Highlights for expense ratios for the year ended December 31, 2014.
The chart and table do not reflect the deductions of taxes, sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees or expenses would lower the contract’s or plan’s performance.
All investments are subject to risk including the possible loss of principal. For a discussion of the Fund’s risks, please see the Main Risks section of this report. For more detailed information on the risks associated with an investment in the Fund, please see the prospectus.
2 |
Hartford Disciplined Equity HLS Fund |
Manager Discussion |
December 31, 2014 (Unaudited) |
Portfolio Manager |
Mammen Chally, CFA |
Senior Managing Director and Equity Portfolio Manager |
How did the Fund perform?
The Class IA shares of the Hartford Disciplined Equity HLS Fund returned 16.18% for the twelve-month period ended December 31, 2014, outperforming the Fund’s benchmark, the S&P 500 Index, which returned 13.69% for the same period. The Fund outperformed the 11.48% average return of the Lipper Large-Cap Core Funds peer group, a group of funds with investment strategies similar to those of the Fund.
Why did the Fund perform this way?
U.S. equities surged during the period, despite bouts of significant volatility. After finishing their best year since 1997, U.S. stocks began 2014 with their worst month in nearly two years. Worries about an economic slowdown in China and general angst surrounding emerging markets overshadowed a fairly benign domestic environment. However, robust merger and acquisition activity, an uncontested increase in the debt ceiling from Congress, renewed signs of life in the housing market, and the best payroll gain in more than two years helped stoke investors' risk appetites in the first half of the period. However, a pullback in July ended a streak of five consecutive monthly gains. Fear gripped the market as heightened geopolitical risks, a potential Portuguese banking crisis, and worries of U.S. Federal Reserve (Fed) tightening took center stage. Stocks rebounded in August based on encouraging economic data, headlined by better-than-expected gross domestic product (GDP) growth and signs that the housing recovery still had legs. However, the reality of quantitative easing ending and the prospect of higher federal funds rates in mid-2015 contributed to increased risk aversion levels. Stocks rebounded again in October hitting an all-time high on the heels of a positive earnings season and generally solid economic data. The rally continued in November after Republicans took control of the U.S. Senate but stocks pulled back slightly near month-end, led by weakness in the energy sector associated with the significant decline in oil prices. In December, U.S. stocks closed at an all-time high on December 29th but fell 1.4% during the final two trading days of the year. The Fed helped to support riskier assets at the end of the year after it stated it can be "patient" with regards to starting the process of bringing interest rates to normal levels. Returns also varied noticeably by market-cap, as small- and mid-cap stocks underperformed large-cap stocks.
Overall equity market performance was positive for the period across all market capitalizations: large cap (+14%), mid cap (+10%), and small cap equities (+5%) all rose significantly as represented by the S&P 500, S&P MidCap 400, and Russell 2000 Indices, respectively. During the twelve-month period nine of the ten sectors within the S&P 500 Index posted positive returns, led by Utilities (+29%), Healthcare (+25%), and Information Technology (+20%).
The Fund outperformed the S&P 500 Index primarily due to sector allocation, which is a fallout of our bottom-up stock selection process. Underweight allocations to the Energy and Telecommunication Services sectors, along with an overweight to the Healthcare sector, contributed to benchmark-relative returns during the period. Strong security selection also contributed to returns during the period. Positive selection within Healthcare, Consumer Staples, and Consumer Discretionary more than offset weaker selection within Information Technology and Industrials.
The largest contributors to benchmark-relative performance were Forest Labs (Healthcare), Monster Beverage (Consumer Staples), and Exxon Mobil (Energy). Shares of Forest Labs, a U.S.-based pharmaceutical company, rose during the period on news of a planned merger between Actavis and Forest Labs that was viewed favorably by investors. Shares of Monster Beverage, a U.S.-based company that develops, markets, sells, and distributes alternative beverages, rose during the period after Monster announced a long-term strategic partnership with Coca-Cola. As part of the deal, Coca-Cola purchased a 17% stake in Monster. Shares of Exxon Mobil, one of the world’s largest integrated oil and gas companies, declined during the period. Negative investor sentiment loomed over energy stocks as oil prices tumbled in the wake of the Organization of Petroleum Exporting Companies (OPEC) rejection of production cuts to support declining crude prices. Our relative underweight position in Exxon contributed to relative results during the period. Owning CVS, a U.S.-based retail pharmacy and pharmacy benefit management company, contributed to absolute returns during the period.
The largest detractors from benchmark-relative performance were Apple (Information Technology), Halliburton (Energy), and EverBank Financial (Financials). Shares of Apple, a U.S.-based designer and manufacturer of consumer electronics, software, and computers, hit record highs during the period driven primarily by strong demand for the iPhone 6 and iPhone 6 Plus. Our relative underweight position in the strong performing benchmark constituent detracted from relative returns during the period. Shares of Halliburton, a global oilfield services company, fell during the period amid the precipitous drop in oil prices, which we believe will likely depress demand for Halliburton’s services. Shares of EverBank Financial, a U.S.-based savings and loan company, underperformed after the company posted in-line earnings but noted continued pressure on the net interest margin (NIM), a metric examining how a firm's investment
3 |
Hartford Disciplined Equity HLS Fund |
Manager Discussion – (continued) |
December 31, 2014 (Unaudited) |
decisions are compared to its debts, which concerned some investors. Google (Information Technology), Towers Watson (Industrials), and Ocwen Financial (Financials) also detracted on an absolute basis.
Derivatives are not used in a significant manner in this Fund and did not have a material impact on performance during the period.
What is the outlook?
Overall, we are cautiously optimistic about the outlook for the U.S. economy and for equity markets, and we continue to monitor policy decisions and economic trends which may impact our holdings. We remain consistent in adhering to our disciplined portfolio construction process that allows us to assess risk, weight individual positions accordingly, and in the process build a portfolio that focuses largely on stock selection for generating benchmark relative outperformance. Based on individual stock decisions, the Fund ended the period most overweight the Healthcare, Consumer Discretionary, and Consumer Staples sectors, and most underweight the Financials, Energy, and Telecommunication Services sectors relative to the S&P 500 Index, the Fund’s benchmark.
Diversification by Sector
as of December 31, 2014
Sector | Percentage of Net Assets | |||
Equity Securities | ||||
Consumer Discretionary | 15.2 | % | ||
Consumer Staples | 11.7 | |||
Energy | 4.9 | |||
Financials | 10.1 | |||
Health Care | 18.8 | |||
Industrials | 9.1 | |||
Information Technology | 21.4 | |||
Materials | 3.2 | |||
Utilities | 4.7 | |||
Total | 99.1 | % | ||
Short-Term Investments | 0.8 | |||
Other Assets and Liabilities | 0.1 | |||
Total | 100.0 | % |
A sector may be comprised of several industries. For Fund compliance purposes, the Fund may not use the same classification system and these sector classifications are used for reporting ease.
4 |
Hartford Disciplined Equity HLS Fund |
Schedule of Investments |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount | Market Value ╪ | |||||||
Common Stocks - 99.1% | ||||||||
Banks - 3.2% | ||||||||
676 | EverBank Financial Corp. | $ | 12,881 | |||||
155 | PNC Financial Services Group, Inc. | 14,103 | ||||||
26,984 | ||||||||
Capital Goods - 3.4% | ||||||||
145 | AMETEK, Inc. | 7,610 | ||||||
11 | Dover Corp. | 796 | ||||||
100 | Honeywell International, Inc. | 10,003 | ||||||
104 | Illinois Tool Works, Inc. | 9,845 | ||||||
28,254 | ||||||||
Commercial and Professional Services - 3.3% | ||||||||
140 | Equifax, Inc. | 11,344 | ||||||
151 | Nielsen N.V. | 6,753 | ||||||
147 | Verisk Analytics, Inc. ● | 9,435 | ||||||
27,532 | ||||||||
Consumer Durables and Apparel - 3.1% | ||||||||
99 | PVH Corp. | 12,715 | ||||||
72 | Ralph Lauren Corp. | 13,379 | ||||||
26,094 | ||||||||
Consumer Services - 1.0% | ||||||||
106 | Starwood Hotels & Resorts, Inc. | 8,555 | ||||||
Diversified Financials - 2.5% | ||||||||
336 | JP Morgan Chase & Co. | 21,008 | ||||||
Energy - 4.9% | ||||||||
110 | Anadarko Petroleum Corp. | 9,036 | ||||||
152 | Chevron Corp. | 17,080 | ||||||
85 | EOG Resources, Inc. | 7,866 | ||||||
177 | Halliburton Co. | 6,976 | ||||||
40,958 | ||||||||
Food and Staples Retailing - 4.7% | ||||||||
126 | Costco Wholesale Corp. | 17,818 | ||||||
228 | CVS Health Corp. | 21,926 | ||||||
39,744 | ||||||||
Food, Beverage and Tobacco - 4.4% | ||||||||
225 | Altria Group, Inc. | 11,078 | ||||||
421 | Mondelez International, Inc. | 15,287 | ||||||
100 | Monster Beverage Corp. ● | 10,837 | ||||||
37,202 | ||||||||
Health Care Equipment and Services - 10.6% | ||||||||
114 | Aetna, Inc. | 10,090 | ||||||
138 | Cerner Corp. ● | 8,905 | ||||||
224 | Envision Healthcare Holdings ● | 7,770 | ||||||
87 | McKesson Corp. | 18,135 | ||||||
180 | Omnicare, Inc. | 13,122 | ||||||
98 | Team Health Holdings ● | 5,634 | ||||||
157 | UnitedHealth Group, Inc. | 15,897 | ||||||
82 | Zimmer Holdings, Inc. | 9,303 | ||||||
88,856 | ||||||||
Household and Personal Products - 2.6% | ||||||||
469 | Coty, Inc. | 9,683 | ||||||
159 | Estee Lauder Co., Inc. | 12,089 | ||||||
21,772 | ||||||||
Insurance - 4.4% | ||||||||
146 | ACE Ltd. | 16,790 | ||||||
169 | American International Group, Inc. | 9,470 | ||||||
112 | Aon plc | 10,583 | ||||||
36,843 | ||||||||
Materials - 3.2% | ||||||||
60 | Airgas, Inc. | 6,890 | ||||||
178 | Crown Holdings, Inc. ● | 9,070 | ||||||
43 | Sherwin-Williams Co. | 11,281 | ||||||
27,241 | ||||||||
Media - 1.8% | ||||||||
266 | Comcast Corp. Special Class A | 15,285 | ||||||
Pharmaceuticals, Biotechnology and Life Sciences - 8.2% | ||||||||
54 | Actavis plc ● | 13,807 | ||||||
275 | Bristol-Myers Squibb Co. | 16,204 | ||||||
231 | Eli Lilly & Co. | 15,921 | ||||||
74 | Gilead Sciences, Inc. ● | 6,994 | ||||||
290 | Merck & Co., Inc. | 16,493 | ||||||
69,419 | ||||||||
Retailing - 9.3% | ||||||||
31 | AutoZone, Inc. ● | 19,152 | ||||||
229 | Dollar Tree, Inc. ● | 16,145 | ||||||
239 | Lowe's Cos., Inc. | 16,413 | ||||||
139 | Ross Stores, Inc. | 13,096 | ||||||
200 | TJX Cos., Inc. | 13,696 | ||||||
78,502 | ||||||||
Semiconductors and Semiconductor Equipment - 1.2% | ||||||||
277 | Intel Corp. | 10,069 | ||||||
Software and Services - 14.8% | ||||||||
129 | Accenture plc | 11,521 | ||||||
351 | Activision Blizzard, Inc. | 7,082 | ||||||
182 | Automatic Data Processing, Inc. | 15,167 | ||||||
83 | Fiserv, Inc. ● | 5,896 | ||||||
369 | Genpact Ltd. ● | 6,987 | ||||||
16 | Google, Inc. Class A ● | 8,647 | ||||||
19 | Google, Inc. Class C ● | 10,104 | ||||||
149 | Intuit, Inc. | 13,692 | ||||||
144 | Jack Henry & Associates, Inc. | 8,961 | ||||||
109 | MasterCard, Inc. | 9,386 | ||||||
429 | Microsoft Corp. | 19,907 | ||||||
143 | Solera Holdings, Inc. | 7,343 | ||||||
124,693 | ||||||||
Technology Hardware and Equipment - 5.4% | ||||||||
199 | Apple, Inc. | 21,936 | ||||||
385 | Cisco Systems, Inc. | 10,718 | ||||||
178 | Qualcomm, Inc. | 13,244 | ||||||
45,898 | ||||||||
Transportation - 2.4% | ||||||||
36 | FedEx Corp. | 6,293 | ||||||
124 | United Parcel Service, Inc. Class B | 13,775 | ||||||
20,068 | ||||||||
Utilities - 4.7% | ||||||||
240 | American Electric Power Co., Inc. | 14,557 | ||||||
143 | NextEra Energy, Inc. | 15,235 | ||||||
144 | Pinnacle West Capital Corp. | 9,844 | ||||||
39,636 | ||||||||
Total Common Stocks | ||||||||
(Cost $637,643) | $ | 834,613 | ||||||
Total Long-Term Investments | ||||||||
(Cost $637,643) | $ | 834,613 |
The accompanying notes are an integral part of these financial statements.
5 |
Hartford Disciplined Equity HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount | Market Value ╪ | |||||||||||
Short-Term Investments - 0.8% | ||||||||||||
Repurchase Agreements - 0.8% | ||||||||||||
Bank of America Merrill Lynch Repurchase Agreement (maturing on 01/02/2015 in the amount of $6, collateralized by U.S. Treasury Note 0.75%, 2018, value of $6) | ||||||||||||
$ | 6 | 0.05%, 12/31/2014 | $ | 6 | ||||||||
Bank of America Merrill Lynch TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $32, collateralized by U.S. Treasury Note 2.50%, 2024, value of $33) | ||||||||||||
32 | 0.07%, 12/31/2014 | 32 | ||||||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $843, collateralized by U.S. Treasury Bond 3.88% - 5.25%, 2029 - 2040, U.S. Treasury Note 0.25% - 4.63%, 2015 - 2022, value of $860) | ||||||||||||
843 | 0.06%, 12/31/2014 | 843 | ||||||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $368, collateralized by FHLMC 2.00% - 5.50%, 2019 - 2044, FNMA 2.00% - 4.00%, 2024 - 2042, GNMA 3.00%, 2043, U.S. Treasury Bill 0.07%, 2015, value of $375) | ||||||||||||
368 | 0.07%, 12/31/2014 | 368 | ||||||||||
Barclays Capital TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $903, collateralized by U.S. Treasury Bond 3.63%, 2043, U.S. Treasury Note 0.88% - 2.00%, 2017 - 2020, value of $921) | ||||||||||||
903 | 0.05%, 12/31/2014 | 903 | ||||||||||
Citigroup Global Markets, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $1,615, collateralized by U.S. Treasury Bond 3.63% - 9.88%, 2015 - 2043, U.S. Treasury Note 0.25% - 2.75%, 2015 - 2022, value of $1,647) | ||||||||||||
1,615 | 0.06%, 12/31/2014 | 1,615 | ||||||||||
Deutsche Bank Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $262, collateralized by FHLMC 2.00% - 10.50%, 2015 - 2047, FNMA 2.00% - 9.50%, 2015 - 2049, GNMA 2.50% - 10.00%, 2016 - 2055, value of $267) | ||||||||||||
262 | 0.12%, 12/31/2014 | 262 | ||||||||||
RBS Securities, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $69, collateralized by U.S. Treasury Note 0.38% - 2.13%, 2015 - 2016, value of $70) | ||||||||||||
69 | 0.07%, 12/31/2014 | 69 | ||||||||||
Societe Generale TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $768, collateralized by U.S. Treasury Bond 8.75%, 2020, U.S. Treasury Note 0.25% - 2.88%, 2015 - 2022, value of $783) | ||||||||||||
768 | 0.07%, 12/31/2014 | 768 | ||||||||||
TD Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $1,645, collateralized by FHLMC 3.00% - 4.00%, 2026 - 2044, FNMA 2.50% - 5.00%, 2025 - 2044, value of $1,678) | ||||||||||||
1,645 | 0.08%, 12/31/2014 | 1,645 | ||||||||||
6,511 | ||||||||||||
Total Short-Term Investments | ||||||||||||
(Cost $6,511) | $ | 6,511 | ||||||||||
Total Investments | ||||||||||||
(Cost $644,154) ▲ | 99.9 | % | $ | 841,124 | ||||||||
Other Assets and Liabilities | 0.1 | % | 563 | |||||||||
Total Net Assets | 100.0 | % | $ | 841,687 |
The accompanying notes are an integral part of these financial statements.
6 |
Hartford Disciplined Equity HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Note: | Percentage of investments as shown is the ratio of the total market value to total net assets. |
Equity industry classifications used in this report are the Global Industry Classification Standard, which was developed by and is the exclusive property and service mark of MSCI, Inc. and Standard & Poor’s.
For Fund compliance purposes, the Fund may not use the same classification system shown in this report as these classifications are used for reporting ease.
▲ | At December 31, 2014, the cost of securities for federal income tax purposes was $644,667 and the aggregate gross unrealized appreciation and depreciation based on that cost were: |
Unrealized Appreciation | $ | 199,406 | ||
Unrealized Depreciation | (2,949 | ) | ||
Net Unrealized Appreciation | $ | 196,457 |
● | Non-income producing. |
╪ | See Significant Accounting Policies of accompanying Notes to Financial Statements regarding valuation of securities. |
GLOSSARY: (abbreviations used in preceding Schedule of Investments) | |
Other Abbreviations: | |
FHLMC | Federal Home Loan Mortgage Corp. |
FNMA | Federal National Mortgage Association |
GNMA | Government National Mortgage Association |
The accompanying notes are an integral part of these financial statements.
7 |
Hartford Disciplined Equity HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Investment Valuation Hierarchy Level Summary
December 31, 2014
Total | Level 1 ♦ | Level 2 ♦ | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Common Stocks ‡ | $ | 834,613 | $ | 834,613 | $ | – | $ | – | ||||||||
Short-Term Investments | 6,511 | – | 6,511 | – | ||||||||||||
Total | $ | 841,124 | $ | 834,613 | $ | 6,511 | $ | – |
♦ | For the year ended December 31, 2014, there were no transfers between Level 1 and Level 2. |
‡ | The Fund has all or primarily all of the equity securities categorized in a particular level. Refer to the Schedule of Investments for further industry breakout. |
Note: | For purposes of reporting transfers between different hierarchy levels, both transfers in and out of each level, as applicable, are shown as if they occurred at the beginning of the period. |
The accompanying notes are an integral part of these financial statements.
8 |
Hartford Disciplined Equity HLS Fund |
Statement of Assets and Liabilities |
December 31, 2014 |
(000’s Omitted) |
Assets: | ||||
Investments in securities, at market value (cost $644,154) | $ | 841,124 | ||
Cash | 3 | |||
Receivables: | ||||
Investment securities sold | 538 | |||
Fund shares sold | 5 | |||
Dividends and interest | 728 | |||
Total assets | 842,398 | |||
Liabilities: | ||||
Payables: | ||||
Investment securities purchased | 19 | |||
Fund shares redeemed | 486 | |||
Investment management fees | 135 | |||
Distribution fees | 6 | |||
Accrued expenses | 65 | |||
Total liabilities | 711 | |||
Net assets | $ | 841,687 | ||
Summary of Net Assets: | ||||
Capital stock and paid-in-capital | $ | 405,669 | ||
Undistributed net investment income | 984 | |||
Accumulated net realized gain | 238,064 | |||
Unrealized appreciation of investments | 196,970 | |||
Net assets | $ | 841,687 | ||
Shares authorized | 3,500,000 | |||
Par value | $ | 0.001 | ||
Class IA: Net asset value per share | $ | 20.99 | ||
Shares outstanding | 34,978 | |||
Net assets | $ | 734,110 | ||
Class IB: Net asset value per share | $ | 20.88 | ||
Shares outstanding | 5,151 | |||
Net assets | $ | 107,577 |
The accompanying notes are an integral part of these financial statements.
9 |
Hartford Disciplined Equity HLS Fund |
Statement of Operations |
For the Year Ended December 31, 2014 |
(000’s Omitted) |
Investment Income: | ||||
Dividends | $ | 12,778 | ||
Interest | 4 | |||
Less: Foreign tax withheld | (11 | ) | ||
Total investment income, net | 12,771 | |||
Expenses: | ||||
Investment management fees | 6,208 | |||
Transfer agent fees | 5 | |||
Distribution fees - Class IB | 274 | |||
Custodian fees | 6 | |||
Accounting services fees | 104 | |||
Board of Directors' fees | 23 | |||
Audit fees | 18 | |||
Other expenses | 149 | |||
Total expenses (before fees paid indirectly) | 6,787 | |||
Commission recapture | (3 | ) | ||
Total fees paid indirectly | (3 | ) | ||
Total expenses, net | 6,784 | |||
Net Investment Income | 5,987 | |||
Net Realized Gain on Investments and Other Financial Instruments: | ||||
Net realized gain on investments | 246,817 | |||
Net realized gain on futures contracts | 246 | |||
Net realized gain on written option contracts | 93 | |||
Net Realized Gain on Investments and Other Financial Instruments | 247,156 | |||
Net Changes in Unrealized Depreciation of Investments and Other Financial Instruments: | ||||
Net unrealized depreciation of investments | (125,812 | ) | ||
Net unrealized appreciation of written option contracts | 49 | |||
Net Changes in Unrealized Depreciation of Investments and Other Financial Instruments | (125,763 | ) | ||
Net Gain on Investments and Other Financial Instruments | 121,393 | |||
Net Increase in Net Assets Resulting from Operations | $ | 127,380 |
The accompanying notes are an integral part of these financial statements.
10 |
Hartford Disciplined Equity HLS Fund |
Statement of Changes in Net Assets |
(000’s Omitted) |
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Operations: | ||||||||
Net investment income | $ | 5,987 | $ | 9,717 | ||||
Net realized gain on investments and other financial instruments | 247,156 | 139,246 | ||||||
Net unrealized appreciation (depreciation) of investments and other financial instruments | (125,763 | ) | 136,571 | |||||
Net Increase in Net Assets Resulting from Operations | 127,380 | 285,534 | ||||||
Distributions to Shareholders: | ||||||||
From net investment income | ||||||||
Class IA | (4,941 | ) | (7,372 | ) | ||||
Class IB | (458 | ) | (797 | ) | ||||
Total from net investment income | (5,399 | ) | (8,169 | ) | ||||
From net realized gain on investments | ||||||||
Class IA | (6,976 | ) | — | |||||
Class IB | (1,024 | ) | — | |||||
Total from net realized gain on investments | (8,000 | ) | — | |||||
Total distributions | (13,399 | ) | (8,169 | ) | ||||
Capital Share Transactions: | ||||||||
Class IA | ||||||||
Sold | 8,012 | 57,246 | ||||||
Issued on reinvestment of distributions | 11,917 | 7,372 | ||||||
Redeemed | (196,512 | ) | (293,919 | ) | ||||
Total capital share transactions | (176,583 | ) | (229,301 | ) | ||||
Class IB | ||||||||
Sold | 3,579 | 9,794 | ||||||
Issued on reinvestment of distributions | 1,482 | 797 | ||||||
Redeemed | (30,469 | ) | (43,219 | ) | ||||
Total capital share transactions | (25,408 | ) | (32,628 | ) | ||||
Net decrease from capital share transactions | (201,991 | ) | (261,929 | ) | ||||
Net Increase (Decrease) in Net Assets | (88,010 | ) | 15,436 | |||||
Net Assets: | ||||||||
Beginning of period | 929,697 | 914,261 | ||||||
End of period | $ | 841,687 | $ | 929,697 | ||||
Undistributed (distributions in excess of) net investment income | $ | 984 | $ | 377 | ||||
Shares: | ||||||||
Class IA | ||||||||
Sold | 404 | 3,665 | ||||||
Issued on reinvestment of distributions | 564 | 408 | ||||||
Redeemed | (10,159 | ) | (18,406 | ) | ||||
Total share activity | (9,191 | ) | (14,333 | ) | ||||
Class IB | ||||||||
Sold | 178 | 624 | ||||||
Issued on reinvestment of distributions | 70 | 44 | ||||||
Redeemed | (1,587 | ) | (2,729 | ) | ||||
Total share activity | (1,339 | ) | (2,061 | ) |
The accompanying notes are an integral part of these financial statements.
11 |
Hartford Disciplined Equity HLS Fund |
Notes to Financial Statements |
December 31, 2014 |
(000’s Omitted) |
Organization:
Hartford Disciplined Equity HLS Fund (the "Fund") serves as an underlying investment option for certain variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company (“HLIC”) and its affiliates and certain qualified retirement plans. The Fund may also serve as an underlying investment option for certain variable annuity and variable life separate accounts of other insurance companies. Owners of variable annuity contracts and policyholders of variable life insurance contracts may choose the funds permitted in the variable insurance contract prospectus. In addition, participants in certain qualified retirement plans may choose the Fund if permitted by their plans.
Hartford Series Fund, Inc. (the “Company”) is an open-end registered management investment company comprised of fifteen portfolios. Financial statements for the Fund, a series of the Company, are included in this report.
The Company is organized under the laws of the State of Maryland and is registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (“1940 Act”). The Fund is a diversified open-end management investment company. The Fund is an investment company and applies specialized accounting and reporting under Accounting Standards Codification Topic 946, Financial Services - Investment Companies.
The Fund is divided into Class IA and Class IB shares. Each class is offered at the per share net asset value (“NAV”) without a sales charge and is subject to the same expenses, except that the Class IB shares are subject to distribution and service fees charged pursuant to a Distribution Plan adopted in accordance with Rule 12b-1 under the 1940 Act.
Significant Accounting Policies:
The following is a summary of significant accounting policies of the Fund in the preparation of its financial statements, which are in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The preparation of financial statements in accordance with U.S. GAAP may require 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
Determination of Net Asset Value – The NAV of each class of the Fund's shares is determined as of the close of regular trading (normally 4:00 p.m. Eastern Time) (the “NYSE Close”) on each day that the New York Stock Exchange (the “Exchange”) is open (“Valuation Date”). Information that becomes known to the Fund after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the NAV determined earlier that day.
Investment Valuation and Fair Value Measurements – For purposes of calculating the NAV, portfolio investments and other assets held by the Fund's portfolio for which market quotes are readily available are valued at market value. Market value is generally determined on the basis of last reported sales prices or official close price. If no sales are reported, market value is based on quotes obtained from a quotation reporting system, established market makers, or independent pricing services. If market prices are not readily available or are deemed unreliable, the Fund will use the fair value of the investment as determined in good faith under policies and procedures established by and under the supervision of the Company's Board of Directors. Market quotes are considered not readily available where there is an absence of current or reliable market-based data (e.g., trade information or indicative market quotes), including where events occur after the close of the relevant market, but prior to the NYSE Close, that materially affect the values of the Fund's portfolio investments or assets. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the investments trade do not open for trading for the entire day and no other market prices are available. There can be no assurance that the Fund could obtain the fair market value assigned to an investment if the Fund were to sell the investment at approximately the time at which the Fund determines its NAV.
Exchange traded options, futures and options on futures are valued at the settlement price or last trade price determined by the relevant exchange as of the NYSE Close. If the last trade price for exchange traded options does not fall between the bid and ask prices, the value will be the mean of the bid and ask prices as of the NYSE Close. If a last trade price is not available, the value will be the mean of the bid and ask prices as of the NYSE Close. If a mean of the bid and ask prices cannot be calculated for the day, the value will be the bid price as of the NYSE Close. In the case of over-the-counter ("OTC") options and such instruments that do not
12 |
Hartford Disciplined Equity HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
trade on an exchange, values may be supplied by a pricing service using a formula or other objective method that may take into consideration the style, direction, expiration, strike price, notional value and volatility or other special adjustments.
Financial instruments for which prices are not available from an independent pricing service may be valued using market quotations obtained from one or more dealers that make markets in the respective financial instrument in accordance with procedures established by the Company's Board of Directors.
U.S. GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants. The U.S. GAAP fair value measurement standards require disclosure of a fair value hierarchy for each major category of assets and liabilities. Various inputs are used in determining the fair value of the Fund’s investments. These inputs are summarized into three broad hierarchy levels. This hierarchy is based on whether the valuation inputs are observable or unobservable. These levels are:
Level 1 – Quoted prices in active markets for identical investments. Level 1 may include exchange traded instruments, such as domestic equities, some foreign equities, options, futures, mutual funds, exchange traded funds, rights and warrants.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar investments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 2 may include debt investments that are traded less frequently than exchange traded instruments and which are valued using independent pricing services; foreign equities, which are principally traded on certain foreign markets and are adjusted daily pursuant to a fair value pricing service in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close; senior floating rate interests, which are valued using an aggregate of dealer bids; short-term investments, which are valued at amortized cost; and swaps, which are valued based upon the terms of each swap contract.
Level 3 – Significant unobservable inputs that are supported by limited or no market activity. Level 3 may include financial instruments whose values are determined using indicative market quotes or require significant management judgment or estimation. These unobservable valuation inputs may include estimates for current yields, maturity/duration, prepayment speed, and indicative market quotes for comparable investments along with other assumptions relating to credit quality, collateral value, complexity of the investment structure, general market conditions and liquidity. This category may include investments where trading has been halted or there are certain restrictions on trading. While these investments are priced using unobservable inputs, the valuation of these investments reflects the best available data and management believes the prices are a reasonable representation of exit price.
The Board of Directors of the Company generally reviews and approves the “Procedures for Valuation of Portfolio Securities” at least once a year. These procedures define how investments are to be valued, including the formation and activities of a Valuation Committee. The Valuation Committee is responsible for determining in good faith the fair value of investments when the value cannot be obtained from primary pricing services or alternative sources or if the valuation of an investment as provided by the primary pricing service or alternative source is believed not to reflect the investment’s fair value as of the Valuation Date. Voting members of the Valuation Committee include the Fund's Treasurer or designee and a Vice President of the investment manager or designee. An Assistant Vice President of the Fund with legal expertise or designee is also included on the Valuation Committee as a non-voting advisory member. In addition, the Fund’s Chief Compliance Officer shall designate a member of the compliance group to attend Valuation Committee meetings as a non-voting resource, to monitor for and provide guidance with respect to compliance with these procedures. Two members of the Valuation Committee or their designees, representing different departments, shall constitute a quorum for purposes of permitting the Valuation Committee to take action. The Valuation Committee will consider all relevant factors in determining an investment’s fair value, and may seek the advice of the Fund’s sub-adviser, knowledgeable brokers, and legal counsel in making such determination. The Valuation Committee reports to the Audit Committee of the Company's Board of Directors. The Audit Committee receives quarterly written reports which include details of all fair-valued investments, including the reason for the fair valuation, and an indication, when possible, of the accuracy of the valuation by disclosing the next available reliable public price quotation or the disposition price of such investments (the “look-back” test). The Board of Directors then must consider for ratification all of the fair value determinations made during the previous quarter.
13 |
Hartford Disciplined Equity HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Valuation levels are not necessarily indicative of the risk associated with investing in such investments. Individual investments within any of the above mentioned asset classes may be assigned a different hierarchical level than those presented above, as individual circumstances dictate.
For additional information, refer to the Investment Valuation Hierarchy Level Summary which is included in the Schedule of Investments.
Investment Transactions and Investment Income – Investment transactions are recorded as of the trade date (the date the order to buy or sell is executed) for financial reporting purposes. Investments purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Realized gains and losses are determined on the basis of identified cost.
Dividend income from domestic securities is accrued on the ex-dividend date. Interest income, including amortization of premium, accretion of discounts, inflation adjustments and additional principal received in-kind in lieu of cash, is accrued on a daily basis.
Joint Trading Account – The Fund may invest cash balances into a joint trading account that may be invested in one or more repurchase agreements.
Fund Share Valuation and Dividend Distributions to Shareholders – Orders for the Fund’s shares are executed in accordance with the investment instructions of the contract holders and plan participants. The NAV of the Fund’s shares is determined as of the close of business on each business day of the Exchange. The NAV is determined separately for each class of shares of the Fund by dividing the Fund’s net assets attributable to that class by the number of shares of the class outstanding. Each class of shares offered by the Fund has equal rights as to assets and voting privileges (except that shareholders of a class have exclusive voting rights regarding any matter relating solely to that class of shares). Income and non-class specific expenses are allocated daily to each class on the basis of the relative net assets of the class. Realized and unrealized gains and losses are allocated daily based on the relative net assets of each class of shares of the Fund.
Orders for the purchase of the Fund’s shares received prior to the close of the Exchange on any day the Exchange is open for business are priced at the NAV determined as of the close of the Exchange. Orders received after the close of the Exchange, or on a day on which the Exchange and/or the Fund is not open for business, are priced at the next determined NAV.
Dividends are declared pursuant to a policy adopted by the Company's Board of Directors based upon the investment performance of the Fund. The policy of the Fund is to pay dividends from net investment income and realized gains, if any, at least once a year.
Net investment income, dividends and distributions from net realized gains and capital are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP with respect to character and timing (see Federal Income Taxes: Distributions and Components of Distributable Earnings and Reclassification of Capital Accounts).
Securities and Other Investments:
Repurchase Agreements – A repurchase agreement is an agreement by which a counterparty agrees to sell an investment and agrees to repurchase the investment sold from the buyer at a mutually agreed upon time and price. During the period of the repurchase agreement, the counterparty will deposit cash and or securities in a third party custodial account to serve as collateral. At the time the Fund enters into a repurchase agreement, the value of the underlying collateral, including accrued interest, will be equal to or exceed the value of the repurchase agreement. Repurchase agreements expose the Fund to counterparty risk - that is, the risk that the counterparty will not fulfill its obligations. To minimize counterparty risk, the investments that serve to collateralize the repurchase agreement are held by the Fund’s custodian in book entry or physical form in the custodial account of the Fund or in a third party custodial account. Repurchase agreements are valued at cost plus accrued interest, which approximates fair value. Repurchase agreements have master netting arrangements which allow the Fund to offset amounts owed to a counterparty with amounts owed by the counterparty, including any collateral. Upon an event of default under a master repurchase agreement, the non-defaulting party may close out all transactions traded under such agreement and net amounts owed under each transaction to one net amount payable by one party to the other. Absent an event of default, the master repurchase agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the
14 |
Hartford Disciplined Equity HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
applicable counterparty. The Fund, as shown on the Schedule of Investments, had outstanding repurchase agreements and related collateral as of December 31, 2014.
Financial Derivative Instruments:
The following disclosures contain information on how and why the Fund uses derivative instruments, the credit-risk-related contingent features in certain derivative instruments and how derivative instruments affect the Fund’s financial position and results of operations. The location and fair value amounts of these instruments on the Statement of Assets and Liabilities and the realized gains and losses and changes in unrealized gains and losses on the Statement of Operations, each categorized by type of derivative contract, are included in the following Additional Derivative Instrument Information footnote. The derivative instruments outstanding as of year-end are disclosed in the notes to the Schedule of Investments, if applicable. The amounts of realized gains and losses and changes in unrealized gains and losses on derivative instruments during the year are disclosed in the Statement of Operations.
Futures Contracts – The Fund may enter into futures contracts. A futures contract is an agreement between two parties to buy or sell an asset at a set price on a future date. The Fund uses futures contracts to manage or obtain exposure to the investment markets, commodities, or movements in interest rates and currency values. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the investments held by the Fund and the prices of futures contracts and the possibility of an illiquid market. Upon entering into a futures contract, the Fund is required to deposit with a futures commission merchant (“FCM”) an amount of cash or U.S. Government or Agency Obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily at the most recent settlement price reported by an exchange on which, over time, they are traded most extensively, and an appropriate payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed on the Statement of Assets and Liabilities; however, the Fund seeks to reduce this risk through the use of an FCM. The Fund had no outstanding futures contracts as of December 31, 2014.
Options Contracts – An option contract is a contract sold by one party to another party that offers the buyer the right, but not the obligation, to buy (call) or sell (put) an investment or other financial asset at an agreed-upon price during a specific period of time or on a specific date. Options contracts are either privately negotiated in the over-the-counter market ("OTC options") or executed in a registered exchange ("exchange traded options"). The Fund may write (sell) covered call and put options on futures, swaps (“swaptions”), securities, commodities or currencies. “Covered” means that so long as the Fund is obligated as the writer of an option, it will own either the underlying investments or currency or an option to purchase the same underlying investments or currency having an expiration date of the covered option and an exercise price equal to or less than the exercise price of the covered option, or will pledge cash or other liquid investments having a value equal to or greater than the fluctuating market value of the option investment or currency. Writing put options increases the Fund’s exposure to the underlying instrument. Writing call options decreases the Fund’s exposure to the underlying instrument. Premiums received from writing options that expire are treated as realized gains. Premiums received from writing options that are exercised or closed are added to the proceeds or offset amounts paid on the underlying futures, swap, investment or currency transaction to determine the realized gain or loss. The Fund as a writer of an option has no control over whether the underlying instrument may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the instrument underlying the written option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. The Fund may also purchase put and call options. Purchasing call options increases the Fund’s exposure to the underlying instrument. Purchasing put options decreases the Fund’s exposure to the underlying instrument. The Fund pays a premium, which is included on the Fund’s Statement of Assets and Liabilities as an investment and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized losses. Certain options may be purchased with premiums to be determined on a future date. The premiums for these options are based upon implied volatility parameters at specified terms. The risk associated with purchasing put and call options is generally limited to the premium paid. Premiums paid for purchasing options that are exercised or closed are added to the amounts paid or offset against the proceeds on the underlying investment transaction to determine the realized gain or loss. Entering into over-the-counter options also exposes the Fund to counterparty risk. Counterparty risk is the possibility that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements.
15 |
Hartford Disciplined Equity HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
As of December 31, 2014 the Fund had no outstanding purchased option or written option contracts. Transactions involving written option contracts during the year ended December 31, 2014, are summarized below:
Options Contract Activity During the Year Ended December 31, 2014 | ||||||||
Call Options Written During the Year | Number of Contracts* | Premium Amounts | ||||||
Beginning of the year | 395 | $ | 39 | |||||
Written | 1,679 | 128 | ||||||
Expired | (155 | ) | (31 | ) | ||||
Closed | (1,785 | ) | (120 | ) | ||||
Exercised | (134 | ) | (16 | ) | ||||
End of year | — | $ | — | |||||
Put Options Written During the Year | Number of Contracts* | Premium Amounts | ||||||
Beginning of the year | 528 | $ | 18 | |||||
Written | 871 | 61 | ||||||
Expired | (432 | ) | (30 | ) | ||||
Closed | (967 | ) | (49 | ) | ||||
Exercised | — | — | ||||||
End of year | — | $ | — |
* | The number of contracts does not omit 000's. |
Additional Derivative Instrument Information:
The volume of derivative activity was minimal during the year ended December 31, 2014.
The Effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2014:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts | Foreign Exchange Contracts | Credit Contracts | Equity Contracts | Commodity Contracts | Other Contracts | Total | ||||||||||||||||||||||
Realized Gain on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net realized gain on futures contracts | $ | — | $ | — | $ | — | $ | 246 | $ | — | $ | — | $ | 246 | ||||||||||||||
Net realized gain on written option contracts | — | — | — | 93 | — | — | 93 | |||||||||||||||||||||
Total | $ | — | $ | — | $ | — | $ | 339 | $ | — | $ | — | $ | 339 | ||||||||||||||
Net Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net change in unrealized appreciation of written option contracts | $ | — | $ | — | $ | — | $ | 49 | $ | — | $ | — | $ | 49 | ||||||||||||||
Total | $ | — | $ | — | $ | — | $ | 49 | $ | — | $ | — | $ | 49 |
Principal Risks:
The Fund may be exposed to counterparty risk, or the risk that an institution or other entity with which the Fund has unsettled or open transactions will default.
The market values of equity securities, such as common stocks and preferred stocks, or equity related investments, such as futures and options, may decline due to general market conditions which are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. The market value of equity securities may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities and equity related investments generally have greater market price volatility than fixed income securities.
16 |
Hartford Disciplined Equity HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Federal Income Taxes:
Federal Income Taxes – For federal income tax purposes, the Fund intends to continue to qualify as a Regulated Investment Company ("RIC") under Subchapter M of the Internal Revenue Code (“IRC”) by distributing substantially all of its taxable net investment income and net realized capital gains to its shareholders and otherwise complying with the requirements of the IRC. The Fund has distributed substantially all of its income and capital gains in prior years, if applicable, and intends to distribute substantially all of its income and capital gains prior to the next fiscal year-end. Accordingly, no provision for federal income or excise taxes has been made in the accompanying financial statements. Distributions from short-term capital gains are treated as ordinary income distributions for federal income tax purposes.
Net Investment Income (Loss), Net Realized Gains (Losses) and Distributions – Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of losses deferred due to wash sale adjustments, foreign currency gains and losses, adjustments related to Passive Foreign Investment Companies ("PFICs"), Real Estate Investment Trusts ("REITs"), RICs, certain derivatives and partnerships. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund.
Distributions and Components of Distributable Earnings – The tax character of distributions paid by the Fund for the periods indicated is as follows (as adjusted for dividends payable, if applicable):
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Ordinary Income | $ | 13,399 | $ | 8,169 |
As of December 31, 2014, the Fund’s components of distributable earnings (deficit) on a tax basis are as follows:
Amount | ||||
Undistributed Ordinary Income | $ | 12,996 | ||
Undistributed Long-Term Capital Gain | 226,565 | |||
Unrealized Appreciation* | 196,457 | |||
Total Accumulated Earnings | $ | 436,018 |
* | Differences between book-basis and tax-basis unrealized appreciation (depreciation) may be attributable to the losses deferred due to wash sale adjustments, foreign currency gains and losses and adjustments related to PFICs, REITs, RICs, certain derivatives and partnerships. |
Reclassification of Capital Accounts – The Fund may record reclassifications in its capital accounts. These reclassifications have no impact on the total net assets of the Fund. The reclassifications are a result of permanent differences between U.S. GAAP and tax accounting for such items as foreign currency, PFICs, expiration or utilization of capital loss carryforwards or net operating losses. Adjustments are made to reflect the impact these items have on current and future distributions to shareholders. Therefore, the source of the Fund’s distributions may be shown in the accompanying Statement of Changes in Net Assets as from undistributed net investment income, from accumulated net realized gains on investments or from capital depending on the type of book and tax differences that exist. For the year ended December 31, 2014, the Fund recorded reclassifications to increase (decrease) the accounts listed below:
Amount | ||||
Undistributed Net Investment Income (Loss) | $ | 19 | ||
Accumulated Net Realized Gain (Loss) | (19 | ) |
Capital Loss Carryforward – On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which made changes to the capital loss carryforward rules. The changes are effective for taxable years beginning after the
17 |
Hartford Disciplined Equity HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
date of enactment. Under the Act, funds are permitted to carry forward capital losses for an unlimited period. Additionally, capital loss carryforwards retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under prior regulation.
The Fund had no capital loss carryforward for U.S. federal income tax purposes as of December 31, 2014.
During the year ended December 31, 2014, the Fund utilized $1,255 of prior year capital loss carryforwards.
Accounting for Uncertainty in Income Taxes – The Fund has adopted financial reporting rules that require the Fund to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions. Generally, tax authorities can examine all tax returns filed for the last three years. The Fund does not have an examination in progress.
The Fund has reviewed all open tax years and major jurisdictions and concluded that these financial reporting rules had no effect on the Fund’s financial position or results of operations. There is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on the tax return for the fiscal year ended December 31, 2014. The Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Expenses:
Investment Management Agreement – Hartford Funds Management Company, LLC ("HFMC") serves as the Fund’s investment manager pursuant to an Investment Management Agreement with the Company. HFMC is an indirect wholly owned subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford"). The investment manager has overall investment supervisory responsibility for the Fund. In addition, the investment manager provides administrative personnel, services, equipment, facilities and office space for proper operation of the Fund. HFMC has contracted with Wellington Management Company, LLP ("Wellington Management") under a sub-advisory agreement for the provision of day-to-day investment management services to the Fund in accordance with the Fund’s investment objective and policies. The Fund pays a fee to the investment manager, a portion of which may be used to compensate Wellington Management.
The schedule below reflects the rates of compensation paid to the investment manager for investment management services rendered as of December 31, 2014; the rates are accrued daily and paid monthly:
Average Daily Net Assets | Annual Fee |
On first $250 million | 0.7750% |
On next $250 million | 0.7250% |
On next $500 million | 0.6750% |
On next $4 billion | 0.6250% |
On next $5 billion | 0.6225% |
Over $10 billion | 0.6200% |
Accounting Services Agreement – Pursuant to the Fund Accounting Agreement between HFMC and the Company, on behalf of the Fund, HFMC provides accounting services to the Fund and receives monthly compensation based on the Fund’s average daily net assets at the rates set forth below. The Fund’s accounting services fees are accrued daily and paid monthly.
Average Daily Net Assets | Annual Fee |
On first $5 billion | 0.012% |
Over $5 billion | 0.010% |
Operating Expenses – Allocable expenses incurred by the Company are allocated to each Fund and allocated to classes within a Fund in proportion to the average daily net assets of the Fund and each class, except where allocation of certain expenses is more fairly made directly to the Fund or to specific classes within a Fund.
18 |
Hartford Disciplined Equity HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Fees Paid Indirectly – The Company, on behalf of the Fund, has entered into agreements with State Street Global Markets, LLC and Russell Implementation Services, Inc. to partially recapture non-discounted trade commissions. Such rebates are used to pay a portion of the Fund's expenses. For the year ended December 31, 2014, this amount, if any, is included in the Statement of Operations.
The ratio of expenses to average net assets in the accompanying financial highlights excludes the reduction in expenses related to fees paid indirectly. The annualized expense ratio after waivers for the period listed below reflecting the reduction for fees paid indirectly is as follows:
Year Ended December 31, 2014 | ||||
Class IA | 0.75% | |||
Class IB | 1.00 | |||
Distribution Plan for Class IB Shares – Hartford Funds Distributors, LLC (“HFD”), an indirect wholly owned subsidiary of The Hartford, is the principal underwriter and distributor of the Fund. The Company, on behalf of the Fund, has adopted a Distribution Plan pursuant to Rule 12b-1 of the 1940 Act for Class IB shares.
The Distribution Plan provides that the Fund may pay annually up to 0.25% of the average daily net assets of the Fund attributable to its Class IB shares for activities primarily intended to result in the sale of Class IB shares. The Board has the authority to suspend or reduce these payments at any point in time. Under the terms of the Distribution Plan and the principal underwriting agreement, the Fund is authorized to make payments monthly to the distributor that may be used to pay or reimburse entities providing distribution and shareholder servicing with respect to the Class IB shares for such entities’ fees or expenses incurred or paid in that regard. The distribution fees paid during the period can be found on the Statement of Operations. These fees are accrued daily and paid monthly or at such other intervals as the Board of Directors may determine.
Other Related Party Transactions – Certain officers of the Fund are directors and/or officers of HFMC and/or The Hartford or its subsidiaries. For the year ended December 31, 2014, a portion of the Fund's Chief Compliance Officer's compensation was paid by all the investment companies in the Hartford fund complex. The portion allocated to the Fund, as represented in other expenses on the Statement of Operations, was in the amount of $1. Hartford Administrative Services Company ("HASCO"), an indirect wholly owned subsidiary of The Hartford, provides transfer agent services to the Fund. Effective December 1, 2014, pursuant to a sub-transfer agency agreement between HASCO and Boston Financial Data Services, Inc. (“BFDS”), HASCO delegated certain transfer agent, dividend disbursing agent and shareholder servicing agent functions to BFDS. HASCO is compensated by the Fund based on the number of classes plus out of pocket expenses for providing such services, a portion of which may be used to compensate BFDS. The amount paid to HASCO can be found in the Statement of Operations. These fees are accrued daily and paid monthly.
Investment Transactions:
For the year ended December 31, 2014, the cost of purchases and proceeds from sales of investment securities (excluding short-term investments) were as follows:
Excluding U.S. Government Obligations | U.S. Government Obligations | Total | ||||||||||
Cost of Purchases | $ | 538,658 | $ | — | $ | 538,658 | ||||||
Sales Proceeds | 743,179 | — | 743,179 |
19 |
Hartford Disciplined Equity HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Line of Credit:
The Fund is one of several Hartford Funds that participate in a $500 million committed revolving line of credit facility. The facility is to be used for temporary or emergency purposes. Under the arrangement, the funds are required to own securities having a market value in excess of 300% of the total bank borrowings. The interest rate on borrowings varies depending on the nature of the loan. The facility also requires a fee to be paid based on the amount of the commitment. This commitment fee is allocated to all the funds participating in the line of credit based on the average net assets of the funds. During the year ended December 31, 2014, the Fund did not have any borrowings under this facility.
Indemnifications:
Under the Company's organizational documents, the Company shall indemnify its officers and directors to the full extent required or permitted under Maryland General Corporation Law and the federal securities laws. In addition, the Company, on behalf of the Fund, may enter into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, as of the date of these financial statements, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Pending Legal Proceedings:
On February 25, 2011, Jennifer L. Kasilag, Louis Mellinger, Judith M. Menendez, Jacqueline M. Robinson, and Linda A. Russell filed a derivative lawsuit against Hartford Investment Financial Services, LLC (“HIFSCO”) (now known as HFD) on behalf of six Hartford retail mutual funds in the United States District Court for the District of New Jersey, alleging that HIFSCO received excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the 1940 Act when serving as investment manager and principal underwriter, respectively, to the Hartford retail mutual funds. Although this action was purportedly filed on behalf of certain of the Hartford Funds, none of the Hartford Funds is itself a defendant to the suit. HIFSCO moved to dismiss and, in September 2011, the motion was granted in part and denied in part, with leave to amend the complaint. In November 2011, plaintiffs filed an amended complaint on behalf of certain Hartford retail mutual funds, The Hartford Global Health Fund (now known as The Hartford Healthcare Fund), The Hartford Conservative Allocation Fund, The Hartford Growth Opportunities Fund, The Hartford Inflation Plus Fund, The Hartford Advisers Fund (now known as The Hartford Balanced Fund), and The Hartford Capital Appreciation Fund. Plaintiffs seek to rescind the investment management agreements and distribution plans between HIFSCO and these funds and to recover the total fees charged thereunder or, in the alternative, to recover any improper compensation HIFSCO received, in addition to lost earnings. HIFSCO filed a partial motion to dismiss the amended complaint and, in December 2012, the court dismissed without prejudice the claims regarding distribution fees and denied the motion with respect to the advisory fees claims. HIFSCO disputes the allegations and intends to defend vigorously.
In March 2014, the plaintiffs filed a new complaint that added as new plaintiffs The Hartford Floating Rate Fund and The Hartford Small Company Fund, two Hartford retail mutual funds, and named as a defendant HFMC, which assumed the role as investment manager to the funds as of January 2013. HFMC and HIFSCO dispute the allegations and intend to defend vigorously.
This action concerns the activities of HIFSCO in its capacity as investment manager and principal underwriter to the Hartford retail mutual funds and does not concern HIFSCO’s activities in its capacity as principal underwriter to the HLS funds. For this reason, no accrual for litigation relating to this matter has been recorded in the financial statements of the Fund.
Recent Accounting Pronouncement:
In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, modifying Accounting Standards Codification Topic 860. The amended guidance changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. The guidance also requires new disclosures for certain transfers accounted for as sales and collateral supporting transactions that are accounted for as secured borrowings. ASU 2014-11 is effective for annual and interim periods beginning after December 15, 2014, except for the disclosures related to secured borrowings, which are effective for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The adoption of ASU 2014-11 is not expected to have a material impact on the Fund’s results of operations or financial position, but may impact the Fund’s disclosures.
20 |
Hartford Disciplined Equity HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Subsequent Event:
Effective on or after January 1, 2015, pursuant to an agreement between the Hartford Funds and State Street Bank and Trust Company ("State Street"), State Street replaced, or is scheduled to replace, JP Morgan Chase Bank, N.A. ("JP Morgan Chase") as the Fund's primary custodian. JP Morgan Chase may serve as custodian of certain Fund assets. In addition, on or after the same date, HFMC has delegated, or will delegate, certain accounting and administrative services functions to State Street. The costs and expenses of such delegation will be borne by HFMC, not by the Funds, and HFMC will compensate State Street for its services out of its own resources.
21 |
Hartford Disciplined Equity HLS Fund |
Financial Highlights |
─ Selected Per-Share Data(A) ─ | ─ Ratios and Supplemental Data ─ | |||||||||||||||||||||||||||||||||||||||||||||||||||
Class | Net Asset Value at Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Investment Operations | Dividends from Net Investment Income | Distributions from Realized Capital Gains | Total Dividends and Distributions | Net Asset Value at End of Period | Total Return(B) | Net Assets at End of Period (000s) | Ratio of Expenses to Average Net Assets Before Adjust- ments(C) | Ratio of Expenses to Average Net Assets After Adjust- ments(C) | Ratio of Net Investment Income (Loss) to Average Net Assets | |||||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 18.36 | $ | 0.14 | $ | 2.83 | $ | 2.97 | $ | (0.14 | ) | $ | (0.20 | ) | $ | (0.34 | ) | $ | 20.99 | 16.18 | % | $ | 734,110 | 0.75 | % | 0.75 | % | 0.73 | % | |||||||||||||||||||||||
IB | 18.27 | 0.09 | 2.81 | 2.90 | (0.09 | ) | (0.20 | ) | (0.29 | ) | 20.88 | 15.87 | 107,577 | 1.00 | 1.00 | 0.47 | ||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 13.64 | $ | 0.17 | $ | 4.72 | $ | 4.89 | $ | (0.17 | ) | $ | – | $ | (0.17 | ) | $ | 18.36 | 35.82 | % | $ | 811,099 | 0.76 | % | 0.76 | % | 1.07 | % | ||||||||||||||||||||||||
IB | 13.58 | 0.13 | 4.68 | 4.81 | (0.12 | ) | – | (0.12 | ) | 18.27 | 35.47 | 118,598 | 1.01 | 1.01 | 0.82 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2012 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 11.78 | $ | 0.22 | $ | 1.86 | $ | 2.08 | $ | (0.22 | ) | $ | – | $ | (0.22 | ) | $ | 13.64 | 17.62 | % | $ | 798,148 | 0.75 | % | 0.75 | % | 1.45 | % | ||||||||||||||||||||||||
IB | 11.73 | 0.18 | 1.85 | 2.03 | (0.18 | ) | – | (0.18 | ) | 13.58 | 17.33 | 116,113 | 1.00 | 1.00 | 1.20 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2011 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 11.79 | $ | 0.14 | $ | (0.01 | ) | $ | 0.13 | $ | (0.14 | ) | $ | – | $ | (0.14 | ) | $ | 11.78 | 1.15 | % | $ | 852,312 | 0.74 | % | 0.74 | % | 1.06 | % | |||||||||||||||||||||||
IB | 11.73 | 0.11 | – | 0.11 | (0.11 | ) | – | (0.11 | ) | 11.73 | 0.90 | 129,416 | 0.99 | 0.99 | 0.81 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2010 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 10.47 | $ | 0.15 | $ | 1.32 | $ | 1.47 | $ | (0.15 | ) | $ | – | $ | (0.15 | ) | $ | 11.79 | 14.04 | % | $ | 1,022,321 | 0.75 | % | 0.75 | % | 1.35 | % | ||||||||||||||||||||||||
IB | 10.42 | 0.13 | 1.30 | 1.43 | (0.12 | ) | – | (0.12 | ) | 11.73 | 13.76 | 159,898 | 1.00 | 1.00 | 1.10 |
(A) | Information presented relates to a share outstanding throughout the indicated period. Net investment income (loss) per share amounts are calculated based on average shares outstanding unless otherwise noted. |
(B) | The figures do not include sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees would lower the Fund's performance. |
(C) | Adjustments include waivers and reimbursements, if applicable. Ratios do not include fees paid indirectly (see Expenses in the accompanying Notes to Financial Statements). |
(D) | Net investment income (loss) per share amounts have been calculated using the SEC method. |
Portfolio Turnover Rate for All Share Classes | ||||
For the Year Ended December 31, 2014 | 63 | % | ||
For the Year Ended December 31, 2013 | 23 | |||
For the Year Ended December 31, 2012 | 34 | |||
For the Year Ended December 31, 2011 | 44 | |||
For the Year Ended December 31, 2010 | 44 |
22 |
Report of Independent Registered Public Accounting Firm |
The Board of Directors and Shareholders of |
Hartford Series Fund, Inc. |
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Hartford Disciplined Equity HLS Fund (one of the portfolios constituting Hartford Series Fund, Inc. (the Funds)) as of December 31, 2014, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Hartford Disciplined Equity HLS Fund of the Hartford Series Fund, Inc. at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Minneapolis, Minnesota
February 13, 2015
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Hartford Disciplined Equity HLS Fund |
Directors and Officers (Unaudited) |
The Board of Directors of the Company (the "Directors") appoints officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the Directors. Each Director serves until his or her death, resignation, or retirement or until the next annual meeting of shareholders is held or until his or her successor is elected and qualifies.
Directors and officers who are employed by or who have a financial interest in The Hartford Financial Services Group, Inc. ("The Hartford") are considered “interested” persons of the Fund pursuant to the 1940 Act. The "interested" Directors and officers are reflected in the chart below. Each Director serves as a director for The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., Hartford Series Fund, Inc., and Hartford HLS Series Fund II, Inc., and as a trustee for The Hartford Alternative Strategies Fund, which, as of December 31, 2014, collectively consist of 66 funds. Correspondence may be sent to Directors and officers c/o Hartford Funds, 5 Radnor Corporate Center, Suite 300, 100 Matsonford Road, Radnor, Pennsylvania 19087, except that correspondence to Mr. Annoni, Mr. Dressen and Ms. Quade may be sent to 500 Bielenberg Drive, Suite 500, Woodbury, Minnesota 55125.
The table below sets forth, for each Director and officer, his or her name, year of birth, current position with the Company and date first elected or appointed to Hartford Series Fund, Inc. ("HSF") and Hartford HLS Series Fund II, Inc. ("HSF2"), principal occupation, and, for Directors, other directorships held. The Fund’s Statement of Additional Information contains further information on the Directors and is available free of charge by calling 1-888-843-7824 or writing to: Hartford HLS Funds, c/o Hartford Life Insurance Company/Hartford Life and Annuity Insurance Company, P.O. Box 14293, Lexington, KY 40512-4293 for variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates; Hartford Funds, P.O. Box 55022, Boston, MA 02205-5022 for all shareholders except variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates.
Information on the aggregate remuneration paid to the directors of the Company can be found in the Statement of Operations herein. The Fund pays to The Hartford a portion of the Chief Compliance Officer’s compensation, but does not pay salaries or compensation to any of its other officers or Directors who are employed by The Hartford.
Non-Interested Directors
Hilary E. Ackermann (1956) Director since September 23, 2014
Ms. Ackermann served as Chief Risk Officer at Goldman Sachs Bank USA from October 2008 to November 2011 and serves as a Director of Dynegy, Inc., an independent power company, from October 2012 to present.
Lynn S. Birdsong (1946) Director since 2003, Chairman of the Investment Committee since 2014
Mr. Birdsong is a private investor. Mr. Birdsong currently serves as a Director of Aberdeen Global and Aberdeen Global II (investment funds) (September 2014 to present) and as an Independent Director of Nomura Partners Funds, Inc. (formerly, The Japan Fund) (April 2003 to present). Mr. Birdsong served as Director of the Sovereign High Yield Investment Company (April 2010 to September 2014). From 2003 to March 2005, Mr. Birdsong was an Independent Director of the Atlantic Whitehall Funds. From 1979 to 2002, Mr. Birdsong was a Managing Director of Zurich Scudder Investments, an investment management firm. During his employment with Scudder, Mr. Birdsong was an Interested Director of The Japan Fund. Mr. Birdsong served as Co-Chairman of the Investment Committee of The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., HSF, HSF2 and The Hartford Alternative Strategies Fund from 2005 to 2014.
Robert M. Gavin, Jr. (1940) Director since 2002 (HSF) and 1986 (HSF2), Chairman of the Board for each since 2004
Dr. Gavin is an educational consultant. Prior to September 1, 2001, he was President of Cranbrook Education Community and prior to July 1996, he was President of Macalester College, St. Paul, Minnesota.
Duane E. Hill (1945) Director since 2001 (HSF) and 2002 (HSF2), Chairman of the Nominating Committee since 2003
Mr. Hill is a Partner of TSG Ventures L.P., a private equity investment company. Mr. Hill is a former partner of TSG Capital Group, a private equity investment firm that served as sponsor and lead investor in leveraged buyouts of middle market companies.
Sandra S. Jaffee (1941) Director since 2005
Ms. Jaffee is the founder and Chief Executive Officer of a private company, Homeworks Concierge, LLC, which provides residential property management services in Westchester County, New York (January 2012 to present). Ms. Jaffee served as Chairman (2008 to 2009) and Chief Executive Officer of Fortent (formerly Searchspace Group), a leading provider of compliance/regulatory technology to financial institutions from August 2005 to August 2009. From August 2004 to August 2005, Ms. Jaffee served as an Entrepreneur in Residence with Warburg Pincus, a private equity firm. Prior to joining Warburg Pincus, Ms. Jaffee served as Executive Vice President at Citigroup, from September 1995 to July 2004, where she was President and Chief Executive Officer of Citibank’s Global Securities
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Directors and Officers (Unaudited) – (continued) |
Services (1995 to 2003). Ms. Jaffee served as a member of the Board of Directors of Broadridge Financial Solutions (November 2010 to November 2014). Ms. Jaffee currently serves as a member of the Board of Directors of Global Camps Africa (a non-profit organization) (January 2015 to present) as well as a Trustee of Muhlenberg College (September 2007 to present).
William P. Johnston (1944) Director since 2005, Chairman of the Compliance Committee since 2005
In June 2006, Mr. Johnston was appointed as Senior Advisor to The Carlyle Group, a global private equity and other alternative asset investment firm and currently serves as an Operating Executive. In July 2006, Mr. Johnston was elected to the Board of Directors of MultiPlan, Inc. and served as a Director (July 2006 to August 2010). In August 2007, Mr. Johnston was elected to the Board of Directors of LifeCare Holdings, Inc. and served as a Director (August 2007 to June 2013). In February 2008, Mr. Johnston was elected to the Board of Directors of HCR-ManorCare, Inc. In May 2006, Mr. Johnston was elected to the Supervisory Board of Fresenius Medical Care AG & Co. KGaA, after its acquisition of Renal Care Group, Inc. in March 2006. Mr. Johnston joined Renal Care Group in November 2002 as a member of the Board of Directors and served as Chairman of the Board from March 2003 through March 2006. From 2002 through 2013, Mr. Johnston served as a Board member of the Georgia O’Keefe Museum. From September 1987 to December 2002, Mr. Johnston was with Equitable Securities Corporation (and its successors, SunTrust Equitable Securities and SunTrust Robinson Humphrey) serving in various investment banking and managerial positions, including Managing Director and Head of Investment Banking, Chief Executive Officer and Vice Chairman.
Phillip O. Peterson (1944) Director since 2002 (HSF) and 2000 (HSF2), Chairman of the Audit Committee since 2002
Mr. Peterson is a mutual fund industry consultant. He was a partner of KPMG LLP (an accounting firm) until July 1999. Mr. Peterson joined William Blair Funds in February 2007 as a member of the Board of Trustees. From February 2012 to February 2014, Mr. Peterson served as a Trustee of Symetra Variable Mutual Funds. From January 2004 to April 2005, Mr. Peterson served as Independent President of the Strong Mutual Funds.
Lemma W. Senbet (1946) Director since 2005
Dr. Senbet is the William E. Mayer Chair Professor of Finance at the University of Maryland, Robert H. Smith School of Business. He was chair of the Finance Department of the University of Maryland, Robert H. Smith School of Business from 1998 to 2006. Since June 2013, he has been on leave from the University to serve as Executive Director of African Economic Research Consortium which focuses on economic policy research and training. Previously, he was a chaired professor of finance at the University of Wisconsin-Madison. Also, he was a Director of the Fortis Funds from March 2000 to July 2002. Dr. Senbet served as Director of the American Finance Association and President of the Western Finance Association. In 2006, Dr. Senbet was inducted Fellow of Financial Management Association International for his career-long distinguished scholarship and professional service.
Interested Directors and Officers
James E. Davey (1964) Director since 2012, President and Chief Executive Officer since 2010
Mr. Davey serves as Executive Vice President of Hartford Life Insurance Company (“HLIC”) and The Hartford. Additionally, Mr. Davey serves as Chairman of the Board, Manager and Senior Managing Director of Hartford Funds Distributors, LLC (“HFD”). He also currently serves as Director, Chairman of the Board, President and Senior Managing Director of Hartford Administrative Services Company (“HASCO”). Mr. Davey also serves as Manager, Chairman of the Board and Senior Managing Director for Hartford Funds Management Company, LLC (“HFMC”) and Director, Chairman of the Board and Senior Managing Director for Hartford Funds Management Group, Inc. ("HFMG"). Mr. Davey has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Davey joined The Hartford in 2002.
Lowndes A. Smith* (1939) Director since 1996 (HSF) and 2002 (HSF2), Co-Chairman of the Investment Committee since 2005
Mr. Smith served as Vice Chairman of The Hartford from February 1997 to January 2002, as President and Chief Executive Officer of Hartford Life, Inc. from February 1997 to January 2002, and as President and Chief Operating Officer of The Hartford Life Insurance Companies from January 1989 to January 2002. Mr. Smith serves as a Director of White Mountains Insurance Group Ltd. (October 2003 to current); One Beacon Insurance (October 2006 to current); Symetra Financial (August 2007 to current) and is a Managing Director of Whittington Gray Associates (January 2007 to current).
* Mr. Smith resigned as a Director of Hartford Mutual Funds, Inc., Hartford Mutual Funds II, Inc., HSF and HSF2 and as a Trustee of The Hartford Alternative Strategies Fund effective September 17, 2014.
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Hartford Disciplined Equity HLS Fund |
Directors and Officers (Unaudited) – (continued) |
Other Officers
Mark A. Annoni (1964) Vice President, Controller and Treasurer since 2012
Mr. Annoni currently serves as the Assistant Vice President of HLIC (February 2004 to present) and Senior Vice President of HFMG (December 2013 to present). Mr. Annoni has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Annoni joined The Hartford in 2001.
Michael R. Dressen (1963) AML Compliance Officer since 2011
Mr. Dressen currently serves as Assistant Vice President of HLIC. He also serves as Chief Compliance Officer and AML Compliance Officer of HASCO and as AML Officer of HFD. Mr. Dressen has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
Edward P. Macdonald (1967) Vice President, Secretary and Chief Legal Officer since 2005
Mr. Macdonald currently serves as Assistant Secretary, Executive Vice President and Deputy General Counsel of HFD, HASCO, HFMC and HFMG. He also serves as Vice President of HLIC. Mr. Macdonald has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Macdonald joined The Hartford in 2005.
Joseph G. Melcher (1973) Vice President and Chief Compliance Officer since 2013
Mr. Melcher currently serves as Executive Vice President of HFD, HFMG and HASCO. Mr. Melcher also currently serves as Executive Vice President and Chief Compliance Officer of HFMC. Mr. Melcher has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds since joining The Hartford in 2012. Prior to joining The Hartford, Mr. Melcher worked at Touchstone Investments, a member of the Western & Southern Financial Group, where he held the position of Vice President and Chief Compliance Officer from 2010 through 2012 and Assistant Vice President, Compliance from 2005 to 2010.
Vernon J. Meyer (1964) Vice President since 2006
Mr. Meyer currently serves as Senior Vice President of HLIC. He also currently serves as Managing Director and Chief Investment Officer of HFMC and Managing Director of HFMG. Mr. Meyer has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Meyer joined The Hartford in 2004.
Laura S. Quade (1969) Vice President since 2012
Ms. Quade currently serves as Vice President of HASCO, HFD and HFMG. She is the Head of Operations of HASCO and formerly served as Director, Enterprise Operations of HLIC. Ms. Quade has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Ms. Quade joined The Hartford in 2001.
Martin A. Swanson** (1962) Vice President since 2010
Mr. Swanson currently serves as Vice President of HLIC. Mr. Swanson also serves as Managing Director, Chief Marketing Officer and Principal of HFD and Managing Director of HFMG. Mr. Swanson has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
** Mr. Swanson resigned as an officer effective November 6, 2014.
HOW TO OBTAIN A COPY OF THE FUND’S PROXY VOTING POLICIES AND VOTING RECORDS (UNAUDITED)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information about how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov. The Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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Hartford Disciplined Equity HLS Fund |
Expense Example (Unaudited) |
Your Fund's Expenses
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including investment management fees, distribution and/or service (12b-1) fees, if any, and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period of June 30, 2014 through December 31, 2014.
Actual Expenses
The first set of columns of the table below provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second set of columns of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as taxes, sales charges (loads), or fees which may be applied at the variable life insurance, variable annuity, or qualified retirement plan product level. Therefore, the second set of columns of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would be higher. Expenses are equal to the Fund's annualized expense ratios multiplied by average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
Actual return | Hypothetical (5% return before expenses) | |||||||||||||||||||||||||||||||
Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Annualized expense ratio | Days in the current 1/2 year | Days in the full year | ||||||||||||||||||||||||
Class IA | $ | 1,000.00 | $ | 1,086.10 | $ | 3.94 | $ | 1,000.00 | $ | 1,021.42 | $ | 3.82 | 0.75 | % | 184 | 365 | ||||||||||||||||
Class IB | $ | 1,000.00 | $ | 1,084.50 | $ | 5.25 | $ | 1,000.00 | $ | 1,020.16 | $ | 5.09 | 1.00 | 184 | 365 |
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Hartford Disciplined Equity HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) |
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of directors, including a majority of those directors who are not “interested persons” of the mutual fund, as defined in the 1940 Act (the “Independent Directors”), annually review and consider the continuation of the mutual fund’s investment advisory and sub-advisory agreements. At its meeting held on August 5-6, 2014, the Board of Directors (the “Board”) of Hartford Series Fund, Inc., including each of the Independent Directors, unanimously voted to approve the continuation of the investment management agreement for Hartford Disciplined Equity HLS Fund (the “Fund”) with Hartford Funds Management Company, LLC (“HFMC”) and the continuation of the investment sub-advisory agreement between HFMC and the Fund’s sub-adviser, Wellington Management Company, LLP (the “Sub-adviser,” and together with HFMC, the “Advisers”) (collectively, the “Agreements”).
In the months preceding the August 5-6, 2014 meeting, the Board requested, received and reviewed written responses from the Advisers to questions posed to them on behalf of the Independent Directors and supporting materials relating to those questions and responses. The Board considered information furnished to the Board at its meetings throughout the year, as well as information specifically prepared in connection with the annual approval of the Agreements at the Board’s meetings held on June 17-18, 2014 and August 5-6, 2014. Information provided to the Board at its meetings throughout the year included, among other things, reports on Fund performance, legal and compliance matters, sales and marketing activity, shareholder services, and the other services provided to the Fund by the Advisers and their affiliates. The Board also received in-person presentations by Fund officers and representatives of HFMC at the Board’s meetings on June 17-18, 2014 and August 5-6, 2014 concerning the Agreements.
The Independent Directors, advised by independent legal counsel, engaged service providers to assist them with evaluating the Agreements with respect to the Fund. Lipper Inc. (“Lipper”), an independent provider of investment company data, was retained to provide the Board with reports on how the Fund’s contractual management fees, actual management fees, other non-management fees, overall expense ratios and investment performance compared to those of mutual funds with similar investment objectives. The Independent Directors also engaged an independent financial services consultant (the “Consultant”) to assist them in evaluating the Fund’s management fees, sub-advisory fees, other non-management fees, overall expense ratios and investment performance. In addition, the Consultant reviewed the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement.
In determining whether to continue the Agreements for the Fund, the members of the Board reviewed and evaluated information and factors they believed to be relevant and appropriate in light of the information that the Board deemed necessary and appropriate through the exercise of its reasonable business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination to continue the Agreements was based on a comprehensive consideration of all information provided to the Board throughout the year and specifically with respect to the continuation of the Agreements. A more detailed discussion of the factors the Board considered with respect to its approval of the Agreements is provided below.
Nature, Extent and Quality of Services Provided by the Advisers
The Board requested and considered information concerning the nature, extent and quality of the services provided to the Fund by the Advisers. The Board considered, among other things, the terms of the Agreements and the range of services provided by the Advisers. The Board considered the Advisers’ professional personnel who provide services to the Fund, including each Adviser’s ability and experience in attracting and retaining qualified personnel to service the Fund. The Board considered each Adviser’s reputation and overall financial strength, as well as its willingness to consider and implement organizational and operational changes designed to enhance services to the Hartford Funds. In addition, the Board considered the quality of each Adviser’s communications with the Board and responsiveness to Board inquiries and requests made from time to time with respect to the Fund and other Hartford Funds.
The Board also requested and evaluated information concerning each Adviser’s regulatory and compliance environment. In this regard, the Board requested and reviewed information on each Adviser’s compliance policies and procedures, compliance history, and a report from the Fund’s Chief Compliance Officer on each Adviser’s compliance with applicable laws and regulations, including responses to regulatory developments and compliance issues raised by regulators. The Board also noted the Advisers’ support of the Fund’s compliance control structure, particularly the resources devoted by the Advisers in support of the Fund’s obligations pursuant to Rule 38a-1 under the 1940 Act.
With respect to HFMC, the Board noted that under the Agreements, HFMC is responsible for the management of the Fund, including oversight of fund operations and service providers, as well as investment advisory services in connection with selecting, monitoring and supervising the Sub-adviser. The Board considered HFMC’s ongoing monitoring of people, process and performance, including its quarterly reviews of each of the Hartford Funds, semi-annual meetings with the leaders of each Fund’s portfolio management team, and oversight of the Hartford Funds’
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Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) - (continued) |
approximately 37 portfolio managers. The Board recognized that HFMC has demonstrated a record of making changes to the management and/or strategies of the Hartford Funds when warranted. The Board considered HFMC’s oversight of the Sub-adviser’s investment approach and results, process for monitoring best execution of portfolio trades by the Sub-adviser, and approach to risk management with respect to the Fund and the service providers to the Fund. The Board also considered HFMC’s oversight of compliance with the Fund’s objective and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over time led to an increase in the scope of HFMC’s services in this regard.
In addition, the Board considered HFMC’s ongoing commitment to review and rationalize the Hartford Funds product line-up and the expenses that HFMC had incurred in connection with fund combinations in recent years. The Board considered that HFMC or its affiliates are responsible for providing the Fund’s officers. The Board also noted that Hartford Life Insurance Company (“HLIC”) provides administrative services to the Fund. The Board considered its experiences with HFMC and HLIC with respect to each of these services.
With respect to the Sub-adviser, which provides certain day-to-day portfolio management services for the Fund, the Board considered the quality of the Fund’s portfolio manager, the Sub-adviser’s other investment personnel, its investment philosophy and process, investment research capabilities and resources, performance record, trade execution capabilities and experience. The Board considered the experience of the Fund’s portfolio manager, the number of accounts managed by the portfolio manager, and the Sub-adviser’s method for compensating the portfolio manager.
Based on these considerations, the Board concluded that it was satisfied with the nature, extent and quality of the services provided to the Fund by HFMC and the Sub-adviser.
Performance of the Fund and the Advisers
The Board considered the investment performance of the Fund. In this regard, the Board reviewed the performance of the Fund over different time periods presented in the materials and evaluated HFMC’s analysis of the Fund’s performance for these time periods. The Board considered information and materials provided to the Board by the Advisers concerning Fund performance, as well as information from Lipper comparing the investment performance of the Fund to an appropriate benchmark and universe of peer funds. The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1- and 3-year periods and the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was above its benchmark for the 1-, 3- and 5-year periods.
The Board considered the detailed investment analytics reports provided by Hartford Funds’ Investment Advisory Group throughout the year. These reports include, among other things, information on the Fund’s gross and net returns, the Fund’s investment performance relative to an appropriate benchmark and peer group, various statistics concerning the Fund’s portfolio, and a narrative summary of various factors affecting Fund performance. The Board considered the Advisers’ cooperation with the Investment Committee, which assists the Board in evaluating the performance of the Fund at periodic meetings throughout the year. The Board also considered the analysis provided by the Consultant relating to the Fund’s performance track record.
In light of all the considerations noted above, the Board concluded that it had continued confidence in HFMC’s and the Sub-adviser’s overall capabilities to manage the Fund.
Costs of the Services and Profitability of the Advisers
The Board reviewed information regarding HFMC’s cost to provide investment management and related services to the Fund and HFMC’s profitability, both overall and for the Fund, on a pre-tax basis without regard to distribution expenses. The Board also requested and reviewed information about the profitability to HFMC and its affiliates from all services provided to the Fund and all aspects of their relationship with the Fund. The Board also requested and received information relating to the operations and profitability of the Sub-adviser.
The Board considered the Consultant’s review of the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement, noting the Consultant’s view that Hartford Funds’ process for calculating and reporting Fund profitability is reasonable. In this regard, the Board noted that the Consultant performed a full review of this process in light of the recent restructuring of the Hartford Funds business and reported that the approach to analyzing Fund profitability, including the use of common expense allocation methodologies, is reasonable, sound and well within common industry practice.
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Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) - (continued) |
Based on these considerations, the Board concluded that the profits anticipated to be realized by the Advisers and their affiliates from their relationships with the Fund would not be excessive.
Comparison of Fees and Services Provided by the Advisers
The Board considered comparative information with respect to the management fees to be paid by the Fund to HFMC and the total expense ratios of the Fund. The Board also considered comparative information with respect to the sub-advisory fees to be paid by HFMC to the Sub-adviser. In this regard, the Board requested and reviewed information from HFMC and the Sub-adviser relating to the management and sub-advisory fees, including the sub-advisory fee schedule for the Fund, and total operating expenses for the Fund. The Board considered that the management fee for the Fund includes the fee paid to HLIC for providing certain administrative services to the Fund. With respect to the sub-advisory fee schedule, the Board considered representations from HFMC and the Sub-adviser that the Sub-adviser’s fees were negotiated at arm’s length on a fund-by-fund basis. The Board also reviewed information from Lipper comparing the Fund’s contractual management fees, actual management fees and overall expense ratios relative to a group of funds selected by Lipper, in consultation with the Consultant, and a broader universe of funds selected by Lipper. The Board noted that the Fund’s contractual management fee and total expenses (less 12b-1 and shareholder service fees) were in the 3rd quintile of its expense group, while its actual management fee was in the 4th quintile.
While the Board recognized that comparisons between the Fund and peer funds may be imprecise, given the different service levels and characteristics of mutual funds and the different business models and cost structures of the Advisers, the comparative information provided by Lipper assisted the Board in evaluating the reasonableness of the Fund’s management and sub-advisory fees and total operating expenses. In addition, the Board considered the analysis and recommendations of the Consultant relating to the Fund’s management and sub-advisory fees and total operating expenses.
Based on these considerations, the Board concluded that the Fund’s fees and total operating expenses, in conjunction with the information about quality of services, profitability, economies of scale, and other matters discussed, were reasonable in light of the services provided.
Economies of Scale
The Board requested and considered information regarding the Advisers’ realization of economies of scale with respect to the Fund and whether the fee levels reflect these economies of scale for the benefit of the Fund’s shareholders. The Board reviewed the breakpoints in the management fee schedule for the Fund, which reduce fee rates as Fund assets grow over time. The Board recognized that a fund with assets beyond the highest breakpoint level will continue to benefit from economies of scale because additional assets are charged the lowest breakpoint fee resulting in lower overall effective management fee rates. The Board also recognized that a fee schedule that reaches a lower breakpoint quickly provides shareholders with the benefit of anticipated or potential economies of scale. The Board noted the effect of the sale and run-off of the variable annuity business on the HLS Funds and also noted that the Fund’s current low asset levels have kept the Fund from fully realizing the benefits of anticipated or potential economies of scale.
The Board reviewed and evaluated materials from Lipper and the Consultant showing how management fee schedules of peer funds reflect economies of scale for the benefit of shareholders as a peer fund’s assets hypothetically increase over time. Based on information provided by HFMC, Lipper, and the Consultant, the Board recognized that there is no uniform methodology for establishing breakpoints or uniform pattern in asset levels that trigger breakpoints or the amounts of breakpoints triggered.
After considering all of the information available to it, the Board concluded that it was satisfied with the extent to which economies of scale would be shared for the benefit of the Fund’s shareholders based on currently available information and the effective advisory fees and expense ratios for the Fund at its current and reasonably anticipated asset levels. The Board noted, however, that it would continue to monitor future growth in Fund assets and the appropriateness of additional breakpoints.
Other Benefits
The Board considered other benefits to the Advisers and their affiliates from their relationships with the Fund, including the role of the Fund in supporting the variable life insurance and variable annuity products offered by The Hartford.
The Board noted that HLIC, an affiliate of HFMC, receives fees for providing certain administrative services to the Fund and that HFMC receives fees for fund accounting and related services from the Fund. The Board considered information on profits to HLIC and HFMC for such services. The Board also considered that Hartford Administrative Services Company (“HASCO”), the Fund’s transfer agent and an affiliate of HFMC, receives transfer agency compensation from the Fund, and the Board reviewed information on the profitability of the Fund’s transfer agency
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Hartford Disciplined Equity HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) - (continued) |
function to HASCO. The Board considered information provided by HASCO indicating that the transfer agent fees charged by HASCO to the Fund were fair and reasonable based on publicly available information.
The Board also considered that Hartford Funds Distributors, LLC (“HFD”), an affiliate of HFMC, serves as principal underwriter of the Fund. As principal underwriter, HFD receives 12b-1 fees from the Fund. The Board also noted that certain affiliates of HFD distribute shares of the Fund and receive compensation in that connection.
The Board considered benefits to the Sub-adviser from its use of the Fund’s brokerage commissions to obtain soft dollar research, and representations from HFMC and the Sub-adviser that the Sub-adviser would not make any revenue-sharing payments or any other type of distribution payments to HFMC or its affiliates.
The Board considered the benefits to shareholders of being part of the Hartford Funds family of funds. The Board considered HFMC’s efforts to provide investors in the family with a broad range of investment styles and asset classes.
* * * *
Based upon its review of these various factors, among others, the Board concluded that it is in the best interests of the Fund and its shareholders for the Board to approve the Agreements for an additional year. In reaching this decision, the Board did not assign relative weights to the factors discussed above or deem any one or group of them to be controlling in and of themselves. In connection with their deliberations, the Independent Directors met separately in executive session on several occasions, with independent legal counsel and the Consultant, to review the relevant materials and consider their responsibilities under relevant laws and regulations.
31 |
Hartford Disciplined Equity HLS Fund |
Main Risks (Unaudited) |
The main risks of investing in the Fund are described below.
Market, Selection and Strategy Risk: The Fund’s share price may fluctuate due to market risk and/or security selections that may underperform the market or relevant benchmarks. If the sub-adviser's investment strategy does not perform as expected, the Fund could underperform its peers or lose money. There is no guarantee the Fund will achieve its stated objective.
Foreign Investment Risk: Investments in foreign securities may be riskier than investments in U.S. securities. Potential risks include the risks of illiquidity, increased price volatility, less government regulation, less extensive and less frequent accounting and other reporting requirements, unfavorable changes in currency exchange rates, and economic and political disruptions.
Quantitative Analysis Risk: The Fund uses quantitative analysis in its securities selection; securities selected by this method may perform differently from the broader stock market.
Active Trading Risk: Actively trading investments may result in higher costs (thus affecting performance).
32 |
THIS PRIVACY POLICY IS NOT PART OF THIS REPORT
Privacy Policy and Practices of The Hartford Financial Services Group, Inc. and its Affiliates
(herein called “we, our and us”)
This Privacy Policy applies to our United States Operations
We value your trust. We are committed to the responsible: a) management; b) use; and c) protection; of Personal Information.
This notice describes how we collect, disclose, and protect Personal Information.
We collect Personal Information to: a) service your Transactions with us; and b) support our business functions.
We may obtain Personal Information from: a) You; b) your Transactions with us; and c) third parties such as a consumer-reporting agency.
Based on the type of product or service You apply for or get from us, Personal Information such as: a) your name; b) your address; c) your income; d) your payment; or e) your credit history; may be gathered from sources such as applications, Transactions, and consumer reports.
To serve You and service our business, we may share certain Personal Information. We will share Personal Information, only as allowed by law, with affiliates such as: a) our insurance companies; b) our employee agents; c) our brokerage firms; and d) our administrators.
As allowed by law, we may share Personal Financial Information with our affiliates to: a) market our products; or b) market our services; to You without providing You with an option to prevent these disclosures.
| We may also share Personal Information, only as allowed by law, with unaffiliated third parties including: a) independent agents; b) brokerage firms; c) insurance companies; d) administrators; and e) service providers; who help us serve You and service our business.
When allowed by law, we may share certain Personal Financial Information with other unaffiliated third parties who assist us by performing services or functions such as: a) taking surveys; b) marketing our products or services; or c) offering financial products or services under a joint agreement between us and one or more financial institutions.
We, and third parties we partner with, may track some of the pages You visit through the use of: a) cookies; b) pixel tagging; or c) other technologies; and currently do not process or comply with any web browser’s “do not track” signal or similar mechanism that indicates a request to disable online tracking of individual users who visit our websites or use our services.
We will not sell or share your Personal Financial Information with anyone for purposes unrelated to our business functions without offering You the opportunity to: a) “opt-out;” or b) “opt-in;” as required by law.
We only disclose Personal Health Information with: a) your proper written authorization; or b) as otherwise allowed or required by law.
Our employees have access to Personal Information in the course of doing their jobs, such as: a) underwriting policies; b) paying claims; c) developing new products; or d) advising customers of our products and services.
|
We use manual and electronic security procedures to maintain: a) the confidentiality; and b) the integrity of; Personal Information that we have. We use these procedures to guard against unauthorized access.
Some techniques we use to protect Personal Information include: a) secured files; b) user authentication; c) encryption; d) firewall technology; and e) the use of detection software.
We are responsible for and must: a) identify information to be protected; b) provide an adequate level of protection for that data; c) grant access to protected data only to those people who must use it in the performance of their job-related duties.
Employees who violate our Privacy Policy will be subject to discipline, which may include ending their employment with us.
At the start of our business relationship, we will give You a copy of our current Privacy Policy.
We will also give You a copy of our current Privacy Policy once a year if You maintain a continuing business relationship with us.
We will continue to follow our Privacy Policy regarding Personal Information even when a business relationship no longer exists between us.
| As used in this Privacy Notice:
Application means your request for our product or service.
Personal Financial Information means financial information such as: a) credit history; b) income; c) financial benefits; or d) policy or claim information.
Personal Health Information means health information such as: a) your medical records; or b) information about your illness, disability or injury.
Personal Information means information that identifies You personally and is not otherwise available to the public. It includes: a) Personal Financial Information; and b) Personal Health Information .
Transaction means your business dealings with us, such as: a) your Application; b) your request for us to pay a claim; and c) your request for us to take an action on your account.
You means an individual who has given us Personal Information in conjunction with: a) asking about; b) applying for; or c) obtaining; a financial product or service from us if the product or service is used mainly for personal, family, or household purposes. |
This Privacy Policy is being provided on behalf of the following affiliates of The Hartford Financial Services Group, Inc.:
1stAGChoice, Inc.; Access CoverageCorp, Inc.; Access CoverageCorp Technologies, Inc.; American Maturity Life Insurance Company; Archway 60 R, LLC; Business Management Group, Inc.; DMS R, LLC; First State Insurance Company; Fountain Investors I LLC; Fountain Investors II LLC; Fountain Investors III LLC; Fountain Investors IV LLC; FTC Resolution Company LLC; Hart Re Group L.L.C.; Hartford Accident and Indemnity Company; Hartford Administrative Services Company; Hartford Casualty General Agency, Inc.; Hartford Casualty Insurance Company; Hartford Financial Services, LLC; Hartford Fire General Agency, Inc.; Hartford Fire Insurance Company; Hartford Funds Distributors, LLC; Hartford Funds Management Company, LLC; Hartford Funds Management Group, Inc.; Hartford Holdings, Inc.; Hartford HLS Series Fund II, Inc.; Hartford Insurance Company of Illinois; Hartford Insurance Company of the Midwest; Hartford Insurance Company of the Southeast; Hartford Integrated Technologies, Inc.; Hartford International Life Reassurance Corporation; Hartford Investment Management Company; Hartford Life and Accident Insurance Company; Hartford Life and Annuity Insurance Company; Hartford Life Insurance Company; Hartford Life, Inc.; Hartford Life International Holding Company; Hartford Life Private Placement, LLC; Hartford Lloyd’s Corporation; Hartford Lloyd’s Insurance Company; Hartford of Texas General Agency, Inc.; Hartford Residual Market, L.C.C.; Hartford Securities Distribution Company, Inc.; Hartford Series Fund, Inc.; Hartford Specialty Insurance Services of Texas, LLC; Hartford Strategic Investments, LLC; Hartford Underwriters General Agency, Inc.; Hartford Underwriters Insurance Company; Hartford-Comprehensive Employee Benefit Service Company; HDC R, LLC.; Heritage Holdings, Inc.; HIMCO Distribution Services Company; HIMCO Variable Insurance Trust; HLA LLC; HL Investment Advisors, LLC; Horizon Management Group, LLC; HRA Brokerage Services, Inc.; Lanidex Class B, LLC; New England Insurance Company; New England Reinsurance Corporation; Nutmeg Insurance Agency, Inc.; Nutmeg Insurance Company; Pacific Insurance Company, Limited; Planco, LLC; Property and Casualty Insurance Company of Hartford; Revere R, LLC; RVR R, LLC; Sentinel Insurance Company, Ltd.; Sunstone R, LLC; Symphony R, LLC; The Evergreen Group Incorporated; The Hartford Alternative Strategies Fund; The Hartford Mutual Funds, Inc.; The Hartford Mutual Funds II, Inc.; Trumbull Flood Management, L.L.C.; Trumbull Insurance Company; Twin City Fire Insurance Company.
HPP Revised February 2015
HARTFORD HLS FUNDS | |
P.O. Box 14293 | |
Lexington, KY 40512-4293 | |
HARTFORDFUNDS
hartfordfunds.com
Hartford HLS Funds are underwritten and distributed by Hartford Funds Distributors, LLC.
Hartford Series Fund, Inc. is not a subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford") but is underwritten, distributed by and advised by subsidiaries of The Hartford. Investments in Hartford Series Fund, Inc. are not guaranteed by The Hartford or any other entity.
This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution unless preceded or accompanied by a current prospectus for the Fund.
Investors should carefully consider the investment objectives, risks, charges, and expenses of Hartford Funds before investing. This and other information can be found in the prospectus and summary prospectus, which can be obtained by calling 888-843-7824 (or 800-279-1541 for institutional investors). Investors should read them carefully before they invest.
HLSAR-DE14 2-15 115338-2 Printed in U.S.A.
HARTFORDFUNDS
![]() | HARTFORD DIVIDEND AND
GROWTH HLS FUND
2014 Annual Report |
A MESSAGE FROM THE PRESIDENT
Dear Fellow Shareholders:
Thank you for investing in Hartford HLS Funds.
Market Review
Nearly six years into a bull market, U.S. equities (as represented by the S&P 500 Index ) notched another positive year in 2014, finishing with a 13.69% gain. Progress was smooth for most of the year, with stocks generally rising amid little volatility. In the fourth quarter, however, the price of oil declined by nearly 40%, returning volatility to the market and paring some of the year’s returns.
As we enter 2015, the price of oil will likely continue playing an important role in market progress, as its effects are widespread. If prices remain low, consumers should benefit by paying less at the gas pump, which increases the amount of money available for discretionary spending. In contrast, low prices may be a detriment to the oil and natural gas industry in the U.S., as well as to the economies of countries that rely more heavily on oil exports.
Central-bank policies will also continue to influence the markets. The U.S. economy has continued to show self-sustaining growth, which has prompted the U.S. Federal Reserve to wind down the quantitative easing programs it initiated after the global financial crisis. In addition, gradual increases in interest rates are expected to begin in 2015, another sign of positive recovery and a return to pre-crisis policy. But in Europe, a slow recovery and fears of deflation have prompted the start of European Central Bank’s own version of quantitative easing to spur growth.
The final weeks of 2014 provided a stark reminder of how unpredictable market movements can be, and how important it is to maintain a diversified portfolio that’s in line with your time horizon and risk tolerance. As we begin 2015, take time to review your portfolio and your overall investment strategy with your financial advisor.
With more than 40 mutual-fund strategies that span a variety of asset classes and investment goals, your financial advisor can work with you to choose options within our fund family that can help you navigate today’s markets with confidence.
Thank you again for investing with Hartford HLS Funds.
James Davey
President
Hartford HLS Funds
1The S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
Hartford Dividend and Growth HLS Fund
Table of Contents
This report is prepared for the general information of contract owners and qualified retirement plan participants. It is not an offer of contracts or of qualified retirement plans. It should not be used in connection with any offer, except in conjunction with the appropriate product prospectus which contains all pertinent information including the applicable sales, administrative and other charges.
The views expressed in the Fund’s Manager Discussion under ‘‘Why did the Fund perform this way?’’ and ‘‘What is the outlook?’’ are views of the Fund’s sub-adviser and portfolio management team through the end of the period and are subject to change based on market and other conditions. The Fund’s Manager Discussion is for informational purposes only and does not represent an offer, recommendation or solicitation to buy, hold or sell any security. The specific securities identified and described, if any, do not represent all of the securities purchased or sold and you should not assume that investments in the securities identified and discussed will be profitable.
Hartford Dividend and Growth HLS Fund inception 03/09/1994
(sub-advised by Wellington Management Company, LLP)
Investment objective – The Fund seeks a high level of current income consistent with growth of capital.
Performance Overview 12/31/04 - 12/31/14
The chart above represents the hypothetical growth of a $10,000 investment in Class IA. Growth results in classes other than Class IA will vary from what is seen above due to differences in the expenses charged to those share classes.
Average Annual Total Returns (as of 12/31/14)
1 Year | 5 Years | 10 Years | |
Dividend and Growth IA | 12.96% | 14.19% | 8.49% |
Dividend and Growth IB | 12.68% | 13.91% | 8.22% |
Russell 1000 Value Index | 13.45% | 15.42% | 7.30% |
S&P 500 Index | 13.69% | 15.45% | 7.67% |
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of the investment will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain performance data current to the most recent month-end, please visit our website www.hartfordfunds.com.
Total returns presented above were calculated using the Fund’s net asset value available to shareholders for sale or redemption of Fund shares on December 31, 2014, which may exclude investment transactions as of this date. All share class returns assume the reinvestment of all distributions at net asset value and the deduction of all fund expenses.
Russell 1000 Value Index is an unmanaged index that measures the performance of those Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth values. The Russell 1000 Index is an unmanaged index that measures the performance of the 1,000 largest companies in the Russell 3000 Index, which measures the performance of the 3,000 largest U.S. companies, based on total market capitalizations.
S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
The indices are unmanaged, and their results include reinvested dividends and/or distributions, but do not reflect the effect of sales charges, commissions, expenses or taxes.
You cannot invest directly in an index.
As shown in the Fund's current prospectus dated May 1, 2014, the total annual operating expense ratios for Class IA and Class IB were 0.67% and 0.92%, respectively. Actual expenses may be higher. Please see the accompanying Financial Highlights for expense ratios for the year ended December 31, 2014.
The chart and table do not reflect the deductions of taxes, sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees or expenses would lower the contract’s or plan’s performance.
All investments are subject to risk including the possible loss of principal. For a discussion of the Fund’s risks, please see the Main Risks section of this report. For more detailed information on the risks associated with an investment in the Fund, please see the prospectus.
2 |
Hartford Dividend and Growth HLS Fund
Manager Discussion
December 31, 2014 (Unaudited)
Portfolio Managers | ||
Edward P. Bousa, CFA | Donald J. Kilbride | Matthew G. Baker |
Senior Managing Director and Equity Portfolio Manager | Senior Managing Director and Equity Portfolio Manager | Senior Managing Director and Equity Portfolio Manager |
How did the Fund perform?
The Class IA shares of the Hartford Dividend and Growth HLS Fund returned 12.96% for the twelve-month period ended December 31, 2014, underperforming the Fund’s benchmark, the S&P 500 Index, which returned 13.69% for the same period. The Fund also underperformed the Russell 1000 Value Index, which returned 13.45% for the same period. The Fund outperformed the 9.76% average return of the Lipper Equity Income Funds peer group, a group of funds with investment strategies similar to those of the Fund.
Why did the Fund perform this way?
U.S. equities surged during the period, despite bouts of significant volatility. After finishing their best year since 1997, U.S. stocks began 2014 with their worst month in nearly two years. Worries about an economic slowdown in China and general angst surrounding emerging markets overshadowed a fairly benign domestic environment. However, robust merger and acquisition activity, an uncontested increase in the debt ceiling from Congress, renewed signs of life in the housing market, and the best payroll gain in more than two years helped stoke investors' risk appetites in the first half of the period. A pullback in July ended a streak of five consecutive monthly gains. Fear gripped the market as heightened geopolitical risks, a potential Portuguese banking crisis, and worries of U.S. Federal Reserve (Fed) tightening took center stage. Stocks rebounded in August based on encouraging economic data, headlined by better-than-expected gross domestic product (GDP) growth and signs that the housing recovery still had legs. However, the reality of quantitative easing ending and the prospect of higher federal funds rates in mid-2015 contributed to increased risk aversion levels. Stocks rebounded again in October, hitting an all-time high on the heels of a positive earnings season and generally solid economic data. The rally continued in November after Republicans took control of the U.S. Senate but stocks pulled back slightly near month-end, led by weakness in the Energy sector associated with the significant decline in oil prices. In December, U.S. equities closed at an all-time high on December 29th but fell 1.4% during the final two trading days of the year. The Fed helped to support riskier assets at the end of the year after it stated it can be "patient" with regards to starting the process of bringing interest rates to normal levels. Returns also varied noticeably by market-cap, as small- and mid-cap stocks underperformed large-cap stocks.
Overall equity market performance was positive for the period across all market capitalizations: mid caps (+10%), large cap equities (+14%), and small caps (+5%) all rose as represented by the S&P MidCap 400, S&P 500, and Russell 2000 Indices, respectively. During the twelve-month period, nine of the ten sectors within the S&P 500 Index posted positive returns, led by Utilities (+29%) Healthcare (+25%), and Information Technology (+20%).
The Fund’s performance relative to the S&P 500 Index benefitted from strong security selection in Consumer Discretionary, Industrials, and Information Technology as well as an overweight in the Healthcare sector and our underweight in the Consumer Discretionary sector. However, this was more than offset by weaker stock selection in the Financials and Healthcare sectors, an underweight to Information Technology, and the drag associated with a modest cash position held in an upward trending market.
The Fund’s top detractors from returns relative to the S&P 500 Index were Apple (Information Technology), Chevron (Energy), and Verizon Communications (Telecommunication Services). Shares of Apple, a U.S.-based designer and manufacturer of consumer electronics, software, and computers, hit record-high levels toward the end of the period driven by strong demand for the iPhone 6 and 6 Plus. The company also reported strong quarterly results throughout the year. Our underweight position in the strong performing S&P 500 Index constituent detracted from relative returns. Shares of Chevron, a U.S.-based integrated oil and gas company, fell during the period. The company faced performance struggles as new problems at the Angola liquid natural gas plant will increase the risk that guidance on plant production is reduced for 2015 and guidance on the firm’s costs is raised. Moreover, energy stocks broadly slid as oil prices tumbled to five-year lows at the end of the period. Shares of Verizon Communications, a U.S.-based provider of wireline, wireless, internet, and television services, fell modestly during the period. The Telecommunication Services sector was under pressure during August, in part due to adverse merger and acquisition headlines, particularly Sprint ending its pursuit of T-Mobile. Exxon Mobil (Energy) and Marathon Oil (Energy) also detracted from absolute returns.
The Fund’s top contributors to performance relative to the S&P 500 Index during the period were Google (Information Technology), Delta Air Lines (Industrials), and Amazon.com (Consumer Discretionary). Shares of Google, a U.S.-based leading internet search provider, underperformed the broader market during the year. Third quarter revenues fell short of consensus estimates and concerns regarding costs placed pressure on the stock price. Our underweight exposure to the stock contributed to relative returns. We reestablished a position in Google late in the period on these weaknesses. Shares of Delta Air Lines, a U.S.-based air carrier, rose on strong third quarter results with solid earnings and operating profit improvement. Shares
3 |
Hartford Dividend and Growth HLS Fund
Manager Discussion – (continued)
December 31, 2014 (Unaudited)
of Amazon.com, a U.S.-based global e-commerce retailer, underperformed as investors became concerned with slightly slowing revenue growth and the impact of a price increase for Prime customers. Not owning the poor performing S&P 500 Index constituent contributed to relative returns. Wells Fargo (Financials), Microsoft (Information Technology), and Intel (Information Technology) were among the top contributors to absolute performance.
Derivatives are not used in a significant manner in this Fund and did not have a material impact on performance during the period.
What is the outlook?
Relative to the rest of the world, the U.S. economy still appears to be holding up better. The U.S. economy has strengthened recently and we now believe that GDP growth in the 2.5% range is achievable in 2015. We continue to search for investment ideas that fit with our process and philosophy. We remain focused on the significance of dividends, positive capital stewardship, and franchise value. We believe we have a solid portfolio of undervalued market leaders, stocks in industries with improving supply/demand trends, and strong companies that are temporarily out of market favor. At the end of the period, our largest overweights were to the Financials and Industrials sectors, while we remained underweight the Consumer Discretionary and Information Technology sectors, relative to the S&P 500 Index.
Diversification by Sector
as of December 31, 2014
Sector | Percentage of Net Assets | |||
Equity Securities | ||||
Consumer Discretionary | 7.2 | % | ||
Consumer Staples | 7.5 | |||
Energy | 9.0 | |||
Financials | 21.2 | |||
Health Care | 16.5 | |||
Industrials | 13.8 | |||
Information Technology | 15.2 | |||
Materials | 2.2 | |||
Services | 2.5 | |||
Utilities | 3.3 | |||
Total | 98.4 | % | ||
Short-Term Investments | 1.6 | |||
Other Assets and Liabilities | 0.0 | |||
Total | 100.0 | % |
A sector may be comprised of several industries. For Fund compliance purposes, the Fund may not use the same classification system and these sector classifications are used for reporting ease.
4 |
Hartford Dividend and Growth HLS Fund
Schedule of Investments
December 31, 2014
(000’s Omitted)
Shares or Principal Amount | Market Value ╪ | |||||||
Common Stocks - 98.4% | ||||||||
Automobiles and Components - 1.7% | ||||||||
3,352 | Ford Motor Co. | $ | 51,963 | |||||
544 | Honda Motor Co., Ltd. ADR | 16,068 | ||||||
68,031 | ||||||||
Banks - 7.6% | ||||||||
455 | Bank of Nova Scotia | 25,953 | ||||||
768 | PNC Financial Services Group, Inc. | 70,089 | ||||||
635 | US Bancorp | 28,545 | ||||||
3,318 | Wells Fargo & Co. | 181,872 | ||||||
306,459 | ||||||||
Capital Goods - 7.1% | ||||||||
316 | Caterpillar, Inc. | 28,927 | ||||||
537 | Eaton Corp. plc | 36,509 | ||||||
1,572 | General Electric Co. | 39,712 | ||||||
504 | Honeywell International, Inc. | 50,397 | ||||||
68 | Lockheed Martin Corp. | 13,165 | ||||||
433 | Raytheon Co. | 46,806 | ||||||
626 | Textron, Inc. | 26,357 | ||||||
409 | United Technologies Corp. | 47,059 | ||||||
288,932 | ||||||||
Commercial and Professional Services - 2.3% | ||||||||
503 | Equifax, Inc. | 40,679 | ||||||
1,146 | Nielsen N.V. | 51,256 | ||||||
91,935 | ||||||||
Consumer Services - 0.6% | ||||||||
409 | Las Vegas Sands Corp. | 23,761 | ||||||
Diversified Financials - 6.4% | ||||||||
135 | Ameriprise Financial, Inc. | 17,816 | ||||||
1,786 | Bank of America Corp. | 31,947 | ||||||
177 | BlackRock, Inc. | 63,342 | ||||||
920 | Citigroup, Inc. | 49,797 | ||||||
1,564 | JP Morgan Chase & Co. | 97,888 | ||||||
260,790 | ||||||||
Energy - 9.0% | ||||||||
524 | Anadarko Petroleum Corp. | 43,209 | ||||||
904 | Chevron Corp. | 101,369 | ||||||
185 | EOG Resources, Inc. | 17,063 | ||||||
1,016 | Exxon Mobil Corp. | 93,927 | ||||||
413 | Halliburton Co. | 16,243 | ||||||
676 | Imperial Oil Ltd. | 29,105 | ||||||
961 | Marathon Oil Corp. | 27,178 | ||||||
241 | Schlumberger Ltd. | 20,582 | ||||||
313 | Total S.A. ADR | 16,005 | ||||||
364,681 | ||||||||
Food and Staples Retailing - 3.4% | ||||||||
858 | CVS Health Corp. | 82,623 | ||||||
129 | Walgreens Boots Alliance Inc. | 9,830 | ||||||
542 | Wal-Mart Stores, Inc. | 46,551 | ||||||
139,004 | ||||||||
Food, Beverage and Tobacco - 3.1% | ||||||||
466 | Coca-Cola Co. | 19,679 | ||||||
268 | Kraft Foods Group, Inc. | 16,771 | ||||||
638 | Mondelez International, Inc. | 23,191 | ||||||
335 | Philip Morris International, Inc. | 27,295 | ||||||
970 | Unilever N.V. Class NY ADR | 37,871 | ||||||
124,807 | ||||||||
Health Care Equipment and Services - 4.2% | ||||||||
694 | Cardinal Health, Inc. | 56,009 | ||||||
941 | Medtronic, Inc. | 67,931 | ||||||
459 | UnitedHealth Group, Inc. | 46,374 | ||||||
170,314 | ||||||||
Household and Personal Products - 1.0% | ||||||||
455 | Procter & Gamble Co. | 41,485 | ||||||
Insurance - 7.2% | ||||||||
698 | ACE Ltd. | 80,206 | ||||||
234 | Aflac, Inc. | 14,307 | ||||||
585 | Marsh & McLennan Cos., Inc. | 33,511 | ||||||
731 | MetLife, Inc. | 39,520 | ||||||
887 | Principal Financial Group, Inc. | 46,071 | ||||||
853 | Prudential Financial, Inc. | 77,177 | ||||||
290,792 | ||||||||
Materials - 2.2% | ||||||||
775 | Dow Chemical Co. | 35,353 | ||||||
746 | Goldcorp, Inc. | 13,825 | ||||||
751 | International Paper Co. | 40,237 | ||||||
89,415 | ||||||||
Media - 3.5% | ||||||||
1,820 | Comcast Corp. Class A | 105,606 | ||||||
368 | Walt Disney Co. | 34,647 | ||||||
140,253 | ||||||||
Pharmaceuticals, Biotechnology and Life Sciences - 12.3% | ||||||||
743 | AstraZeneca plc ADR | 52,314 | ||||||
1,175 | Bristol-Myers Squibb Co. | 69,338 | ||||||
915 | Eli Lilly & Co. | 63,149 | ||||||
803 | Johnson & Johnson | 83,950 | ||||||
2,428 | Merck & Co., Inc. | 137,896 | ||||||
2,207 | Pfizer, Inc. | 68,736 | ||||||
478 | Zoetis, Inc. | 20,577 | ||||||
495,960 | ||||||||
Retailing - 1.4% | ||||||||
835 | Lowe's Cos., Inc. | 57,481 | ||||||
Semiconductors and Semiconductor Equipment - 3.6% | ||||||||
667 | Altera Corp. | 24,633 | ||||||
554 | Analog Devices, Inc. | 30,774 | ||||||
2,091 | Intel Corp. | 75,898 | ||||||
293 | Texas Instruments, Inc. | 15,660 | ||||||
146,965 | ||||||||
Software and Services - 7.2% | ||||||||
752 | Accenture plc | 67,163 | ||||||
84 | Google, Inc. Class A ● | 44,708 | ||||||
2,369 | Microsoft Corp. | 110,043 | ||||||
754 | Oracle Corp. | 33,907 | ||||||
1,337 | Symantec Corp. | 34,303 | ||||||
290,124 | ||||||||
Technology Hardware and Equipment - 4.4% | ||||||||
608 | Apple, Inc. | 67,135 | ||||||
373 | Avnet, Inc. | 16,050 | ||||||
2,315 | Cisco Systems, Inc. | 64,379 | ||||||
434 | Qualcomm, Inc. | 32,279 | ||||||
179,843 | ||||||||
Telecommunication Services - 2.5% | ||||||||
2,151 | Verizon Communications, Inc. | 100,636 | ||||||
Transportation - 4.4% | ||||||||
902 | CSX Corp. | 32,670 | ||||||
736 | Delta Air Lines, Inc. | 36,182 |
The accompanying notes are an integral part of these financial statements.
5 |
Hartford Dividend and Growth HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Shares or Principal Amount | Market Value ╪ | |||||||||||
Common Stocks - 98.4% - (continued) | ||||||||||||
Transportation - 4.4% - (continued) | ||||||||||||
226 | FedEx Corp. | $ | 39,300 | |||||||||
625 | United Parcel Service, Inc. Class B | 69,477 | ||||||||||
177,629 | ||||||||||||
Utilities - 3.3% | ||||||||||||
462 | Dominion Resources, Inc. | 35,498 | ||||||||||
719 | Exelon Corp. | 26,651 | ||||||||||
502 | NextEra Energy, Inc. | 53,309 | ||||||||||
670 | NRG Energy, Inc. | 18,061 | ||||||||||
133,519 | ||||||||||||
Total Common Stocks | ||||||||||||
(Cost $2,659,280) | $ | 3,982,816 | ||||||||||
Total Long-Term Investments | ||||||||||||
(Cost $2,659,280) | $ | 3,982,816 | ||||||||||
Short-Term Investments - 1.6% | ||||||||||||
Other Direct Federal Obligations - 0.5% | ||||||||||||
FHLB | ||||||||||||
$ | 21,903 | 0.13%, 2/20/2015 ○ | $ | 21,899 | ||||||||
Repurchase Agreements - 1.1% | ||||||||||||
Bank of America Merrill Lynch Repurchase Agreement (maturing on 01/02/2015 in the amount of $42, collateralized by U.S. Treasury Note 0.75%, 2018, value of $43) | ||||||||||||
$ | 42 | 0.05%, 12/31/2014 | $ | 42 | ||||||||
Bank of America Merrill Lynch TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $214, collateralized by U.S. Treasury Note 2.50%, 2024, value of $218) | ||||||||||||
214 | 0.07%, 12/31/2014 | 214 | ||||||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $5,572, collateralized by U.S. Treasury Bond 3.88% - 5.25%, 2029 - 2040, U.S. Treasury Note 0.25% - 4.63%, 2015 - 2022, value of $5,684) | ||||||||||||
5,572 | 0.06%, 12/31/2014 | 5,572 | ||||||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $2,428, collateralized by FHLMC 2.00% - 5.50%, 2019 - 2044, FNMA 2.00% - 4.00%, 2024 - 2042, GNMA 3.00%, 2043, U.S. Treasury Bill 0.07%, 2015, value of $2,476) | ||||||||||||
2,428 | 0.07%, 12/31/2014 | 2,428 | ||||||||||
Barclays Capital TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $5,968, collateralized by U.S. Treasury Bond 3.63%, 2043, U.S. Treasury Note 0.88% - 2.00%, 2017 - 2020, value of $6,087) | ||||||||||||
5,968 | 0.05%, 12/31/2014 | 5,968 | ||||||||||
Citigroup Global Markets, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $10,666, collateralized by U.S. Treasury Bond 3.63% - 9.88%, 2015 - 2043, U.S. Treasury Note 0.25% - 2.75%, 2015 - 2022, value of $10,879) | ||||||||||||
10,666 | 0.06%, 12/31/2014 | 10,666 | ||||||||||
Deutsche Bank Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $1,731, collateralized by FHLMC 2.00% - 10.50%, 2015 - 2047, FNMA 2.00% - 9.50%, 2015 - 2049, GNMA 2.50% - 10.00%, 2016 - 2055, value of $1,766) | ||||||||||||
1,731 | 0.12%, 12/31/2014 | 1,731 | ||||||||||
RBS Securities, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $454, collateralized by U.S. Treasury Note 0.38% - 2.13%, 2015 - 2016, value of $463) | ||||||||||||
454 | 0.07%, 12/31/2014 | 454 | ||||||||||
Societe Generale TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $5,074, collateralized by U.S. Treasury Bond 8.75%, 2020, U.S. Treasury Note 0.25% - 2.88%, 2015 - 2022, value of $5,176) | ||||||||||||
5,074 | 0.07%, 12/31/2014 | 5,074 | ||||||||||
TD Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $10,867, collateralized by FHLMC 3.00% - 4.00%, 2026 - 2044, FNMA 2.50% - 5.00%, 2025 - 2044, value of $11,085) | ||||||||||||
10,867 | 0.08%, 12/31/2014 | 10,867 | ||||||||||
43,016 | ||||||||||||
Total Short-Term Investments | ||||||||||||
(Cost $64,915) | $ | 64,915 | ||||||||||
Total Investments | ||||||||||||
(Cost $2,724,195) ▲ | 100.0 | % | $ | 4,047,731 | ||||||||
Other Assets and Liabilities | – | % | 767 | |||||||||
Total Net Assets | 100.0 | % | $ | 4,048,498 |
The accompanying notes are an integral part of these financial statements.
6 |
Hartford Dividend and Growth HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Note: Percentage of investments as shown is the ratio of the total market value to total net assets.
Equity industry classifications used in this report are the Global Industry Classification Standard, which was developed by and is the exclusive property and service mark of MSCI, Inc. and Standard & Poor’s.
For Fund compliance purposes, the Fund may not use the same classification system shown in this report as these classifications are used for reporting ease.
▲ | At December 31, 2014, the cost of securities for federal income tax purposes was $2,727,670 and the aggregate gross unrealized appreciation and depreciation based on that cost were: |
Unrealized Appreciation | $ | 1,360,242 | ||
Unrealized Depreciation | (40,181 | ) | ||
Net Unrealized Appreciation | $ | 1,320,061 |
● | Non-income producing. |
○ | The interest rate disclosed for these securities represents the effective yield on the date of the acquisition. |
╪ | See Significant Accounting Policies of accompanying Notes to Financial Statements regarding valuation of securities. |
GLOSSARY: (abbreviations used in preceding Schedule of Investments) | |
Other Abbreviations: | |
ADR | American Depositary Receipt |
FHLB | Federal Home Loan Bank |
FHLMC | Federal Home Loan Mortgage Corp. |
FNMA | Federal National Mortgage Association |
GNMA | Government National Mortgage Association |
The accompanying notes are an integral part of these financial statements.
7 |
Hartford Dividend and Growth HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Investment Valuation Hierarchy Level Summary |
December 31, 2014 |
Total | Level 1 ♦ | Level 2 ♦ | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Common Stocks ‡ | $ | 3,982,816 | $ | 3,982,816 | $ | — | $ | — | ||||||||
Short-Term Investments | 64,915 | — | 64,915 | — | ||||||||||||
Total | $ | 4,047,731 | $ | 3,982,816 | $ | 64,915 | $ | — |
♦ | For the year ended December 31, 2014, there were no transfers between Level 1 and Level 2. |
‡ | The Fund has all or primarily all of the equity securities categorized in a particular level. Refer to the Schedule of Investments for further industry breakout. |
Note: | For purposes of reporting transfers between different hierarchy levels, both transfers in and out of each level, as applicable, are shown as if they occurred at the beginning of the period. |
The accompanying notes are an integral part of these financial statements.
8 |
Hartford Dividend and Growth HLS Fund
Statement of Assets and Liabilities
December 31, 2014
(000’s Omitted)
Assets: | ||||
Investments in securities, at market value (cost $2,724,195) | $ | 4,047,731 | ||
Cash | — | |||
Receivables: | ||||
Investment securities sold | 2,433 | |||
Fund shares sold | 734 | |||
Dividends and interest | 5,063 | |||
Other assets | — | |||
Total assets | 4,055,961 | |||
Liabilities: | ||||
Payables: | ||||
Investment securities purchased | 3,737 | |||
Fund shares redeemed | 2,956 | |||
Investment management fees | 581 | |||
Distribution fees | 30 | |||
Accrued expenses | 159 | |||
Total liabilities | 7,463 | |||
Net assets | $ | 4,048,498 | ||
Summary of Net Assets: | ||||
Capital stock and paid-in-capital | $ | 2,222,683 | ||
Undistributed net investment income | 3,105 | |||
Accumulated net realized gain | 499,177 | |||
Unrealized appreciation of investments and the translations of assets and liabilities denominated in foreign currency | 1,323,533 | |||
Net assets | $ | 4,048,498 | ||
Shares authorized | 4,200,000 | |||
Par value | $ | 0.001 | ||
Class IA: Net asset value per share | $ | 26.45 | ||
Shares outstanding | 132,430 | |||
Net assets | $ | 3,502,492 | ||
Class IB: Net asset value per share | $ | 26.38 | ||
Shares outstanding | 20,699 | |||
Net assets | $ | 546,006 |
The accompanying notes are an integral part of these financial statements.
9 |
Hartford Dividend and Growth HLS Fund
Statement of Operations
For the Year Ended December 31, 2014
(000’s Omitted)
Investment Income: | ||||
Dividends | $ | 103,608 | ||
Interest | 32 | |||
Less: Foreign tax withheld | (814 | ) | ||
Total investment income, net | 102,826 | |||
Expenses: | ||||
Investment management fees | 27,013 | |||
Transfer agent fees | 6 | |||
Distribution fees - Class IB | 1,480 | |||
Custodian fees | 11 | |||
Accounting services fees | 504 | |||
Board of Directors' fees | 105 | |||
Audit fees | 40 | |||
Other expenses | 443 | |||
Total expenses (before fees paid indirectly) | 29,602 | |||
Commission recapture | (30 | ) | ||
Total fees paid indirectly | (30 | ) | ||
Total expenses, net | 29,572 | |||
Net Investment Income | 73,254 | |||
Net Realized Gain on Investments and Foreign Currency Transactions: | ||||
Net realized gain on investments | 526,084 | |||
Net realized gain on foreign currency contracts | — | |||
Net realized loss on other foreign currency transactions | (10 | ) | ||
Net Realized Gain on Investments and Foreign Currency Transactions | 526,074 | |||
Net Changes in Unrealized Depreciation of Investments and Foreign Currency Transactions: | ||||
Net unrealized depreciation of investments | (90,162 | ) | ||
Net unrealized depreciation on translation of other assets and liabilities in foreign currencies | (3 | ) | ||
Net Changes in Unrealized Depreciation of Investments and Foreign Currency Transactions | (90,165 | ) | ||
Net Gain on Investments and Foreign Currency Transactions | 435,909 | |||
Net Increase in Net Assets Resulting from Operations | $ | 509,163 |
The accompanying notes are an integral part of these financial statements.
10 |
Hartford Dividend and Growth HLS Fund
Statement of Changes in Net Assets
(000’s Omitted)
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Operations: | ||||||||
Net investment income | $ | 73,254 | $ | 81,116 | ||||
Net realized gain on investments and foreign currency transactions | 526,074 | 504,606 | ||||||
Net unrealized appreciation (depreciation) of investments and foreign currency transactions | (90,165 | ) | 630,298 | |||||
Net Increase in Net Assets Resulting from Operations | 509,163 | 1,216,020 | ||||||
Distributions to Shareholders: | ||||||||
From net investment income | ||||||||
Class IA | (64,044 | ) | (69,768 | ) | ||||
Class IB | (8,635 | ) | (10,132 | ) | ||||
Total from net investment income | (72,679 | ) | (79,900 | ) | ||||
From net realized gain on investments | ||||||||
Class IA | (428,416 | ) | (100,606 | ) | ||||
Class IB | (71,757 | ) | (16,432 | ) | ||||
Total from net realized gain on investments | (500,173 | ) | (117,038 | ) | ||||
Total distributions | (572,852 | ) | (196,938 | ) | ||||
Capital Share Transactions: | ||||||||
Class IA | ||||||||
Sold | 77,989 | 143,649 | ||||||
Issued on reinvestment of distributions | 492,460 | 170,374 | ||||||
Redeemed | (774,792 | ) | (1,089,386 | ) | ||||
Total capital share transactions | (204,343 | ) | (775,363 | ) | ||||
Class IB | ||||||||
Sold | 10,840 | 57,875 | ||||||
Issued on reinvestment of distributions | 80,392 | 26,564 | ||||||
Redeemed | (156,636 | ) | (193,494 | ) | ||||
Total capital share transactions | (65,404 | ) | (109,055 | ) | ||||
Net decrease from capital share transactions | (269,747 | ) | (884,418 | ) | ||||
Net Increase (Decrease) in Net Assets | (333,436 | ) | 134,664 | |||||
Net Assets: | ||||||||
Beginning of period | 4,381,934 | 4,247,270 | ||||||
End of period | $ | 4,048,498 | $ | 4,381,934 | ||||
Undistributed (distributions in excess of) net investment income | $ | 3,105 | $ | 2,679 | ||||
Shares: | ||||||||
Class IA | ||||||||
Sold | 2,826 | 5,815 | ||||||
Issued on reinvestment of distributions | 18,650 | 6,547 | ||||||
Redeemed | (28,062 | ) | (43,794 | ) | ||||
Total share activity | (6,586 | ) | (31,432 | ) | ||||
Class IB | ||||||||
Sold | 393 | 2,348 | ||||||
Issued on reinvestment of distributions | 3,059 | 1,025 | ||||||
Redeemed | (5,789 | ) | (7,843 | ) | ||||
Total share activity | (2,337 | ) | (4,470 | ) |
The accompanying notes are an integral part of these financial statements.
11 |
Hartford Dividend and Growth HLS Fund
Notes to Financial Statements
December 31, 2014
(000’s Omitted)
Organization:
Hartford Dividend and Growth HLS Fund (the "Fund") serves as an underlying investment option for certain variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company (“HLIC”) and its affiliates and certain qualified retirement plans. The Fund may also serve as an underlying investment option for certain variable annuity and variable life separate accounts of other insurance companies. Owners of variable annuity contracts and policyholders of variable life insurance contracts may choose the funds permitted in the variable insurance contract prospectus. In addition, participants in certain qualified retirement plans may choose the Fund if permitted by their plans.
Hartford Series Fund, Inc. (the “Company”) is an open-end registered management investment company comprised of fifteen portfolios. Financial statements for the Fund, a series of the Company, are included in this report.
The Company is organized under the laws of the State of Maryland and is registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (“1940 Act”). The Fund is a diversified open-end management investment company. The Fund is an investment company and applies specialized accounting and reporting under Accounting Standards Codification Topic 946, Financial Services - Investment Companies.
The Fund is divided into Class IA, Class IB and Class IC shares. Each class is offered at the per share net asset value (“NAV”) without a sales charge and is subject to the same expenses, except that the Class IB and Class IC shares are subject to distribution and service fees charged pursuant to a Distribution Plan adopted in accordance with Rule 12b-1 under the 1940 Act and Class IC shares are also subject to an administrative service fee. Class IC shares have not commenced operations as of the date of this report.
Significant Accounting Policies:
The following is a summary of significant accounting policies of the Fund in the preparation of its financial statements, which are in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The preparation of financial statements in accordance with U.S. GAAP may require 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
Determination of Net Asset Value – The NAV of each class of the Fund's shares is determined as of the close of regular trading (normally 4:00 p.m. Eastern Time) (the “NYSE Close”) on each day that the New York Stock Exchange (the “Exchange”) is open (“Valuation Date”). Information that becomes known to the Fund after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the NAV determined earlier that day.
Investment Valuation and Fair Value Measurements – For purposes of calculating the NAV, portfolio investments and other assets held by the Fund's portfolio for which market quotes are readily available are valued at market value. Market value is generally determined on the basis of last reported sales prices or official close price. If no sales are reported, market value is based on quotes obtained from a quotation reporting system, established market makers, or independent pricing services. If market prices are not readily available or are deemed unreliable, the Fund will use the fair value of the investment as determined in good faith under policies and procedures established by and under the supervision of the Company's Board of Directors. Market quotes are considered not readily available where there is an absence of current or reliable market-based data (e.g., trade information or indicative market quotes), including where events occur after the close of the relevant market, but prior to the NYSE Close, that materially affect the values of the Fund's portfolio investments or assets. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the investments trade do not open for trading for the entire day and no other market prices are available. There can be no assurance that the Fund could obtain the fair market value assigned to an investment if the Fund were to sell the investment at approximately the time at which the Fund determines its NAV.
Short-term investments maturing in 60 days or less are generally valued at amortized cost, if their original term to maturity was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if the original term to maturity exceeded 60 days.
12 |
Hartford Dividend and Growth HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Investments valued in currencies other than U.S. dollars are converted to U.S. dollars using exchange rates obtained from independent pricing services for calculation of the NAV. As a result, the NAV of the Fund’s shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of investments traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that the NYSE is closed and the market value may change on days when an investor is not able to purchase, redeem or exchange shares of the Fund.
Foreign currency contracts represent agreements to exchange currencies on specific future dates at predetermined rates. Foreign currency contracts are valued using foreign currency exchange rates and forward rates as provided by an independent pricing service on the Valuation Date.
Financial instruments for which prices are not available from an independent pricing service may be valued using market quotations obtained from one or more dealers that make markets in the respective financial instrument in accordance with procedures established by the Company's Board of Directors.
U.S. GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants. The U.S. GAAP fair value measurement standards require disclosure of a fair value hierarchy for each major category of assets and liabilities. Various inputs are used in determining the fair value of the Fund’s investments. These inputs are summarized into three broad hierarchy levels. This hierarchy is based on whether the valuation inputs are observable or unobservable. These levels are:
Level 1 – Quoted prices in active markets for identical investments. Level 1 may include exchange traded instruments, such as domestic equities, some foreign equities, options, futures, mutual funds, exchange traded funds, rights and warrants.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar investments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 2 may include debt investments that are traded less frequently than exchange traded instruments and which are valued using independent pricing services; foreign equities, which are principally traded on certain foreign markets and are adjusted daily pursuant to a fair value pricing service in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close; senior floating rate interests, which are valued using an aggregate of dealer bids; short-term investments, which are valued at amortized cost; and swaps, which are valued based upon the terms of each swap contract.
Level 3 – Significant unobservable inputs that are supported by limited or no market activity. Level 3 may include financial instruments whose values are determined using indicative market quotes or require significant management judgment or estimation. These unobservable valuation inputs may include estimates for current yields, maturity/duration, prepayment speed, and indicative market quotes for comparable investments along with other assumptions relating to credit quality, collateral value, complexity of the investment structure, general market conditions and liquidity. This category may include investments where trading has been halted or there are certain restrictions on trading. While these investments are priced using unobservable inputs, the valuation of these investments reflects the best available data and management believes the prices are a reasonable representation of exit price.
The Board of Directors of the Company generally reviews and approves the “Procedures for Valuation of Portfolio Securities” at least once a year. These procedures define how investments are to be valued, including the formation and activities of a Valuation Committee. The Valuation Committee is responsible for determining in good faith the fair value of investments when the value cannot be obtained from primary pricing services or alternative sources or if the valuation of an investment as provided by the primary pricing service or alternative source is believed not to reflect the investment’s fair value as of the Valuation Date. Voting members of the Valuation Committee include the Fund's Treasurer or designee and a Vice President of the investment manager or designee. An Assistant Vice President of the Fund with legal expertise or designee is also included on the Valuation Committee as a non-voting advisory member. In addition, the Fund’s Chief Compliance Officer shall designate a member of the compliance group to attend Valuation Committee meetings as a non-voting resource, to monitor for and provide guidance with respect to compliance with these procedures. Two members of the Valuation Committee or their designees, representing different departments, shall constitute a quorum for purposes of permitting the Valuation Committee to take action. The Valuation Committee will consider all relevant factors in determining an investment’s fair value, and may seek the advice of the Fund’s sub-
13 |
Hartford Dividend and Growth HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
adviser, knowledgeable brokers, and legal counsel in making such determination. The Valuation Committee reports to the Audit Committee of the Company's Board of Directors. The Audit Committee receives quarterly written reports which include details of all fair-valued investments, including the reason for the fair valuation, and an indication, when possible, of the accuracy of the valuation by disclosing the next available reliable public price quotation or the disposition price of such investments (the “look-back” test). The Board of Directors then must consider for ratification all of the fair value determinations made during the previous quarter.
Valuation levels are not necessarily indicative of the risk associated with investing in such investments. Individual investments within any of the above mentioned asset classes may be assigned a different hierarchical level than those presented above, as individual circumstances dictate.
For additional information, refer to the Investment Valuation Hierarchy Level Summary which is included in the Schedule of Investments.
Investment Transactions and Investment Income – Investment transactions are recorded as of the trade date (the date the order to buy or sell is executed) for financial reporting purposes. Investments purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Realized gains and losses are determined on the basis of identified cost.
Dividend income from domestic securities is accrued on the ex-dividend date. Interest income, including amortization of premium, accretion of discounts, inflation adjustments and additional principal received in-kind in lieu of cash, is accrued on a daily basis. Paydown gains and losses on mortgage related and other asset backed securities are included in interest income in the Statement of Operations, as applicable.
Foreign Currency Transactions – Assets and liabilities denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates in effect on the valuation date. Purchases and sales of investments, income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions.
The Fund does not isolate that portion of portfolio investment valuation resulting from fluctuations in the foreign currency exchange rates from the fluctuations arising from changes in the market prices of investments held. Exchange rate fluctuations are included with the net realized and unrealized gain or loss on investments in the accompanying financial statements.
Net realized foreign exchange gains or losses arise from sales of foreign currencies and the difference between asset and liability amounts initially stated in foreign currencies and the U.S. dollar value of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of other assets and liabilities at the end of the reporting period, resulting from changes in the exchange rates.
Joint Trading Account – The Fund may invest cash balances into a joint trading account that may be invested in one or more repurchase agreements.
Fund Share Valuation and Dividend Distributions to Shareholders – Orders for the Fund’s shares are executed in accordance with the investment instructions of the contract holders and plan participants. The NAV of the Fund’s shares is determined as of the close of business on each business day of the Exchange. The NAV is determined separately for each class of shares of the Fund by dividing the Fund’s net assets attributable to that class by the number of shares of the class outstanding. Each class of shares offered by the Fund has equal rights as to assets and voting privileges (except that shareholders of a class have exclusive voting rights regarding any matter relating solely to that class of shares). Income and non-class specific expenses are allocated daily to each class on the basis of the relative net assets of the class. Realized and unrealized gains and losses are allocated daily based on the relative net assets of each class of shares of the Fund.
Orders for the purchase of the Fund’s shares received prior to the close of the Exchange on any day the Exchange is open for business are priced at the NAV determined as of the close of the Exchange. Orders received after the close of the Exchange, or on a day on which the Exchange and/or the Fund is not open for business, are priced at the next determined NAV.
14 |
Hartford Dividend and Growth HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Dividends are declared pursuant to a policy adopted by the Company's Board of Directors based upon the investment performance of the Fund. The policy of the Fund is to pay dividends from net investment income and realized gains, if any, at least once a year.
Net investment income, dividends and distributions from net realized gains and capital are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP with respect to character and timing (see Federal Income Taxes: Distributions and Components of Distributable Earnings and Reclassification of Capital Accounts).
Securities and Other Investments:
Repurchase Agreements – A repurchase agreement is an agreement by which a counterparty agrees to sell an investment and agrees to repurchase the investment sold from the buyer at a mutually agreed upon time and price. During the period of the repurchase agreement, the counterparty will deposit cash and or securities in a third party custodial account to serve as collateral. At the time the Fund enters into a repurchase agreement, the value of the underlying collateral, including accrued interest, will be equal to or exceed the value of the repurchase agreement. Repurchase agreements expose the Fund to counterparty risk - that is, the risk that the counterparty will not fulfill its obligations. To minimize counterparty risk, the investments that serve to collateralize the repurchase agreement are held by the Fund’s custodian in book entry or physical form in the custodial account of the Fund or in a third party custodial account. Repurchase agreements are valued at cost plus accrued interest, which approximates fair value. Repurchase agreements have master netting arrangements which allow the Fund to offset amounts owed to a counterparty with amounts owed by the counterparty, including any collateral. Upon an event of default under a master repurchase agreement, the non-defaulting party may close out all transactions traded under such agreement and net amounts owed under each transaction to one net amount payable by one party to the other. Absent an event of default, the master repurchase agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty. The Fund, as shown on the Schedule of Investments, had outstanding repurchase agreements and related collateral as of December 31, 2014.
Investments Purchased on a When-Issued or Delayed-Delivery Basis – Delivery and payment for investments that have been purchased by the Fund on a forward commitment, or when-issued or delayed-delivery basis, take place beyond the customary settlement period. The Fund may dispose of or renegotiate a delayed-delivery transaction after it is entered into, and may sell delayed-delivery investments before they are delivered, which may result in a realized gain or loss. During this period, such investments are subject to market fluctuations, and the Fund identifies investments segregated in its records with a value at least equal to the amount of the commitment. The Fund had no when-issued or delayed-delivery investments as of December 31, 2014.
Financial Derivative Instruments:
The following disclosures contain information on how and why the Fund uses derivative instruments, the credit-risk-related contingent features in certain derivative instruments and how derivative instruments affect the Fund’s financial position and results of operations. The location and fair value amounts of these instruments on the Statement of Assets and Liabilities and the realized gains and losses and changes in unrealized gains and losses on the Statement of Operations, each categorized by type of derivative contract, are included in the following Additional Derivative Instrument Information footnote. The derivative instruments outstanding as of year-end are disclosed in the notes to the Schedule of Investments, if applicable. The amounts of realized gains and losses and changes in unrealized gains and losses on derivative instruments during the year are disclosed in the Statement of Operations.
Foreign Currency Contracts – The Fund may enter into foreign currency contracts that obligate the Fund to purchase or sell currencies at specified future dates. Foreign currency contracts are used to hedge the currency exposure associated with some or all of the Fund’s investments and/or as part of an investment strategy. Foreign currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. The Fund will record a realized gain or loss when the foreign currency contract is settled.
Foreign currency contracts involve elements of market risk in excess of the amounts reflected in the Statement of Assets and Liabilities. In addition, risks may arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of the contracts and from unanticipated movements in the value of the foreign currencies relative to the U.S. dollar. The Fund had no outstanding foreign currency contracts as of December 31, 2014.
15 |
Hartford Dividend and Growth HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Additional Derivative Instrument Information:
The volume of derivative activity was minimal during the year ended December 31, 2014.
The Effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2014:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts | Foreign Exchange Contracts | Credit Contracts | Equity Contracts | Commodity Contracts | Other Contracts | Total | ||||||||||||||||||||||
Realized Gain on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net realized gain on foreign currency contracts | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
Total | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
Principal Risks:
The Fund may be exposed to counterparty risk, or the risk that an institution or other entity with which the Fund has unsettled or open transactions will default.
If the Fund invests directly in foreign currencies or in securities that trade in, and receive revenues in, foreign currencies, or in derivatives that provide exposure to foreign currencies, it will be subject to the risk that those currencies will decline in value relative to the base currency (U.S. dollars) of the Fund, or, in the case of hedging positions, that the Fund’s base currency will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities, such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad. As a result, the Fund’s investments in foreign currency denominated securities may reduce the returns of the Fund. The market values of equity securities, such as common stocks and preferred stocks, or equity related investments, such as futures and options, may decline due to general market conditions which are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. The market value of equity securities may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities and equity related investments generally have greater market price volatility than fixed income securities.
Federal Income Taxes:
Federal Income Taxes – For federal income tax purposes, the Fund intends to continue to qualify as a Regulated Investment Company ("RIC") under Subchapter M of the Internal Revenue Code (“IRC”) by distributing substantially all of its taxable net investment income and net realized capital gains to its shareholders and otherwise complying with the requirements of the IRC. The Fund has distributed substantially all of its income and capital gains in prior years, if applicable, and intends to distribute substantially all of its income and capital gains prior to the next fiscal year-end. Accordingly, no provision for federal income or excise taxes has been made in the accompanying financial statements. Distributions from short-term capital gains are treated as ordinary income distributions for federal income tax purposes.
Net Investment Income (Loss), Net Realized Gains (Losses) and Distributions – Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of losses deferred due to wash sale adjustments, foreign currency gains and losses, adjustments related to Passive Foreign Investment Companies ("PFICs"), Real Estate Investment Trusts ("REITs"), RICs, certain derivatives and partnerships. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund.
16 |
Hartford Dividend and Growth HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Distributions and Components of Distributable Earnings – The tax character of distributions paid by the Fund for the periods indicated is as follows (as adjusted for dividends payable, if applicable):
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Ordinary Income | $ | 122,937 | $ | 79,900 | ||||
Long-Term Capital Gains* | 449,915 | 117,038 |
* | The Fund designates these distributions as long-term capital gain dividends pursuant to IRC Sec. 852(b)(3)(C). |
As of December 31, 2014, the Fund’s components of distributable earnings (deficit) on a tax basis are as follows:
Amount | ||||
Undistributed Ordinary Income | $ | 8,615 | ||
Undistributed Long-Term Capital Gain | 497,142 | |||
Unrealized Appreciation* | 1,320,058 | |||
Total Accumulated Earnings | $ | 1,825,815 |
* | Differences between book-basis and tax-basis unrealized appreciation (depreciation) may be attributable to the losses deferred due to wash sale adjustments, foreign currency gains and losses and adjustments related to PFICs, REITs, RICs, certain derivatives and partnerships. |
Reclassification of Capital Accounts – The Fund may record reclassifications in its capital accounts. These reclassifications have no impact on the total net assets of the Fund. The reclassifications are a result of permanent differences between U.S. GAAP and tax accounting for such items as foreign currency, PFICs, expiration or utilization of capital loss carryforwards or net operating losses. Adjustments are made to reflect the impact these items have on current and future distributions to shareholders. Therefore, the source of the Fund’s distributions may be shown in the accompanying Statement of Changes in Net Assets as from undistributed net investment income, from accumulated net realized gains on investments or from capital depending on the type of book and tax differences that exist. For the year ended December 31, 2014, the Fund recorded reclassifications to increase (decrease) the accounts listed below:
Amount | ||||
Undistributed Net Investment Income (Loss) | $ | (149 | ) | |
Accumulated Net Realized Gain (Loss) | 149 |
Capital Loss Carryforward – On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which made changes to the capital loss carryforward rules. The changes are effective for taxable years beginning after the date of enactment. Under the Act, funds are permitted to carry forward capital losses for an unlimited period. Additionally, capital loss carryforwards retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under prior regulation.
The Fund had no capital loss carryforward for U.S. federal income tax purposes as of December 31, 2014.
Accounting for Uncertainty in Income Taxes – The Fund has adopted financial reporting rules that require the Fund to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions. Generally, tax authorities can examine all tax returns filed for the last three years. The Fund does not have an examination in progress.
The Fund has reviewed all open tax years and major jurisdictions and concluded that these financial reporting rules had no effect on the Fund’s financial position or results of operations. There is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on the tax return for the fiscal year ended December 31, 2014. The Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
17 |
Hartford Dividend and Growth HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Expenses:
Investment Management Agreement – Hartford Funds Management Company, LLC ("HFMC") serves as the Fund’s investment manager pursuant to an Investment Management Agreement with the Company. HFMC is an indirect wholly owned subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford"). The investment manager has overall investment supervisory responsibility for the Fund. In addition, the investment manager provides administrative personnel, services, equipment, facilities and office space for proper operation of the Fund. HFMC has contracted with Wellington Management Company, LLP ("Wellington Management") under a sub-advisory agreement for the provision of day-to-day investment management services to the Fund in accordance with the Fund’s investment objective and policies. The Fund pays a fee to the investment manager, a portion of which may be used to compensate Wellington Management.
The schedule below reflects the rates of compensation paid to the investment manager for investment management services rendered as of December 31, 2014; the rates are accrued daily and paid monthly:
Average Daily Net Assets | Annual Fee | |||
On first $250 million | 0.7750% | |||
On next $250 million | 0.7250% | |||
On next $500 million | 0.6750% | |||
On next $1.5 billion | 0.6250% | |||
On next $2.5 billion | 0.6200% | |||
On next $5 billion | 0.6150% | |||
Over $10 billion | 0.6100% |
Accounting Services Agreement – Pursuant to the Fund Accounting Agreement between HFMC and the Company, on behalf of the Fund, HFMC provides accounting services to the Fund and receives monthly compensation based on the Fund’s average daily net assets at the rates set forth below. The Fund’s accounting services fees are accrued daily and paid monthly.
Average Daily Net Assets | Annual Fee | |||
On first $5 billion | 0.012% | |||
Over $5 billion | 0.010% |
Operating Expenses – Allocable expenses incurred by the Company are allocated to each Fund and allocated to classes within a Fund in proportion to the average daily net assets of the Fund and each class, except where allocation of certain expenses is more fairly made directly to the Fund or to specific classes within a Fund.
Fees Paid Indirectly – The Company, on behalf of the Fund, has entered into agreements with State Street Global Markets, LLC and Russell Implementation Services, Inc. to partially recapture non-discounted trade commissions. Such rebates are used to pay a portion of the Fund's expenses. For the year ended December 31, 2014, this amount, if any, is included in the Statement of Operations.
The ratio of expenses to average net assets in the accompanying financial highlights excludes the reduction in expenses related to fees paid indirectly. The annualized expense ratio after waivers for the period listed below reflecting the reduction for fees paid indirectly is as follows:
Year Ended December 31, 2014 | ||||
Class IA | 0.67% | |||
Class IB | 0.92 |
18 |
Hartford Dividend and Growth HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Distribution Plan for Class IB Shares – Hartford Funds Distributors, LLC (“HFD”), an indirect wholly owned subsidiary of The Hartford, is the principal underwriter and distributor of the Fund. The Company, on behalf of the Fund, has adopted a Distribution Plan pursuant to Rule 12b-1 of the 1940 Act for Class IB shares.
The Distribution Plan provides that the Fund may pay annually up to 0.25% of the average daily net assets of the Fund attributable to its Class IB shares for activities primarily intended to result in the sale of Class IB shares. The Board has the authority to suspend or reduce these payments at any point in time. Under the terms of the Distribution Plan and the principal underwriting agreement, the Fund is authorized to make payments monthly to the distributor that may be used to pay or reimburse entities providing distribution and shareholder servicing with respect to the Class IB shares for such entities’ fees or expenses incurred or paid in that regard. The distribution fees paid during the period can be found on the Statement of Operations. These fees are accrued daily and paid monthly or at such other intervals as the Board of Directors may determine.
Other Related Party Transactions – Certain officers of the Fund are directors and/or officers of HFMC and/or The Hartford or its subsidiaries. For the year ended December 31, 2014, a portion of the Fund's Chief Compliance Officer's compensation was paid by all the investment companies in the Hartford fund complex. The portion allocated to the Fund, as represented in other expenses on the Statement of Operations, was in the amount of $6. Hartford Administrative Services Company ("HASCO"), an indirect wholly owned subsidiary of The Hartford, provides transfer agent services to the Fund. Effective December 1, 2014, pursuant to a sub-transfer agency agreement between HASCO and Boston Financial Data Services, Inc. (“BFDS”), HASCO delegated certain transfer agent, dividend disbursing agent and shareholder servicing agent functions to BFDS. HASCO is compensated by the Fund based on the number of classes plus out of pocket expenses for providing such services, a portion of which may be used to compensate BFDS. The amount paid to HASCO can be found in the Statement of Operations. These fees are accrued daily and paid monthly.
Investment Transactions:
For the year ended December 31, 2014, the cost of purchases and proceeds from sales of investment securities (excluding short-term investments) were as follows:
Excluding U.S. Government Obligations | U.S. Government Obligations | Total | ||||||||||
Cost of Purchases | $ | 779,088 | $ | — | $ | 779,088 | ||||||
Sales Proceeds | 1,551,388 | — | 1,551,388 |
Line of Credit:
The Fund is one of several Hartford Funds that participate in a $500 million committed revolving line of credit facility. The facility is to be used for temporary or emergency purposes. Under the arrangement, the funds are required to own securities having a market value in excess of 300% of the total bank borrowings. The interest rate on borrowings varies depending on the nature of the loan. The facility also requires a fee to be paid based on the amount of the commitment. This commitment fee is allocated to all the funds participating in the line of credit based on the average net assets of the funds. During the year ended December 31, 2014, the Fund did not have any borrowings under this facility.
Indemnifications:
Under the Company's organizational documents, the Company shall indemnify its officers and directors to the full extent required or permitted under Maryland General Corporation Law and the federal securities laws. In addition, the Company, on behalf of the Fund, may enter into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, as of the date of these financial statements, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
19 |
Hartford Dividend and Growth HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Pending Legal Proceedings:
On February 25, 2011, Jennifer L. Kasilag, Louis Mellinger, Judith M. Menendez, Jacqueline M. Robinson, and Linda A. Russell filed a derivative lawsuit against Hartford Investment Financial Services, LLC (“HIFSCO”) (now known as HFD) on behalf of six Hartford retail mutual funds in the United States District Court for the District of New Jersey, alleging that HIFSCO received excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the 1940 Act when serving as investment manager and principal underwriter, respectively, to the Hartford retail mutual funds. Although this action was purportedly filed on behalf of certain of the Hartford Funds, none of the Hartford Funds is itself a defendant to the suit. HIFSCO moved to dismiss and, in September 2011, the motion was granted in part and denied in part, with leave to amend the complaint. In November 2011, plaintiffs filed an amended complaint on behalf of certain Hartford retail mutual funds, The Hartford Global Health Fund (now known as The Hartford Healthcare Fund), The Hartford Conservative Allocation Fund, The Hartford Growth Opportunities Fund, The Hartford Inflation Plus Fund, The Hartford Advisers Fund (now known as The Hartford Balanced Fund), and The Hartford Capital Appreciation Fund. Plaintiffs seek to rescind the investment management agreements and distribution plans between HIFSCO and these funds and to recover the total fees charged thereunder or, in the alternative, to recover any improper compensation HIFSCO received, in addition to lost earnings. HIFSCO filed a partial motion to dismiss the amended complaint and, in December 2012, the court dismissed without prejudice the claims regarding distribution fees and denied the motion with respect to the advisory fees claims. HIFSCO disputes the allegations and intends to defend vigorously.
In March 2014, the plaintiffs filed a new complaint that added as new plaintiffs The Hartford Floating Rate Fund and The Hartford Small Company Fund, two Hartford retail mutual funds, and named as a defendant HFMC, which assumed the role as investment manager to the funds as of January 2013. HFMC and HIFSCO dispute the allegations and intend to defend vigorously.
This action concerns the activities of HIFSCO in its capacity as investment manager and principal underwriter to the Hartford retail mutual funds and does not concern HIFSCO’s activities in its capacity as principal underwriter to the HLS funds. For this reason, no accrual for litigation relating to this matter has been recorded in the financial statements of the Fund.
Recent Accounting Pronouncement:
In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, modifying Accounting Standards Codification Topic 860. The amended guidance changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. The guidance also requires new disclosures for certain transfers accounted for as sales and collateral supporting transactions that are accounted for as secured borrowings. ASU 2014-11 is effective for annual and interim periods beginning after December 15, 2014, except for the disclosures related to secured borrowings, which are effective for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The adoption of ASU 2014-11 is not expected to have a material impact on the Fund’s results of operations or financial position, but may impact the Fund’s disclosures.
Subsequent Event:
Effective on or after January 1, 2015, pursuant to an agreement between the Hartford Funds and State Street Bank and Trust Company ("State Street"), State Street replaced, or is scheduled to replace, JP Morgan Chase Bank, N.A. ("JP Morgan Chase") as the Fund's primary custodian. JP Morgan Chase may serve as custodian of certain Fund assets. In addition, on or after the same date, HFMC has delegated, or will delegate, certain accounting and administrative services functions to State Street. The costs and expenses of such delegation will be borne by HFMC, not by the Funds, and HFMC will compensate State Street for its services out of its own resources.
20 |
Hartford Dividend and Growth HLS Fund
Financial Highlights
─ Selected Per-Share Data(A) ─ | ─ Ratios and Supplemental Data ─ | |||||||||||||||||||||||||||||||||||||||||||||||||||
Class | Net Asset Value at Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Investment Operations | Dividends from Net Investment Income | Distributions from Realized Capital Gains | Total Dividends and Distributions | Net Asset Value at End of Period | Total Return(B) | Net Assets at End of Period (000s) | Ratio of Expenses to Average Net Assets Before Adjust- ments(C) | Ratio of Expenses to Average Net Assets After Adjust- ments(C) | Ratio of Net Investment Income (Loss) to Average Net Assets | |||||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 27.05 | $ | 0.49 | $ | 2.92 | $ | 3.41 | $ | (0.49 | ) | $ | (3.52 | ) | $ | (4.01 | ) | $ | 26.45 | 12.96 | % | $ | 3,502,492 | 0.67 | % | 0.67 | % | 1.78 | % | |||||||||||||||||||||||
IB | 26.99 | 0.42 | 2.91 | 3.33 | (0.42 | ) | (3.52 | ) | (3.94 | ) | 26.38 | 12.68 | 546,006 | 0.92 | 0.92 | 1.53 | ||||||||||||||||||||||||||||||||||||
�� | ||||||||||||||||||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 21.46 | $ | 0.46 | $ | 6.33 | $ | 6.79 | $ | (0.51 | ) | $ | (0.69 | ) | $ | (1.20 | ) | $ | 27.05 | 31.92 | % | $ | 3,760,183 | 0.67 | % | 0.67 | % | 1.88 | % | |||||||||||||||||||||||
IB | 21.42 | 0.40 | 6.31 | 6.71 | (0.45 | ) | (0.69 | ) | (1.14 | ) | 26.99 | 31.58 | 621,751 | 0.92 | 0.92 | 1.62 | ||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2012 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 19.34 | $ | 0.49 | $ | 2.13 | $ | 2.62 | $ | (0.50 | ) | $ | – | $ | (0.50 | ) | $ | 21.46 | 13.59 | % | $ | 3,658,076 | 0.67 | % | 0.67 | % | 2.13 | % | ||||||||||||||||||||||||
IB | 19.30 | 0.45 | 2.11 | 2.56 | (0.44 | ) | – | (0.44 | ) | 21.42 | 13.31 | 589,194 | 0.92 | 0.92 | 1.88 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2011 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 19.50 | $ | 0.42 | $ | (0.16 | ) | $ | 0.26 | $ | (0.42 | ) | $ | – | $ | (0.42 | ) | $ | 19.34 | 1.32 | % | $ | 3,851,657 | 0.67 | % | 0.67 | % | 1.98 | % | |||||||||||||||||||||||
IB | 19.46 | 0.36 | (0.16 | ) | 0.20 | (0.36 | ) | – | (0.36 | ) | 19.30 | 1.06 | 658,419 | 0.92 | 0.92 | 1.73 | ||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2010 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 17.55 | $ | 0.35 | $ | 1.96 | $ | 2.31 | $ | (0.36 | ) | $ | – | $ | (0.36 | ) | $ | 19.50 | 13.21 | % | $ | 4,409,787 | 0.68 | % | 0.68 | % | 1.87 | % | ||||||||||||||||||||||||
IB | 17.51 | 0.32 | 1.94 | 2.26 | (0.31 | ) | – | (0.31 | ) | 19.46 | 12.93 | 756,001 | 0.93 | 0.93 | 1.62 |
(A) | Information presented relates to a share outstanding throughout the indicated period. Net investment income (loss) per share amounts are calculated based on average shares outstanding unless otherwise noted. |
(B) | The figures do not include sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees would lower the Fund's performance. |
(C) | Adjustments include waivers and reimbursements, if applicable. Ratios do not include fees paid indirectly (see Expenses in the accompanying Notes to Financial Statements). |
(D) | Net investment income (loss) per share amounts have been calculated using the SEC method. |
Portfolio Turnover Rate for All Share Classes | ||||
For the Year Ended December 31, 2014 | 19% | |||
For the Year Ended December 31, 2013 | 25 | |||
For the Year Ended December 31, 2012 | 20 | |||
For the Year Ended December 31, 2011 | 24 | |||
For the Year Ended December 31, 2010 | 32 |
21 |
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Hartford Series Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Hartford Dividend and Growth HLS Fund (one of the portfolios constituting the Hartford Series Fund, Inc. (the Funds)) as of December 31, 2014, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Hartford Dividend and Growth HLS Fund of the Hartford Series Fund, Inc. at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
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Minneapolis, Minnesota
February 13, 2015
22 |
Hartford Dividend and Growth HLS Fund
Directors and Officers (Unaudited)
The Board of Directors of the Company (the "Directors") appoints officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the Directors. Each Director serves until his or her death, resignation, or retirement or until the next annual meeting of shareholders is held or until his or her successor is elected and qualifies.
Directors and officers who are employed by or who have a financial interest in The Hartford Financial Services Group, Inc. ("The Hartford") are considered “interested” persons of the Fund pursuant to the 1940 Act. The "interested" Directors and officers are reflected in the chart below. Each Director serves as a director for The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., Hartford Series Fund, Inc., and Hartford HLS Series Fund II, Inc., and as a trustee for The Hartford Alternative Strategies Fund, which, as of December 31, 2014, collectively consist of 66 funds. Correspondence may be sent to Directors and officers c/o Hartford Funds, 5 Radnor Corporate Center, Suite 300, 100 Matsonford Road, Radnor, Pennsylvania 19087, except that correspondence to Mr. Annoni, Mr. Dressen and Ms. Quade may be sent to 500 Bielenberg Drive, Suite 500, Woodbury, Minnesota 55125.
The table below sets forth, for each Director and officer, his or her name, year of birth, current position with the Company and date first elected or appointed to Hartford Series Fund, Inc. ("HSF") and Hartford HLS Series Fund II, Inc. ("HSF2"), principal occupation, and, for Directors, other directorships held. The Fund’s Statement of Additional Information contains further information on the Directors and is available free of charge by calling 1-888-843-7824 or writing to: Hartford HLS Funds, c/o Hartford Life Insurance Company/Hartford Life and Annuity Insurance Company, P.O. Box 14293, Lexington, KY 40512-4293 for variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates; Hartford Funds, P.O. Box 55022, Boston, MA 02205-5022 for all shareholders except variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates.
Information on the aggregate remuneration paid to the directors of the Company can be found in the Statement of Operations herein. The Fund pays to The Hartford a portion of the Chief Compliance Officer’s compensation, but does not pay salaries or compensation to any of its other officers or Directors who are employed by The Hartford.
Non-Interested Directors
Hilary E. Ackermann (1956) Director since September 23, 2014
Ms. Ackermann served as Chief Risk Officer at Goldman Sachs Bank USA from October 2008 to November 2011 and serves as a Director of Dynegy, Inc., an independent power company, from October 2012 to present.
Lynn S. Birdsong (1946) Director since 2003, Chairman of the Investment Committee since 2014
Mr. Birdsong is a private investor. Mr. Birdsong currently serves as a Director of Aberdeen Global and Aberdeen Global II (investment funds) (September 2014 to present) and as an Independent Director of Nomura Partners Funds, Inc. (formerly, The Japan Fund) (April 2003 to present). Mr. Birdsong served as Director of the Sovereign High Yield Investment Company (April 2010 to September 2014). From 2003 to March 2005, Mr. Birdsong was an Independent Director of the Atlantic Whitehall Funds. From 1979 to 2002, Mr. Birdsong was a Managing Director of Zurich Scudder Investments, an investment management firm. During his employment with Scudder, Mr. Birdsong was an Interested Director of The Japan Fund. Mr. Birdsong served as Co-Chairman of the Investment Committee of The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., HSF, HSF2 and The Hartford Alternative Strategies Fund from 2005 to 2014.
Robert M. Gavin, Jr. (1940) Director since 2002 (HSF) and 1986 (HSF2), Chairman of the Board for each since 2004
Dr. Gavin is an educational consultant. Prior to September 1, 2001, he was President of Cranbrook Education Community and prior to July 1996, he was President of Macalester College, St. Paul, Minnesota.
Duane E. Hill (1945) Director since 2001 (HSF) and 2002 (HSF2), Chairman of the Nominating Committee since 2003
Mr. Hill is a Partner of TSG Ventures L.P., a private equity investment company. Mr. Hill is a former partner of TSG Capital Group, a private equity investment firm that served as sponsor and lead investor in leveraged buyouts of middle market companies.
Sandra S. Jaffee (1941) Director since 2005
Ms. Jaffee is the founder and Chief Executive Officer of a private company, Homeworks Concierge, LLC, which provides residential property management services in Westchester County, New York (January 2012 to present). Ms. Jaffee served as Chairman (2008 to 2009) and Chief Executive Officer of Fortent (formerly Searchspace Group), a leading provider of compliance/regulatory technology to financial institutions from August 2005 to August 2009. From August 2004 to August 2005, Ms. Jaffee served as an Entrepreneur in Residence with Warburg Pincus, a private equity firm. Prior to joining Warburg Pincus, Ms. Jaffee served as Executive Vice President at Citigroup, from September 1995 to July 2004, where she was President and Chief Executive Officer of Citibank’s Global Securities
23 |
Hartford Dividend and Growth HLS Fund
Directors and Officers (Unaudited) – (continued)
Services (1995 to 2003). Ms. Jaffee served as a member of the Board of Directors of Broadridge Financial Solutions (November 2010 to November 2014). Ms. Jaffee currently serves as a member of the Board of Directors of Global Camps Africa (a non-profit organization) (January 2015 to present) as well as a Trustee of Muhlenberg College (September 2007 to present).
William P. Johnston (1944) Director since 2005, Chairman of the Compliance Committee since 2005
In June 2006, Mr. Johnston was appointed as Senior Advisor to The Carlyle Group, a global private equity and other alternative asset investment firm and currently serves as an Operating Executive. In July 2006, Mr. Johnston was elected to the Board of Directors of MultiPlan, Inc. and served as a Director (July 2006 to August 2010). In August 2007, Mr. Johnston was elected to the Board of Directors of LifeCare Holdings, Inc. and served as a Director (August 2007 to June 2013). In February 2008, Mr. Johnston was elected to the Board of Directors of HCR-ManorCare, Inc. In May 2006, Mr. Johnston was elected to the Supervisory Board of Fresenius Medical Care AG & Co. KGaA, after its acquisition of Renal Care Group, Inc. in March 2006. Mr. Johnston joined Renal Care Group in November 2002 as a member of the Board of Directors and served as Chairman of the Board from March 2003 through March 2006. From 2002 through 2013, Mr. Johnston served as a Board member of the Georgia O’Keefe Museum. From September 1987 to December 2002, Mr. Johnston was with Equitable Securities Corporation (and its successors, SunTrust Equitable Securities and SunTrust Robinson Humphrey) serving in various investment banking and managerial positions, including Managing Director and Head of Investment Banking, Chief Executive Officer and Vice Chairman.
Phillip O. Peterson (1944) Director since 2002 (HSF) and 2000 (HSF2), Chairman of the Audit Committee since 2002
Mr. Peterson is a mutual fund industry consultant. He was a partner of KPMG LLP (an accounting firm) until July 1999. Mr. Peterson joined William Blair Funds in February 2007 as a member of the Board of Trustees. From February 2012 to February 2014, Mr. Peterson served as a Trustee of Symetra Variable Mutual Funds. From January 2004 to April 2005, Mr. Peterson served as Independent President of the Strong Mutual Funds.
Lemma W. Senbet (1946) Director since 2005
Dr. Senbet is the William E. Mayer Chair Professor of Finance at the University of Maryland, Robert H. Smith School of Business. He was chair of the Finance Department of the University of Maryland, Robert H. Smith School of Business from 1998 to 2006. Since June 2013, he has been on leave from the University to serve as Executive Director of African Economic Research Consortium which focuses on economic policy research and training. Previously, he was a chaired professor of finance at the University of Wisconsin-Madison. Also, he was a Director of the Fortis Funds from March 2000 to July 2002. Dr. Senbet served as Director of the American Finance Association and President of the Western Finance Association. In 2006, Dr. Senbet was inducted Fellow of Financial Management Association International for his career-long distinguished scholarship and professional service.
Interested Directors and Officers
James E. Davey (1964) Director since 2012, President and Chief Executive Officer since 2010
Mr. Davey serves as Executive Vice President of Hartford Life Insurance Company (“HLIC”) and The Hartford. Additionally, Mr. Davey serves as Chairman of the Board, Manager and Senior Managing Director of Hartford Funds Distributors, LLC (“HFD”). He also currently serves as Director, Chairman of the Board, President and Senior Managing Director of Hartford Administrative Services Company (“HASCO”). Mr. Davey also serves as Manager, Chairman of the Board and Senior Managing Director for Hartford Funds Management Company, LLC (“HFMC”) and Director, Chairman of the Board and Senior Managing Director for Hartford Funds Management Group, Inc. ("HFMG"). Mr. Davey has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Davey joined The Hartford in 2002.
Lowndes A. Smith* (1939) Director since 1996 (HSF) and 2002 (HSF2), Co-Chairman of the Investment Committee since 2005
Mr. Smith served as Vice Chairman of The Hartford from February 1997 to January 2002, as President and Chief Executive Officer of Hartford Life, Inc. from February 1997 to January 2002, and as President and Chief Operating Officer of The Hartford Life Insurance Companies from January 1989 to January 2002. Mr. Smith serves as a Director of White Mountains Insurance Group Ltd. (October 2003 to current); One Beacon Insurance (October 2006 to current); Symetra Financial (August 2007 to current) and is a Managing Director of Whittington Gray Associates (January 2007 to current).
* Mr. Smith resigned as a Director of Hartford Mutual Funds, Inc., Hartford Mutual Funds II, Inc., HSF and HSF2 and as a Trustee of The Hartford Alternative Strategies Fund effective September 17, 2014.
24 |
Hartford Dividend and Growth HLS Fund
Directors and Officers (Unaudited) – (continued)
Other Officers
Mark A. Annoni (1964) Vice President, Controller and Treasurer since 2012
Mr. Annoni currently serves as the Assistant Vice President of HLIC (February 2004 to present) and Senior Vice President of HFMG (December 2013 to present). Mr. Annoni has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Annoni joined The Hartford in 2001.
Michael R. Dressen (1963) AML Compliance Officer since 2011
Mr. Dressen currently serves as Assistant Vice President of HLIC. He also serves as Chief Compliance Officer and AML Compliance Officer of HASCO and as AML Officer of HFD. Mr. Dressen has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
Edward P. Macdonald (1967) Vice President, Secretary and Chief Legal Officer since 2005
Mr. Macdonald currently serves as Assistant Secretary, Executive Vice President and Deputy General Counsel of HFD, HASCO, HFMC and HFMG. He also serves as Vice President of HLIC. Mr. Macdonald has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Macdonald joined The Hartford in 2005.
Joseph G. Melcher (1973) Vice President and Chief Compliance Officer since 2013
Mr. Melcher currently serves as Executive Vice President of HFD, HFMG and HASCO. Mr. Melcher also currently serves as Executive Vice President and Chief Compliance Officer of HFMC. Mr. Melcher has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds since joining The Hartford in 2012. Prior to joining The Hartford, Mr. Melcher worked at Touchstone Investments, a member of the Western & Southern Financial Group, where he held the position of Vice President and Chief Compliance Officer from 2010 through 2012 and Assistant Vice President, Compliance from 2005 to 2010.
Vernon J. Meyer (1964) Vice President since 2006
Mr. Meyer currently serves as Senior Vice President of HLIC. He also currently serves as Managing Director and Chief Investment Officer of HFMC and Managing Director of HFMG. Mr. Meyer has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Meyer joined The Hartford in 2004.
Laura S. Quade (1969) Vice President since 2012
Ms. Quade currently serves as Vice President of HASCO, HFD and HFMG. She is the Head of Operations of HASCO and formerly served as Director, Enterprise Operations of HLIC. Ms. Quade has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Ms. Quade joined The Hartford in 2001.
Martin A. Swanson** (1962) Vice President since 2010
Mr. Swanson currently serves as Vice President of HLIC. Mr. Swanson also serves as Managing Director, Chief Marketing Officer and Principal of HFD and Managing Director of HFMG. Mr. Swanson has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
** Mr. Swanson resigned as an officer effective November 6, 2014.
HOW TO OBTAIN A COPY OF THE FUND’S PROXY VOTING POLICIES AND VOTING RECORDS (UNAUDITED)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information about how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov. The Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
25 |
Hartford Dividend and Growth HLS Fund
Expense Example (Unaudited)
Your Fund's Expenses
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including investment management fees, distribution and/or service (12b-1) fees, if any, and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period of June 30, 2014 through December 31, 2014.
Actual Expenses
The first set of columns of the table below provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second set of columns of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as taxes, sales charges (loads), or fees which may be applied at the variable life insurance, variable annuity, or qualified retirement plan product level. Therefore, the second set of columns of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would be higher. Expenses are equal to the Fund's annualized expense ratios multiplied by average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
Actual return | Hypothetical (5% return before expenses) | |||||||||||||||||||||||||||||||||||
Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Annualized expense ratio | Days in the current 1/2 year | Days in the full year | ||||||||||||||||||||||||||||
Class IA | $ | 1,000.00 | $ | 1,044.60 | $ | 3.45 | $ | 1,000.00 | $ | 1,021.83 | $ | 3.41 | 0.67 | % | 184 | 365 | ||||||||||||||||||||
Class IB | $ | 1,000.00 | $ | 1,043.30 | $ | 4.74 | $ | 1,000.00 | $ | 1,020.57 | $ | 4.69 | 0.92 | 184 | 365 |
26 |
Hartford Dividend and Growth HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited)
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of directors, including a majority of those directors who are not “interested persons” of the mutual fund, as defined in the 1940 Act (the “Independent Directors”), annually review and consider the continuation of the mutual fund’s investment advisory and sub-advisory agreements. At its meeting held on August 5-6, 2014, the Board of Directors (the “Board”) of Hartford Series Fund, Inc., including each of the Independent Directors, unanimously voted to approve the continuation of the investment management agreement for Hartford Dividend and Growth HLS Fund (the “Fund”) with Hartford Funds Management Company, LLC (“HFMC”) and the continuation of the investment sub-advisory agreement between HFMC and the Fund’s sub-adviser, Wellington Management Company, LLP (the “Sub-adviser,” and together with HFMC, the “Advisers”) (collectively, the “Agreements”).
In the months preceding the August 5-6, 2014 meeting, the Board requested, received and reviewed written responses from the Advisers to questions posed to them on behalf of the Independent Directors and supporting materials relating to those questions and responses. The Board considered information furnished to the Board at its meetings throughout the year, as well as information specifically prepared in connection with the annual approval of the Agreements at the Board’s meetings held on June 17-18, 2014 and August 5-6, 2014. Information provided to the Board at its meetings throughout the year included, among other things, reports on Fund performance, legal and compliance matters, sales and marketing activity, shareholder services, and the other services provided to the Fund by the Advisers and their affiliates. The Board also received in-person presentations by Fund officers and representatives of HFMC at the Board’s meetings on June 17-18, 2014 and August 5-6, 2014 concerning the Agreements.
The Independent Directors, advised by independent legal counsel, engaged service providers to assist them with evaluating the Agreements with respect to the Fund. Lipper Inc. (“Lipper”), an independent provider of investment company data, was retained to provide the Board with reports on how the Fund’s contractual management fees, actual management fees, other non-management fees, overall expense ratios and investment performance compared to those of mutual funds with similar investment objectives. The Independent Directors also engaged an independent financial services consultant (the “Consultant”) to assist them in evaluating the Fund’s management fees, sub-advisory fees, other non-management fees, overall expense ratios and investment performance. In addition, the Consultant reviewed the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement.
In determining whether to continue the Agreements for the Fund, the members of the Board reviewed and evaluated information and factors they believed to be relevant and appropriate in light of the information that the Board deemed necessary and appropriate through the exercise of its reasonable business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination to continue the Agreements was based on a comprehensive consideration of all information provided to the Board throughout the year and specifically with respect to the continuation of the Agreements. A more detailed discussion of the factors the Board considered with respect to its approval of the Agreements is provided below.
Nature, Extent and Quality of Services Provided by the Advisers
The Board requested and considered information concerning the nature, extent and quality of the services provided to the Fund by the Advisers. The Board considered, among other things, the terms of the Agreements and the range of services provided by the Advisers. The Board considered the Advisers’ professional personnel who provide services to the Fund, including each Adviser’s ability and experience in attracting and retaining qualified personnel to service the Fund. The Board considered each Adviser’s reputation and overall financial strength, as well as its willingness to consider and implement organizational and operational changes designed to enhance services to the Hartford Funds. In addition, the Board considered the quality of each Adviser’s communications with the Board and responsiveness to Board inquiries and requests made from time to time with respect to the Fund and other Hartford Funds.
The Board also requested and evaluated information concerning each Adviser’s regulatory and compliance environment. In this regard, the Board requested and reviewed information on each Adviser’s compliance policies and procedures, compliance history, and a report from the Fund’s Chief Compliance Officer on each Adviser’s compliance with applicable laws and regulations, including responses to regulatory developments and compliance issues raised by regulators. The Board also noted the Advisers’ support of the Fund’s compliance control structure, particularly the resources devoted by the Advisers in support of the Fund’s obligations pursuant to Rule 38a-1 under the 1940 Act.
With respect to HFMC, the Board noted that under the Agreements, HFMC is responsible for the management of the Fund, including oversight of fund operations and service providers, as well as investment advisory services in connection with selecting, monitoring and supervising the Sub-adviser. The Board considered HFMC’s ongoing monitoring of people, process and performance, including its quarterly reviews of each of the Hartford Funds, semi-annual meetings with the leaders of each Fund’s portfolio management team, and oversight of the Hartford Funds’
27 |
Hartford Dividend and Growth HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
approximately 37 portfolio managers. The Board recognized that HFMC has demonstrated a record of making changes to the management and/or strategies of the Hartford Funds when warranted. The Board considered HFMC’s oversight of the Sub-adviser’s investment approach and results, process for monitoring best execution of portfolio trades by the Sub-adviser, and approach to risk management with respect to the Fund and the service providers to the Fund. The Board also considered HFMC’s oversight of compliance with the Fund’s objective and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over time led to an increase in the scope of HFMC’s services in this regard.
In addition, the Board considered HFMC’s ongoing commitment to review and rationalize the Hartford Funds product line-up and the expenses that HFMC had incurred in connection with fund combinations in recent years. The Board considered that HFMC or its affiliates are responsible for providing the Fund’s officers. The Board also noted that Hartford Life Insurance Company (“HLIC”) provides administrative services to the Fund. The Board considered its experiences with HFMC and HLIC with respect to each of these services.
With respect to the Sub-adviser, which provides certain day-to-day portfolio management services for the Fund, the Board considered the quality of the Fund’s portfolio managers, the Sub-adviser’s other investment personnel, its investment philosophy and process, investment research capabilities and resources, performance record, trade execution capabilities and experience. The Board considered the experience of the Fund’s portfolio managers, the number of accounts managed by the portfolio managers, and the Sub-adviser’s method for compensating the portfolio managers.
Based on these considerations, the Board concluded that it was satisfied with the nature, extent and quality of the services provided to the Fund by HFMC and the Sub-adviser.
Performance of the Fund and the Advisers
The Board considered the investment performance of the Fund. In this regard, the Board reviewed the performance of the Fund over different time periods presented in the materials and evaluated HFMC’s analysis of the Fund’s performance for these time periods. The Board considered information and materials provided to the Board by the Advisers concerning Fund performance, as well as information from Lipper comparing the investment performance of the Fund to an appropriate benchmark and universe of peer funds. The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period, the 2nd quintile for the 3-year period and the 3rd quintile for the 5-year period. The Board also noted that the Fund’s performance was above its benchmark for the 1-year period and in line with its benchmark for the 3- and 5-year periods.
The Board considered the detailed investment analytics reports provided by Hartford Funds’ Investment Advisory Group throughout the year. These reports include, among other things, information on the Fund’s gross and net returns, the Fund’s investment performance relative to an appropriate benchmark and peer group, various statistics concerning the Fund’s portfolio, and a narrative summary of various factors affecting Fund performance. The Board considered the Advisers’ cooperation with the Investment Committee, which assists the Board in evaluating the performance of the Fund at periodic meetings throughout the year. The Board also considered the analysis provided by the Consultant relating to the Fund’s performance track record.
In light of all the considerations noted above, the Board concluded that it had continued confidence in HFMC’s and the Sub-adviser’s overall capabilities to manage the Fund.
Costs of the Services and Profitability of the Advisers
The Board reviewed information regarding HFMC’s cost to provide investment management and related services to the Fund and HFMC’s profitability, both overall and for the Fund, on a pre-tax basis without regard to distribution expenses. The Board also requested and reviewed information about the profitability to HFMC and its affiliates from all services provided to the Fund and all aspects of their relationship with the Fund. The Board also requested and received information relating to the operations and profitability of the Sub-adviser.
The Board considered the Consultant’s review of the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement, noting the Consultant’s view that Hartford Funds’ process for calculating and reporting Fund profitability is reasonable. In this regard, the Board noted that the Consultant performed a full review of this process in light of the recent restructuring of the Hartford Funds business and reported that the approach to analyzing Fund profitability, including the use of common expense allocation methodologies, is reasonable, sound and well within common industry practice.
28 |
Hartford Dividend and Growth HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
Based on these considerations, the Board concluded that the profits anticipated to be realized by the Advisers and their affiliates from their relationships with the Fund would not be excessive.
Comparison of Fees and Services Provided by the Advisers
The Board considered comparative information with respect to the management fees to be paid by the Fund to HFMC and the total expense ratios of the Fund. The Board also considered comparative information with respect to the sub-advisory fees to be paid by HFMC to the Sub-adviser. In this regard, the Board requested and reviewed information from HFMC and the Sub-adviser relating to the management and sub-advisory fees, including the sub-advisory fee schedule for the Fund, and total operating expenses for the Fund. The Board considered that the management fee for the Fund includes the fee paid to HLIC for providing certain administrative services to the Fund. With respect to the sub-advisory fee schedule, the Board considered representations from HFMC and the Sub-adviser that the Sub-adviser’s fees were negotiated at arm’s length on a fund-by-fund basis. The Board also reviewed information from Lipper comparing the Fund’s contractual management fees, actual management fees and overall expense ratios relative to a group of funds selected by Lipper, in consultation with the Consultant, and a broader universe of funds selected by Lipper. The Board noted that the Fund’s contractual management fee, actual management fee and total expenses (less 12b-1 and shareholder service fees) were in the 2nd quintile of its expense group.
While the Board recognized that comparisons between the Fund and peer funds may be imprecise, given the different service levels and characteristics of mutual funds and the different business models and cost structures of the Advisers, the comparative information provided by Lipper assisted the Board in evaluating the reasonableness of the Fund’s management and sub-advisory fees and total operating expenses. In addition, the Board considered the analysis and recommendations of the Consultant relating to the Fund’s management and sub-advisory fees and total operating expenses.
Based on these considerations, the Board concluded that the Fund’s fees and total operating expenses, in conjunction with the information about quality of services, profitability, economies of scale, and other matters discussed, were reasonable in light of the services provided.
Economies of Scale
The Board requested and considered information regarding the Advisers’ realization of economies of scale with respect to the Fund and whether the fee levels reflect these economies of scale for the benefit of the Fund’s shareholders. The Board reviewed the breakpoints in the management fee schedule for the Fund, which reduce fee rates as Fund assets grow over time. The Board recognized that a fund with assets beyond the highest breakpoint level will continue to benefit from economies of scale because additional assets are charged the lowest breakpoint fee resulting in lower overall effective management fee rates. The Board also recognized that a fee schedule that reaches a lower breakpoint quickly provides shareholders with the benefit of anticipated or potential economies of scale. The Board noted the effect of the sale and run-off of the variable annuity business on the HLS Funds.
The Board reviewed and evaluated materials from Lipper and the Consultant showing how management fee schedules of peer funds reflect economies of scale for the benefit of shareholders as a peer fund’s assets hypothetically increase over time. Based on information provided by HFMC, Lipper, and the Consultant, the Board recognized that there is no uniform methodology for establishing breakpoints or uniform pattern in asset levels that trigger breakpoints or the amounts of breakpoints triggered.
After considering all of the information available to it, the Board concluded that it was satisfied with the extent to which economies of scale would be shared for the benefit of the Fund’s shareholders based on currently available information and the effective advisory fees and expense ratios for the Fund at its current and reasonably anticipated asset levels. The Board noted, however, that it would continue to monitor future growth in Fund assets and the appropriateness of additional breakpoints.
Other Benefits
The Board considered other benefits to the Advisers and their affiliates from their relationships with the Fund, including the role of the Fund in supporting the variable life insurance and variable annuity products offered by The Hartford.
The Board noted that HLIC, an affiliate of HFMC, receives fees for providing certain administrative services to the Fund and that HFMC receives fees for fund accounting and related services from the Fund. The Board considered information on profits to HLIC and HFMC for such services. The Board also considered that Hartford Administrative Services Company (“HASCO”), the Fund’s transfer agent and an affiliate of HFMC, receives transfer agency compensation from the Fund, and the Board reviewed information on the profitability of the Fund’s transfer agency
29 |
Hartford Dividend and Growth HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
function to HASCO. The Board considered information provided by HASCO indicating that the transfer agent fees charged by HASCO to the Fund were fair and reasonable based on publicly available information.
The Board also considered that Hartford Funds Distributors, LLC (“HFD”), an affiliate of HFMC, serves as principal underwriter of the Fund. As principal underwriter, HFD receives 12b-1 fees from the Fund. The Board also noted that certain affiliates of HFD distribute shares of the Fund and receive compensation in that connection.
The Board considered benefits to the Sub-adviser from its use of the Fund’s brokerage commissions to obtain soft dollar research, and representations from HFMC and the Sub-adviser that the Sub-adviser would not make any revenue-sharing payments or any other type of distribution payments to HFMC or its affiliates.
The Board considered the benefits to shareholders of being part of the Hartford Funds family of funds. The Board considered HFMC’s efforts to provide investors in the family with a broad range of investment styles and asset classes.
* * * *
Based upon its review of these various factors, among others, the Board concluded that it is in the best interests of the Fund and its shareholders for the Board to approve the Agreements for an additional year. In reaching this decision, the Board did not assign relative weights to the factors discussed above or deem any one or group of them to be controlling in and of themselves. In connection with their deliberations, the Independent Directors met separately in executive session on several occasions, with independent legal counsel and the Consultant, to review the relevant materials and consider their responsibilities under relevant laws and regulations.
30 |
Hartford Dividend and Growth HLS Fund
Main Risks (Unaudited)
The main risks of investing in the Fund are described below.
Market, Selection and Strategy Risk: The Fund’s share price may fluctuate due to market risk and/or security selections that may underperform the market or relevant benchmarks. If the sub-adviser's investment strategy does not perform as expected, the Fund could underperform its peers or lose money. There is no guarantee the Fund will achieve its stated objective.
Foreign Investment Risk: Investments in foreign securities may be riskier than investments in U.S. securities. Potential risks include the risks of illiquidity, increased price volatility, less government regulation, less extensive and less frequent accounting and other reporting requirements, unfavorable changes in currency exchange rates, and economic and political disruptions.
Dividend Paying Security Investment Risk: Dividends are not guaranteed and are subject to change. Dividend paying securities as a group can fall out of favor with the market, causing the Fund to underperform.
31 |
THIS PRIVACY POLICY IS NOT PART OF THIS REPORT
Privacy Policy and Practices of The Hartford Financial Services Group, Inc. and its Affiliates
(herein called “we, our and us”)
This Privacy Policy applies to our United States Operations
We value your trust. We are committed to the responsible: a) management; b) use; and c) protection; of Personal Information.
This notice describes how we collect, disclose, and protect Personal Information.
We collect Personal Information to: a) service your Transactions with us; and b) support our business functions.
We may obtain Personal Information from: a) You; b) your Transactions with us; and c) third parties such as a consumer-reporting agency.
Based on the type of product or service You apply for or get from us, Personal Information such as: a) your name; b) your address; c) your income; d) your payment; or e) your credit history; may be gathered from sources such as applications, Transactions, and consumer reports.
To serve You and service our business, we may share certain Personal Information. We will share Personal Information, only as allowed by law, with affiliates such as: a) our insurance companies; b) our employee agents; c) our brokerage firms; and d) our administrators.
As allowed by law, we may share Personal Financial Information with our affiliates to: a) market our products; or b) market our services; to You without providing You with an option to prevent these disclosures. | We may also share Personal Information, only as allowed by law, with unaffiliated third parties including: a) independent agents; b) brokerage firms; c) insurance companies; d) administrators; and e) service providers; who help us serve You and service our business.
When allowed by law, we may share certain Personal Financial Information with other unaffiliated third parties who assist us by performing services or functions such as: a) taking surveys; b) marketing our products or services; or c) offering financial products or services under a joint agreement between us and one or more financial institutions.
We, and third parties we partner with, may track some of the pages You visit through the use of: a) cookies; b) pixel tagging; or c) other technologies; and currently do not process or comply with any web browser’s “do not track” signal or similar mechanism that indicates a request to disable online tracking of individual users who visit our websites or use our services.
We will not sell or share your Personal Financial Information with anyone for purposes unrelated to our business functions without offering You the opportunity to: a) “opt-out;” or b) “opt-in;” as required by law.
We only disclose Personal Health Information with: a) your proper written authorization; or b) as otherwise allowed or required by law.
Our employees have access to Personal Information in the course of doing their jobs, such as: a) underwriting policies; b) paying claims; c) developing new products; or d) advising customers of our products and services.
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We use manual and electronic security procedures to maintain: a) the confidentiality; and b) the integrity of; Personal Information that we have. We use these procedures to guard against unauthorized access.
Some techniques we use to protect Personal Information include: a) secured files; b) user authentication; c) encryption; d) firewall technology; and e) the use of detection software.
We are responsible for and must: a) identify information to be protected; b) provide an adequate level of protection for that data; c) grant access to protected data only to those people who must use it in the performance of their job-related duties.
Employees who violate our Privacy Policy will be subject to discipline, which may include ending their employment with us.
At the start of our business relationship, we will give You a copy of our current Privacy Policy.
We will also give You a copy of our current Privacy Policy once a year if You maintain a continuing business relationship with us.
We will continue to follow our Privacy Policy regarding Personal Information even when a business relationship no longer exists between us. | As used in this Privacy Notice:
Application means your request for our product or service.
Personal Financial Information means financial information such as: a) credit history; b) income; c) financial benefits; or d) policy or claim information.
Personal Health Information means health information such as: a) your medical records; or b) information about your illness, disability or injury.
Personal Information means information that identifies You personally and is not otherwise available to the public. It includes: a) Personal Financial Information; and b) Personal Health Information .
Transaction means your business dealings with us, such as: a) your Application; b) your request for us to pay a claim; and c) your request for us to take an action on your account.
You means an individual who has given us Personal Information in conjunction with: a) asking about; b) applying for; or c) obtaining; a financial product or service from us if the product or service is used mainly for personal, family, or household purposes.
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This Privacy Policy is being provided on behalf of the following affiliates of The Hartford Financial Services Group, Inc.:
1stAGChoice, Inc.; Access CoverageCorp, Inc.; Access CoverageCorp Technologies, Inc.; American Maturity Life Insurance Company; Archway 60 R, LLC; Business Management Group, Inc.; DMS R, LLC; First State Insurance Company; Fountain Investors I LLC; Fountain Investors II LLC; Fountain Investors III LLC; Fountain Investors IV LLC; FTC Resolution Company LLC; Hart Re Group L.L.C.; Hartford Accident and Indemnity Company; Hartford Administrative Services Company; Hartford Casualty General Agency, Inc.; Hartford Casualty Insurance Company; Hartford Financial Services, LLC; Hartford Fire General Agency, Inc.; Hartford Fire Insurance Company; Hartford Funds Distributors, LLC; Hartford Funds Management Company, LLC; Hartford Funds Management Group, Inc.; Hartford Holdings, Inc.; Hartford HLS Series Fund II, Inc.; Hartford Insurance Company of Illinois; Hartford Insurance Company of the Midwest; Hartford Insurance Company of the Southeast; Hartford Integrated Technologies, Inc.; Hartford International Life Reassurance Corporation; Hartford Investment Management Company; Hartford Life and Accident Insurance Company; Hartford Life and Annuity Insurance Company; Hartford Life Insurance Company; Hartford Life, Inc.; Hartford Life International Holding Company; Hartford Life Private Placement, LLC; Hartford Lloyd’s Corporation; Hartford Lloyd’s Insurance Company; Hartford of Texas General Agency, Inc.; Hartford Residual Market, L.C.C.; Hartford Securities Distribution Company, Inc.; Hartford Series Fund, Inc.; Hartford Specialty Insurance Services of Texas, LLC; Hartford Strategic Investments, LLC; Hartford Underwriters General Agency, Inc.; Hartford Underwriters Insurance Company; Hartford-Comprehensive Employee Benefit Service Company; HDC R, LLC.; Heritage Holdings, Inc.; HIMCO Distribution Services Company; HIMCO Variable Insurance Trust; HLA LLC; HL Investment Advisors, LLC; Horizon Management Group, LLC; HRA Brokerage Services, Inc.; Lanidex Class B, LLC; New England Insurance Company; New England Reinsurance Corporation; Nutmeg Insurance Agency, Inc.; Nutmeg Insurance Company; Pacific Insurance Company, Limited; Planco, LLC; Property and Casualty Insurance Company of Hartford; Revere R, LLC; RVR R, LLC; Sentinel Insurance Company, Ltd.; Sunstone R, LLC; Symphony R, LLC; The Evergreen Group Incorporated; The Hartford Alternative Strategies Fund; The Hartford Mutual Funds, Inc.; The Hartford Mutual Funds II, Inc.; Trumbull Flood Management, L.L.C.; Trumbull Insurance Company; Twin City Fire Insurance Company.
HPP Revised February 2015
HARTFORD HLS FUNDS
P.O. Box 14293
Lexington, KY 40512-4293
HARTFORDFUNDS
hartfordfunds.com
Hartford HLS Funds are underwritten and distributed by Hartford Funds Distributors, LLC.
Hartford Series Fund, Inc. is not a subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford") but is underwritten, distributed by and advised by subsidiaries of The Hartford. Investments in Hartford Series Fund, Inc. are not guaranteed by The Hartford or any other entity.
This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution unless preceded or accompanied by a current prospectus for the Fund.
Investors should carefully consider the investment objectives, risks, charges, and expenses of Hartford Funds before investing. This and other information can be found in the prospectus and summary prospectus, which can be obtained by calling 888-843-7824 (or 800-279-1541 for institutional investors). Investors should read them carefully before they invest.
HLSAR-DG14 2-15 113538-4 Printed in U.S.A.
HARTFORDFUNDS
![]() | HARTFORD GLOBAL GROWTH HLS FUND 2014 Annual Report |
A MESSAGE FROM THE PRESIDENT
Dear Fellow Shareholders:
Thank you for investing in Hartford HLS Funds.
Market Review
Nearly six years into a bull market, U.S. equities (as represented by the S&P 500 Index ) notched another positive year in 2014, finishing with a 13.69% gain. Progress was smooth for most of the year, with stocks generally rising amid little volatility. In the fourth quarter, however, the price of oil declined by nearly 40%, returning volatility to the market and paring some of the year’s returns.
As we enter 2015, the price of oil will likely continue playing an important role in market progress, as its effects are widespread. If prices remain low, consumers should benefit by paying less at the gas pump, which increases the amount of money available for discretionary spending. In contrast, low prices may be a detriment to the oil and natural gas industry in the U.S., as well as to the economies of countries that rely more heavily on oil exports.
Central-bank policies will also continue to influence the markets. The U.S. economy has continued to show self-sustaining growth, which has prompted the U.S. Federal Reserve to wind down the quantitative easing programs it initiated after the global financial crisis. In addition, gradual increases in interest rates are expected to begin in 2015, another sign of positive recovery and a return to pre-crisis policy. But in Europe, a slow recovery and fears of deflation have prompted the start of European Central Bank’s own version of quantitative easing to spur growth.
The final weeks of 2014 provided a stark reminder of how unpredictable market movements can be, and how important it is to maintain a diversified portfolio that’s in line with your time horizon and risk tolerance. As we begin 2015, take time to review your portfolio and your overall investment strategy with your financial advisor.
With more than 40 mutual-fund strategies that span a variety of asset classes and investment goals, your financial advisor can work with you to choose options within our fund family that can help you navigate today’s markets with confidence.
Thank you again for investing with Hartford HLS Funds.
James Davey
President
Hartford HLS Funds
1 The S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
Hartford Global Growth HLS Fund
Table of Contents
This report is prepared for the general information of contract owners and qualified retirement plan participants. It is not an offer of contracts or of qualified retirement plans. It should not be used in connection with any offer, except in conjunction with the appropriate product prospectus which contains all pertinent information including the applicable sales, administrative and other charges.
The views expressed in the Fund’s Manager Discussion under ‘‘Why did the Fund perform this way?’’ and ‘‘What is the outlook?’’ are views of the Fund’s sub-adviser and portfolio management team through the end of the period and are subject to change based on market and other conditions. The Fund’s Manager Discussion is for informational purposes only and does not represent an offer, recommendation or solicitation to buy, hold or sell any security. The specific securities identified and described, if any, do not represent all of the securities purchased or sold and you should not assume that investments in the securities identified and discussed will be profitable.
Hartford Global Growth HLS Fund inception 09/30/1988
(sub-advised by Wellington Management Company, LLP) |
Investment objective – The Fund seeks growth of capital.
Performance Overview 12/31/04 - 12/31/14
The chart above represents the hypothetical growth of a $10,000 investment in Class IA. Growth results in classes other than Class IA will vary from what is seen above due to differences in the expenses charged to those share classes.
Average Annual Total Returns (as of 12/31/14) |
1 Year | 5 Years | 10 Years | |
Global Growth IA | 6.79% | 12.06% | 5.25% |
Global Growth IB | 6.58% | 11.79% | 4.99% |
MSCI World Growth Index | 6.55% | 11.49% | 7.11% |
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of the investment will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain performance data current to the most recent month-end, please visit our website www.hartfordfunds.com.
Total returns presented above were calculated using the Fund’s net asset value available to shareholders for sale or redemption of Fund shares on December 31, 2014, which may exclude investment transactions as of this date. All share class returns assume the reinvestment of all distributions at net asset value and the deduction of all fund expenses.
MSCI World Growth Index is a broad-based unmanaged market capitalization-weighted total return index which measures the performance of growth securities in 23 developed-country global equity markets including the United States, Canada, Europe, Australia, New Zealand and the Far East.
The index is unmanaged, and its results include reinvested dividends and/or distributions, but do not reflect the effect of sales charges, commissions, expenses or taxes.
You cannot invest directly in an index.
As shown in the Fund's current prospectus dated May 1, 2014, the total annual operating expense ratios for Class IA and Class IB were 0.82% and 1.07%, respectively. Actual expenses may be higher. Please see the accompanying Financial Highlights for expense ratios for the year ended December 31, 2014.
The chart and table do not reflect the deductions of taxes, sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees or expenses would lower the contract’s or plan’s performance.
All investments are subject to risk including the possible loss of principal. For a discussion of the Fund’s risks, please see the Main Risks section of this report. For more detailed information on the risks associated with an investment in the Fund, please see the prospectus.
2 |
Hartford Global Growth HLS Fund
Manager Discussion
December 31, 2014 (Unaudited)
Portfolio Managers | |
John Boselli, CFA | Matthew D. Hudson, CFA |
Senior Managing Director and Equity Portfolio Manager | Managing Director and Equity Portfolio Manager |
How did the Fund perform?
The Class IA shares of the Hartford Global Growth HLS Fund returned 6.79% for the twelve-month period ended December 31, 2014, outperforming the Fund’s benchmark, the MSCI World Growth Index, which returned 6.55% for the same period. The Fund outperformed the 2.93% average return of the Lipper Global Large-Cap Growth Funds peer group, a group of funds with investment strategies similar to those of the Fund.
Why did the Fund perform this way?
Global equities rose during the period, notwithstanding bouts of significant volatility. Despite ongoing geopolitical tensions in Ukraine and the Middle East, concerns about a Chinese economic growth slowdown, and unsettling economic and political developments in several other emerging market countries, the five-year-old bull market marched on in the first half of 2014. Robust merger and acquisition activity, along with continued accommodative monetary policy from central banks around the globe, aided positive investor sentiment in May and June. However, Portuguese banking woes, European economic malaise, and the prospect of an accelerated U.S. Federal Reserve (Fed) interest-rate-hike timeline all conspired to stall the global stock rally near the tail end of the period. In addition, China's property slump and poor growth domestic product (GDP) readings in Japan and the eurozone raised the specter of a slowdown in global economic growth. Nevertheless, there were several positive developments in the second half of 2014, including an encouraging U.S. corporate earnings season and the fastest U.S. economic growth in more than a decade during the third quarter. Accommodative global monetary policy continued to be a central theme through year end. The Bank of Japan unexpectedly expanded its quantitative easing (QE) policy in late October, the People's Bank of China surprised markets in November with its first rate cut in two years, and the European Central Bank maintained its stance implying interest rates will remain low with hints of sovereign QE beginning early in 2015. Despite these positives, many market participants found ample reason to reassess their risk appetites, given the strong performance in recent years. During the period, emerging market equities underperformed their developed market counterparts and U.S. stocks generally outperformed non-U.S. stocks.
For the annual period, growth stocks (+6.5%) outperformed value stocks (+4.4%) as measured by the MSCI World Growth Index and the MSCI World Value Index, respectively. Within the MSCI World Growth Index, seven of ten sectors posted positive returns. Healthcare (+21%), Information Technology (+14%), and Consumer Staples (+7%) gained the most, while the Energy (-12%), Telecommunication Services (-8%), and Materials (-1%) sectors lagged on a relative basis.
The Fund’s outperformance versus the MSCI World Growth Index was driven by both sector allocation and security selection. An overweight allocation to the Information Technology sector and underweight allocations to the Energy and Materials sectors contributed to relative returns. This was partially offset by an underweight allocation to Consumer Discretionary and an overweight exposure to Financials. Security selection contributed to relative performance driven by strong selection in Consumer Staples, Industrials, and Information Technology. Selection was weaker in the Consumer Discretionary, Financials, and Healthcare sectors.
Top contributors to relative performance included Baidu (Information Technology), Lowe’s Companies (Consumer Discretionary), and Largan Precision (Information Technology). Shares of Baidu, a leading Chinese language internet search provider, rose on strong quarterly results and strong guidance. U.S.-based home improvement retailer Lowe’s Companies rose after reporting better-than-expected third-quarter earnings and raising full-year guidance. The company is also benefiting from investor optimism about the home improvement landscape. Shares of Taiwan-based Largan Precision, the leading manufacturer of camera lenses for smartphones, moved higher as sales and earnings have been strong driven by features upgrades in Apple and Chinese smartphones. Top absolute contributors also included Gilead Sciences (Healthcare).
The top detractors from the Fund’s relative performance were Apple (Information Technology), Sands China (Consumer Discretionary), and MEG Energy (Energy). Shares of Apple, a U.S.-based designer, manufacturer, and retailer of a range of personal electronic products, rose on strong demand for the iPhone 6 and 6 Plus. Our underweight position in this MSCI World Growth Index constituent detracted from performance relative to the MSCI World Growth Index. Sands China is a casino operator in Macau and a subsidiary of Las Vegas Sands. Shares declined on concerns about a slowing Chinese economy and the Chinese government’s crackdown on extravagant trips by government officials to Macau which contributed to weakness in revenues. Canadian oil sands producer MEG Energy saw its shares decline as part of a broader slide in energy stocks as oil prices tumbled to four-year lows at the end of the period. Top absolute detractors also included Lululemon Athletica (Consumer Discretionary).
3 |
Hartford Global Growth HLS Fund
Manager Discussion – (continued)
December 31, 2014 (Unaudited)
Derivatives are not used in a significant manner in the Fund and did not have a material impact on performance during the period.
What is the outlook?
Looking globally, we believe that the U.S. appears to be on a self-sustaining growth path. Both consumer and corporate U.S. balance sheets appear to have improved over the past five years. We believe that U.S. corporate profit margins are high and managements have returned substantial excess capital to shareholders. We believe that Europe and Japan should begin to see the benefits of easy monetary policy and weaker currencies. As we enter 2015, we are optimistic about opportunities that we are finding globally.
At the end of the period, our largest sector overweights continued to be to the Information Technology, Financials, and Healthcare sectors, while we were most underweight Consumer Discretionary, Industrials, and Materials, relative to the MSCI World Growth Index.
Diversification by Country |
as of December 31, 2014 |
Percentage of | ||||
Country | Net Assets | |||
Belgium | 2.4 | % | ||
British Virgin Islands | 0.0 | |||
Canada | 0.4 | |||
China | 4.2 | |||
Denmark | 1.6 | |||
Finland | 0.6 | |||
France | 1.5 | |||
Germany | 2.0 | |||
Hong Kong | 0.9 | |||
India | 1.2 | |||
Ireland | 0.5 | |||
Israel | 0.7 | |||
Japan | 4.5 | |||
Mexico | 0.4 | |||
Netherlands | 0.3 | |||
Spain | 0.4 | |||
Switzerland | 5.3 | |||
Taiwan | 1.8 | |||
United Kingdom | 4.9 | |||
United States | 66.0 | |||
Short-Term Investments | 0.8 | |||
Other Assets and Liabilities | (0.4 | ) | ||
Total | 100.0 | % |
4 |
Hartford Global Growth HLS Fund
Schedule of Investments
December 31, 2014
(000’s Omitted)
Shares or Principal Amount | Market Value ╪ | |||||||
Common Stocks - 99.1% | ||||||||
Automobiles and Components - 0.6% | ||||||||
39 | Delphi Automotive plc | $ | 2,852 | |||||
Banks - 2.6% | ||||||||
222 | Banco Bilbao Vizcaya Argentaria S.A. | 2,094 | ||||||
222 | Banco Bilbao Vizcaya Argentaria S.A. Rights | 21 | ||||||
40 | BNP Paribas | 2,367 | ||||||
3,132 | China Construction Bank | 2,558 | ||||||
254 | ICICI Bank Ltd. | 2,939 | ||||||
446 | Mitsubishi UFJ Financial Group, Inc. | 2,449 | ||||||
12,428 | ||||||||
Capital Goods - 5.3% | ||||||||
136 | ABB Ltd. ADR | 2,887 | ||||||
459 | Mitsubishi Heavy Industries Ltd. | 2,533 | ||||||
19 | Northrop Grumman Corp. | 2,799 | ||||||
48 | Safran S.A. | 2,944 | ||||||
29 | Schneider Electric S.A. | 2,091 | ||||||
67 | Sensata Technologies Holding N.V. ● | 3,515 | ||||||
8 | SMC Corp. of America | 2,130 | ||||||
72 | Textron, Inc. | 3,014 | ||||||
33 | Wabco Holdings, Inc. ● | 3,500 | ||||||
25,413 | ||||||||
Commercial and Professional Services - 0.6% | ||||||||
34 | Equifax, Inc. | 2,750 | ||||||
Consumer Durables and Apparel - 2.4% | ||||||||
41 | Pandora A/S | 3,293 | ||||||
17 | Polaris Industries, Inc. | 2,500 | ||||||
121 | Pulte Group, Inc. | 2,593 | ||||||
159 | Sony Corp. | 3,247 | ||||||
11,633 | ||||||||
Consumer Services - 2.5% | ||||||||
172 | Compass Group plc ● | 2,939 | ||||||
327 | Galaxy Entertainment Group Ltd. | 1,816 | ||||||
106 | MGM Resorts International ● | 2,266 | ||||||
542 | Sands China Ltd. | 2,641 | ||||||
31 | Starbucks Corp. | 2,568 | ||||||
12,230 | ||||||||
Diversified Financials - 8.7% | ||||||||
80 | American Express Co. | 7,484 | ||||||
21 | Ameriprise Financial, Inc. | 2,731 | ||||||
19 | BlackRock, Inc. | 6,770 | ||||||
56 | Discover Financial Services | 3,689 | ||||||
40 | JP Morgan Chase & Co. | 2,532 | ||||||
64 | Julius Baer Group Ltd. | 2,937 | ||||||
55 | Legg Mason, Inc. | 2,954 | ||||||
39 | Moody's Corp. | 3,728 | ||||||
75 | MSCI, Inc. | 3,576 | ||||||
10 | Partners Group | 2,895 | ||||||
70 | SEI Investments Co. | 2,814 | ||||||
42,110 | ||||||||
Energy - 2.2% | ||||||||
29 | EOG Resources, Inc. | 2,648 | ||||||
112 | MEG Energy Corp. ● | 1,890 | ||||||
23 | Pioneer Natural Resources Co. | 3,481 | ||||||
31 | Schlumberger Ltd. | 2,676 | ||||||
10,695 | ||||||||
Food and Staples Retailing - 2.2% | ||||||||
78 | CVS Health Corp. | 7,516 | ||||||
81 | Seven & I Holdings Co., Ltd. | 2,896 | ||||||
10,412 | ||||||||
Food, Beverage and Tobacco - 6.6% | ||||||||
50 | Altria Group, Inc. | 2,439 | ||||||
75 | Anheuser-Busch InBev N.V. | 8,415 | ||||||
48 | British American Tobacco plc | 2,616 | ||||||
– | Diamond Foods, Inc. ● | 13 | ||||||
76 | Imperial Tobacco Group plc | 3,341 | ||||||
469 | ITC Ltd. GDR § | 2,740 | ||||||
18 | Keurig Green Mountain, Inc. | 2,351 | ||||||
62 | Lorillard, Inc. | 3,906 | ||||||
88 | Mondelez International, Inc. | 3,178 | ||||||
28 | Monster Beverage Corp. ● | 3,036 | ||||||
32,035 | ||||||||
Health Care Equipment and Services - 2.6% | ||||||||
67 | Aetna, Inc. | 5,947 | ||||||
35 | Medtronic, Inc. | 2,501 | ||||||
41 | UnitedHealth Group, Inc. | 4,096 | ||||||
12,544 | ||||||||
Insurance - 4.7% | ||||||||
26 | ACE Ltd. | 3,037 | ||||||
122 | American International Group, Inc. | 6,822 | ||||||
42 | Aon plc | 3,988 | ||||||
133 | Assured Guaranty Ltd. | 3,457 | ||||||
1,286 | PICC Property and Casualty Co., Ltd. | 2,483 | ||||||
58 | Sampo Oyj Class A | 2,702 | ||||||
22,489 | ||||||||
Materials - 1.4% | ||||||||
190 | Cemex S.A.B. de C.V. ADR | 1,936 | ||||||
34 | HeidelbergCement AG | 2,403 | ||||||
235 | James Hardie Industries plc | 2,510 | ||||||
6,849 | ||||||||
Media - 2.4% | ||||||||
59 | Comcast Corp. Class A | 3,402 | ||||||
88 | Twenty-First Century Fox, Inc. | 3,384 | ||||||
26 | Walt Disney Co. | 2,468 | ||||||
113 | WPP plc | 2,339 | ||||||
11,593 | ||||||||
Pharmaceuticals, Biotechnology and Life Sciences - 14.8% | ||||||||
12 | Actavis plc ● | 3,063 | ||||||
22 | Actelion Ltd. | 2,572 | ||||||
88 | AstraZeneca plc | 6,196 | ||||||
11 | Biogen Idec, Inc. ● | 3,831 | ||||||
149 | Bristol-Myers Squibb Co. | 8,781 | ||||||
36 | Celgene Corp. ● | 4,021 | ||||||
82 | Gilead Sciences, Inc. ● | 7,742 | ||||||
122 | Merck & Co., Inc. | 6,923 | ||||||
58 | Novartis AG | 5,406 | ||||||
104 | Novo Nordisk A/S | 4,386 | ||||||
9 | Regeneron Pharmaceuticals, Inc. ● | 3,725 | ||||||
32 | Roche Holding AG | 8,797 | ||||||
38 | UCB S.A. | 2,918 | ||||||
27 | Vertex Pharmaceuticals, Inc. ● | 3,151 | ||||||
71,512 | ||||||||
Real Estate - 1.9% | ||||||||
35 | American Tower Corp. REIT | 3,499 | ||||||
28 | Daito Trust Construction Co., Ltd. | 3,222 | ||||||
87 | Mitsui Fudosan Co., Ltd. | 2,333 | ||||||
9,054 |
The accompanying notes are an integral part of these financial statements.
5 |
Hartford Global Growth HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Shares or Principal Amount | Market Value ╪ | |||||||
Common Stocks - 99.1% - (continued) | ||||||||
Retailing - 3.5% | ||||||||
8 | Amazon.com, Inc. ● | $ | 2,461 | |||||
125 | Lowe's Cos., Inc. | 8,586 | ||||||
29 | Next plc | 3,064 | ||||||
3 | Priceline (The) Group, Inc. ● | 3,010 | ||||||
17,121 | ||||||||
Semiconductors and Semiconductor Equipment - 3.5% | ||||||||
72 | Altera Corp. | 2,643 | ||||||
192 | Arm Holdings plc | 2,951 | ||||||
229 | Infineon Technologies AG | 2,428 | ||||||
177 | MediaTek, Inc. | 2,567 | ||||||
94 | Micron Technology, Inc. ● | 3,278 | ||||||
665 | Taiwan Semiconductor Manufacturing Co., Ltd. | 2,930 | ||||||
16,797 | ||||||||
Software and Services - 19.0% | ||||||||
37 | Accenture plc | 3,268 | ||||||
167 | Activision Blizzard, Inc. | 3,362 | ||||||
46 | Adobe Systems, Inc. ● | 3,353 | ||||||
45 | Akamai Technologies, Inc. ● | 2,862 | ||||||
34 | Alibaba Group Holding Ltd. ● | 3,512 | ||||||
36 | Automatic Data Processing, Inc. | 3,030 | ||||||
30 | Baidu, Inc. ADR ● | 6,944 | ||||||
45 | Check Point Software Technologies Ltd. ADR ● | 3,562 | ||||||
58 | Cognizant Technology Solutions Corp. ● | 3,042 | ||||||
4 | Dropbox, Inc. ⌂●† | 62 | ||||||
60 | Facebook, Inc. ● | 4,716 | ||||||
42 | Fiserv, Inc. ● | 2,988 | ||||||
46 | Gartner, Inc. Class A ● | 3,894 | ||||||
7 | Google, Inc. Class C ● | 3,751 | ||||||
60 | Intuit, Inc. | 5,501 | ||||||
61 | Jack Henry & Associates, Inc. | 3,776 | ||||||
59 | MasterCard, Inc. | 5,126 | ||||||
141 | Microsoft Corp. | 6,527 | ||||||
110 | Oracle Corp. | 4,947 | ||||||
54 | Salesforce.com, Inc. ● | 3,186 | ||||||
57 | United Internet AG | 2,571 | ||||||
77 | Vantiv, Inc. ● | 2,620 | ||||||
22 | Visa, Inc. | 5,828 | ||||||
53 | Yelp, Inc. ● | 2,911 | ||||||
91,339 | ||||||||
Technology Hardware and Equipment - 8.6% | ||||||||
168 | Apple, Inc. | 18,532 | ||||||
107 | Cisco Systems, Inc. | 2,969 | ||||||
30 | F5 Networks, Inc. ● | 3,875 | ||||||
392 | Hitachi Ltd. | 2,892 | ||||||
40 | Largan Precision Co., Ltd. | 2,972 | ||||||
2,297 | Lenovo Group Ltd. | 2,998 | ||||||
38 | Mobileye N.V. ● | 1,553 | ||||||
29 | SanDisk Corp. | 2,873 | ||||||
33 | Stratasys Ltd. ● | 2,718 | ||||||
41,382 | ||||||||
Telecommunication Services - 0.6% | ||||||||
101 | T-Mobile US, Inc. ● | 2,708 | ||||||
Transportation - 2.0% | ||||||||
18 | FedEx Corp. | 3,059 | ||||||
24 | Kansas City Southern | 2,923 | ||||||
52 | United Continental Holdings, Inc. ● | 3,452 | ||||||
9,434 | ||||||||
Utilities - 0.4% | ||||||||
304 | ENN Energy Holdings Ltd. | 1,720 | ||||||
Total Common Stocks | ||||||||
( Cost $393,854) | $ | 477,100 | ||||||
Preferred Stocks - 0.5% | ||||||||
Automobiles and Components - 0.5% | ||||||||
10 | Volkswagen AG N.V. | $ | 2,332 | |||||
Technology Hardware and Equipment - 0.0% | ||||||||
2 | Pure Storage, Inc. ⌂●† | 34 | ||||||
Total Preferred Stocks | ||||||||
(Cost $2,520) | $ | 2,366 | ||||||
Warrants - 0.0% | ||||||||
Diversified Financials - 0.0% | ||||||||
16 | Atlas Mara Co-Nvest Ltd. | $ | 7 | |||||
1 | Imperial Holdings, Inc. ⌂ | – | ||||||
7 | ||||||||
Total Warrants | ||||||||
(Cost $–) | $ | 7 | ||||||
Total Long-Term Investments | ||||||||
(Cost $396,374) | $ | 479,473 | ||||||
Short-Term Investments - 0.8% | ||||||||
Repurchase Agreements - 0.8% | ||||||||
Bank of America Merrill Lynch Repurchase Agreement (maturing on 01/02/2015 in the amount of $4, collateralized by U.S. Treasury Note 0.75%, 2018, value of $4) | ||||||||
$ | 4 | 0.05%, 12/31/2014 | $ | 4 | ||||
Bank of America Merrill Lynch TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $20, collateralized by U.S. Treasury Note 2.50%, 2024, value of $20) | ||||||||
20 | 0.07%, 12/31/2014 | 20 | ||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $520, collateralized by U.S. Treasury Bond 3.88% - 5.25%, 2029 - 2040, U.S. Treasury Note 0.25% - 4.63%, 2015 - 2022, value of $530) | ||||||||
520 | 0.06%, 12/31/2014 | 520 | ||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $226, collateralized by FHLMC 2.00% - 5.50%, 2019 - 2044, FNMA 2.00% - 4.00%, 2024 - 2042, GNMA 3.00%, 2043, U.S. Treasury Bill 0.07%, 2015, value of $231) | ||||||||
226 | 0.07%, 12/31/2014 | 226 | ||||||
Barclays Capital TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $557, collateralized by U.S. Treasury Bond 3.63%, 2043, U.S. Treasury Note 0.88% - 2.00%, 2017 - 2020, value of $568) | ||||||||
557 | 0.05%, 12/31/2014 | 557 |
The accompanying notes are an integral part of these financial statements.
6 |
Hartford Global Growth HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Shares or Principal Amount | Market Value ╪ | |||||||||||
Short-Term Investments - 0.8% - (continued) | ||||||||||||
Repurchase Agreements - 0.8% - (continued) | ||||||||||||
Citigroup Global Markets, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $995, collateralized by U.S. Treasury Bond 3.63% - 9.88%, 2015 - 2043, U.S. Treasury Note 0.25% - 2.75%, 2015 - 2022, value of $1,015) | ||||||||||||
$ | 995 | 0.06%, 12/31/2014 | $ | 995 | ||||||||
Deutsche Bank Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $161, collateralized by FHLMC 2.00% - 10.50%, 2015 - 2047, FNMA 2.00% - 9.50%, 2015 - 2049, GNMA 2.50% - 10.00%, 2016 - 2055, value of $165) | ||||||||||||
161 | 0.12%, 12/31/2014 | 161 | ||||||||||
RBS Securities, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $42, collateralized by U.S. Treasury Note 0.38% - 2.13%, 2015 - 2016, value of $43) | ||||||||||||
42 | 0.07%, 12/31/2014 | 42 | ||||||||||
Societe Generale TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $473, collateralized by U.S. Treasury Bond 8.75%, 2020, U.S. Treasury Note 0.25% - 2.88%, 2015 - 2022, value of $483) | ||||||||||||
473 | 0.07%, 12/31/2014 | 473 | ||||||||||
TD Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $1,014, collateralized by FHLMC 3.00% - 4.00%, 2026 - 2044, FNMA 2.50% - 5.00%, 2025 - 2044, value of $1,034) | ||||||||||||
1,014 | 0.08%, 12/31/2014 | 1,014 | ||||||||||
4,012 | ||||||||||||
Total Short-Term Investments | ||||||||||||
(Cost $4,012) | $ | 4,012 | ||||||||||
Total Investments | ||||||||||||
(Cost $400,386) ▲ | 100.4 | % | $ | 483,485 | ||||||||
Other Assets and Liabilities | (0.4 | )% | (1,964 | ) | ||||||||
Total Net Assets | 100.0 | % | $ | 481,521 |
The accompanying notes are an integral part of these financial statements.
7 |
Hartford Global Growth HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Note: | Percentage of investments as shown is the ratio of the total market value to total net assets. |
Prices of foreign equities that are principally traded on certain foreign markets may be adjusted daily pursuant to a fair value pricing service approved by the Board of Directors in order to reflect an adjustment for factors occurring after the close of certain foreign markets but before the close of the New York Stock Exchange. |
Equity industry classifications used in this report are the Global Industry Classification Standard, which was developed by and is the exclusive property and service mark of MSCI, Inc. and Standard & Poor’s.
For Fund compliance purposes, the Fund may not use the same classification system shown in this report as these classifications are used for reporting ease.
▲ | At December 31, 2014, the cost of securities for federal income tax purposes was $400,846 and the aggregate gross unrealized appreciation and depreciation based on that cost were: |
Unrealized Appreciation | $ | 91,349 | ||
Unrealized Depreciation | (8,710 | ) | ||
Net Unrealized Appreciation | $ | 82,639 |
† | These securities were valued in good faith at fair value as determined under policies and procedures established by and under the supervision of the Board of Directors. At December 31, 2014, the aggregate fair value of these securities was $96, which rounds to zero percent of total net assets. This amount excludes securities that are principally traded in certain foreign markets and whose prices are adjusted pursuant to a third party pricing service methodology approved by the Board of Directors. |
● | Non-income producing. |
§ | These securities were sold to the Fund under Regulation S, rules governing offers and sales made outside the United States without registration under the Securities Act of 1933, as amended. The Fund may only be able to resell these securities in the United States if an exemption from registration under the federal and state securities laws is available, or the Fund may only be able to sell these securities outside of the United States (such as on a foreign exchange) to a non-U.S. person. Unless otherwise indicated, these holdings are determined to be liquid. At December 31, 2014, the aggregate value of these securities was $2,740, which represents 0.6% of total net assets. |
⌂ | The following securities are considered illiquid. Illiquid securities are often purchased in private placement transactions, are often not registered under the Securities Act of 1933, as amended, and may have contractual restrictions on resale. Illiquid securities may lack a readily available market or their valuation has not changed for a certain period of time. |
Period Acquired | Shares/ Par | Security | Cost Basis | |||||
05/2012 | 4 | Dropbox, Inc. | $ | 32 | ||||
04/2014 | 1 | Imperial Holdings, Inc. Warrants | – | |||||
04/2014 | 2 | Pure Storage, Inc. Preferred | 37 |
At December 31, 2014, the aggregate value of these securities was $96, which rounds to zero percent of total net assets.
╪ | See Significant Accounting Policies of accompanying Notes to Financial Statements regarding valuation of securities. |
GLOSSARY: (abbreviations used in preceding Schedule of Investments) | |
Other Abbreviations: | |
ADR | American Depositary Receipt |
FHLMC | Federal Home Loan Mortgage Corp. |
FNMA | Federal National Mortgage Association |
GDR | Global Depositary Receipt |
GNMA | Government National Mortgage Association |
REIT | Real Estate Investment Trust |
The accompanying notes are an integral part of these financial statements.
8 |
Hartford Global Growth HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Total | Level 1 ♦ | Level 2 ♦ | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Common Stocks | ||||||||||||||||
Automobiles and Components | $ | 2,852 | $ | 2,852 | $ | – | $ | – | ||||||||
Banks | 12,428 | 2,960 | 9,468 | – | ||||||||||||
Capital Goods | 25,413 | 12,828 | 12,585 | – | ||||||||||||
Commercial and Professional Services | 2,750 | 2,750 | – | – | ||||||||||||
Consumer Durables and Apparel | 11,633 | 5,093 | 6,540 | – | ||||||||||||
Consumer Services | 12,230 | 4,834 | 7,396 | – | ||||||||||||
Diversified Financials | 42,110 | 36,278 | 5,832 | – | ||||||||||||
Energy | 10,695 | 10,695 | – | – | ||||||||||||
Food and Staples Retailing | 10,412 | 7,516 | 2,896 | – | ||||||||||||
Food, Beverage and Tobacco | 32,035 | 14,923 | 17,112 | – | ||||||||||||
Health Care Equipment and Services | 12,544 | 12,544 | – | – | ||||||||||||
Insurance | 22,489 | 17,304 | 5,185 | – | ||||||||||||
Materials | 6,849 | 1,936 | 4,913 | – | ||||||||||||
Media | 11,593 | 9,254 | 2,339 | – | ||||||||||||
Pharmaceuticals, Biotechnology and Life Sciences | 71,512 | 41,237 | 30,275 | – | ||||||||||||
Real Estate | 9,054 | 3,499 | 5,555 | – | ||||||||||||
Retailing | 17,121 | 14,057 | 3,064 | – | ||||||||||||
Semiconductors and Semiconductor Equipment | 16,797 | 5,921 | 10,876 | – | ||||||||||||
Software and Services | 91,339 | 88,706 | 2,571 | 62 | ||||||||||||
Technology Hardware and Equipment | 41,382 | 32,520 | 8,862 | – | ||||||||||||
Telecommunication Services | 2,708 | 2,708 | – | – | ||||||||||||
Transportation | 9,434 | 9,434 | – | – | ||||||||||||
Utilities | 1,720 | – | 1,720 | – | ||||||||||||
Total | 477,100 | 339,849 | 137,189 | 62 | ||||||||||||
Preferred Stocks | 2,366 | – | 2,332 | 34 | ||||||||||||
Warrants | 7 | 7 | – | – | ||||||||||||
Short-Term Investments | 4,012 | – | 4,012 | – | ||||||||||||
Total | $ | 483,485 | $ | 339,856 | $ | 143,533 | $ | 96 |
♦ | For the year ended December 31, 2014, investments valued at $3,131 were transferred from Level 1 to Level 2, and there were no transfers from Level 2 to Level 1. Investments are transferred between Level 1 and Level 2 for a variety of reasons including, but not limited to: |
1) | Foreign equities for which a fair value price is more representative of exit value than the local market close (transfer into Level 2). Foreign equities for which the local market close is more representative of exit value (transfer into Level 1). |
2) | U.S. Treasury securities that no longer represent the most recent issue (transfer into Level 2). |
3) | Equity investments with no observable trading but a bid or mean price is used (transfer into Level 2). Equity investments using observable quoted prices in an active market (transfer into Level 1). |
Following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
Balance as of December 31, 2013 | Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Net Amortization | Purchases | Sales | Transfers Into Level 3 | Transfers Out of Level 3 | Balance as of December 31, 2014 | ||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||
Common Stocks | $ | 48 | * | $ | 4 | $ | 18 | † | $ | — | $ | — | $ | (8 | ) | $ | — | $ | — | $ | 62 | |||||||||||||||
Preferred Stocks | — | — | (4 | )‡ | — | 38 | — | — | — | 34 | ||||||||||||||||||||||||||
Total | $ | — | $ | 4 | $ | 14 | $ | — | $ | 38 | $ | (8 | ) | $ | — | $ | — | $ | 96 |
* | Acquired with the transistion of assets from Hartford Global Research HLS Fund, which merged into the Fund on June 23, 2014 (see Fund Merger in the accompanying Notes to Financial Statements). |
† | Change in unrealized appreciation (depreciation) in the current period relating to assets still held at December 31, 2014 was $18. |
‡ | Change in unrealized appreciation (depreciation) in the current period relating to assets still held at December 31, 2014 was $(4). |
Note: | For purposes of reporting transfers between different hierarchy levels, both transfers in and out of each level, as applicable, are shown as if they occurred at the beginning of the period. |
The accompanying notes are an integral part of these financial statements.
9 |
Hartford Global Growth HLS Fund
Statement of Assets and Liabilities
December 31, 2014
(000’s Omitted)
Assets: | ||||
Investments in securities, at market value (cost $400,386) | $ | 483,485 | ||
Cash | — | |||
Receivables: | ||||
Fund shares sold | 27 | |||
Dividends and interest | 659 | |||
Total assets | 484,171 | |||
Liabilities: | ||||
Payables: | ||||
Investment securities purchased | 462 | |||
Fund shares redeemed | 2,051 | |||
Investment management fees | 81 | |||
Distribution fees | 5 | |||
Accrued expenses | 51 | |||
Total liabilities | 2,650 | |||
Net assets | $ | 481,521 | ||
Summary of Net Assets: | ||||
Capital stock and paid-in-capital | $ | 374,621 | ||
Undistributed net investment income | 2,330 | |||
Accumulated net realized gain | 21,499 | |||
Unrealized appreciation of investments and the translations of assets and liabilities denominated in foreign currency | 83,071 | |||
Net assets | $ | 481,521 | ||
Shares authorized | 3,600,000 | |||
Par value | $ | 0.001 | ||
Class IA: Net asset value per share | $ | 23.74 | ||
Shares outstanding | 16,365 | |||
Net assets | $ | 388,542 | ||
Class IB: Net asset value per share | $ | 23.56 | ||
Shares outstanding | 3,947 | |||
Net assets | $ | 92,979 |
The accompanying notes are an integral part of these financial statements.
10 |
Hartford Global Growth HLS Fund
Statement of Operations
For the Year Ended December 31, 2014
(000’s Omitted)
Investment Income: | ||||
Dividends | $ | 6,598 | ||
Interest | 45 | |||
Less: Foreign tax withheld | (339 | ) | ||
Total investment income, net | 6,304 | |||
Expenses: | ||||
Investment management fees | 3,459 | |||
Transfer agent fees | 6 | |||
Distribution fees - Class IB | 216 | |||
Custodian fees | 20 | |||
Accounting services fees | 64 | |||
Board of Directors' fees | 11 | |||
Audit fees | 28 | |||
Other expenses | 128 | |||
Total expenses (before fees paid indirectly) | 3,932 | |||
Commission recapture | (5 | ) | ||
Total fees paid indirectly | (5 | ) | ||
Total expenses, net | 3,927 | |||
Net Investment Income | 2,377 | |||
Net Realized Gain on Investments and Foreign Currency Transactions: | ||||
Net realized gain on investments | 81,842 | |||
Net realized gain on foreign currency contracts | 24 | |||
Net realized loss on other foreign currency transactions | (67 | ) | ||
Net Realized Gain on Investments and Foreign Currency Transactions | 81,799 | |||
Net Changes in Unrealized Depreciation of Investments and Foreign Currency Transactions: | ||||
Net unrealized depreciation of investments | (55,421 | ) | ||
Net unrealized depreciation of foreign currency contracts | (1 | ) | ||
Net unrealized depreciation on translation of other assets and liabilities in foreign currencies | (37 | ) | ||
Net Changes in Unrealized Depreciation of Investments and Foreign Currency Transactions | (55,459 | ) | ||
Net Gain on Investments and Foreign Currency Transactions | 26,340 | |||
Net Increase in Net Assets Resulting from Operations | $ | 28,717 |
The accompanying notes are an integral part of these financial statements.
11 |
Hartford Global Growth HLS Fund
Statement of Changes in Net Assets
(000’s Omitted)
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Operations: | ||||||||
Net investment income | $ | 2,377 | $ | 2,153 | ||||
Net realized gain on investments and foreign currency transactions | 81,799 | 64,240 | ||||||
Net unrealized appreciation (depreciation) of investments and foreign currency transactions | (55,459 | ) | 62,249 | |||||
Net Increase in Net Assets Resulting from Operations | 28,717 | 128,642 | ||||||
Distributions to Shareholders: | ||||||||
From net investment income | ||||||||
Class IA | (1,806 | ) | (2,480 | ) | ||||
Class IB | (243 | ) | (371 | ) | ||||
Total distributions | (2,049 | ) | (2,851 | ) | ||||
Capital Share Transactions: | ||||||||
Class IA | ||||||||
Sold | 12,575 | 16,538 | ||||||
Issued in merger | 60,232 | — | ||||||
Issued on reinvestment of distributions | 1,806 | 2,480 | ||||||
Redeemed | (67,948 | ) | (82,410 | ) | ||||
Total capital share transactions | 6,665 | (63,392 | ) | |||||
Class IB | ||||||||
Sold | 4,065 | 8,653 | ||||||
Issued in merger | 24,368 | — | ||||||
Issued on reinvestment of distributions | 243 | 371 | ||||||
Redeemed | (20,397 | ) | (30,109 | ) | ||||
Total capital share transactions | 8,279 | (21,085 | ) | |||||
Net increase (decrease) from capital share transactions | 14,944 | (84,477 | ) | |||||
Net Increase in Net Assets | 41,612 | 41,314 | ||||||
Net Assets: | ||||||||
Beginning of period | 439,909 | 398,595 | ||||||
End of period | $ | 481,521 | $ | 439,909 | ||||
Undistributed (distributions in excess of) net investment income | $ | 2,330 | $ | 2,048 | ||||
Shares: | ||||||||
Class IA | ||||||||
Sold | 648 | 869 | ||||||
Issued in merger | 2,474 | — | ||||||
Issued on reinvestment of distributions | 76 | 125 | ||||||
Redeemed | (2,962 | ) | (4,338 | ) | ||||
Total share activity | 236 | (3,344 | ) | |||||
Class IB | ||||||||
Sold | 178 | 458 | ||||||
Issued in merger | 1,053 | — | ||||||
Issued on reinvestment of distributions | 10 | 19 | ||||||
Redeemed | (896 | ) | (1,589 | ) | ||||
Total share activity | 345 | (1,112 | ) |
The accompanying notes are an integral part of these financial statements.
12 |
Hartford Global Growth HLS Fund
Notes to Financial Statements
December 31, 2014
(000’s Omitted)
Organization:
Hartford Global Growth HLS Fund (the "Fund") serves as an underlying investment option for certain variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company (“HLIC”) and its affiliates and certain qualified retirement plans. The Fund may also serve as an underlying investment option for certain variable annuity and variable life separate accounts of other insurance companies. Owners of variable annuity contracts and policyholders of variable life insurance contracts may choose the funds permitted in the variable insurance contract prospectus. In addition, participants in certain qualified retirement plans may choose the Fund if permitted by their plans. During the year ended December 31, 2014, the Fund acquired Hartford Global Research HLS Fund. Please see the section "Fund Merger" for more information.
Hartford Series Fund, Inc. (the “Company”) is an open-end registered management investment company comprised of fifteen portfolios. Financial statements for the Fund, a series of the Company, are included in this report.
The Company is organized under the laws of the State of Maryland and is registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (“1940 Act”). The Fund's portfolio managers are Matthew D. Hudson (50%) and John A. Boselli (50%). The Fund is a diversified open-end management investment company. The Fund is an investment company and applies specialized accounting and reporting under Accounting Standards Codification Topic 946, Financial Services - Investment Companies.
The Fund is divided into Class IA, Class IB and Class IC shares. Each class is offered at the per share net asset value (“NAV”) without a sales charge and is subject to the same expenses, except that the Class IB and Class IC shares are subject to distribution and service fees charged pursuant to a Distribution Plan adopted in accordance with Rule 12b-1 under the 1940 Act and Class IC shares are also subject to an administrative service fee. Class IC shares have not commenced operations as of the date of this report.
Significant Accounting Policies:
The following is a summary of significant accounting policies of the Fund in the preparation of its financial statements, which are in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The preparation of financial statements in accordance with U.S. GAAP may require 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
Determination of Net Asset Value – The NAV of each class of the Fund's shares is determined as of the close of regular trading (normally 4:00 p.m. Eastern Time) (the “NYSE Close”) on each day that the New York Stock Exchange (the “Exchange”) is open (“Valuation Date”). Information that becomes known to the Fund after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the NAV determined earlier that day.
Investment Valuation and Fair Value Measurements – For purposes of calculating the NAV, portfolio investments and other assets held by the Fund's portfolio for which market quotes are readily available are valued at market value. Market value is generally determined on the basis of last reported sales prices or official close price. If no sales are reported, market value is based on quotes obtained from a quotation reporting system, established market makers, or independent pricing services. If market prices are not readily available or are deemed unreliable, the Fund will use the fair value of the investment as determined in good faith under policies and procedures established by and under the supervision of the Company's Board of Directors. Market quotes are considered not readily available where there is an absence of current or reliable market-based data (e.g., trade information or indicative market quotes), including where events occur after the close of the relevant market, but prior to the NYSE Close, that materially affect the values of the Fund's portfolio investments or assets. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the investments trade do not open for trading for the entire day and no other market prices are available. In addition, prices of foreign equities that are principally traded on certain foreign markets may be adjusted daily pursuant to a fair value pricing service approved by the Board of Directors in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close. Investments that are primarily traded on foreign markets may trade on days that are not business days of the Fund. The value of the foreign investments in which the Fund invests may change on days when a shareholder will not be able to purchase or redeem shares of the Fund. Fair value pricing is
13 |
Hartford Global Growth HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
subjective in nature and the use of fair value pricing by the Fund may cause the NAV of its shares to differ significantly from the NAV that would have been calculated using market prices at the close of the exchange on which a portfolio investment is primarily traded. There can be no assurance that the Fund could obtain the fair market value assigned to an investment if the Fund were to sell the investment at approximately the time at which the Fund determines its NAV.
Investments valued in currencies other than U.S. dollars are converted to U.S. dollars using exchange rates obtained from independent pricing services for calculation of the NAV. As a result, the NAV of the Fund’s shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of investments traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that the NYSE is closed and the market value may change on days when an investor is not able to purchase, redeem or exchange shares of the Fund.
Foreign currency contracts represent agreements to exchange currencies on specific future dates at predetermined rates. Foreign currency contracts are valued using foreign currency exchange rates and forward rates as provided by an independent pricing service on the Valuation Date.
Financial instruments for which prices are not available from an independent pricing service may be valued using market quotations obtained from one or more dealers that make markets in the respective financial instrument in accordance with procedures established by the Company's Board of Directors.
U.S. GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants. The U.S. GAAP fair value measurement standards require disclosure of a fair value hierarchy for each major category of assets and liabilities. Various inputs are used in determining the fair value of the Fund’s investments. These inputs are summarized into three broad hierarchy levels. This hierarchy is based on whether the valuation inputs are observable or unobservable. These levels are:
Level 1 – Quoted prices in active markets for identical investments. Level 1 may include exchange traded instruments, such as domestic equities, some foreign equities, options, futures, mutual funds, exchange traded funds, rights and warrants.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar investments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 2 may include debt investments that are traded less frequently than exchange traded instruments and which are valued using independent pricing services; foreign equities, which are principally traded on certain foreign markets and are adjusted daily pursuant to a fair value pricing service in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close; senior floating rate interests, which are valued using an aggregate of dealer bids; short-term investments, which are valued at amortized cost; and swaps, which are valued based upon the terms of each swap contract.
Level 3 – Significant unobservable inputs that are supported by limited or no market activity. Level 3 may include financial instruments whose values are determined using indicative market quotes or require significant management judgment or estimation. These unobservable valuation inputs may include estimates for current yields, maturity/duration, prepayment speed, and indicative market quotes for comparable investments along with other assumptions relating to credit quality, collateral value, complexity of the investment structure, general market conditions and liquidity. This category may include investments where trading has been halted or there are certain restrictions on trading. While these investments are priced using unobservable inputs, the valuation of these investments reflects the best available data and management believes the prices are a reasonable representation of exit price.
The Board of Directors of the Company generally reviews and approves the “Procedures for Valuation of Portfolio Securities” at least once a year. These procedures define how investments are to be valued, including the formation and activities of a Valuation Committee. The Valuation Committee is responsible for determining in good faith the fair value of investments when the value cannot be obtained from primary pricing services or alternative sources or if the valuation of an investment as provided by the primary pricing service or alternative source is believed not to reflect the investment’s fair value as of the Valuation Date. Voting members of the Valuation
14 |
Hartford Global Growth HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Committee include the Fund's Treasurer or designee and a Vice President of the investment manager or designee. An Assistant Vice President of the Fund with legal expertise or designee is also included on the Valuation Committee as a non-voting advisory member. In addition, the Fund’s Chief Compliance Officer shall designate a member of the compliance group to attend Valuation Committee meetings as a non-voting resource, to monitor for and provide guidance with respect to compliance with these procedures. Two members of the Valuation Committee or their designees, representing different departments, shall constitute a quorum for purposes of permitting the Valuation Committee to take action. The Valuation Committee will consider all relevant factors in determining an investment’s fair value, and may seek the advice of the Fund’s sub-adviser, knowledgeable brokers, and legal counsel in making such determination. The Valuation Committee reports to the Audit Committee of the Company's Board of Directors. The Audit Committee receives quarterly written reports which include details of all fair-valued investments, including the reason for the fair valuation, and an indication, when possible, of the accuracy of the valuation by disclosing the next available reliable public price quotation or the disposition price of such investments (the “look-back” test). The Board of Directors then must consider for ratification all of the fair value determinations made during the previous quarter.
Valuation levels are not necessarily indicative of the risk associated with investing in such investments. Individual investments within any of the above mentioned asset classes may be assigned a different hierarchical level than those presented above, as individual circumstances dictate.
For additional information, refer to the Investment Valuation Hierarchy Level Summary and the Level 3 roll-forward reconciliation, if applicable, which is included in the Schedule of Investments.
Investment Transactions and Investment Income – Investment transactions are recorded as of the trade date (the date the order to buy or sell is executed) for financial reporting purposes. Investments purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Realized gains and losses are determined on the basis of identified cost.
Dividend income from domestic securities is accrued on the ex-dividend date. In general, dividend income from foreign securities is recorded on the ex-date; however, dividend notifications in certain foreign jurisdictions may not be available in a timely manner and as a result, the Fund will record the dividend as soon as the relevant details (i.e., rate per share, payment date, shareholders of record, etc.) are publicly available. Interest income, including amortization of premium, accretion of discounts, inflation adjustments and additional principal received in-kind in lieu of cash, is accrued on a daily basis.
Foreign Currency Transactions – Assets and liabilities denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates in effect on the valuation date. Purchases and sales of investments, income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions.
The Fund does not isolate that portion of portfolio investment valuation resulting from fluctuations in the foreign currency exchange rates from the fluctuations arising from changes in the market prices of investments held. Exchange rate fluctuations are included with the net realized and unrealized gain or loss on investments in the accompanying financial statements.
Net realized foreign exchange gains or losses arise from sales of foreign currencies and the difference between asset and liability amounts initially stated in foreign currencies and the U.S. dollar value of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of other assets and liabilities at the end of the reporting period, resulting from changes in the exchange rates.
Joint Trading Account – The Fund may invest cash balances into a joint trading account that may be invested in one or more repurchase agreements.
Fund Share Valuation and Dividend Distributions to Shareholders – Orders for the Fund’s shares are executed in accordance with the investment instructions of the contract holders and plan participants. The NAV of the Fund’s shares is determined as of the close of business on each business day of the Exchange. The NAV is determined separately for each class of shares of the Fund by dividing the Fund’s net assets attributable to that class by the number of shares of the class outstanding. Each class of shares offered by the Fund has equal rights as to assets and voting privileges (except that shareholders of a class have exclusive voting rights regarding any matter relating solely to that class of shares). Income and non-class specific expenses are allocated daily to each class
15 |
Hartford Global Growth HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
on the basis of the relative net assets of the class. Realized and unrealized gains and losses are allocated daily based on the relative net assets of each class of shares of the Fund.
Orders for the purchase of the Fund’s shares received prior to the close of the Exchange on any day the Exchange is open for business are priced at the NAV determined as of the close of the Exchange. Orders received after the close of the Exchange, or on a day on which the Exchange and/or the Fund is not open for business, are priced at the next determined NAV.
Dividends are declared pursuant to a policy adopted by the Company's Board of Directors based upon the investment performance of the Fund. The policy of the Fund is to pay dividends from net investment income and realized gains, if any, at least once a year.
Net investment income, dividends and distributions from net realized gains and capital are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP with respect to character and timing (see Federal Income Taxes: Distributions and Components of Distributable Earnings and Reclassification of Capital Accounts).
Securities and Other Investments:
Repurchase Agreements – A repurchase agreement is an agreement by which a counterparty agrees to sell an investment and agrees to repurchase the investment sold from the buyer at a mutually agreed upon time and price. During the period of the repurchase agreement, the counterparty will deposit cash and or securities in a third party custodial account to serve as collateral. At the time the Fund enters into a repurchase agreement, the value of the underlying collateral, including accrued interest, will be equal to or exceed the value of the repurchase agreement. Repurchase agreements expose the Fund to counterparty risk - that is, the risk that the counterparty will not fulfill its obligations. To minimize counterparty risk, the investments that serve to collateralize the repurchase agreement are held by the Fund’s custodian in book entry or physical form in the custodial account of the Fund or in a third party custodial account. Repurchase agreements are valued at cost plus accrued interest, which approximates fair value. Repurchase agreements have master netting arrangements which allow the Fund to offset amounts owed to a counterparty with amounts owed by the counterparty, including any collateral. Upon an event of default under a master repurchase agreement, the non-defaulting party may close out all transactions traded under such agreement and net amounts owed under each transaction to one net amount payable by one party to the other. Absent an event of default, the master repurchase agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty. The Fund, as shown on the Schedule of Investments, had outstanding repurchase agreements and related collateral as of December 31, 2014.
Illiquid and Restricted Investments – The Fund is permitted to invest up to 15% of its net assets in illiquid investments. Illiquid investments are those that may not be sold or disposed of in the ordinary course of business within seven days, at approximately the price used to determine the Fund’s NAV. The Fund may not be able to sell illiquid investments when its sub-adviser considers it desirable to do so or may have to sell such investments at a price that is lower than the price that could be obtained if the investments were more liquid. A sale of illiquid investments may require more time and may result in higher dealer discounts and other selling expenses than does the sale of those that are liquid. Illiquid investments also may be more difficult to value due to the unavailability of reliable market quotations for such investments, and an investment in them may have an adverse impact on the Fund’s NAV. The Fund may also purchase certain restricted investments that can only be resold to certain qualified investors and may be determined to be liquid pursuant to policies and guidelines established by the Company's Board of Directors. The Fund, as shown on the Schedule of Investments, had illiquid or restricted investments as of December 31, 2014.
Investments Purchased on a When-Issued or Delayed-Delivery Basis – Delivery and payment for investments that have been purchased by the Fund on a forward commitment, or when-issued or delayed-delivery basis, take place beyond the customary settlement period. The Fund may dispose of or renegotiate a delayed-delivery transaction after it is entered into, and may sell delayed-delivery investments before they are delivered, which may result in a realized gain or loss. During this period, such investments are subject to market fluctuations, and the Fund identifies investments segregated in its records with a value at least equal to the amount of the commitment. The Fund had no when-issued or delayed-delivery investments as of December 31, 2014.
16 |
Hartford Global Growth HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Financial Derivative Instruments:
The following disclosures contain information on how and why the Fund uses derivative instruments, the credit-risk-related contingent features in certain derivative instruments and how derivative instruments affect the Fund’s financial position and results of operations. The location and fair value amounts of these instruments on the Statement of Assets and Liabilities and the realized gains and losses and changes in unrealized gains and losses on the Statement of Operations, each categorized by type of derivative contract, are included in the following Additional Derivative Instrument Information footnote. The derivative instruments outstanding as of year-end are disclosed in the notes to the Schedule of Investments, if applicable. The amounts of realized gains and losses and changes in unrealized gains and losses on derivative instruments during the year are disclosed in the Statement of Operations.
Foreign Currency Contracts – The Fund may enter into foreign currency contracts that obligate the Fund to purchase or sell currencies at specified future dates. Foreign currency contracts are used to hedge the currency exposure associated with some or all of the Fund’s investments and/or as part of an investment strategy. Foreign currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. The Fund will record a realized gain or loss when the foreign currency contract is settled.
Foreign currency contracts involve elements of market risk in excess of the amounts reflected in the Statement of Assets and Liabilities. In addition, risks may arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of the contracts and from unanticipated movements in the value of the foreign currencies relative to the U.S. dollar. The Fund had no outstanding foreign currency contracts as of December 31, 2014.
Additional Derivative Instrument Information:
The volume of derivative activity was minimal during the year ended December 31, 2014.
The Effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2014:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts | Foreign Exchange Contracts | Credit Contracts | Equity Contracts | Commodity Contracts | Other Contracts | Total | ||||||||||||||||||||||
Realized Gain on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net realized gain on foreign currency contracts | $ | — | $ | 24 | $ | — | $ | — | $ | — | $ | — | $ | 24 | ||||||||||||||
Total | $ | — | $ | 24 | $ | — | $ | — | $ | — | $ | — | $ | 24 | ||||||||||||||
Net Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net change in unrealized depreciation of foreign currency contracts | $ | — | $ | (1 | ) | $ | — | $ | — | $ | — | $ | — | $ | (1 | ) | ||||||||||||
Total | $ | — | $ | (1 | ) | $ | — | $ | — | $ | — | $ | — | $ | (1 | ) |
Principal Risks:
The Fund may be exposed to counterparty risk, or the risk that an institution or other entity with which the Fund has unsettled or open transactions will default.
If the Fund invests directly in foreign currencies or in securities that trade in, and receive revenues in, foreign currencies, or in derivatives that provide exposure to foreign currencies, it will be subject to the risk that those currencies will decline in value relative to the base currency (U.S. dollars) of the Fund, or, in the case of hedging positions, that the Fund’s base currency will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities, such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad. As a result, the Fund’s investments in foreign currency denominated securities may reduce the returns of the Fund. The market values of equity securities, such as common stocks and preferred stocks, or equity related investments, such as futures and options, may decline due to general market conditions which are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings,
17 |
Hartford Global Growth HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
changes in interest or currency rates or adverse investor sentiment generally. The market value of equity securities may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities and equity related investments generally have greater market price volatility than fixed income securities.
Federal Income Taxes:
Federal Income Taxes – For federal income tax purposes, the Fund intends to continue to qualify as a Regulated Investment Company ("RIC") under Subchapter M of the Internal Revenue Code (“IRC”) by distributing substantially all of its taxable net investment income and net realized capital gains to its shareholders and otherwise complying with the requirements of the IRC. The Fund has distributed substantially all of its income and capital gains in prior years, if applicable, and intends to distribute substantially all of its income and capital gains prior to the next fiscal year-end. Accordingly, no provision for federal income or excise taxes has been made in the accompanying financial statements. Distributions from short-term capital gains are treated as ordinary income distributions for federal income tax purposes.
Net Investment Income (Loss), Net Realized Gains (Losses) and Distributions – Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of losses deferred due to wash sale adjustments, foreign currency gains and losses, adjustments related to Passive Foreign Investment Companies ("PFICs"), Real Estate Investment Trusts ("REITs"), RICs, certain derivatives and partnerships. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund.
Distributions and Components of Distributable Earnings – The tax character of distributions paid by the Fund for the periods indicated is as follows (as adjusted for dividends payable, if applicable):
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Ordinary Income | $ | 2,049 | $ | 2,851 |
As of December 31, 2014, the Fund’s components of distributable earnings (deficit) on a tax basis are as follows:
Amount | ||||
Undistributed Ordinary Income | $ | 2,330 | ||
Undistributed Long-Term Capital Gain | 21,959 | |||
Unrealized Appreciation* | 82,611 | |||
Total Accumulated Earnings | $ | 106,900 |
* | Differences between book-basis and tax-basis unrealized appreciation (depreciation) may be attributable to the losses deferred due to wash sale adjustments, foreign currency gains and losses and adjustments related to PFICs, REITs, RICs, certain derivatives and partnerships. |
18 |
Hartford Global Growth HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Reclassification of Capital Accounts – The Fund may record reclassifications in its capital accounts. These reclassifications have no impact on the total net assets of the Fund. The reclassifications are a result of permanent differences between U.S. GAAP and tax accounting for such items as foreign currency, PFICs, expiration or utilization of capital loss carryforwards or net operating losses. Adjustments are made to reflect the impact these items have on current and future distributions to shareholders. Therefore, the source of the Fund’s distributions may be shown in the accompanying Statement of Changes in Net Assets as from undistributed net investment income, from accumulated net realized gains on investments or from capital depending on the type of book and tax differences that exist. For the year ended December 31, 2014, the Fund recorded reclassifications to increase (decrease) the accounts listed below:
Amount | ||||
Undistributed Net Investment Income (Loss) | $ | (4 | ) | |
Accumulated Net Realized Gain (Loss) | (2 | ) | ||
Capital Stock and Paid-in-Capital | 6 |
Capital Loss Carryforward – On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which made changes to the capital loss carryforward rules. The changes are effective for taxable years beginning after the date of enactment. Under the Act, funds are permitted to carry forward capital losses for an unlimited period. Additionally, capital loss carryforwards retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under prior regulation.
The Fund had no capital loss carryforward for U.S. federal income tax purposes as of December 31, 2014.
During the year ended December 31, 2014, the Fund utilized $58,773 of prior year capital loss carryforwards.
Accounting for Uncertainty in Income Taxes – The Fund has adopted financial reporting rules that require the Fund to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions. Generally, tax authorities can examine all tax returns filed for the last three years. The Fund does not have an examination in progress.
The Fund has reviewed all open tax years and major jurisdictions and concluded that these financial reporting rules had no effect on the Fund’s financial position or results of operations. There is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on the tax return for the fiscal year ended December 31, 2014. The Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Expenses:
Investment Management Agreement – Hartford Funds Management Company, LLC ("HFMC") serves as the Fund’s investment manager pursuant to an Investment Management Agreement with the Company. HFMC is an indirect wholly owned subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford"). The investment manager has overall investment supervisory responsibility for the Fund. In addition, the investment manager provides administrative personnel, services, equipment, facilities and office space for proper operation of the Fund. HFMC has contracted with Wellington Management Company, LLP ("Wellington Management") under a sub-advisory agreement for the provision of day-to-day investment management services to the Fund in accordance with the Fund’s investment objective and policies. The Fund pays a fee to the investment manager, a portion of which may be used to compensate Wellington Management.
19 |
Hartford Global Growth HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
The schedule below reflects the rates of compensation paid to the investment manager for investment management services rendered as of December 31, 2014; the rates are accrued daily and paid monthly:
Average Daily Net Assets | Annual Fee |
On first $250 million | 0.7750% |
On next $250 million | 0.7250% |
On next $500 million | 0.6750% |
On next $4 billion | 0.6250% |
On next $5 billion | 0.6225% |
Over $10 billion | 0.6200% |
Accounting Services Agreement – Pursuant to the Fund Accounting Agreement between HFMC and the Company, on behalf of the Fund, HFMC provides accounting services to the Fund and receives monthly compensation based on the Fund’s average daily net assets at the rates set forth below. The Fund’s accounting services fees are accrued daily and paid monthly.
Average Daily Net Assets | Annual Fee |
On first $5 billion | 0.014% |
On next $5 billion | 0.012% |
Over $10 billion | 0.010% |
Operating Expenses – Allocable expenses incurred by the Company are allocated to each Fund and allocated to classes within a Fund in proportion to the average daily net assets of the Fund and each class, except where allocation of certain expenses is more fairly made directly to the Fund or to specific classes within a Fund.
Fees Paid Indirectly – The Company, on behalf of the Fund, has entered into agreements with State Street Global Markets, LLC and Russell Implementation Services, Inc. to partially recapture non-discounted trade commissions. Such rebates are used to pay a portion of the Fund's expenses. For the year ended December 31, 2014, this amount, if any, is included in the Statement of Operations.
The ratio of expenses to average net assets in the accompanying financial highlights excludes the reduction in expenses related to fees paid indirectly. The annualized expense ratio after waivers for the period listed below reflecting the reduction for fees paid indirectly is as follows:
Year Ended December 31, 2014 | ||||
Class IA | 0.81% | |||
Class IB | 1.06 |
Distribution Plan for Class IB Shares – Hartford Funds Distributors, LLC (“HFD”), an indirect wholly owned subsidiary of The Hartford, is the principal underwriter and distributor of the Fund. The Company, on behalf of the Fund, has adopted a Distribution Plan pursuant to Rule 12b-1 of the 1940 Act for Class IB shares.
The Distribution Plan provides that the Fund may pay annually up to 0.25% of the average daily net assets of the Fund attributable to its Class IB shares for activities primarily intended to result in the sale of Class IB shares. The Board has the authority to suspend or reduce these payments at any point in time. Under the terms of the Distribution Plan and the principal underwriting agreement, the Fund is authorized to make payments monthly to the distributor that may be used to pay or reimburse entities providing distribution and shareholder servicing with respect to the Class IB shares for such entities’ fees or expenses incurred or paid in that regard. The distribution fees paid during the period can be found on the Statement of Operations. These fees are accrued daily and paid monthly or at such other intervals as the Board of Directors may determine.
20 |
Hartford Global Growth HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Other Related Party Transactions – Certain officers of the Fund are directors and/or officers of HFMC and/or The Hartford or its subsidiaries. For the year ended December 31, 2014, a portion of the Fund's Chief Compliance Officer's compensation was paid by all the investment companies in the Hartford fund complex. The portion allocated to the Fund, as represented in other expenses on the Statement of Operations, was in the amount of $1. Hartford Administrative Services Company ("HASCO"), an indirect wholly owned subsidiary of The Hartford, provides transfer agent services to the Fund. Effective December 1, 2014, pursuant to a sub-transfer agency agreement between HASCO and Boston Financial Data Services, Inc. (“BFDS”), HASCO delegated certain transfer agent, dividend disbursing agent and shareholder servicing agent functions to BFDS. HASCO is compensated by the Fund based on the number of classes plus out of pocket expenses for providing such services, a portion of which may be used to compensate BFDS. The amount paid to HASCO can be found in the Statement of Operations. These fees are accrued daily and paid monthly.
Investment Transactions:
For the year ended December 31, 2014, the cost of purchases and proceeds from sales of investment securities (excluding short-term investments) were as follows:
Excluding U.S. Government Obligations | U.S. Government Obligations | Total | ||||||||||
Cost of Purchases | $ | 434,912 | $ | — | $ | 434,912 | ||||||
Sales Proceeds | 428,916 | — | 428,916 |
Line of Credit:
The Fund is one of several Hartford Funds that participate in a $500 million committed revolving line of credit facility. The facility is to be used for temporary or emergency purposes. Under the arrangement, the funds are required to own securities having a market value in excess of 300% of the total bank borrowings. The interest rate on borrowings varies depending on the nature of the loan. The facility also requires a fee to be paid based on the amount of the commitment. This commitment fee is allocated to all the funds participating in the line of credit based on the average net assets of the funds. During the year ended December 31, 2014, the Fund did not have any borrowings under this facility.
Fund Merger:
Reorganization of Hartford Global Research HLS Fund into the Fund: At a meeting held on February 5, 2014, the Board of Directors of Hartford Series Fund, Inc. approved an Agreement and Plan of Reorganization providing for the acquisition of all the assets and liabilities of Hartford Global Research HLS Fund (“Target Fund”) by the Fund (“Acquiring Fund”).
Under the terms of the Agreement and Plan of Reorganization, the assets and liabilities of the Target Fund were acquired by the Fund immediately before the opening of business on June 23, 2014. The Fund acquired the assets and liabilities of the Target Fund in exchange for shares in the Fund, which were distributed pro rata by the Target Fund to shareholders, in complete liquidation of the Target Fund.
The Fund did not acquire any capital loss carryforwards from the Target Fund.
21 |
Hartford Global Growth HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
This merger was accomplished by tax free exchange, as detailed below:
Net assets of Target Fund on June 20, 2014* | Net assets of Acquiring Fund immediately before merger | Net assets of Acquiring Fund immediately after merger | Target Fund shares exchanged | Acquiring Fund shares issued to the Target Fund's shareholders | ||||||||||||||||
Class IA | $ | 60,232 | $ | 349,166 | $ | 409,398 | 4,416 | 2,474 | ||||||||||||
Class IB | 24,368 | 75,419 | 99,787 | 1,789 | 1,053 | |||||||||||||||
Total | $ | 84,600 | $ | 424,585 | $ | 509,185 | 6,205 | 3,527 |
* Final day of operations immediately prior to the merger.
The Target Fund had the following unrealized appreciation, accumulated net realized losses and capital stock as of June 20, 2014:
Fund | Undistributed Income | Unrealized Appreciation (Depreciation) | Accumulated Net Realized Gains (Losses) | Capital Stock | Total | |||||||||||||||
Target Fund | $ | (42 | ) | $ | 13,775 | $ | (482 | ) | $ | 71,349 | $ | 84,600 |
Assuming the acquisition had been completed on January 1, 2014, the beginning of the annual reporting period of the Funds, the Fund’s pro forma results of operations for the year ended December 31, 2014, were as follows:
Fund | Net Investment Income | Net Gain on Investments | Net Increase in Net Assets Resulting From Operations | |||||||||
Acquiring Fund | $ | 2,932 | $ | 34,614 | $ | 37,546 |
Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practical to separate the amounts of revenue and earnings of the Target Fund that have been included in the Fund’s Statement of Operations since the merger date.
Indemnifications:
Under the Company's organizational documents, the Company shall indemnify its officers and directors to the full extent required or permitted under Maryland General Corporation Law and the federal securities laws. In addition, the Company, on behalf of the Fund, may enter into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, as of the date of these financial statements, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Pending Legal Proceedings:
On February 25, 2011, Jennifer L. Kasilag, Louis Mellinger, Judith M. Menendez, Jacqueline M. Robinson, and Linda A. Russell filed a derivative lawsuit against Hartford Investment Financial Services, LLC (“HIFSCO”) (now known as HFD) on behalf of six Hartford retail mutual funds in the United States District Court for the District of New Jersey, alleging that HIFSCO received excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the 1940 Act when serving as investment manager and principal underwriter, respectively, to the Hartford retail mutual funds. Although this action was purportedly filed on behalf of certain of the Hartford Funds, none of the Hartford Funds is itself a defendant to the suit. HIFSCO moved to dismiss and, in September 2011, the motion was granted in part and denied in part, with leave to amend the complaint. In November 2011, plaintiffs filed an amended complaint on behalf of certain Hartford retail mutual funds, The Hartford Global Health Fund (now known as The Hartford Healthcare Fund), The Hartford Conservative Allocation Fund, The Hartford Growth Opportunities Fund, The Hartford Inflation Plus Fund, The Hartford Advisers Fund (now known as The Hartford Balanced Fund), and The Hartford Capital Appreciation Fund. Plaintiffs seek to rescind the investment
22 |
Hartford Global Growth HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
management agreements and distribution plans between HIFSCO and these funds and to recover the total fees charged thereunder or, in the alternative, to recover any improper compensation HIFSCO received, in addition to lost earnings. HIFSCO filed a partial motion to dismiss the amended complaint and, in December 2012, the court dismissed without prejudice the claims regarding distribution fees and denied the motion with respect to the advisory fees claims. HIFSCO disputes the allegations and intends to defend vigorously.
In March 2014, the plaintiffs filed a new complaint that added as new plaintiffs The Hartford Floating Rate Fund and The Hartford Small Company Fund, two Hartford retail mutual funds, and named as a defendant HFMC, which assumed the role as investment manager to the funds as of January 2013. HFMC and HIFSCO dispute the allegations and intend to defend vigorously.
This action concerns the activities of HIFSCO in its capacity as investment manager and principal underwriter to the Hartford retail mutual funds and does not concern HIFSCO’s activities in its capacity as principal underwriter to the HLS funds. For this reason, no accrual for litigation relating to this matter has been recorded in the financial statements of the Fund.
Recent Accounting Pronouncement:
In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, modifying Accounting Standards Codification Topic 860. The amended guidance changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. The guidance also requires new disclosures for certain transfers accounted for as sales and collateral supporting transactions that are accounted for as secured borrowings. ASU 2014-11 is effective for annual and interim periods beginning after December 15, 2014, except for the disclosures related to secured borrowings, which are effective for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The adoption of ASU 2014-11 is not expected to have a material impact on the Fund’s results of operations or financial position, but may impact the Fund’s disclosures.
Subsequent Event:
Effective on or after January 1, 2015, pursuant to an agreement between the Hartford Funds and State Street Bank and Trust Company ("State Street"), State Street replaced, or is scheduled to replace, JP Morgan Chase Bank, N.A. ("JP Morgan Chase") as the Fund's primary custodian. JP Morgan Chase may serve as custodian of certain Fund assets. In addition, on or after the same date, HFMC has delegated, or will delegate, certain accounting and administrative services functions to State Street. The costs and expenses of such delegation will be borne by HFMC, not by the Funds, and HFMC will compensate State Street for its services out of its own resources.
23 |
Hartford Global Growth HLS Fund
Financial Highlights
─ Selected Per-Share Data(A) ─ | ─ Ratios and Supplemental Data ─ | |||||||||||||||||||||||||||||||||||||||||||||||||||
Class | Net Asset Value at Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Investment Operations | Dividends from Net Investment Income | Distributions from Realized Capital Gains | Total Dividends and Distributions | Net Asset Value at End of Period | Total Return(B) | Net Assets at End of Period (000s) | Ratio of Expenses to Average Net Assets Before Adjust- ments(C) | Ratio of Expenses to Average Net Assets After Adjust- ments(C) | Ratio of Net Investment Income (Loss) to Average Net Assets | |||||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 22.33 | $ | 0.13 | $ | 1.39 | $ | 1.52 | $ | (0.11 | ) | $ | – | $ | (0.11 | ) | $ | 23.74 | 6.79 | % | $ | 388,542 | 0.81 | % | 0.81 | % | 0.57 | % | ||||||||||||||||||||||||
IB | 22.16 | 0.07 | 1.39 | 1.46 | (0.06 | ) | – | (0.06 | ) | 23.56 | 6.58 | 92,979 | 1.06 | 1.06 | 0.30 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 16.50 | $ | 0.11 | $ | 5.86 | $ | 5.97 | $ | (0.14 | ) | $ | – | $ | (0.14 | ) | $ | 22.33 | 36.30 | % | $ | 360,086 | 0.82 | % | 0.82 | % | 0.56 | % | ||||||||||||||||||||||||
IB | 16.38 | 0.06 | 5.81 | 5.87 | (0.09 | ) | – | (0.09 | ) | 22.16 | 35.90 | 79,823 | 1.07 | 1.07 | 0.32 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2012 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 13.45 | $ | 0.14 | $ | 3.00 | $ | 3.14 | $ | (0.09 | ) | $ | – | $ | (0.09 | ) | $ | 16.50 | 23.41 | % | $ | 321,371 | 0.82 | % | 0.82 | % | 0.73 | % | ||||||||||||||||||||||||
IB | 13.34 | 0.09 | 2.99 | 3.08 | (0.04 | ) | – | (0.04 | ) | 16.38 | 23.10 | 77,224 | 1.07 | 1.07 | 0.47 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2011 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 15.62 | $ | 0.08 | $ | (2.24 | ) | $ | (2.16 | ) | $ | (0.01 | ) | $ | – | $ | (0.01 | ) | $ | 13.45 | (13.89 | )% | $ | 352,947 | 0.80 | % | 0.80 | % | 0.46 | % | ||||||||||||||||||||||
IB | 15.53 | 0.04 | (2.23 | ) | (2.19 | ) | – | – | – | 13.34 | (14.10 | ) | 82,204 | 1.05 | 1.05 | 0.22 | ||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2010 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 13.71 | $ | 0.04 | $ | 1.91 | $ | 1.95 | $ | (0.04 | ) | $ | – | $ | (0.04 | ) | $ | 15.62 | 14.25 | % | $ | 484,754 | 0.81 | % | 0.81 | % | 0.28 | % | ||||||||||||||||||||||||
IB | 13.64 | – | 1.90 | 1.90 | (0.01 | ) | – | (0.01 | ) | 15.53 | 13.96 | 118,824 | 1.06 | 1.06 | 0.03 |
(A) | Information presented relates to a share outstanding throughout the indicated period. Net investment income (loss) per share amounts are calculated based on average shares outstanding unless otherwise noted. |
(B) | The figures do not include sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees would lower the Fund's performance. |
(C) | Adjustments include waivers and reimbursements, if applicable. Ratios do not include fees paid indirectly (see Expenses in the accompanying Notes to Financial Statements). |
(D) | Net investment income (loss) per share amounts have been calculated using the SEC method. |
Portfolio Turnover Rate for All Share Classes | ||||
For the Year Ended December 31, 2014 | 82%(A) | |||
For the Year Ended December 31, 2013 | 71 | |||
For the Year Ended December 31, 2012 | 108 | |||
For the Year Ended December 31, 2011 | 57 | |||
For the Year Ended December 31, 2010 | 62 |
(A) | During the year ended December 31, 2014, the Fund incurred $61.8 million in sales associated with the transition of assets from Hartford Global Research HLS Fund, which merged into the Fund on June 23, 2014. These sales were excluded from the portfolio turnover rate calculation. |
24 |
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Hartford Series Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Hartford Global Growth HLS Fund (one of the portfolios constituting the Hartford Series Fund, Inc. (the Funds)) as of December 31, 2014, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Hartford Global Growth HLS Fund of the Hartford Series Fund, Inc. at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
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Minneapolis, Minnesota
February 13, 2015
25 |
Hartford Global Growth HLS Fund
Directors and Officers (Unaudited)
The Board of Directors of the Company (the "Directors") appoints officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the Directors. Each Director serves until his or her death, resignation, or retirement or until the next annual meeting of shareholders is held or until his or her successor is elected and qualifies.
Directors and officers who are employed by or who have a financial interest in The Hartford Financial Services Group, Inc. ("The Hartford") are considered “interested” persons of the Fund pursuant to the 1940 Act. The "interested" Directors and officers are reflected in the chart below. Each Director serves as a director for The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., Hartford Series Fund, Inc., and Hartford HLS Series Fund II, Inc., and as a trustee for The Hartford Alternative Strategies Fund, which, as of December 31, 2014, collectively consist of 66 funds. Correspondence may be sent to Directors and officers c/o Hartford Funds, 5 Radnor Corporate Center, Suite 300, 100 Matsonford Road, Radnor, Pennsylvania 19087, except that correspondence to Mr. Annoni, Mr. Dressen and Ms. Quade may be sent to 500 Bielenberg Drive, Suite 500, Woodbury, Minnesota 55125.
The table below sets forth, for each Director and officer, his or her name, year of birth, current position with the Company and date first elected or appointed to Hartford Series Fund, Inc. ("HSF") and Hartford HLS Series Fund II, Inc. ("HSF2"), principal occupation, and, for Directors, other directorships held. The Fund’s Statement of Additional Information contains further information on the Directors and is available free of charge by calling 1-888-843-7824 or writing to: Hartford HLS Funds, c/o Hartford Life Insurance Company/Hartford Life and Annuity Insurance Company, P.O. Box 14293, Lexington, KY 40512-4293 for variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates; Hartford Funds, P.O. Box 55022, Boston, MA 02205-5022 for all shareholders except variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates.
Information on the aggregate remuneration paid to the directors of the Company can be found in the Statement of Operations herein. The Fund pays to The Hartford a portion of the Chief Compliance Officer’s compensation, but does not pay salaries or compensation to any of its other officers or Directors who are employed by The Hartford.
Non-Interested Directors
Hilary E. Ackermann (1956) Director since September 23, 2014
Ms. Ackermann served as Chief Risk Officer at Goldman Sachs Bank USA from October 2008 to November 2011 and serves as a Director of Dynegy, Inc., an independent power company, from October 2012 to present.
Lynn S. Birdsong (1946) Director since 2003, Chairman of the Investment Committee since 2014
Mr. Birdsong is a private investor. Mr. Birdsong currently serves as a Director of Aberdeen Global and Aberdeen Global II (investment funds) (September 2014 to present) and as an Independent Director of Nomura Partners Funds, Inc. (formerly, The Japan Fund) (April 2003 to present). Mr. Birdsong served as Director of the Sovereign High Yield Investment Company (April 2010 to September 2014). From 2003 to March 2005, Mr. Birdsong was an Independent Director of the Atlantic Whitehall Funds. From 1979 to 2002, Mr. Birdsong was a Managing Director of Zurich Scudder Investments, an investment management firm. During his employment with Scudder, Mr. Birdsong was an Interested Director of The Japan Fund. Mr. Birdsong served as Co-Chairman of the Investment Committee of The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., HSF, HSF2 and The Hartford Alternative Strategies Fund from 2005 to 2014.
Robert M. Gavin, Jr. (1940) Director since 2002 (HSF) and 1986 (HSF2), Chairman of the Board for each since 2004
Dr. Gavin is an educational consultant. Prior to September 1, 2001, he was President of Cranbrook Education Community and prior to July 1996, he was President of Macalester College, St. Paul, Minnesota.
Duane E. Hill (1945) Director since 2001 (HSF) and 2002 (HSF2), Chairman of the Nominating Committee since 2003
Mr. Hill is a Partner of TSG Ventures L.P., a private equity investment company. Mr. Hill is a former partner of TSG Capital Group, a private equity investment firm that served as sponsor and lead investor in leveraged buyouts of middle market companies.
Sandra S. Jaffee (1941) Director since 2005
Ms. Jaffee is the founder and Chief Executive Officer of a private company, Homeworks Concierge, LLC, which provides residential property management services in Westchester County, New York (January 2012 to present). Ms. Jaffee served as Chairman (2008 to 2009) and Chief Executive Officer of Fortent (formerly Searchspace Group), a leading provider of compliance/regulatory technology to financial institutions from August 2005 to August 2009. From August 2004 to August 2005, Ms. Jaffee served as an Entrepreneur in Residence with Warburg Pincus, a private equity firm. Prior to joining Warburg Pincus, Ms. Jaffee served as Executive Vice President at Citigroup, from September 1995 to July 2004, where she was President and Chief Executive Officer of Citibank’s Global Securities
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Hartford Global Growth HLS Fund
Directors and Officers (Unaudited) – (continued)
Services (1995 to 2003). Ms. Jaffee served as a member of the Board of Directors of Broadridge Financial Solutions (November 2010 to November 2014). Ms. Jaffee currently serves as a member of the Board of Directors of Global Camps Africa (a non-profit organization) (January 2015 to present) as well as a Trustee of Muhlenberg College (September 2007 to present).
William P. Johnston (1944) Director since 2005, Chairman of the Compliance Committee since 2005
In June 2006, Mr. Johnston was appointed as Senior Advisor to The Carlyle Group, a global private equity and other alternative asset investment firm and currently serves as an Operating Executive. In July 2006, Mr. Johnston was elected to the Board of Directors of MultiPlan, Inc. and served as a Director (July 2006 to August 2010). In August 2007, Mr. Johnston was elected to the Board of Directors of LifeCare Holdings, Inc. and served as a Director (August 2007 to June 2013). In February 2008, Mr. Johnston was elected to the Board of Directors of HCR-ManorCare, Inc. In May 2006, Mr. Johnston was elected to the Supervisory Board of Fresenius Medical Care AG & Co. KGaA, after its acquisition of Renal Care Group, Inc. in March 2006. Mr. Johnston joined Renal Care Group in November 2002 as a member of the Board of Directors and served as Chairman of the Board from March 2003 through March 2006. From 2002 through 2013, Mr. Johnston served as a Board member of the Georgia O’Keefe Museum. From September 1987 to December 2002, Mr. Johnston was with Equitable Securities Corporation (and its successors, SunTrust Equitable Securities and SunTrust Robinson Humphrey) serving in various investment banking and managerial positions, including Managing Director and Head of Investment Banking, Chief Executive Officer and Vice Chairman.
Phillip O. Peterson (1944) Director since 2002 (HSF) and 2000 (HSF2), Chairman of the Audit Committee since 2002
Mr. Peterson is a mutual fund industry consultant. He was a partner of KPMG LLP (an accounting firm) until July 1999. Mr. Peterson joined William Blair Funds in February 2007 as a member of the Board of Trustees. From February 2012 to February 2014, Mr. Peterson served as a Trustee of Symetra Variable Mutual Funds. From January 2004 to April 2005, Mr. Peterson served as Independent President of the Strong Mutual Funds.
Lemma W. Senbet (1946) Director since 2005
Dr. Senbet is the William E. Mayer Chair Professor of Finance at the University of Maryland, Robert H. Smith School of Business. He was chair of the Finance Department of the University of Maryland, Robert H. Smith School of Business from 1998 to 2006. Since June 2013, he has been on leave from the University to serve as Executive Director of African Economic Research Consortium which focuses on economic policy research and training. Previously, he was a chaired professor of finance at the University of Wisconsin-Madison. Also, he was a Director of the Fortis Funds from March 2000 to July 2002. Dr. Senbet served as Director of the American Finance Association and President of the Western Finance Association. In 2006, Dr. Senbet was inducted Fellow of Financial Management Association International for his career-long distinguished scholarship and professional service.
Interested Directors and Officers
James E. Davey (1964) Director since 2012, President and Chief Executive Officer since 2010
Mr. Davey serves as Executive Vice President of Hartford Life Insurance Company (“HLIC”) and The Hartford. Additionally, Mr. Davey serves as Chairman of the Board, Manager and Senior Managing Director of Hartford Funds Distributors, LLC (“HFD”). He also currently serves as Director, Chairman of the Board, President and Senior Managing Director of Hartford Administrative Services Company (“HASCO”). Mr. Davey also serves as Manager, Chairman of the Board and Senior Managing Director for Hartford Funds Management Company, LLC (“HFMC”) and Director, Chairman of the Board and Senior Managing Director for Hartford Funds Management Group, Inc. ("HFMG"). Mr. Davey has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Davey joined The Hartford in 2002.
Lowndes A. Smith* (1939) Director since 1996 (HSF) and 2002 (HSF2), Co-Chairman of the Investment Committee since 2005
Mr. Smith served as Vice Chairman of The Hartford from February 1997 to January 2002, as President and Chief Executive Officer of Hartford Life, Inc. from February 1997 to January 2002, and as President and Chief Operating Officer of The Hartford Life Insurance Companies from January 1989 to January 2002. Mr. Smith serves as a Director of White Mountains Insurance Group Ltd. (October 2003 to current); One Beacon Insurance (October 2006 to current); Symetra Financial (August 2007 to current) and is a Managing Director of Whittington Gray Associates (January 2007 to current).
* Mr. Smith resigned as a Director of Hartford Mutual Funds, Inc., Hartford Mutual Funds II, Inc., HSF and HSF2 and as a Trustee of The Hartford Alternative Strategies Fund effective September 17, 2014.
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Hartford Global Growth HLS Fund
Directors and Officers (Unaudited) – (continued)
Other Officers
Mark A. Annoni (1964) Vice President, Controller and Treasurer since 2012
Mr. Annoni currently serves as the Assistant Vice President of HLIC (February 2004 to present) and Senior Vice President of HFMG (December 2013 to present). Mr. Annoni has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Annoni joined The Hartford in 2001.
Michael R. Dressen (1963) AML Compliance Officer since 2011
Mr. Dressen currently serves as Assistant Vice President of HLIC. He also serves as Chief Compliance Officer and AML Compliance Officer of HASCO and as AML Officer of HFD. Mr. Dressen has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
Edward P. Macdonald (1967) Vice President, Secretary and Chief Legal Officer since 2005
Mr. Macdonald currently serves as Assistant Secretary, Executive Vice President and Deputy General Counsel of HFD, HASCO, HFMC and HFMG. He also serves as Vice President of HLIC. Mr. Macdonald has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Macdonald joined The Hartford in 2005.
Joseph G. Melcher (1973) Vice President and Chief Compliance Officer since 2013
Mr. Melcher currently serves as Executive Vice President of HFD, HFMG and HASCO. Mr. Melcher also currently serves as Executive Vice President and Chief Compliance Officer of HFMC. Mr. Melcher has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds since joining The Hartford in 2012. Prior to joining The Hartford, Mr. Melcher worked at Touchstone Investments, a member of the Western & Southern Financial Group, where he held the position of Vice President and Chief Compliance Officer from 2010 through 2012 and Assistant Vice President, Compliance from 2005 to 2010.
Vernon J. Meyer (1964) Vice President since 2006
Mr. Meyer currently serves as Senior Vice President of HLIC. He also currently serves as Managing Director and Chief Investment Officer of HFMC and Managing Director of HFMG. Mr. Meyer has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Meyer joined The Hartford in 2004.
Laura S. Quade (1969) Vice President since 2012
Ms. Quade currently serves as Vice President of HASCO, HFD and HFMG. She is the Head of Operations of HASCO and formerly served as Director, Enterprise Operations of HLIC. Ms. Quade has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Ms. Quade joined The Hartford in 2001.
Martin A. Swanson** (1962) Vice President since 2010
Mr. Swanson currently serves as Vice President of HLIC. Mr. Swanson also serves as Managing Director, Chief Marketing Officer and Principal of HFD and Managing Director of HFMG. Mr. Swanson has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
** Mr. Swanson resigned as an officer effective November 6, 2014.
HOW TO OBTAIN A COPY OF THE FUND’S PROXY VOTING POLICIES AND VOTING RECORDS (UNAUDITED)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information about how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov. The Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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Hartford Global Growth HLS Fund
Expense Example (Unaudited)
Your Fund's Expenses
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including investment management fees, distribution and/or service (12b-1) fees, if any, and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period of June 30, 2014 through December 31, 2014.
Actual Expenses
The first set of columns of the table below provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second set of columns of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as taxes, sales charges (loads), or fees which may be applied at the variable life insurance, variable annuity, or qualified retirement plan product level. Therefore, the second set of columns of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would be higher. Expenses are equal to the Fund's annualized expense ratios multiplied by average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
Actual return | Hypothetical (5% return before expenses) | |||||||||||||||||||||||||||||||||||
Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Annualized expense ratio | Days in the current 1/2 year | Days in the full year | ||||||||||||||||||||||||||||
Class IA | $ | 1,000.00 | $ | 1,016.50 | $ | 4.07 | $ | 1,000.00 | $ | 1,021.17 | $ | 4.08 | 0.80 | % | 184 | 365 | ||||||||||||||||||||
Class IB | $ | 1,000.00 | $ | 1,015.40 | $ | 5.33 | $ | 1,000.00 | $ | 1,019.91 | $ | 5.35 | 1.05 | 184 | 365 |
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Hartford Global Growth HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited)
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of directors, including a majority of those directors who are not “interested persons” of the mutual fund, as defined in the 1940 Act (the “Independent Directors”), annually review and consider the continuation of the mutual fund’s investment advisory and sub-advisory agreements. At its meeting held on August 5-6, 2014, the Board of Directors (the “Board”) of Hartford Series Fund, Inc., including each of the Independent Directors, unanimously voted to approve the continuation of the investment management agreement for Hartford Global Growth HLS Fund (the “Fund”) with Hartford Funds Management Company, LLC (“HFMC”) and the continuation of the investment sub-advisory agreement between HFMC and the Fund’s sub-adviser, Wellington Management Company, LLP (the “Sub-adviser,” and together with HFMC, the “Advisers”) (collectively, the “Agreements”).
In the months preceding the August 5-6, 2014 meeting, the Board requested, received and reviewed written responses from the Advisers to questions posed to them on behalf of the Independent Directors and supporting materials relating to those questions and responses. The Board considered information furnished to the Board at its meetings throughout the year, as well as information specifically prepared in connection with the annual approval of the Agreements at the Board’s meetings held on June 17-18, 2014 and August 5-6, 2014. Information provided to the Board at its meetings throughout the year included, among other things, reports on Fund performance, legal and compliance matters, sales and marketing activity, shareholder services, and the other services provided to the Fund by the Advisers and their affiliates. The Board also received in-person presentations by Fund officers and representatives of HFMC at the Board’s meetings on June 17-18, 2014 and August 5-6, 2014 concerning the Agreements.
The Independent Directors, advised by independent legal counsel, engaged service providers to assist them with evaluating the Agreements with respect to the Fund. Lipper Inc. (“Lipper”), an independent provider of investment company data, was retained to provide the Board with reports on how the Fund’s contractual management fees, actual management fees, other non-management fees, overall expense ratios and investment performance compared to those of mutual funds with similar investment objectives. The Independent Directors also engaged an independent financial services consultant (the “Consultant”) to assist them in evaluating the Fund’s management fees, sub-advisory fees, other non-management fees, overall expense ratios and investment performance. In addition, the Consultant reviewed the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement.
In determining whether to continue the Agreements for the Fund, the members of the Board reviewed and evaluated information and factors they believed to be relevant and appropriate in light of the information that the Board deemed necessary and appropriate through the exercise of its reasonable business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination to continue the Agreements was based on a comprehensive consideration of all information provided to the Board throughout the year and specifically with respect to the continuation of the Agreements. A more detailed discussion of the factors the Board considered with respect to its approval of the Agreements is provided below.
Nature, Extent and Quality of Services Provided by the Advisers
The Board requested and considered information concerning the nature, extent and quality of the services provided to the Fund by the Advisers. The Board considered, among other things, the terms of the Agreements and the range of services provided by the Advisers. The Board considered the Advisers’ professional personnel who provide services to the Fund, including each Adviser’s ability and experience in attracting and retaining qualified personnel to service the Fund. The Board considered each Adviser’s reputation and overall financial strength, as well as its willingness to consider and implement organizational and operational changes designed to enhance services to the Hartford Funds. In addition, the Board considered the quality of each Adviser’s communications with the Board and responsiveness to Board inquiries and requests made from time to time with respect to the Fund and other Hartford Funds.
The Board also requested and evaluated information concerning each Adviser’s regulatory and compliance environment. In this regard, the Board requested and reviewed information on each Adviser’s compliance policies and procedures, compliance history, and a report from the Fund’s Chief Compliance Officer on each Adviser’s compliance with applicable laws and regulations, including responses to regulatory developments and compliance issues raised by regulators. The Board also noted the Advisers’ support of the Fund’s compliance control structure, particularly the resources devoted by the Advisers in support of the Fund’s obligations pursuant to Rule 38a-1 under the 1940 Act.
With respect to HFMC, the Board noted that under the Agreements, HFMC is responsible for the management of the Fund, including oversight of fund operations and service providers, as well as investment advisory services in connection with selecting, monitoring and supervising the Sub-adviser. The Board considered HFMC’s ongoing monitoring of people, process and performance, including its quarterly reviews of each of the Hartford Funds, semi-annual meetings with the leaders of each Fund’s portfolio management team, and oversight of the Hartford Funds’
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Hartford Global Growth HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) - (continued)
approximately 37 portfolio managers. The Board recognized that HFMC has demonstrated a record of making changes to the management and/or strategies of the Hartford Funds when warranted. The Board considered HFMC’s oversight of the Sub-adviser’s investment approach and results, process for monitoring best execution of portfolio trades by the Sub-adviser, and approach to risk management with respect to the Fund and the service providers to the Fund. The Board also considered HFMC’s oversight of compliance with the Fund’s objective and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over time led to an increase in the scope of HFMC’s services in this regard.
In addition, the Board considered HFMC’s ongoing commitment to review and rationalize the Hartford Funds product line-up and the expenses that HFMC had incurred in connection with fund combinations in recent years. The Board considered that HFMC or its affiliates are responsible for providing the Fund’s officers. The Board also noted that Hartford Life Insurance Company (“HLIC”) provides administrative services to the Fund. The Board considered its experiences with HFMC and HLIC with respect to each of these services.
With respect to the Sub-adviser, which provides certain day-to-day portfolio management services for the Fund, the Board considered the quality of the Fund’s portfolio managers, the Sub-adviser’s other investment personnel, its investment philosophy and process, investment research capabilities and resources, performance record, trade execution capabilities and experience. The Board considered the experience of the Fund’s portfolio managers, the number of accounts managed by the portfolio managers, and the Sub-adviser’s method for compensating the portfolio managers.
Based on these considerations, the Board concluded that it was satisfied with the nature, extent and quality of the services provided to the Fund by HFMC and the Sub-adviser.
Performance of the Fund and the Advisers
The Board considered the investment performance of the Fund. In this regard, the Board reviewed the performance of the Fund over different time periods presented in the materials and evaluated HFMC’s analysis of the Fund’s performance for these time periods. The Board considered information and materials provided to the Board by the Advisers concerning Fund performance, as well as information from Lipper comparing the investment performance of the Fund to an appropriate benchmark and universe of peer funds. The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1- and 3-year periods and in the 4th quintile for the 5-year period. The Board also noted that the Fund’s performance was above its benchmark for the 1-, 3- and 5-year periods.
The Board considered the detailed investment analytics reports provided by Hartford Funds’ Investment Advisory Group throughout the year. These reports include, among other things, information on the Fund’s gross and net returns, the Fund’s investment performance relative to an appropriate benchmark and peer group, various statistics concerning the Fund’s portfolio, and a narrative summary of various factors affecting Fund performance. The Board considered the Advisers’ cooperation with the Investment Committee, which assists the Board in evaluating the performance of the Fund at periodic meetings throughout the year. The Board also considered the analysis provided by the Consultant relating to the Fund’s performance track record.
In light of all the considerations noted above, the Board concluded that it had continued confidence in HFMC’s and the Sub-adviser’s overall capabilities to manage the Fund.
Costs of the Services and Profitability of the Advisers
The Board reviewed information regarding HFMC’s cost to provide investment management and related services to the Fund and HFMC’s profitability, both overall and for the Fund, on a pre-tax basis without regard to distribution expenses. The Board also requested and reviewed information about the profitability to HFMC and its affiliates from all services provided to the Fund and all aspects of their relationship with the Fund. The Board also requested and received information relating to the operations and profitability of the Sub-adviser.
The Board considered the Consultant’s review of the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement, noting the Consultant’s view that Hartford Funds’ process for calculating and reporting Fund profitability is reasonable. In this regard, the Board noted that the Consultant performed a full review of this process in light of the recent restructuring of the Hartford Funds business and reported that the approach to analyzing Fund profitability, including the use of common expense allocation methodologies, is reasonable, sound and well within common industry practice.
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Hartford Global Growth HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) - (continued)
Based on these considerations, the Board concluded that the profits anticipated to be realized by the Advisers and their affiliates from their relationships with the Fund would not be excessive.
Comparison of Fees and Services Provided by the Advisers
The Board considered comparative information with respect to the management fees to be paid by the Fund to HFMC and the total expense ratios of the Fund. The Board also considered comparative information with respect to the sub-advisory fees to be paid by HFMC to the Sub-adviser. In this regard, the Board requested and reviewed information from HFMC and the Sub-adviser relating to the management and sub-advisory fees, including the sub-advisory fee schedule for the Fund, and total operating expenses for the Fund. The Board considered that the management fee for the Fund includes the fee paid to HLIC for providing certain administrative services to the Fund. With respect to the sub-advisory fee schedule, the Board considered representations from HFMC and the Sub-adviser that the Sub-adviser’s fees were negotiated at arm’s length on a fund-by-fund basis. The Board also reviewed information from Lipper comparing the Fund’s contractual management fees, actual management fees and overall expense ratios relative to a group of funds selected by Lipper, in consultation with the Consultant, and a broader universe of funds selected by Lipper. The Board noted that the Fund’s contractual management fee was in the 4th quintile of its expense group, while its actual management fee was in the 3rd quintile and its total expenses (less 12b-1 and shareholder service fees) were in the 2nd quintile.
While the Board recognized that comparisons between the Fund and peer funds may be imprecise, given the different service levels and characteristics of mutual funds and the different business models and cost structures of the Advisers, the comparative information provided by Lipper assisted the Board in evaluating the reasonableness of the Fund’s management and sub-advisory fees and total operating expenses. In addition, the Board considered the analysis and recommendations of the Consultant relating to the Fund’s management and sub-advisory fees and total operating expenses.
Based on these considerations, the Board concluded that the Fund’s fees and total operating expenses, in conjunction with the information about quality of services, profitability, economies of scale, and other matters discussed, were reasonable in light of the services provided.
Economies of Scale
The Board requested and considered information regarding the Advisers’ realization of economies of scale with respect to the Fund and whether the fee levels reflect these economies of scale for the benefit of the Fund’s shareholders. The Board reviewed the breakpoints in the management fee schedule for the Fund, which reduce fee rates as Fund assets grow over time. The Board recognized that a fund with assets beyond the highest breakpoint level will continue to benefit from economies of scale because additional assets are charged the lowest breakpoint fee resulting in lower overall effective management fee rates. The Board also recognized that a fee schedule that reaches a lower breakpoint quickly provides shareholders with the benefit of anticipated or potential economies of scale. The Board noted the effect of the sale and run-off of the variable annuity business on the HLS Funds.
The Board reviewed and evaluated materials from Lipper and the Consultant showing how management fee schedules of peer funds reflect economies of scale for the benefit of shareholders as a peer fund’s assets hypothetically increase over time. Based on information provided by HFMC, Lipper, and the Consultant, the Board recognized that there is no uniform methodology for establishing breakpoints or uniform pattern in asset levels that trigger breakpoints or the amounts of breakpoints triggered.
After considering all of the information available to it, the Board concluded that it was satisfied with the extent to which economies of scale would be shared for the benefit of the Fund’s shareholders based on currently available information and the effective advisory fees and expense ratios for the Fund at its current and reasonably anticipated asset levels. The Board noted, however, that it would continue to monitor future growth in Fund assets and the appropriateness of additional breakpoints.
Other Benefits
The Board considered other benefits to the Advisers and their affiliates from their relationships with the Fund, including the role of the Fund in supporting the variable life insurance and variable annuity products offered by The Hartford.
The Board noted that HLIC, an affiliate of HFMC, receives fees for providing certain administrative services to the Fund and that HFMC receives fees for fund accounting and related services from the Fund. The Board considered information on profits to HLIC and HFMC for such services. The Board also considered that Hartford Administrative Services Company (“HASCO”), the Fund’s transfer agent and an affiliate of HFMC, receives transfer agency compensation from the Fund, and the Board reviewed information on the profitability of the Fund’s transfer agency
32 |
Hartford Global Growth HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) - (continued)
function to HASCO. The Board considered information provided by HASCO indicating that the transfer agent fees charged by HASCO to the Fund were fair and reasonable based on publicly available information.
The Board also considered that Hartford Funds Distributors, LLC (“HFD”), an affiliate of HFMC, serves as principal underwriter of the Fund. As principal underwriter, HFD receives 12b-1 fees from the Fund. The Board also noted that certain affiliates of HFD distribute shares of the Fund and receive compensation in that connection.
The Board considered benefits to the Sub-adviser from its use of the Fund’s brokerage commissions to obtain soft dollar research, and representations from HFMC and the Sub-adviser that the Sub-adviser would not make any revenue-sharing payments or any other type of distribution payments to HFMC or its affiliates.
The Board considered the benefits to shareholders of being part of the Hartford Funds family of funds. The Board considered HFMC’s efforts to provide investors in the family with a broad range of investment styles and asset classes.
* * * *
Based upon its review of these various factors, among others, the Board concluded that it is in the best interests of the Fund and its shareholders for the Board to approve the Agreements for an additional year. In reaching this decision, the Board did not assign relative weights to the factors discussed above or deem any one or group of them to be controlling in and of themselves. In connection with their deliberations, the Independent Directors met separately in executive session on several occasions, with independent legal counsel and the Consultant, to review the relevant materials and consider their responsibilities under relevant laws and regulations.
33 |
Hartford Global Growth HLS Fund
Main Risks (Unaudited)
The main risks of investing in the Fund are described below.
Market, Selection and Strategy Risk: The Fund’s share price may fluctuate due to market risk and/or security selections that may underperform the market or relevant benchmarks. If the sub-adviser's investment strategy does not perform as expected, the Fund could underperform its peers or lose money. There is no guarantee the Fund will achieve its stated objective.
Foreign Investment and Emerging Markets Risk: Investments in foreign securities may be riskier than investments in U.S. securities. Potential risks include the risks of illiquidity, increased price volatility, less government regulation, less extensive and less frequent accounting and other reporting requirements, unfavorable changes in currency exchange rates, and economic and political disruptions. These risks are generally greater for investments in emerging markets.
Growth Investing Risk: Growth investments can be volatile, and may fail to increase earnings or grow as quickly as anticipated. Growth-style investing falls in and out of favor, which may result in periods of underperformance.
Mid-Cap Stock Risk: Mid-cap stocks are generally more volatile and risky and may be less liquid than large-cap stocks because they may have limited operating histories, narrow product lines, and focus on niche markets.
Active Trading Risk: Actively trading investments may result in higher costs (thus affecting performance).
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THIS PRIVACY POLICY IS NOT PART OF THIS REPORT
Privacy Policy and Practices of The Hartford Financial Services Group, Inc. and its Affiliates
(herein called “we, our and us”)
This Privacy Policy applies to our United States Operations
We value your trust. We are committed to the responsible: a) management; b) use; and c) protection; of Personal Information.
This notice describes how we collect, disclose, and protect Personal Information.
We collect Personal Information to: a) service your Transactions with us; and b) support our business functions.
We may obtain Personal Information from: a) You; b) your Transactions with us; and c) third parties such as a consumer-reporting agency.
Based on the type of product or service You apply for or get from us, Personal Information such as: a) your name; b) your address; c) your income; d) your payment; or e) your credit history; may be gathered from sources such as applications, Transactions, and consumer reports.
To serve You and service our business, we may share certain Personal Information. We will share Personal Information, only as allowed by law, with affiliates such as: a) our insurance companies; b) our employee agents; c) our brokerage firms; and d) our administrators.
As allowed by law, we may share Personal Financial Information with our affiliates to: a) market our products; or b) market our services; to You without providing You with an option to prevent these disclosures.
| We may also share Personal Information, only as allowed by law, with unaffiliated third parties including: a) independent agents; b) brokerage firms; c) insurance companies; d) administrators; and e) service providers; who help us serve You and service our business.
When allowed by law, we may share certain Personal Financial Information with other unaffiliated third parties who assist us by performing services or functions such as: a) taking surveys; b) marketing our products or services; or c) offering financial products or services under a joint agreement between us and one or more financial institutions.
We, and third parties we partner with, may track some of the pages You visit through the use of: a) cookies; b) pixel tagging; or c) other technologies; and currently do not process or comply with any web browser’s “do not track” signal or similar mechanism that indicates a request to disable online tracking of individual users who visit our websites or use our services.
We will not sell or share your Personal Financial Information with anyone for purposes unrelated to our business functions without offering You the opportunity to: a) “opt-out;” or b) “opt-in;” as required by law.
We only disclose Personal Health Information with: a) your proper written authorization; or b) as otherwise allowed or required by law.
Our employees have access to Personal Information in the course of doing their jobs, such as: a) underwriting policies; b) paying claims; c) developing new products; or d) advising customers of our products and services. |
We use manual and electronic security procedures to maintain: a) the confidentiality; and b) the integrity of; Personal Information that we have. We use these procedures to guard against unauthorized access.
Some techniques we use to protect Personal Information include: a) secured files; b) user authentication; c) encryption; d) firewall technology; and e) the use of detection software.
We are responsible for and must: a) identify information to be protected; b) provide an adequate level of protection for that data; c) grant access to protected data only to those people who must use it in the performance of their job-related duties.
Employees who violate our Privacy Policy will be subject to discipline, which may include ending their employment with us.
At the start of our business relationship, we will give You a copy of our current Privacy Policy.
We will also give You a copy of our current Privacy Policy once a year if You maintain a continuing business relationship with us.
We will continue to follow our Privacy Policy regarding Personal Information even when a business relationship no longer exists between us. | As used in this Privacy Notice:
Application means your request for our product or service.
Personal Financial Information means financial information such as: a) credit history; b) income; c) financial benefits; or d) policy or claim information.
Personal Health Information means health information such as: a) your medical records; or b) information about your illness, disability or injury.
Personal Information means information that identifies You personally and is not otherwise available to the public. It includes: a) Personal Financial Information; and b) Personal Health Information.
Transaction means your business dealings with us, such as: a) your Application; b) your request for us to pay a claim; and c) your request for us to take an action on your account.
You means an individual who has given us Personal Information in conjunction with: a) asking about; b) applying for; or c) obtaining; a financial product or service from us if the product or service is used mainly for personal, family, or household purposes. |
This Privacy Policy is being provided on behalf of the following affiliates of The Hartford Financial Services Group, Inc.:
1stAGChoice, Inc.; Access CoverageCorp, Inc.; Access CoverageCorp Technologies, Inc.; American Maturity Life Insurance Company; Archway 60 R, LLC; Business Management Group, Inc.; DMS R, LLC; First State Insurance Company; Fountain Investors I LLC; Fountain Investors II LLC; Fountain Investors III LLC; Fountain Investors IV LLC; FTC Resolution Company LLC; Hart Re Group L.L.C.; Hartford Accident and Indemnity Company; Hartford Administrative Services Company; Hartford Casualty General Agency, Inc.; Hartford Casualty Insurance Company; Hartford Financial Services, LLC; Hartford Fire General Agency, Inc.; Hartford Fire Insurance Company; Hartford Funds Distributors, LLC; Hartford Funds Management Company, LLC; Hartford Funds Management Group, Inc.; Hartford Holdings, Inc.; Hartford HLS Series Fund II, Inc.; Hartford Insurance Company of Illinois; Hartford Insurance Company of the Midwest; Hartford Insurance Company of the Southeast; Hartford Integrated Technologies, Inc.; Hartford International Life Reassurance Corporation; Hartford Investment Management Company; Hartford Life and Accident Insurance Company; Hartford Life and Annuity Insurance Company; Hartford Life Insurance Company; Hartford Life, Inc.; Hartford Life International Holding Company; Hartford Life Private Placement, LLC; Hartford Lloyd’s Corporation; Hartford Lloyd’s Insurance Company; Hartford of Texas General Agency, Inc.; Hartford Residual Market, L.C.C.; Hartford Securities Distribution Company, Inc.; Hartford Series Fund, Inc.; Hartford Specialty Insurance Services of Texas, LLC; Hartford Strategic Investments, LLC; Hartford Underwriters General Agency, Inc.; Hartford Underwriters Insurance Company; Hartford-Comprehensive Employee Benefit Service Company; HDC R, LLC.; Heritage Holdings, Inc.; HIMCO Distribution Services Company; HIMCO Variable Insurance Trust; HLA LLC; HL Investment Advisors, LLC; Horizon Management Group, LLC; HRA Brokerage Services, Inc.; Lanidex Class B, LLC; New England Insurance Company; New England Reinsurance Corporation; Nutmeg Insurance Agency, Inc.; Nutmeg Insurance Company; Pacific Insurance Company, Limited; Planco, LLC; Property and Casualty Insurance Company of Hartford; Revere R, LLC; RVR R, LLC; Sentinel Insurance Company, Ltd.; Sunstone R, LLC; Symphony R, LLC; The Evergreen Group Incorporated; The Hartford Alternative Strategies Fund; The Hartford Mutual Funds, Inc.; The Hartford Mutual Funds II, Inc.; Trumbull Flood Management, L.L.C.; Trumbull Insurance Company; Twin City Fire Insurance Company.
HPP Revised February 2015
HARTFORD HLS FUNDS
P.O. Box 14293
Lexington, KY 40512-4293
HARTFORDFUNDS
hartfordfunds.com
Hartford HLS Funds are underwritten and distributed by Hartford Funds Distributors, LLC.
Hartford Series Fund, Inc. is not a subsidiary of The Hartford Financial Services Group, Inc. (“The Hartford”) but is underwritten, distributed by and advised by subsidiaries of The Hartford. Investments in Hartford Series Fund, Inc. are not guaranteed by The Hartford or any other entity.
This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution unless preceded or accompanied by a current prospectus for the Fund.
Investors should carefully consider the investment objectives, risks, charges, and expenses of Hartford Funds before investing. This and other information can be found in the prospectus and summary prospectus, which can be obtained by calling 888-843-7824 (or 800-279-1541 for institutional investors). Investors should read them carefully before they invest.
HLSAR-GG14 2-15 113539-4 Printed in U.S.A.
HARTFORDFUNDS
![]() | HARTFORD HEALTHCARE
2014 Annual Report |
A MESSAGE FROM THE PRESIDENT
Dear Fellow Shareholders:
Thank you for investing in Hartford HLS Funds.
Market Review
Nearly six years into a bull market, U.S. equities (as represented by the S&P 500 Index ) notched another positive year in 2014, finishing with a 13.69% gain. Progress was smooth for most of the year, with stocks generally rising amid little volatility. In the fourth quarter, however, the price of oil declined by nearly 40%, returning volatility to the market and paring some of the year’s returns.
As we enter 2015, the price of oil will likely continue playing an important role in market progress, as its effects are widespread. If prices remain low, consumers should benefit by paying less at the gas pump, which increases the amount of money available for discretionary spending. In contrast, low prices may be a detriment to the oil and natural gas industry in the U.S., as well as to the economies of countries that rely more heavily on oil exports.
Central-bank policies will also continue to influence the markets. The U.S. economy has continued to show self-sustaining growth, which has prompted the U.S. Federal Reserve to wind down the quantitative easing programs it initiated after the global financial crisis. In addition, gradual increases in interest rates are expected to begin in 2015, another sign of positive recovery and a return to pre-crisis policy. But in Europe, a slow recovery and fears of deflation have prompted the start of European Central Bank’s own version of quantitative easing to spur growth.
The final weeks of 2014 provided a stark reminder of how unpredictable market movements can be, and how important it is to maintain a diversified portfolio that’s in line with your time horizon and risk tolerance. As we begin 2015, take time to review your portfolio and your overall investment strategy with your financial advisor.
With more than 40 mutual-fund strategies that span a variety of asset classes and investment goals, your financial advisor can work with you to choose options within our fund family that can help you navigate today’s markets with confidence.
Thank you again for investing with Hartford HLS Funds.
James Davey
President
Hartford HLS Funds
1 The S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
Table of Contents
This report is prepared for the general information of contract owners and qualified retirement plan participants. It is not an offer of contracts or of qualified retirement plans. It should not be used in connection with any offer, except in conjunction with the appropriate product prospectus which contains all pertinent information including the applicable sales, administrative and other charges.
The views expressed in the Fund’s Manager Discussion under ‘‘Why did the Fund perform this way?’’ and ‘‘What is the outlook?’’ are views of the Fund’s sub-adviser and portfolio management team through the end of the period and are subject to change based on market and other conditions. The Fund’s Manager Discussion is for informational purposes only and does not represent an offer, recommendation or solicitation to buy, hold or sell any security. The specific securities identified and described, if any, do not represent all of the securities purchased or sold and you should not assume that investments in the securities identified and discussed will be profitable.
Hartford Healthcare HLS Fund inception 05/01/2000 | |
(sub-advised by Wellington Management Company, LLP) |
Investment objective – The Fund seeks long-term capital appreciation.
Performance Overview 12/31/04 - 12/31/14
The chart above represents the hypothetical growth of a $10,000 investment in Class IA. Growth results in classes other than Class IA will vary from what is seen above due to difference in the expenses charged to those share classes.
Average Annual Total Returns (as of 12/31/14)
1 Year | 5 Years | 10 Years | ||||
Healthcare IA | 27.39% | 22.09% | 12.64% | |||
Healthcare IB | 27.00% | 21.77% | 12.35% | |||
S&P 500 Index | 13.69% | 15.45% | 7.67% | |||
S&P North American Health Care Sector Index | 25.69% | 20.70% | 11.86% |
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of the investment will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain performance data current to the most recent month-end, please visit our website www.hartfordfunds.com.
Total returns presented above were calculated using the Fund’s net asset value available to shareholders for sale or redemption of Fund shares on December 31, 2014, which may exclude investment transactions as of this date. All share class returns assume the reinvestment of all distributions at net asset value and the deduction of all fund expenses.
S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
S&P North American Health Care Sector Index is a modified capitalization-weighted index based on United States headquartered health care companies. Stocks in the index are weighted such that each stock is no more than 7.5% of the market capitalization as of the most recent reconstitution date. The companies included in the index must be common stocks and be traded on the NYSE MKT LLC, Nasdaq or the New York Stock Exchange and meet certain established market capitalization levels.
The indices are unmanaged, and their results include reinvested dividends and/or distributions, but do not reflect the effect of sales charges, commissions, expenses or taxes.
You cannot invest directly in an index.
As shown in the Fund's current prospectus dated May 1, 2014, the total annual operating expense ratios for Class IA and Class IB were 0.89% and 1.14%, respectively. Actual expenses may be higher. Please see the accompanying Financial Highlights for expense ratios for the year ended December 31, 2014.
The chart and table do not reflect the deductions of taxes, sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees or expenses would lower the contract’s or plan’s performance.
All investments are subject to risk including the possible loss of principal. For a discussion of the Fund’s risks, please see the Main Risks section of this report. For more detailed information on the risks associated with an investment in the Fund, please see the prospectus.
2 |
Hartford Healthcare HLS Fund |
Manager Discussion |
December 31, 2014 (Unaudited) |
Portfolio Managers | |||
Jean M. Hynes, CFA | Ann C. Gallo | Kirk J. Mayer, CFA | Robert L. Deresiewicz |
Senior Managing Director and Global Industry Analyst | Senior Managing Director and Global Industry Analyst | Senior Managing Director and Global Industry Analyst | Senior Managing Director and Global Industry Analyst |
How did the Fund perform?
The Class IA shares of the Hartford Healthcare HLS Fund returned 27.39% for the twelve-month period ended December 31, 2014, outperforming the Fund’s benchmark, the S&P North American Health Care Sector Index, which returned 25.69% for the same period. The Fund also outperformed the S&P 500 Index, which returned 13.69% for the same period. The Fund also outperformed the 23.77% average return of the Lipper Global Health and Biotechnology peer group, a group of funds with investment strategies similar to those of the Fund.
Why did the Fund perform this way?
Health care stocks (+26%) outperformed both the broader U.S. market (+14%) and the global equity market (+6%) during the period, as measured by the S&P North American Health Care Sector Index, S&P 500 Index, and the MSCI World Index, respectively. Within the S&P North American Health Care Sector Index, small-cap biopharma returned (+27%), mid-cap biopharma returned (+37%), and large-cap biopharma returned (+25%), while medical technology returned (+23%) and health services returned (+27%).
The Fund outperformed the S&P North American Health Care Sector Index due to a combination of strong stock selection and sector allocation. Security selection contributed to relative returns due to strong selection in small-cap and large-cap biopharma names and medical technology during the period. This was partially offset by negative stock selection in mid-cap biopharma and health care services. An overweight allocation to mid-cap biopharma names as well as an underweight to large-cap biopharma names contributed to relative performance. However, a modest cash position in an upward trending market environment detracted from relative results during the period.
Pfizer (biopharma large-cap), Forest Labs (biopharma mid-cap), and Tetraphase (biopharma small-cap), contributed most to results relative to the S&P North American Health Care Sector Index. Shares of Pfizer, a U.S.-based multinational pharmaceutical company, underperformed after Pfizer’s offer to acquire AstraZeneca was rejected. Not owning this S&P North American Health Care Sector Index component contributed to relative results. Shares of Forest Labs, a U.S.-based pharmaceutical company, soared in early 2014 on news that the company was being acquired by Actavis for $25 billion. Shares of Tetraphase, a U.S.-based biopharmaceutical company, were up notably after the company announced positive top-line results for a study evaluating the use of one of their drugs in complicated urinary tract infections. Top contributors to absolute performance during the period also included Gilead Sciences (specialty pharmaceuticals) and Covidien (health care equipment & services).
Allergan (biopharma large-cap), Arena Pharmaceutical (biopharma small-cap), and Amgen (biopharma large-cap) were the top detractors from performance relative to the S&P North American Health Care Sector Index. Shares of Allergan, a specialty pharmaceutical company, rose during the period after Valeant Pharmaceuticals offered to acquire the company for approximately $45 billion. Not owning the strong performing S&P North American Health Care Sector Index constituent weighed on relative returns. Shares of Arena Pharmaceutical, a clinical-stage biopharmaceutical company, fell over concerns for the efficacy of their obesity drug, Belviq. Amgen, a U.S.-based global biotechnology company, outperformed after reporting third quarter earnings that were higher than consensus estimates driven primarily by better than expected sales growth across its entire portfolio of therapeutics. Not holding this S&P North American Health Care Sector Index constituent detracted from relative results. Top detractors from absolute performance during the period also included Medicines (biopharma mid-cap) and Exelixis (biopharma small-cap).
Derivatives are not used in a significant manner in this Fund and did not have a material impact on performance during the period.
What is the outlook?
2014 was a year of strong outperformance for the health care sector. Valuations more closely approximate historic levels now, but fundamentals continue to remain positive. We continue to believe that we are in the early years of a secular growth cycle for the industry, which, in our opinion, will be driven by biopharmaceutical discoveries and by opportunities afforded by the changing health care delivery landscape. Nevertheless, we are aware of the potential for negative short-term market movement, and so finished the year with a somewhat larger-than-usual percentage of cash on hand.
3 |
Hartford Healthcare HLS Fund |
Manager Discussion – (continued) |
December 31, 2014 (Unaudited) |
Diversification by Sector
as of December 31, 2014
Sector | Percentage of Net Assets | |||
Equity Securities | ||||
Consumer Staples | 3.3 | % | ||
Health Care | 91.4 | |||
Industrials | 0.5 | |||
Information Technology | 0.3 | |||
Total | 95.5 | % | ||
Short-Term Investments | 6.7 | |||
Other Assets and Liabilities | (2.2 | ) | ||
Total | 100.0 | % |
A sector may be comprised of several industries. For Fund compliance purposes, the Fund may not use the same classification system and these sector classifications are used for reporting ease.
4 |
Hartford Healthcare HLS Fund |
Schedule of Investments |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount | Market Value ╪ | |||||||
Common Stocks - 95.5% | ||||||||
Biotechnology - 24.8% | ||||||||
25 | Achillion Pharmaceuticals, Inc. ● | $ | 305 | |||||
33 | Acorda Therapeutics, Inc. ● | 1,352 | ||||||
154 | Alkermes plc ● | 9,032 | ||||||
42 | Alnylam Pharmaceuticals, Inc. ● | 4,045 | ||||||
71 | Anacor Pharmaceuticals, Inc. ● | 2,303 | ||||||
563 | Arena Pharmaceuticals, Inc. ● | 1,952 | ||||||
2 | Bellicum Pharmaceuticals, Inc. ● | 46 | ||||||
194 | BioCryst Pharmaceuticals, Inc. ● | 2,353 | ||||||
8 | Biogen Idec, Inc. ● | 2,550 | ||||||
66 | Cepheid, Inc. ● | 3,571 | ||||||
83 | Dicerna Pharmaceuticals, Inc. ● | 1,369 | ||||||
28 | Foundation Medicine, Inc. ● | 629 | ||||||
181 | Gilead Sciences, Inc. ● | 17,093 | ||||||
134 | Glycomimetics, Inc. ● | 966 | ||||||
66 | Incyte Corp. ● | 4,798 | ||||||
41 | Innate Pharma S.A. ● | 390 | ||||||
134 | Ironwood Pharmaceuticals, Inc. ● | 2,060 | ||||||
3 | Juno Therapeutics, Inc. ● | 162 | ||||||
3 | Kite Pharma, Inc. ● | 174 | ||||||
142 | NPS Pharmaceuticals, Inc. ● | 5,066 | ||||||
16 | Otonomy, Inc. ● | 548 | ||||||
55 | Portola Pharmaceuticals, Inc. ● | 1,559 | ||||||
25 | PTC Therapeutics, Inc. ● | 1,268 | ||||||
26 | Regeneron Pharmaceuticals, Inc. ● | 10,685 | ||||||
124 | Regulus Therapeutics, Inc. ● | 1,991 | ||||||
240 | Rigel Pharmaceuticals, Inc. ● | 545 | ||||||
20 | Seattle Genetics, Inc. ● | 656 | ||||||
91 | Tesaro, Inc. ● | 3,369 | ||||||
86 | Tetraphase Pharmaceuticals, Inc. ● | 3,402 | ||||||
113 | Trevana, Inc. ● | 677 | ||||||
41 | Vertex Pharmaceuticals, Inc. ● | 4,922 | ||||||
89,838 | ||||||||
Drug Retail - 3.3% | ||||||||
72 | CVS Health Corp. | 6,893 | ||||||
36 | Diplomat Pharmacy, Inc. ● | 996 | ||||||
55 | Walgreens Boots Alliance Inc. | 4,159 | ||||||
12,048 | ||||||||
Health Care Distributors - 4.9% | ||||||||
78 | Cardinal Health, Inc. | 6,297 | ||||||
56 | McKesson Corp. | 11,558 | ||||||
17,855 | ||||||||
Health Care Equipment - 18.0% | ||||||||
124 | Abbott Laboratories | 5,562 | ||||||
85 | AtriCure, Inc. ● | 1,702 | ||||||
13 | Becton, Dickinson & Co. | 1,816 | ||||||
462 | Boston Scientific Corp. ● | 6,125 | ||||||
106 | Covidien plc | 10,872 | ||||||
84 | Globus Medical, Inc. ● | 1,985 | ||||||
26 | Heartware International, Inc. ● | 1,878 | ||||||
195 | K2M Group Holdings, Inc. ● | 4,065 | ||||||
155 | Medtronic, Inc. | 11,196 | ||||||
45 | Ocular Therapeutix, Inc. ● | 1,060 | ||||||
94 | St. Jude Medical, Inc. | 6,080 | ||||||
56 | Stryker Corp. | 5,313 | ||||||
50 | T2 Biosystems, Inc. ● | 970 | ||||||
58 | Tornier N.V. ● | 1,482 | ||||||
119 | TriVascular Techonologies, Inc. ● | 1,494 | ||||||
31 | Zimmer Holdings, Inc. | 3,508 | ||||||
65,108 | ||||||||
Health Care Facilities - 5.1% | ||||||||
29 | Acadia Healthcare Co., Inc. ● | 1,787 | ||||||
121 | HCA Holdings, Inc. ● | 8,870 | ||||||
195 | NMC Health plc | 1,387 | ||||||
800 | Phoenix Healthcare Group Co., Ltd. | 1,470 | ||||||
265 | Spire Healthcare Group plc ● | 1,572 | ||||||
30 | Universal Health Services, Inc. Class B | 3,383 | ||||||
18,469 | ||||||||
Health Care Services - 1.3% | ||||||||
81 | Al Noor Hospitals Group | 1,248 | ||||||
103 | Envision Healthcare Holdings ● | 3,575 | ||||||
4,823 | ||||||||
Health Care Supplies - 0.8% | ||||||||
35 | Dentsply International, Inc. | 1,860 | ||||||
57 | Endologix, Inc. ● | 871 | ||||||
2,731 | ||||||||
Health Care Technology - 2.3% | ||||||||
234 | Allscripts Healthcare Solutions, Inc. ● | 2,982 | ||||||
21 | athenahealth, Inc. ● | 3,121 | ||||||
79 | IMS Health Holdings, Inc. ● | 2,026 | ||||||
8,129 | ||||||||
Internet Software and Services - 0.3% | ||||||||
72 | Everyday Health, Inc. ● | 1,063 | ||||||
Life Sciences Tools and Services - 2.3% | ||||||||
47 | Agilent Technologies, Inc. | 1,911 | ||||||
11 | MorphoSys AG ● | 1,031 | ||||||
69 | Pra Health Sciences, Inc. ● | 1,676 | ||||||
30 | Thermo Fisher Scientific, Inc. | 3,729 | ||||||
8,347 | ||||||||
Managed Health Care - 5.8% | ||||||||
110 | Aetna, Inc. | 9,761 | ||||||
67 | CIGNA Corp. | 6,935 | ||||||
65 | Qualicorp S.A. ● | 683 | ||||||
35 | UnitedHealth Group, Inc. | 3,577 | ||||||
20,956 | ||||||||
Pharmaceuticals - 26.1% | ||||||||
66 | Actavis plc ● | 16,878 | ||||||
139 | Aerie Pharmaceuticals, Inc. ● | 4,056 | ||||||
36 | Almirall S.A. ● | 595 | ||||||
83 | AstraZeneca plc ADR | 5,868 | ||||||
358 | Bristol-Myers Squibb Co. | 21,115 | ||||||
95 | Daiichi Sankyo Co., Ltd. | 1,324 | ||||||
19 | Dr. Reddy's Laboratories Ltd. ADR | 957 | ||||||
46 | Eisai Co., Ltd. | 1,793 | ||||||
87 | Eli Lilly & Co. | 6,030 | ||||||
33 | Hospira, Inc. ● | 2,029 | ||||||
21 | Johnson & Johnson | 2,146 | ||||||
106 | Medicines Co. ● | 2,922 | ||||||
81 | MediWound Ltd. ● | 541 | ||||||
97 | Merck & Co., Inc. | 5,480 | ||||||
45 | Mylan, Inc. ● | 2,525 | ||||||
15 | Ono Pharmaceutical Co., Ltd. | 1,363 | ||||||
37 | Sanofi-Aventis S.A. | 3,350 | ||||||
177 | Shionogi & Co., Ltd. | 4,585 | ||||||
85 | Teva Pharmaceutical Industries Ltd. ADR | 4,892 | ||||||
39 | UCB S.A. | 2,977 | ||||||
155 | Xenoport, Inc. ● | 1,356 |
The accompanying notes are an integral part of these financial statements.
5 |
Hartford Healthcare HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount | Market Value ╪ | |||||||||||
Common Stocks - 95.5% - (continued) | ||||||||||||
Pharmaceuticals - 26.1% - (continued) | ||||||||||||
39 | Zoetis, Inc. | $ | 1,672 | |||||||||
94,454 | ||||||||||||
Research and Consulting Services - 0.5% | ||||||||||||
27 | Quintiles Transnational Holdings ● | 1,579 | ||||||||||
Total Common Stocks | ||||||||||||
(Cost $218,543) | $ | 345,400 | ||||||||||
Total Long-Term Investments | ||||||||||||
(Cost $218,543) | $ | 345,400 | ||||||||||
Short-Term Investments - 6.7% | ||||||||||||
Repurchase Agreements - 6.7% | ||||||||||||
Bank of America Merrill Lynch Repurchase Agreement (maturing on 01/02/2015 in the amount of $24, collateralized by U.S. Treasury Note 0.75%, 2018, value of $24) | ||||||||||||
$ | 24 | 0.05%, 12/31/2014 | $ | 24 | ||||||||
Bank of America Merrill Lynch TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $121, collateralized by U.S. Treasury Note 2.50%, 2024, value of $124) | ||||||||||||
121 | 0.07%, 12/31/2014 | 121 | ||||||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $3,162, collateralized by U.S. Treasury Bond 3.88% - 5.25%, 2029 - 2040, U.S. Treasury Note 0.25% - 4.63%, 2015 - 2022, value of $3,225) | ||||||||||||
3,162 | 0.06%, 12/31/2014 | 3,162 | ||||||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $1,378, collateralized by FHLMC 2.00% - 5.50%, 2019 - 2044, FNMA 2.00% - 4.00%, 2024 - 2042, GNMA 3.00%, 2043, U.S. Treasury Bill 0.07%, 2015, value of $1,405) | ||||||||||||
1,378 | 0.07%, 12/31/2014 | 1,378 | ||||||||||
Barclays Capital TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $3,386, collateralized by U.S. Treasury Bond 3.63%, 2043, U.S. Treasury Note 0.88% - 2.00%, 2017 - 2020, value of $3,454) | ||||||||||||
3,386 | 0.05%, 12/31/2014 | 3,386 | ||||||||||
Citigroup Global Markets, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $6,052, collateralized by U.S. Treasury Bond 3.63% - 9.88%, 2015 - 2043, U.S. Treasury Note 0.25% - 2.75%, 2015 - 2022, value of $6,173) | ||||||||||||
6,052 | 0.06%, 12/31/2014 | 6,052 | ||||||||||
Deutsche Bank Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $982, collateralized by FHLMC 2.00% - 10.50%, 2015 - 2047, FNMA 2.00% - 9.50%, 2015 - 2049, GNMA 2.50% - 10.00%, 2016 - 2055, value of $1,002) | ||||||||||||
982 | 0.12%, 12/31/2014 | 982 | ||||||||||
RBS Securities, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $258, collateralized by U.S. Treasury Note 0.38% - 2.13%, 2015 - 2016, value of $263) | ||||||||||||
258 | 0.07%, 12/31/2014 | 258 | ||||||||||
Societe Generale TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $2,879, collateralized by U.S. Treasury Bond 8.75%, 2020, U.S. Treasury Note 0.25% - 2.88%, 2015 - 2022, value of $2,937) | ||||||||||||
2,879 | 0.07%, 12/31/2014 | 2,879 | ||||||||||
TD Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $6,167, collateralized by FHLMC 3.00% - 4.00%, 2026 - 2044, FNMA 2.50% - 5.00%, 2025 - 2044, value of $6,290) | ||||||||||||
6,167 | 0.08%, 12/31/2014 | 6,167 | ||||||||||
24,409 | ||||||||||||
Total Short-Term Investments | ||||||||||||
(Cost $24,409) | $ | 24,409 | ||||||||||
Total Investments | ||||||||||||
(Cost $242,952) ▲ | 102.2 | % | $ | 369,809 | ||||||||
Other Assets and Liabilities | (2.2) | % | (7,816 | ) | ||||||||
Total Net Assets | 100.0 | % | $ | 361,993 |
The accompanying notes are an integral part of these financial statements.
6 |
Hartford Healthcare HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Note: | Percentage of investments as shown is the ratio of the total market value to total net assets. |
Prices of foreign equities that are principally traded on certain foreign markets may be adjusted daily pursuant to a fair value pricing service approved by the Board of Directors in order to reflect an adjustment for factors occurring after the close of certain foreign markets but before the close of the New York Stock Exchange.
Equity industry classifications used in this report are the Global Industry Classification Standard, which was developed by and is the exclusive property and service mark of MSCI, Inc. and Standard & Poor’s.
For Fund compliance purposes, the Fund may not use the same classification system shown in this report as these classifications are used for reporting ease.
▲ | At December 31, 2014, the cost of securities for federal income tax purposes was $244,071 and the aggregate gross unrealized appreciation and depreciation based on that cost were: |
Unrealized Appreciation | $ | 131,201 | ||
Unrealized Depreciation | (5,463 | ) | ||
Net Unrealized Appreciation | $ | 125,738 |
● | Non-income producing. |
Foreign Currency Contracts Outstanding at December 31, 2014 | ||||||||||||||||||||||
Unrealized Appreciation/(Depreciation) | ||||||||||||||||||||||
Currency | Buy / Sell | Delivery Date | Counterparty | Contract Amount | Market Value ╪ | Asset | Liability | |||||||||||||||
JPY | Sell | 03/18/2015 | GSC | $ | 4,508 | $ | 4,504 | $ | 4 | $ | — |
╪ | See Significant Accounting Policies of accompanying Notes to Financial Statements regarding valuation of securities. |
GLOSSARY: (abbreviations used in preceding Schedule of Investments) | ||
Counterparty Abbreviations: | ||
GSC | Goldman Sachs & Co. | |
Currency Abbreviations: | ||
JPY | Japanese Yen | |
Other Abbreviations: | ||
ADR | American Depositary Receipt | |
FHLMC | Federal Home Loan Mortgage Corp. | |
FNMA | Federal National Mortgage Association | |
GNMA | Government National Mortgage Association |
The accompanying notes are an integral part of these financial statements.
7 |
Hartford Healthcare HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Investment Valuation Hierarchy Level Summary
December 31, 2014
Total | Level 1 ♦ | Level 2 ♦ | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Common Stocks ‡ | $ | 345,400 | $ | 325,135 | $ | 20,265 | $ | – | ||||||||
Short-Term Investments | 24,409 | – | 24,409 | – | ||||||||||||
Total | $ | 369,809 | $ | 325,135 | $ | 44,674 | $ | – | ||||||||
Foreign Currency Contracts * | $ | 4 | $ | – | $ | 4 | $ | – | ||||||||
Total | $ | 4 | $ | – | $ | 4 | $ | – |
♦ | For the year ended December 31, 2014, investments valued at $3,652 were transferred from Level 1 to Level 2, and there were no transfers from Level 2 to Level 1. Investments are transferred between Level 1 and Level 2 for a variety of reasons including, but not limited to: |
1) | Foreign equities for which a fair value price is more representative of exit value than the local market close (transfer into Level 2). Foreign equities for which the local market close is more representative of exit value (transfer into Level 1). |
2) | U.S. Treasury securities that no longer represent the most recent issue (transfer into Level 2). |
3) | Equity investments with no observable trading but a bid or mean price is used (transfer into Level 2). Equity investments using observable quoted prices in an active market (transfer into Level 1). |
‡ | The Fund has all or primarily all of the equity securities categorized in a particular level. Refer to the Schedule of Investments for further industry breakout. |
* | Derivative instruments (excluding purchased and written options, if applicable) are valued at the unrealized appreciation/depreciation on the investments. |
Note: | For purposes of reporting transfers between different hierarchy levels, both transfers in and out of each level, as applicable, are shown as if they occurred at the beginning of the period. |
The accompanying notes are an integral part of these financial statements.
8 |
Hartford Healthcare HLS Fund |
Statement of Assets and Liabilities |
December 31, 2014 |
(000’s Omitted) |
Assets: | ||||
Investments in securities, at market value (cost $242,952) | $ | 369,809 | ||
Cash | — | |||
Unrealized appreciation on foreign currency contracts | 4 | |||
Receivables: | ||||
Fund shares sold | 89 | |||
Dividends and interest | 364 | |||
Total assets | 370,266 | |||
Liabilities: | ||||
Payables: | ||||
Investment securities purchased | 6,004 | |||
Fund shares redeemed | 2,178 | |||
Investment management fees | 66 | |||
Distribution fees | 3 | |||
Accrued expenses | 22 | |||
Total liabilities | 8,273 | |||
Net assets | $ | 361,993 | ||
Summary of Net Assets: | ||||
Capital stock and paid-in-capital | $ | 186,848 | ||
Distributions in excess of net investment income | (453 | ) | ||
Accumulated net realized gain | 48,738 | |||
Unrealized appreciation of investments and the translations of assets and liabilities denominated in foreign currency | 126,860 | |||
Net assets | $ | 361,993 | ||
Shares authorized | 800,000 | |||
Par value | $ | 0.001 | ||
Class IA: Net asset value per share | $ | 30.02 | ||
Shares outstanding | 10,048 | |||
Net assets | $ | 301,580 | ||
Class IB: Net asset value per share | $ | 29.23 | ||
Shares outstanding | 2,067 | |||
Net assets | $ | 60,413 |
The accompanying notes are an integral part of these financial statements.
9 |
Hartford Healthcare HLS Fund |
Statement of Operations |
For the Year Ended December 31, 2014 |
(000’s Omitted) |
Investment Income: | ||||
Dividends | $ | 2,986 | ||
Interest | 4 | |||
Less: Foreign tax withheld | (58 | ) | ||
Total investment income, net | 2,932 | |||
Expenses: | ||||
Investment management fees | 2,720 | |||
Transfer agent fees | 5 | |||
Distribution fees - Class IB | 146 | |||
Custodian fees | 9 | |||
Accounting services fees | 33 | |||
Board of Directors' fees | 9 | |||
Audit fees | 15 | |||
Other expenses | 60 | |||
Total expenses (before fees paid indirectly) | 2,997 | |||
Commission recapture | (4 | ) | ||
Total fees paid indirectly | (4 | ) | ||
Total expenses, net | 2,993 | |||
Net Investment Loss | (61 | ) | ||
Net Realized Gain on Investments and Foreign Currency Transactions: | ||||
Net realized gain on investments | 49,252 | |||
Net realized gain on foreign currency contracts | 740 | |||
Net realized loss on other foreign currency transactions | (13 | ) | ||
Net Realized Gain on Investments and Foreign Currency Transactions | 49,979 | |||
Net Changes in Unrealized Appreciation of Investments and Foreign Currency Transactions: | ||||
Net unrealized appreciation of investments | 27,857 | |||
Net unrealized depreciation of foreign currency contracts | (112 | ) | ||
Net unrealized depreciation on translation of other assets and liabilities in foreign currencies | (2 | ) | ||
Net Changes in Unrealized Appreciation of Investments and Foreign Currency Transactions | 27,743 | |||
Net Gain on Investments and Foreign Currency Transactions | 77,722 | |||
Net Increase in Net Assets Resulting from Operations | $ | 77,661 |
The accompanying notes are an integral part of these financial statements.
10 |
Hartford Healthcare HLS Fund |
Statement of Changes in Net Assets |
(000’s Omitted) |
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (61 | ) | $ | 339 | |||
Net realized gain on investments and foreign currency transactions | 49,979 | 26,595 | ||||||
Net unrealized appreciation of investments and foreign currency transactions | 27,743 | 75,045 | ||||||
Net Increase in Net Assets Resulting from Operations | 77,661 | 101,979 | ||||||
Distributions to Shareholders: | ||||||||
From net investment income | ||||||||
Class IA | (679 | ) | (1,076 | ) | ||||
Class IB | (23 | ) | (150 | ) | ||||
Total from net investment income | (702 | ) | (1,226 | ) | ||||
From net realized gain on investments | ||||||||
Class IA | (21,244 | ) | (13,067 | ) | ||||
Class IB | (4,810 | ) | (3,368 | ) | ||||
Total from net realized gain on investments | (26,054 | ) | (16,435 | ) | ||||
Total distributions | (26,756 | ) | (17,661 | ) | ||||
Capital Share Transactions: | ||||||||
Class IA | ||||||||
Sold | 90,157 | 61,195 | ||||||
Issued on reinvestment of distributions | 21,923 | 14,143 | ||||||
Redeemed | (96,028 | ) | (47,935 | ) | ||||
Total capital share transactions | 16,052 | 27,403 | ||||||
Class IB | ||||||||
Sold | 4,603 | 9,853 | ||||||
Issued on reinvestment of distributions | 4,833 | 3,518 | ||||||
Redeemed | (15,306 | ) | (19,293 | ) | ||||
Total capital share transactions | (5,870 | ) | (5,922 | ) | ||||
Net increase from capital share transactions | 10,182 | 21,481 | ||||||
Net Increase in Net Assets | 61,087 | 105,799 | ||||||
Net Assets: | ||||||||
Beginning of period | 300,906 | 195,107 | ||||||
End of period | $ | 361,993 | $ | 300,906 | ||||
Undistributed (distributions in excess of) net investment income | $ | (453 | ) | $ | 268 | |||
Shares: | ||||||||
Class IA | ||||||||
Sold | 3,203 | 2,741 | ||||||
Issued on reinvestment of distributions | 810 | 630 | ||||||
Redeemed | (3,457 | ) | (2,152 | ) | ||||
Total share activity | 556 | 1,219 | ||||||
Class IB | ||||||||
Sold | 169 | 457 | ||||||
Issued on reinvestment of distributions | 183 | 161 | ||||||
Redeemed | (566 | ) | (895 | ) | ||||
Total share activity | (214 | ) | (277 | ) |
The accompanying notes are an integral part of these financial statements.
11 |
Hartford Healthcare HLS Fund |
Notes to Financial Statements |
December 31, 2014 |
(000’s Omitted) |
Organization:
Hartford Healthcare HLS Fund (the "Fund") serves as an underlying investment option for certain variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company (“HLIC”) and its affiliates and certain qualified retirement plans. The Fund may also serve as an underlying investment option for certain variable annuity and variable life separate accounts of other insurance companies. Owners of variable annuity contracts and policyholders of variable life insurance contracts may choose the funds permitted in the variable insurance contract prospectus. In addition, participants in certain qualified retirement plans may choose the Fund if permitted by their plans.
Hartford Series Fund, Inc. (the “Company”) is an open-end registered management investment company comprised of fifteen portfolios. Financial statements for the Fund, a series of the Company, are included in this report.
The Company is organized under the laws of the State of Maryland and is registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (“1940 Act”). The Fund is a diversified open-end management investment company. The Fund is an investment company and applies specialized accounting and reporting under Accounting Standards Codification Topic 946, Financial Services - Investment Companies.
The Fund is divided into Class IA and Class IB shares. Each class is offered at the per share net asset value (“NAV”) without a sales charge and is subject to the same expenses, except that the Class IB shares are subject to distribution and service fees charged pursuant to a Distribution Plan adopted in accordance with Rule 12b-1 under the 1940 Act.
Significant Accounting Policies:
The following is a summary of significant accounting policies of the Fund in the preparation of its financial statements, which are in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The preparation of financial statements in accordance with U.S. GAAP may require 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
Determination of Net Asset Value – The NAV of each class of the Fund's shares is determined as of the close of regular trading (normally 4:00 p.m. Eastern Time) (the “NYSE Close”) on each day that the New York Stock Exchange (the “Exchange”) is open (“Valuation Date”). Information that becomes known to the Fund after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the NAV determined earlier that day.
Investment Valuation and Fair Value Measurements – For purposes of calculating the NAV, portfolio investments and other assets held by the Fund's portfolio for which market quotes are readily available are valued at market value. Market value is generally determined on the basis of last reported sales prices or official close price. If no sales are reported, market value is based on quotes obtained from a quotation reporting system, established market makers, or independent pricing services. If market prices are not readily available or are deemed unreliable, the Fund will use the fair value of the investment as determined in good faith under policies and procedures established by and under the supervision of the Company's Board of Directors. Market quotes are considered not readily available where there is an absence of current or reliable market-based data (e.g., trade information or indicative market quotes), including where events occur after the close of the relevant market, but prior to the NYSE Close, that materially affect the values of the Fund's portfolio investments or assets. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the investments trade do not open for trading for the entire day and no other market prices are available. In addition, prices of foreign equities that are principally traded on certain foreign markets may be adjusted daily pursuant to a fair value pricing service approved by the Board of Directors in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close. Investments that are primarily traded on foreign markets may trade on days that are not business days of the Fund. The value of the foreign investments in which the Fund invests may change on days when a shareholder will not be able to purchase or redeem shares of the Fund. Fair value pricing is subjective in nature and the use of fair value pricing by the Fund may cause the NAV of its shares to differ significantly from the NAV that would have been calculated using market prices at the close of the exchange on which a portfolio investment is primarily
12 |
Hartford Healthcare HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
traded. There can be no assurance that the Fund could obtain the fair market value assigned to an investment if the Fund were to sell the investment at approximately the time at which the Fund determines its NAV.
Investments valued in currencies other than U.S. dollars are converted to U.S. dollars using exchange rates obtained from independent pricing services for calculation of the NAV. As a result, the NAV of the Fund’s shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of investments traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that the NYSE is closed and the market value may change on days when an investor is not able to purchase, redeem or exchange shares of the Fund.
Foreign currency contracts represent agreements to exchange currencies on specific future dates at predetermined rates. Foreign currency contracts are valued using foreign currency exchange rates and forward rates as provided by an independent pricing service on the Valuation Date.
Financial instruments for which prices are not available from an independent pricing service may be valued using market quotations obtained from one or more dealers that make markets in the respective financial instrument in accordance with procedures established by the Company's Board of Directors.
U.S. GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants. The U.S. GAAP fair value measurement standards require disclosure of a fair value hierarchy for each major category of assets and liabilities. Various inputs are used in determining the fair value of the Fund’s investments. These inputs are summarized into three broad hierarchy levels. This hierarchy is based on whether the valuation inputs are observable or unobservable. These levels are:
Level 1 – Quoted prices in active markets for identical investments. Level 1 may include exchange traded instruments, such as domestic equities, some foreign equities, options, futures, mutual funds, exchange traded funds, rights and warrants.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar investments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 2 may include debt investments that are traded less frequently than exchange traded instruments and which are valued using independent pricing services; foreign equities, which are principally traded on certain foreign markets and are adjusted daily pursuant to a fair value pricing service in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close; senior floating rate interests, which are valued using an aggregate of dealer bids; short-term investments, which are valued at amortized cost; and swaps, which are valued based upon the terms of each swap contract.
Level 3 – Significant unobservable inputs that are supported by limited or no market activity. Level 3 may include financial instruments whose values are determined using indicative market quotes or require significant management judgment or estimation. These unobservable valuation inputs may include estimates for current yields, maturity/duration, prepayment speed, and indicative market quotes for comparable investments along with other assumptions relating to credit quality, collateral value, complexity of the investment structure, general market conditions and liquidity. This category may include investments where trading has been halted or there are certain restrictions on trading. While these investments are priced using unobservable inputs, the valuation of these investments reflects the best available data and management believes the prices are a reasonable representation of exit price.
The Board of Directors of the Company generally reviews and approves the “Procedures for Valuation of Portfolio Securities” at least once a year. These procedures define how investments are to be valued, including the formation and activities of a Valuation Committee. The Valuation Committee is responsible for determining in good faith the fair value of investments when the value cannot be obtained from primary pricing services or alternative sources or if the valuation of an investment as provided by the primary pricing service or alternative source is believed not to reflect the investment’s fair value as of the Valuation Date. Voting members of the Valuation Committee include the Fund's Treasurer or designee and a Vice President of the investment manager or designee. An Assistant Vice President of the Fund with legal expertise or designee is also included on the Valuation Committee as a non-voting advisory member. In addition, the Fund’s Chief Compliance Officer shall designate a member of the compliance group to attend Valuation Committee meetings as a non-voting resource, to monitor for and provide guidance with
13 |
Hartford Healthcare HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
respect to compliance with these procedures. Two members of the Valuation Committee or their designees, representing different departments, shall constitute a quorum for purposes of permitting the Valuation Committee to take action. The Valuation Committee will consider all relevant factors in determining an investment’s fair value, and may seek the advice of the Fund’s sub-adviser, knowledgeable brokers, and legal counsel in making such determination. The Valuation Committee reports to the Audit Committee of the Company's Board of Directors. The Audit Committee receives quarterly written reports which include details of all fair-valued investments, including the reason for the fair valuation, and an indication, when possible, of the accuracy of the valuation by disclosing the next available reliable public price quotation or the disposition price of such investments (the “look-back” test). The Board of Directors then must consider for ratification all of the fair value determinations made during the previous quarter.
Valuation levels are not necessarily indicative of the risk associated with investing in such investments. Individual investments within any of the above mentioned asset classes may be assigned a different hierarchical level than those presented above, as individual circumstances dictate.
For additional information, refer to the Investment Valuation Hierarchy Level Summary which is included in the Schedule of Investments.
Investment Transactions and Investment Income – Investment transactions are recorded as of the trade date (the date the order to buy or sell is executed) for financial reporting purposes. Investments purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Realized gains and losses are determined on the basis of identified cost.
Dividend income from domestic securities is accrued on the ex-dividend date. In general, dividend income from foreign securities is recorded on the ex-date; however, dividend notifications in certain foreign jurisdictions may not be available in a timely manner and as a result, the Fund will record the dividend as soon as the relevant details (i.e., rate per share, payment date, shareholders of record, etc.) are publicly available. Interest income, including amortization of premium, accretion of discounts, inflation adjustments and additional principal received in-kind in lieu of cash, is accrued on a daily basis.
Foreign Currency Transactions – Assets and liabilities denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates in effect on the valuation date. Purchases and sales of investments, income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions.
The Fund does not isolate that portion of portfolio investment valuation resulting from fluctuations in the foreign currency exchange rates from the fluctuations arising from changes in the market prices of investments held. Exchange rate fluctuations are included with the net realized and unrealized gain or loss on investments in the accompanying financial statements.
Net realized foreign exchange gains or losses arise from sales of foreign currencies and the difference between asset and liability amounts initially stated in foreign currencies and the U.S. dollar value of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of other assets and liabilities at the end of the reporting period, resulting from changes in the exchange rates.
Joint Trading Account – The Fund may invest cash balances into a joint trading account that may be invested in one or more repurchase agreements.
Fund Share Valuation and Dividend Distributions to Shareholders – Orders for the Fund’s shares are executed in accordance with the investment instructions of the contract holders and plan participants. The NAV of the Fund’s shares is determined as of the close of business on each business day of the Exchange. The NAV is determined separately for each class of shares of the Fund by dividing the Fund’s net assets attributable to that class by the number of shares of the class outstanding. Each class of shares offered by the Fund has equal rights as to assets and voting privileges (except that shareholders of a class have exclusive voting rights regarding any matter relating solely to that class of shares). Income and non-class specific expenses are allocated daily to each class on the basis of the relative net assets of the class. Realized and unrealized gains and losses are allocated daily based on the relative net assets of each class of shares of the Fund.
14 |
Hartford Healthcare HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Orders for the purchase of the Fund’s shares received prior to the close of the Exchange on any day the Exchange is open for business are priced at the NAV determined as of the close of the Exchange. Orders received after the close of the Exchange, or on a day on which the Exchange and/or the Fund is not open for business, are priced at the next determined NAV.
Dividends are declared pursuant to a policy adopted by the Company's Board of Directors based upon the investment performance of the Fund. The policy of the Fund is to pay dividends from net investment income and realized gains, if any, at least once a year.
Net investment income, dividends and distributions from net realized gains and capital are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP with respect to character and timing (see Federal Income Taxes: Distributions and Components of Distributable Earnings and Reclassification of Capital Accounts).
Securities and Other Investments:
Repurchase Agreements – A repurchase agreement is an agreement by which a counterparty agrees to sell an investment and agrees to repurchase the investment sold from the buyer at a mutually agreed upon time and price. During the period of the repurchase agreement, the counterparty will deposit cash and or securities in a third party custodial account to serve as collateral. At the time the Fund enters into a repurchase agreement, the value of the underlying collateral, including accrued interest, will be equal to or exceed the value of the repurchase agreement. Repurchase agreements expose the Fund to counterparty risk - that is, the risk that the counterparty will not fulfill its obligations. To minimize counterparty risk, the investments that serve to collateralize the repurchase agreement are held by the Fund’s custodian in book entry or physical form in the custodial account of the Fund or in a third party custodial account. Repurchase agreements are valued at cost plus accrued interest, which approximates fair value. Repurchase agreements have master netting arrangements which allow the Fund to offset amounts owed to a counterparty with amounts owed by the counterparty, including any collateral. Upon an event of default under a master repurchase agreement, the non-defaulting party may close out all transactions traded under such agreement and net amounts owed under each transaction to one net amount payable by one party to the other. Absent an event of default, the master repurchase agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty. The Fund, as shown on the Schedule of Investments, had outstanding repurchase agreements and related collateral as of December 31, 2014.
Investments Purchased on a When-Issued or Delayed-Delivery Basis – Delivery and payment for investments that have been purchased by the Fund on a forward commitment, or when-issued or delayed-delivery basis, take place beyond the customary settlement period. The Fund may dispose of or renegotiate a delayed-delivery transaction after it is entered into, and may sell delayed-delivery investments before they are delivered, which may result in a realized gain or loss. During this period, such investments are subject to market fluctuations, and the Fund identifies investments segregated in its records with a value at least equal to the amount of the commitment. The Fund had no when-issued or delayed-delivery investments as of December 31, 2014.
Financial Derivative Instruments:
The following disclosures contain information on how and why the Fund uses derivative instruments, the credit-risk-related contingent features in certain derivative instruments and how derivative instruments affect the Fund’s financial position and results of operations. The location and fair value amounts of these instruments on the Statement of Assets and Liabilities and the realized gains and losses and changes in unrealized gains and losses on the Statement of Operations, each categorized by type of derivative contract, are included in the following Additional Derivative Instrument Information footnote. The derivative instruments outstanding as of year-end are disclosed in the notes to the Schedule of Investments, if applicable. The amounts of realized gains and losses and changes in unrealized gains and losses on derivative instruments during the year are disclosed in the Statement of Operations.
Foreign Currency Contracts – The Fund may enter into foreign currency contracts that obligate the Fund to purchase or sell currencies at specified future dates. Foreign currency contracts are used to hedge the currency exposure associated with some or all of the Fund’s investments and/or as part of an investment strategy. Foreign currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. The Fund will record a realized gain or loss when the foreign currency contract is settled.
15 |
Hartford Healthcare HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Foreign currency contracts involve elements of market risk in excess of the amounts reflected in the Statement of Assets and Liabilities. In addition, risks may arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of the contracts and from unanticipated movements in the value of the foreign currencies relative to the U.S. dollar. The Fund, as shown on the Schedule of Investments, had outstanding foreign currency contracts as of December 31, 2014.
Additional Derivative Instrument Information:
Fair Value of Derivative Instruments on the Statement of Assets and Liabilities as of December 31, 2014:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts | Foreign Exchange Contracts | Credit Contracts | Equity Contracts | Commodity Contracts | Other Contracts | Total | ||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||
Unrealized appreciation on foreign currency contracts | $ | — | $ | 4 | $ | — | $ | — | $ | — | $ | — | $ | 4 | ||||||||||||||
Total | $ | — | $ | 4 | $ | — | $ | — | $ | — | $ | — | $ | 4 |
The volume of derivatives that is presented in the Schedule of Investments is consistent with the derivative activity during the year ended December 31, 2014.
The Effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2014:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts | Foreign Exchange Contracts | Credit Contracts | Equity Contracts | Commodity Contracts | Other Contracts | Total | ||||||||||||||||||||||
Realized Gain on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net realized gain on foreign currency contracts | $ | — | $ | 740 | $ | — | $ | — | $ | — | $ | — | $ | 740 | ||||||||||||||
Total | $ | — | $ | 740 | $ | — | $ | — | $ | — | $ | — | $ | 740 | ||||||||||||||
Net Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net change in unrealized depreciation of foreign currency contracts | $ | — | $ | (112 | ) | $ | — | $ | — | $ | — | $ | — | $ | (112 | ) | ||||||||||||
Total | $ | — | $ | (112 | ) | $ | — | $ | — | $ | — | $ | — | $ | (112 | ) |
Balance Sheet Offsetting Information - The following discloses both gross information and net information about instruments and transactions eligible for offset in the financial statements, and instruments and transactions that are subject to a master netting arrangement, as well as amounts related to margin, reflected as financial collateral (including cash collateral), held at clearing brokers, counterparties and the Fund’s custodian. The master netting arrangements allow the clearing brokers to net any collateral held in or on behalf of the Fund, or liabilities or payment obligations of the clearing brokers to the Fund, against any liabilities or payment obligations of the Fund to the clearing brokers. The Fund is required to deposit financial collateral (including cash collateral) at the Futures Commission Merchant's ("FCM") custodian on behalf of clearing brokers and counterparties to continually meet the original and maintenance requirements established by the clearing brokers and counterparties for certain derivative types. Such requirements are specific to the respective clearing broker or counterparty. Certain master netting arrangements may not be enforceable in the bankruptcy proceedings of a counterparty.
16 |
Hartford Healthcare HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Offsetting of Financial Assets and Derivative Assets as of December 31, 2014:
Gross Amounts* of Assets Presented in Statement of Assets and Liabilities | Financial Instruments with Allowable Netting | Non-cash Collateral Received | Cash Collateral Received | Net Amount (not less than $0) | ||||||||||||||||
Description | ||||||||||||||||||||
Unrealized appreciation on foreign currency contracts | $ | 4 | $ | — | $ | — | $ | — | $ | 4 | ||||||||||
Total subject to a master netting or similar arrangement | $ | 4 | $ | — | $ | — | $ | — | $ | 4 |
* Gross amounts are presented here as there are no amounts netted within the Statement of Assets and Liabilities.
Principal Risks:
The Fund may be exposed to counterparty risk, or the risk that an institution or other entity with which the Fund has unsettled or open transactions will default.
If the Fund invests directly in foreign currencies or in securities that trade in, and receive revenues in, foreign currencies, or in derivatives that provide exposure to foreign currencies, it will be subject to the risk that those currencies will decline in value relative to the base currency (U.S. dollars) of the Fund, or, in the case of hedging positions, that the Fund’s base currency will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities, such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad. As a result, the Fund’s investments in foreign currency denominated securities may reduce the returns of the Fund. The market values of equity securities, such as common stocks and preferred stocks, or equity related investments, such as futures and options, may decline due to general market conditions which are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. The market value of equity securities may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities and equity related investments generally have greater market price volatility than fixed income securities.
Federal Income Taxes:
Federal Income Taxes – For federal income tax purposes, the Fund intends to continue to qualify as a Regulated Investment Company ("RIC") under Subchapter M of the Internal Revenue Code (“IRC”) by distributing substantially all of its taxable net investment income and net realized capital gains to its shareholders and otherwise complying with the requirements of the IRC. The Fund has distributed substantially all of its income and capital gains in prior years, if applicable, and intends to distribute substantially all of its income and capital gains prior to the next fiscal year-end. Accordingly, no provision for federal income or excise taxes has been made in the accompanying financial statements. Distributions from short-term capital gains are treated as ordinary income distributions for federal income tax purposes.
Net Investment Income (Loss), Net Realized Gains (Losses) and Distributions – Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of losses deferred due to wash sale adjustments, foreign currency gains and losses, adjustments related to Passive Foreign Investment Companies ("PFICs"), Real Estate Investment Trusts ("REITs"), RICs, certain derivatives and partnerships. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund.
17 |
Hartford Healthcare HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Distributions and Components of Distributable Earnings – The tax character of distributions paid by the Fund for the periods indicated is as follows (as adjusted for dividends payable, if applicable):
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Ordinary Income | $ | 4,611 | $ | 1,226 | ||||
Long-Term Capital Gains* | 22,145 | 16,435 |
* | The Fund designates these distributions as long-term capital gain dividends pursuant to IRC Sec. 852(b)(3)(C). |
As of December 31, 2014, the Fund’s components of distributable earnings (deficit) on a tax basis are as follows:
Amount | ||||
Undistributed Ordinary Income | $ | 3,015 | ||
Undistributed Long-Term Capital Gain | 46,393 | |||
Unrealized Appreciation* | 125,737 | |||
Total Accumulated Earnings | $ | 175,145 |
* | Differences between book-basis and tax-basis unrealized appreciation (depreciation) may be attributable to the losses deferred due to wash sale adjustments, foreign currency gains and losses and adjustments related to PFICs, REITs, RICs, certain derivatives and partnerships. |
Reclassification of Capital Accounts – The Fund may record reclassifications in its capital accounts. These reclassifications have no impact on the total net assets of the Fund. The reclassifications are a result of permanent differences between U.S. GAAP and tax accounting for such items as foreign currency, PFICs, expiration or utilization of capital loss carryforwards or net operating losses. Adjustments are made to reflect the impact these items have on current and future distributions to shareholders. Therefore, the source of the Fund’s distributions may be shown in the accompanying Statement of Changes in Net Assets as from undistributed net investment income, from accumulated net realized gains on investments or from capital depending on the type of book and tax differences that exist. For the year ended December 31, 2014, the Fund recorded reclassifications to increase (decrease) the accounts listed below:
Amount | ||||
Undistributed Net Investment Income (Loss) | $ | 42 | ||
Accumulated Net Realized Gain (Loss) | (42 | ) |
Capital Loss Carryforward – On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which made changes to the capital loss carryforward rules. The changes are effective for taxable years beginning after the date of enactment. Under the Act, funds are permitted to carry forward capital losses for an unlimited period. Additionally, capital loss carryforwards retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under prior regulation.
The Fund had no capital loss carryforward for U.S. federal income tax purposes as of December 31, 2014.
Accounting for Uncertainty in Income Taxes – The Fund has adopted financial reporting rules that require the Fund to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions. Generally, tax authorities can examine all tax returns filed for the last three years. The Fund does not have an examination in progress.
The Fund has reviewed all open tax years and major jurisdictions and concluded that these financial reporting rules had no effect on the Fund’s financial position or results of operations. There is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on the tax return for the fiscal year ended December 31, 2014. The Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
18 |
Hartford Healthcare HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Expenses:
Investment Management Agreement – Hartford Funds Management Company, LLC ("HFMC") serves as the Fund’s investment manager pursuant to an Investment Management Agreement with the Company. HFMC is an indirect wholly owned subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford"). The investment manager has overall investment supervisory responsibility for the Fund. In addition, the investment manager provides administrative personnel, services, equipment, facilities and office space for proper operation of the Fund. HFMC has contracted with Wellington Management Company, LLP ("Wellington Management") under a sub-advisory agreement for the provision of day-to-day investment management services to the Fund in accordance with the Fund’s investment objective and policies. The Fund pays a fee to the investment manager, a portion of which may be used to compensate Wellington Management.
The schedule below reflects the rates of compensation paid to the investment manager for investment management services rendered as of December 31, 2014; the rates are accrued daily and paid monthly:
Average Daily Net Assets | Annual Fee | ||
On first $250 million | 0.8500% | ||
On next $250 million | 0.8000% | ||
On next $4.5 billion | 0.7500% | ||
On next $5 billion | 0.7475% | ||
Over $10 billion | 0.7450% |
Accounting Services Agreement – Pursuant to the Fund Accounting Agreement between HFMC and the Company, on behalf of the Fund, HFMC provides accounting services to the Fund and receives monthly compensation based on the Fund’s average daily net assets at the rates set forth below. The Fund’s accounting services fees are accrued daily and paid monthly.
Average Daily Net Assets | Annual Fee | ||
All Assets | 0.010% |
Operating Expenses – Allocable expenses incurred by the Company are allocated to each Fund and allocated to classes within a Fund in proportion to the average daily net assets of the Fund and each class, except where allocation of certain expenses is more fairly made directly to the Fund or to specific classes within a Fund.
Fees Paid Indirectly – The Company, on behalf of the Fund, has entered into agreements with State Street Global Markets, LLC and Russell Implementation Services, Inc. to partially recapture non-discounted trade commissions. Such rebates are used to pay a portion of the Fund's expenses. For the year ended December 31, 2014, this amount, if any, is included in the Statement of Operations.
The ratio of expenses to average net assets in the accompanying financial highlights excludes the reduction in expenses related to fees paid indirectly. The annualized expense ratio after waivers for the period listed below reflecting the reduction for fees paid indirectly is as follows:
Year Ended December 31, 2014 | ||||
Class IA | 0.88% | |||
Class IB | 1.13 |
Distribution Plan for Class IB Shares – Hartford Funds Distributors, LLC (“HFD”), an indirect wholly owned subsidiary of The Hartford, is the principal underwriter and distributor of the Fund. The Company, on behalf of the Fund, has adopted a Distribution Plan pursuant to Rule 12b-1 of the 1940 Act for Class IB shares.
19 |
Hartford Healthcare HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
The Distribution Plan provides that the Fund may pay annually up to 0.25% of the average daily net assets of the Fund attributable to its Class IB shares for activities primarily intended to result in the sale of Class IB shares. The Board has the authority to suspend or reduce these payments at any point in time. Under the terms of the Distribution Plan and the principal underwriting agreement, the Fund is authorized to make payments monthly to the distributor that may be used to pay or reimburse entities providing distribution and shareholder servicing with respect to the Class IB shares for such entities’ fees or expenses incurred or paid in that regard. The distribution fees paid during the period can be found on the Statement of Operations. These fees are accrued daily and paid monthly or at such other intervals as the Board of Directors may determine.
Other Related Party Transactions – Certain officers of the Fund are directors and/or officers of HFMC and/or The Hartford or its subsidiaries. For the year ended December 31, 2014, a portion of the Fund's Chief Compliance Officer's compensation was paid by all the investment companies in the Hartford fund complex. The portion allocated to the Fund, as represented in other expenses on the Statement of Operations, rounds to zero. Hartford Administrative Services Company ("HASCO"), an indirect wholly owned subsidiary of The Hartford, provides transfer agent services to the Fund. Effective December 1, 2014, pursuant to a sub-transfer agency agreement between HASCO and Boston Financial Data Services, Inc. (“BFDS”), HASCO delegated certain transfer agent, dividend disbursing agent and shareholder servicing agent functions to BFDS. HASCO is compensated by the Fund based on the number of classes plus out of pocket expenses for providing such services, a portion of which may be used to compensate BFDS. The amount paid to HASCO can be found in the Statement of Operations. These fees are accrued daily and paid monthly.
Investment Transactions:
For the year ended December 31, 2014, the cost of purchases and proceeds from sales of investment securities (excluding short-term investments) were as follows:
Excluding U.S. Government Obligations | U.S. Government Obligations | Total | ||||||||||
Cost of Purchases | $ | 104,055 | $ | — | $ | 104,055 | ||||||
Sales Proceeds | 126,365 | — | 126,365 |
Line of Credit:
The Fund is one of several Hartford Funds that participate in a $500 million committed revolving line of credit facility. The facility is to be used for temporary or emergency purposes. Under the arrangement, the funds are required to own securities having a market value in excess of 300% of the total bank borrowings. The interest rate on borrowings varies depending on the nature of the loan. The facility also requires a fee to be paid based on the amount of the commitment. This commitment fee is allocated to all the funds participating in the line of credit based on the average net assets of the funds. During the year ended December 31, 2014, the Fund did not have any borrowings under this facility.
Indemnifications:
Under the Company's organizational documents, the Company shall indemnify its officers and directors to the full extent required or permitted under Maryland General Corporation Law and the federal securities laws. In addition, the Company, on behalf of the Fund, may enter into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, as of the date of these financial statements, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Pending Legal Proceedings:
On February 25, 2011, Jennifer L. Kasilag, Louis Mellinger, Judith M. Menendez, Jacqueline M. Robinson, and Linda A. Russell filed a derivative lawsuit against Hartford Investment Financial Services, LLC (“HIFSCO”) (now known as HFD) on behalf of six Hartford retail mutual funds in the United States District Court for the District of New Jersey, alleging that HIFSCO received excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the 1940 Act when serving as investment manager and
20 |
Hartford Healthcare HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
principal underwriter, respectively, to the Hartford retail mutual funds. Although this action was purportedly filed on behalf of certain of the Hartford Funds, none of the Hartford Funds is itself a defendant to the suit. HIFSCO moved to dismiss and, in September 2011, the motion was granted in part and denied in part, with leave to amend the complaint. In November 2011, plaintiffs filed an amended complaint on behalf of certain Hartford retail mutual funds, The Hartford Global Health Fund (now known as The Hartford Healthcare Fund), The Hartford Conservative Allocation Fund, The Hartford Growth Opportunities Fund, The Hartford Inflation Plus Fund, The Hartford Advisers Fund (now known as The Hartford Balanced Fund), and The Hartford Capital Appreciation Fund. Plaintiffs seek to rescind the investment management agreements and distribution plans between HIFSCO and these funds and to recover the total fees charged thereunder or, in the alternative, to recover any improper compensation HIFSCO received, in addition to lost earnings. HIFSCO filed a partial motion to dismiss the amended complaint and, in December 2012, the court dismissed without prejudice the claims regarding distribution fees and denied the motion with respect to the advisory fees claims. HIFSCO disputes the allegations and intends to defend vigorously.
In March 2014, the plaintiffs filed a new complaint that added as new plaintiffs The Hartford Floating Rate Fund and The Hartford Small Company Fund, two Hartford retail mutual funds, and named as a defendant HFMC, which assumed the role as investment manager to the funds as of January 2013. HFMC and HIFSCO dispute the allegations and intend to defend vigorously.
This action concerns the activities of HIFSCO in its capacity as investment manager and principal underwriter to the Hartford retail mutual funds and does not concern HIFSCO’s activities in its capacity as principal underwriter to the HLS funds. For this reason, no accrual for litigation relating to this matter has been recorded in the financial statements of the Fund.
Recent Accounting Pronouncement:
In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, modifying Accounting Standards Codification Topic 860. The amended guidance changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. The guidance also requires new disclosures for certain transfers accounted for as sales and collateral supporting transactions that are accounted for as secured borrowings. ASU 2014-11 is effective for annual and interim periods beginning after December 15, 2014, except for the disclosures related to secured borrowings, which are effective for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The adoption of ASU 2014-11 is not expected to have a material impact on the Fund’s results of operations or financial position, but may impact the Fund’s disclosures.
Subsequent Event:
Effective on or after January 1, 2015, pursuant to an agreement between the Hartford Funds and State Street Bank and Trust Company ("State Street"), State Street replaced, or is scheduled to replace, JP Morgan Chase Bank, N.A. ("JP Morgan Chase") as the Fund's primary custodian. JP Morgan Chase may serve as custodian of certain Fund assets. In addition, on or after the same date, HFMC has delegated, or will delegate, certain accounting and administrative services functions to State Street. The costs and expenses of such delegation will be borne by HFMC, not by the Funds, and HFMC will compensate State Street for its services out of its own resources.
21 |
Hartford Healthcare HLS Fund |
Financial Highlights |
─ Selected Per-Share Data(A) ─ | ─ Ratios and Supplemental Data ─ | |||||||||||||||||||||||||||||||||||||||||||||||||||
Class | Net Asset Value at Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Investment Operations | Dividends from Net Investment Income | Distributions from Realized Capital Gains | Total Dividends and Distributions | Net Asset Value at End of Period | Total Return(B) | Net Assets at End of Period (000s) | Ratio of Expenses to Average Net Assets Before Adjust- ments(C) | Ratio of Expenses to Average Net Assets After Adjust- ments(C) | Ratio of Net Investment Income (Loss) to Average Net Assets | |||||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 25.67 | $ | 0.01 | $ | 6.75 | $ | 6.76 | $ | (0.07 | ) | $ | (2.34 | ) | $ | (2.41 | ) | $ | 30.02 | 27.39 | % | $ | 301,580 | 0.88 | % | 0.88 | % | 0.03 | % | |||||||||||||||||||||||
IB | 25.07 | (0.06 | ) | 6.57 | 6.51 | (0.01 | ) | (2.34 | ) | (2.35 | ) | 29.23 | 27.00 | 60,413 | 1.13 | 1.13 | (0.22 | ) | ||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 18.11 | $ | 0.04 | $ | 9.12 | $ | 9.16 | $ | (0.12 | ) | $ | (1.48 | ) | $ | (1.60 | ) | $ | 25.67 | 51.84 | % | $ | 243,719 | 0.89 | % | 0.89 | % | 0.19 | % | |||||||||||||||||||||||
IB | 17.71 | (0.01 | ) | 8.92 | 8.91 | (0.07 | ) | (1.48 | ) | (1.55 | ) | 25.07 | 51.50 | 57,187 | 1.14 | 1.14 | (0.06 | ) | ||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2012 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 15.07 | $ | 0.13 | $ | 2.98 | $ | 3.11 | $ | (0.07 | ) | $ | – | $ | (0.07 | ) | $ | 18.11 | 20.62 | % | $ | 149,801 | 0.91 | % | 0.91 | % | 0.69 | % | ||||||||||||||||||||||||
IB | 14.74 | 0.09 | 2.90 | 2.99 | (0.02 | ) | – | (0.02 | ) | 17.71 | 20.32 | 45,306 | 1.16 | 1.16 | 0.43 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2011 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 13.89 | $ | 0.06 | $ | 1.13 | $ | 1.19 | $ | (0.01 | ) | $ | – | $ | (0.01 | ) | $ | 15.07 | 8.54 | % | $ | 137,088 | 0.91 | % | 0.91 | % | 0.33 | % | ||||||||||||||||||||||||
IB | 13.61 | 0.02 | 1.11 | 1.13 | – | – | – | 14.74 | 8.27 | 48,933 | 1.16 | 1.16 | 0.08 | |||||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2010 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 12.99 | $ | 0.08 | $ | 0.84 | $ | 0.92 | $ | (0.02 | ) | $ | – | $ | (0.02 | ) | $ | 13.89 | 7.10 | % | $ | 137,454 | 0.90 | % | 0.90 | % | 0.55 | % | ||||||||||||||||||||||||
IB | 12.74 | 0.04 | 0.83 | 0.87 | – | – | – | 13.61 | 6.84 | 54,753 | 1.15 | 1.15 | 0.30 |
(A) | Information presented relates to a share outstanding throughout the indicated period. Net investment income (loss) per share amounts are calculated based on average shares outstanding unless otherwise noted. |
(B) | The figures do not include sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees would lower the Fund's performance. |
(C) | Adjustments include waivers and reimbursements, if applicable. Ratios do not include fees paid indirectly (see Expenses in the accompanying Notes to Financial Statements). |
(D) | Net investment income (loss) per share amounts have been calculated using the SEC method. |
Portfolio Turnover Rate for All Share Classes | ||||
For the Year Ended December 31, 2014 | 33% | |||
For the Year Ended December 31, 2013 | 33 | |||
For the Year Ended December 31, 2012 | 46 | |||
For the Year Ended December 31, 2011 | 45 | |||
For the Year Ended December 31, 2010 | 32 |
22 |
Report of Independent Registered Public Accounting Firm |
The Board of Directors and Shareholders of |
Hartford Series Fund, Inc. |
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Hartford Healthcare HLS Fund (one of the portfolios constituting Hartford Series Fund, Inc. (the Funds)) as of December 31, 2014, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Hartford Healthcare HLS Fund of the Hartford Series Fund, Inc. at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
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Minneapolis, Minnesota | |
February 13, 2015 |
23 |
Hartford Healthcare HLS Fund |
Directors and Officers (Unaudited) |
The Board of Directors of the Company (the "Directors") appoints officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the Directors. Each Director serves until his or her death, resignation, or retirement or until the next annual meeting of shareholders is held or until his or her successor is elected and qualifies.
Directors and officers who are employed by or who have a financial interest in The Hartford Financial Services Group, Inc. ("The Hartford") are considered “interested” persons of the Fund pursuant to the 1940 Act. The "interested" Directors and officers are reflected in the chart below. Each Director serves as a director for The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., Hartford Series Fund, Inc., and Hartford HLS Series Fund II, Inc., and as a trustee for The Hartford Alternative Strategies Fund, which, as of December 31, 2014, collectively consist of 66 funds. Correspondence may be sent to Directors and officers c/o Hartford Funds, 5 Radnor Corporate Center, Suite 300, 100 Matsonford Road, Radnor, Pennsylvania 19087, except that correspondence to Mr. Annoni, Mr. Dressen and Ms. Quade may be sent to 500 Bielenberg Drive, Suite 500, Woodbury, Minnesota 55125.
The table below sets forth, for each Director and officer, his or her name, year of birth, current position with the Company and date first elected or appointed to Hartford Series Fund, Inc. ("HSF") and Hartford HLS Series Fund II, Inc. ("HSF2"), principal occupation, and, for Directors, other directorships held. The Fund’s Statement of Additional Information contains further information on the Directors and is available free of charge by calling 1-888-843-7824 or writing to: Hartford HLS Funds, c/o Hartford Life Insurance Company/Hartford Life and Annuity Insurance Company, P.O. Box 14293, Lexington, KY 40512-4293 for variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates; Hartford Funds, P.O. Box 55022, Boston, MA 02205-5022 for all shareholders except variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates.
Information on the aggregate remuneration paid to the directors of the Company can be found in the Statement of Operations herein. The Fund pays to The Hartford a portion of the Chief Compliance Officer’s compensation, but does not pay salaries or compensation to any of its other officers or Directors who are employed by The Hartford.
Non-Interested Directors
Hilary E. Ackermann (1956) Director since September 23, 2014
Ms. Ackermann served as Chief Risk Officer at Goldman Sachs Bank USA from October 2008 to November 2011 and serves as a Director of Dynegy, Inc., an independent power company, from October 2012 to present.
Lynn S. Birdsong (1946) Director since 2003, Chairman of the Investment Committee since 2014
Mr. Birdsong is a private investor. Mr. Birdsong currently serves as a Director of Aberdeen Global and Aberdeen Global II (investment funds) (September 2014 to present) and as an Independent Director of Nomura Partners Funds, Inc. (formerly, The Japan Fund) (April 2003 to present). Mr. Birdsong served as Director of the Sovereign High Yield Investment Company (April 2010 to September 2014). From 2003 to March 2005, Mr. Birdsong was an Independent Director of the Atlantic Whitehall Funds. From 1979 to 2002, Mr. Birdsong was a Managing Director of Zurich Scudder Investments, an investment management firm. During his employment with Scudder, Mr. Birdsong was an Interested Director of The Japan Fund. Mr. Birdsong served as Co-Chairman of the Investment Committee of The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., HSF, HSF2 and The Hartford Alternative Strategies Fund from 2005 to 2014.
Robert M. Gavin, Jr. (1940) Director since 2002 (HSF) and 1986 (HSF2), Chairman of the Board for each since 2004
Dr. Gavin is an educational consultant. Prior to September 1, 2001, he was President of Cranbrook Education Community and prior to July 1996, he was President of Macalester College, St. Paul, Minnesota.
Duane E. Hill (1945) Director since 2001 (HSF) and 2002 (HSF2), Chairman of the Nominating Committee since 2003
Mr. Hill is a Partner of TSG Ventures L.P., a private equity investment company. Mr. Hill is a former partner of TSG Capital Group, a private equity investment firm that served as sponsor and lead investor in leveraged buyouts of middle market companies.
Sandra S. Jaffee (1941) Director since 2005
Ms. Jaffee is the founder and Chief Executive Officer of a private company, Homeworks Concierge, LLC, which provides residential property management services in Westchester County, New York (January 2012 to present). Ms. Jaffee served as Chairman (2008 to 2009) and Chief Executive Officer of Fortent (formerly Searchspace Group), a leading provider of compliance/regulatory technology to financial institutions from August 2005 to August 2009. From August 2004 to August 2005, Ms. Jaffee served as an Entrepreneur in Residence with Warburg Pincus, a private equity firm. Prior to joining Warburg Pincus, Ms. Jaffee served as Executive Vice President at Citigroup, from September 1995 to July 2004, where she was President and Chief Executive Officer of Citibank’s Global Securities
24 |
Hartford Healthcare HLS Fund |
Directors and Officers (Unaudited) – (continued) |
Services (1995 to 2003). Ms. Jaffee served as a member of the Board of Directors of Broadridge Financial Solutions (November 2010 to November 2014). Ms. Jaffee currently serves as a member of the Board of Directors of Global Camps Africa (a non-profit organization) (January 2015 to present) as well as a Trustee of Muhlenberg College (September 2007 to present).
William P. Johnston (1944) Director since 2005, Chairman of the Compliance Committee since 2005
In June 2006, Mr. Johnston was appointed as Senior Advisor to The Carlyle Group, a global private equity and other alternative asset investment firm and currently serves as an Operating Executive. In July 2006, Mr. Johnston was elected to the Board of Directors of MultiPlan, Inc. and served as a Director (July 2006 to August 2010). In August 2007, Mr. Johnston was elected to the Board of Directors of LifeCare Holdings, Inc. and served as a Director (August 2007 to June 2013). In February 2008, Mr. Johnston was elected to the Board of Directors of HCR-ManorCare, Inc. In May 2006, Mr. Johnston was elected to the Supervisory Board of Fresenius Medical Care AG & Co. KGaA, after its acquisition of Renal Care Group, Inc. in March 2006. Mr. Johnston joined Renal Care Group in November 2002 as a member of the Board of Directors and served as Chairman of the Board from March 2003 through March 2006. From 2002 through 2013, Mr. Johnston served as a Board member of the Georgia O’Keefe Museum. From September 1987 to December 2002, Mr. Johnston was with Equitable Securities Corporation (and its successors, SunTrust Equitable Securities and SunTrust Robinson Humphrey) serving in various investment banking and managerial positions, including Managing Director and Head of Investment Banking, Chief Executive Officer and Vice Chairman.
Phillip O. Peterson (1944) Director since 2002 (HSF) and 2000 (HSF2), Chairman of the Audit Committee since 2002
Mr. Peterson is a mutual fund industry consultant. He was a partner of KPMG LLP (an accounting firm) until July 1999. Mr. Peterson joined William Blair Funds in February 2007 as a member of the Board of Trustees. From February 2012 to February 2014, Mr. Peterson served as a Trustee of Symetra Variable Mutual Funds. From January 2004 to April 2005, Mr. Peterson served as Independent President of the Strong Mutual Funds.
Lemma W. Senbet (1946) Director since 2005
Dr. Senbet is the William E. Mayer Chair Professor of Finance at the University of Maryland, Robert H. Smith School of Business. He was chair of the Finance Department of the University of Maryland, Robert H. Smith School of Business from 1998 to 2006. Since June 2013, he has been on leave from the University to serve as Executive Director of African Economic Research Consortium which focuses on economic policy research and training. Previously, he was a chaired professor of finance at the University of Wisconsin-Madison. Also, he was a Director of the Fortis Funds from March 2000 to July 2002. Dr. Senbet served as Director of the American Finance Association and President of the Western Finance Association. In 2006, Dr. Senbet was inducted Fellow of Financial Management Association International for his career-long distinguished scholarship and professional service.
Interested Directors and Officers
James E. Davey (1964) Director since 2012, President and Chief Executive Officer since 2010
Mr. Davey serves as Executive Vice President of Hartford Life Insurance Company (“HLIC”) and The Hartford. Additionally, Mr. Davey serves as Chairman of the Board, Manager and Senior Managing Director of Hartford Funds Distributors, LLC (“HFD”). He also currently serves as Director, Chairman of the Board, President and Senior Managing Director of Hartford Administrative Services Company (“HASCO”). Mr. Davey also serves as Manager, Chairman of the Board and Senior Managing Director for Hartford Funds Management Company, LLC (“HFMC”) and Director, Chairman of the Board and Senior Managing Director for Hartford Funds Management Group, Inc. ("HFMG"). Mr. Davey has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Davey joined The Hartford in 2002.
Lowndes A. Smith* (1939) Director since 1996 (HSF) and 2002 (HSF2), Co-Chairman of the Investment Committee since 2005
Mr. Smith served as Vice Chairman of The Hartford from February 1997 to January 2002, as President and Chief Executive Officer of Hartford Life, Inc. from February 1997 to January 2002, and as President and Chief Operating Officer of The Hartford Life Insurance Companies from January 1989 to January 2002. Mr. Smith serves as a Director of White Mountains Insurance Group Ltd. (October 2003 to current); One Beacon Insurance (October 2006 to current); Symetra Financial (August 2007 to current) and is a Managing Director of Whittington Gray Associates (January 2007 to current).
* Mr. Smith resigned as a Director of Hartford Mutual Funds, Inc., Hartford Mutual Funds II, Inc., HSF and HSF2 and as a Trustee of The Hartford Alternative Strategies Fund effective September 17, 2014.
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Hartford Healthcare HLS Fund |
Directors and Officers (Unaudited) – (continued) |
Other Officers
Mark A. Annoni (1964) Vice President, Controller and Treasurer since 2012
Mr. Annoni currently serves as the Assistant Vice President of HLIC (February 2004 to present) and Senior Vice President of HFMG (December 2013 to present). Mr. Annoni has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Annoni joined The Hartford in 2001.
Michael R. Dressen (1963) AML Compliance Officer since 2011
Mr. Dressen currently serves as Assistant Vice President of HLIC. He also serves as Chief Compliance Officer and AML Compliance Officer of HASCO and as AML Officer of HFD. Mr. Dressen has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
Edward P. Macdonald (1967) Vice President, Secretary and Chief Legal Officer since 2005
Mr. Macdonald currently serves as Assistant Secretary, Executive Vice President and Deputy General Counsel of HFD, HASCO, HFMC and HFMG. He also serves as Vice President of HLIC. Mr. Macdonald has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Macdonald joined The Hartford in 2005.
Joseph G. Melcher (1973) Vice President and Chief Compliance Officer since 2013
Mr. Melcher currently serves as Executive Vice President of HFD, HFMG and HASCO. Mr. Melcher also currently serves as Executive Vice President and Chief Compliance Officer of HFMC. Mr. Melcher has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds since joining The Hartford in 2012. Prior to joining The Hartford, Mr. Melcher worked at Touchstone Investments, a member of the Western & Southern Financial Group, where he held the position of Vice President and Chief Compliance Officer from 2010 through 2012 and Assistant Vice President, Compliance from 2005 to 2010.
Vernon J. Meyer (1964) Vice President since 2006
Mr. Meyer currently serves as Senior Vice President of HLIC. He also currently serves as Managing Director and Chief Investment Officer of HFMC and Managing Director of HFMG. Mr. Meyer has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Meyer joined The Hartford in 2004.
Laura S. Quade (1969) Vice President since 2012
Ms. Quade currently serves as Vice President of HASCO, HFD and HFMG. She is the Head of Operations of HASCO and formerly served as Director, Enterprise Operations of HLIC. Ms. Quade has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Ms. Quade joined The Hartford in 2001.
Martin A. Swanson** (1962) Vice President since 2010
Mr. Swanson currently serves as Vice President of HLIC. Mr. Swanson also serves as Managing Director, Chief Marketing Officer and Principal of HFD and Managing Director of HFMG. Mr. Swanson has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
** Mr. Swanson resigned as an officer effective November 6, 2014.
HOW TO OBTAIN A COPY OF THE FUND’S PROXY VOTING POLICIES AND VOTING RECORDS (UNAUDITED)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information about how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov. The Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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Hartford Healthcare HLS Fund |
Expense Example (Unaudited) |
Your Fund's Expenses
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including investment management fees, distribution and/or service (12b-1) fees, if any, and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period of June 30, 2014 through December 31, 2014.
Actual Expenses
The first set of columns of the table below provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second set of columns of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as taxes, sales charges (loads), or fees which may be applied at the variable life insurance, variable annuity, or qualified retirement plan product level. Therefore, the second set of columns of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would be higher. Expenses are equal to the Fund's annualized expense ratios multiplied by average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
Actual return | Hypothetical (5% return before expenses) | |||||||||||||||||||||||||||||||||||
Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Annualized expense ratio | Days in the current 1/2 year | Days in the full year | ||||||||||||||||||||||||||||
Class IA | $ | 1,000.00 | $ | 1,132.70 | $ | 4.73 | $ | 1,000.00 | $ | 1,020.77 | $ | 4.48 | 0.88 | % | 184 | 365 | ||||||||||||||||||||
Class IB | $ | 1,000.00 | $ | 1,131.00 | $ | 6.07 | $ | 1,000.00 | $ | 1,019.51 | $ | 5.75 | 1.13 | 184 | 365 |
27 |
Hartford Healthcare HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) |
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of directors, including a majority of those directors who are not “interested persons” of the mutual fund, as defined in the 1940 Act (the “Independent Directors”), annually review and consider the continuation of the mutual fund’s investment advisory and sub-advisory agreements. At its meeting held on August 5-6, 2014, the Board of Directors (the “Board”) of Hartford Series Fund, Inc., including each of the Independent Directors, unanimously voted to approve the continuation of the investment management agreement for Hartford Healthcare HLS Fund (the “Fund”) with Hartford Funds Management Company, LLC (“HFMC”) and the continuation of the investment sub-advisory agreement between HFMC and the Fund’s sub-adviser, Wellington Management Company, LLP (the “Sub-adviser,” and together with HFMC, the “Advisers”) (collectively, the “Agreements”).
In the months preceding the August 5-6, 2014 meeting, the Board requested, received and reviewed written responses from the Advisers to questions posed to them on behalf of the Independent Directors and supporting materials relating to those questions and responses. The Board considered information furnished to the Board at its meetings throughout the year, as well as information specifically prepared in connection with the annual approval of the Agreements at the Board’s meetings held on June 17-18, 2014 and August 5-6, 2014. Information provided to the Board at its meetings throughout the year included, among other things, reports on Fund performance, legal and compliance matters, sales and marketing activity, shareholder services, and the other services provided to the Fund by the Advisers and their affiliates. The Board also received in-person presentations by Fund officers and representatives of HFMC at the Board’s meetings on June 17-18, 2014 and August 5-6, 2014 concerning the Agreements.
The Independent Directors, advised by independent legal counsel, engaged service providers to assist them with evaluating the Agreements with respect to the Fund. Lipper Inc. (“Lipper”), an independent provider of investment company data, was retained to provide the Board with reports on how the Fund’s contractual management fees, actual management fees, other non-management fees, overall expense ratios and investment performance compared to those of mutual funds with similar investment objectives. The Independent Directors also engaged an independent financial services consultant (the “Consultant”) to assist them in evaluating the Fund’s management fees, sub-advisory fees, other non-management fees, overall expense ratios and investment performance. In addition, the Consultant reviewed the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement.
In determining whether to continue the Agreements for the Fund, the members of the Board reviewed and evaluated information and factors they believed to be relevant and appropriate in light of the information that the Board deemed necessary and appropriate through the exercise of its reasonable business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination to continue the Agreements was based on a comprehensive consideration of all information provided to the Board throughout the year and specifically with respect to the continuation of the Agreements. A more detailed discussion of the factors the Board considered with respect to its approval of the Agreements is provided below.
Nature, Extent and Quality of Services Provided by the Advisers
The Board requested and considered information concerning the nature, extent and quality of the services provided to the Fund by the Advisers. The Board considered, among other things, the terms of the Agreements and the range of services provided by the Advisers. The Board considered the Advisers’ professional personnel who provide services to the Fund, including each Adviser’s ability and experience in attracting and retaining qualified personnel to service the Fund. The Board considered each Adviser’s reputation and overall financial strength, as well as its willingness to consider and implement organizational and operational changes designed to enhance services to the Hartford Funds. In addition, the Board considered the quality of each Adviser’s communications with the Board and responsiveness to Board inquiries and requests made from time to time with respect to the Fund and other Hartford Funds.
The Board also requested and evaluated information concerning each Adviser’s regulatory and compliance environment. In this regard, the Board requested and reviewed information on each Adviser’s compliance policies and procedures, compliance history, and a report from the Fund’s Chief Compliance Officer on each Adviser’s compliance with applicable laws and regulations, including responses to regulatory developments and compliance issues raised by regulators. The Board also noted the Advisers’ support of the Fund’s compliance control structure, particularly the resources devoted by the Advisers in support of the Fund’s obligations pursuant to Rule 38a-1 under the 1940 Act.
With respect to HFMC, the Board noted that under the Agreements, HFMC is responsible for the management of the Fund, including oversight of fund operations and service providers, as well as investment advisory services in connection with selecting, monitoring and supervising the Sub-adviser. The Board considered HFMC’s ongoing monitoring of people, process and performance, including its quarterly reviews of each of the Hartford Funds, semi-annual meetings with the leaders of each Fund’s portfolio management team, and oversight of the Hartford Funds’
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Hartford Healthcare HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) - (continued) |
approximately 37 portfolio managers. The Board recognized that HFMC has demonstrated a record of making changes to the management and/or strategies of the Hartford Funds when warranted. The Board considered HFMC’s oversight of the Sub-adviser’s investment approach and results, process for monitoring best execution of portfolio trades by the Sub-adviser, and approach to risk management with respect to the Fund and the service providers to the Fund. The Board also considered HFMC’s oversight of compliance with the Fund’s objective and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over time led to an increase in the scope of HFMC’s services in this regard.
In addition, the Board considered HFMC’s ongoing commitment to review and rationalize the Hartford Funds product line-up and the expenses that HFMC had incurred in connection with fund combinations in recent years. The Board considered that HFMC or its affiliates are responsible for providing the Fund’s officers. The Board also noted that Hartford Life Insurance Company (“HLIC”) provides administrative services to the Fund. The Board considered its experiences with HFMC and HLIC with respect to each of these services.
With respect to the Sub-adviser, which provides certain day-to-day portfolio management services for the Fund, the Board considered the quality of the Fund’s portfolio managers, the Sub-adviser’s other investment personnel, its investment philosophy and process, investment research capabilities and resources, performance record, trade execution capabilities and experience. The Board considered the experience of the Fund’s portfolio managers, the number of accounts managed by the portfolio managers, and the Sub-adviser’s method for compensating the portfolio managers.
Based on these considerations, the Board concluded that it was satisfied with the nature, extent and quality of the services provided to the Fund by HFMC and the Sub-adviser.
Performance of the Fund and the Advisers
The Board considered the investment performance of the Fund. In this regard, the Board reviewed the performance of the Fund over different time periods presented in the materials and evaluated HFMC’s analysis of the Fund’s performance for these time periods. The Board considered information and materials provided to the Board by the Advisers concerning Fund performance, as well as information from Lipper comparing the investment performance of the Fund to an appropriate benchmark and universe of peer funds. The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period, the 3rd quintile for the 3-year period and the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was above its benchmark for the 1-, 3- and 5-year periods.
The Board considered the detailed investment analytics reports provided by Hartford Funds’ Investment Advisory Group throughout the year. These reports include, among other things, information on the Fund’s gross and net returns, the Fund’s investment performance relative to an appropriate benchmark and peer group, various statistics concerning the Fund’s portfolio, and a narrative summary of various factors affecting Fund performance. The Board considered the Advisers’ cooperation with the Investment Committee, which assists the Board in evaluating the performance of the Fund at periodic meetings throughout the year. The Board also considered the analysis provided by the Consultant relating to the Fund’s performance track record.
In light of all the considerations noted above, the Board concluded that it had continued confidence in HFMC’s and the Sub-adviser’s overall capabilities to manage the Fund.
Costs of the Services and Profitability of the Advisers
The Board reviewed information regarding HFMC’s cost to provide investment management and related services to the Fund and HFMC’s profitability, both overall and for the Fund, on a pre-tax basis without regard to distribution expenses. The Board also requested and reviewed information about the profitability to HFMC and its affiliates from all services provided to the Fund and all aspects of their relationship with the Fund. The Board also requested and received information relating to the operations and profitability of the Sub-adviser.
The Board considered the Consultant’s review of the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement, noting the Consultant’s view that Hartford Funds’ process for calculating and reporting Fund profitability is reasonable. In this regard, the Board noted that the Consultant performed a full review of this process in light of the recent restructuring of the Hartford Funds business and reported that the approach to analyzing Fund profitability, including the use of common expense allocation methodologies, is reasonable, sound and well within common industry practice.
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Hartford Healthcare HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) - (continued) |
Based on these considerations, the Board concluded that the profits anticipated to be realized by the Advisers and their affiliates from their relationships with the Fund would not be excessive.
Comparison of Fees and Services Provided by the Advisers
The Board considered comparative information with respect to the management fees to be paid by the Fund to HFMC and the total expense ratios of the Fund. The Board also considered comparative information with respect to the sub-advisory fees to be paid by HFMC to the Sub-adviser. In this regard, the Board requested and reviewed information from HFMC and the Sub-adviser relating to the management and sub-advisory fees, including the sub-advisory fee schedule for the Fund, and total operating expenses for the Fund. The Board considered that the management fee for the Fund includes the fee paid to HLIC for providing certain administrative services to the Fund. With respect to the sub-advisory fee schedule, the Board considered representations from HFMC and the Sub-adviser that the Sub-adviser’s fees were negotiated at arm’s length on a fund-by-fund basis. The Board also reviewed information from Lipper comparing the Fund’s contractual management fees, actual management fees and overall expense ratios relative to a group of funds selected by Lipper, in consultation with the Consultant, and a broader universe of funds selected by Lipper. The Board noted that the Fund’s contractual management fee and its total expenses (less 12b-1 and shareholder service fees) were in the 2nd quintile of its expense group, while its actual management fee was in the 3rd quintile.
While the Board recognized that comparisons between the Fund and peer funds may be imprecise, given the different service levels and characteristics of mutual funds and the different business models and cost structures of the Advisers, the comparative information provided by Lipper assisted the Board in evaluating the reasonableness of the Fund’s management and sub-advisory fees and total operating expenses. In addition, the Board considered the analysis and recommendations of the Consultant relating to the Fund’s management and sub-advisory fees and total operating expenses.
Based on these considerations, the Board concluded that the Fund’s fees and total operating expenses, in conjunction with the information about quality of services, profitability, economies of scale, and other matters discussed, were reasonable in light of the services provided.
Economies of Scale
The Board requested and considered information regarding the Advisers’ realization of economies of scale with respect to the Fund and whether the fee levels reflect these economies of scale for the benefit of the Fund’s shareholders. The Board reviewed the breakpoints in the management fee schedule for the Fund, which reduce fee rates as Fund assets grow over time. The Board recognized that a fund with assets beyond the highest breakpoint level will continue to benefit from economies of scale because additional assets are charged the lowest breakpoint fee resulting in lower overall effective management fee rates. The Board also recognized that a fee schedule that reaches a lower breakpoint quickly provides shareholders with the benefit of anticipated or potential economies of scale. The Board noted the effect of the sale and run-off of the variable annuity business on the HLS Funds.
The Board reviewed and evaluated materials from Lipper and the Consultant showing how management fee schedules of peer funds reflect economies of scale for the benefit of shareholders as a peer fund’s assets hypothetically increase over time. Based on information provided by HFMC, Lipper, and the Consultant, the Board recognized that there is no uniform methodology for establishing breakpoints or uniform pattern in asset levels that trigger breakpoints or the amounts of breakpoints triggered.
After considering all of the information available to it, the Board concluded that it was satisfied with the extent to which economies of scale would be shared for the benefit of the Fund’s shareholders based on currently available information and the effective advisory fees and expense ratios for the Fund at its current and reasonably anticipated asset levels. The Board noted, however, that it would continue to monitor future growth in Fund assets and the appropriateness of additional breakpoints.
Other Benefits
The Board considered other benefits to the Advisers and their affiliates from their relationships with the Fund, including the role of the Fund in supporting the variable life insurance and variable annuity products offered by The Hartford.
The Board noted that HLIC, an affiliate of HFMC, receives fees for providing certain administrative services to the Fund and that HFMC receives fees for fund accounting and related services from the Fund. The Board considered information on profits to HLIC and HFMC for such services. The Board also considered that Hartford Administrative Services Company (“HASCO”), the Fund’s transfer agent and an affiliate of HFMC, receives transfer agency compensation from the Fund, and the Board reviewed information on the profitability of the Fund’s transfer agency
30 |
Hartford Healthcare HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) - (continued) |
function to HASCO. The Board considered information provided by HASCO indicating that the transfer agent fees charged by HASCO to the Fund were fair and reasonable based on publicly available information.
The Board also considered that Hartford Funds Distributors, LLC (“HFD”), an affiliate of HFMC, serves as principal underwriter of the Fund. As principal underwriter, HFD receives 12b-1 fees from the Fund. The Board also noted that certain affiliates of HFD distribute shares of the Fund and receive compensation in that connection.
The Board considered benefits to the Sub-adviser from its use of the Fund’s brokerage commissions to obtain soft dollar research, and representations from HFMC and the Sub-adviser that the Sub-adviser would not make any revenue-sharing payments or any other type of distribution payments to HFMC or its affiliates.
The Board considered the benefits to shareholders of being part of the Hartford Funds family of funds. The Board considered HFMC’s efforts to provide investors in the family with a broad range of investment styles and asset classes.
* * * *
Based upon its review of these various factors, among others, the Board concluded that it is in the best interests of the Fund and its shareholders for the Board to approve the Agreements for an additional year. In reaching this decision, the Board did not assign relative weights to the factors discussed above or deem any one or group of them to be controlling in and of themselves. In connection with their deliberations, the Independent Directors met separately in executive session on several occasions, with independent legal counsel and the Consultant, to review the relevant materials and consider their responsibilities under relevant laws and regulations.
31 |
Hartford Healthcare HLS Fund |
Main Risks (Unaudited) |
The main risks of investing in the Fund are described below.
Market, Selection and Strategy Risk: The Fund’s share price may fluctuate due to market risk and/or security selections that may underperform the market or relevant benchmarks. If the sub-adviser's investment strategy does not perform as expected, the Fund could underperform its peers or lose money. There is no guarantee the Fund will achieve its stated objective.
Health Sector Risk: Risks of focusing investments on the health care sector include regulatory and legal developments, patent considerations, intense competitive pressures, rapid technological changes and potential product obsolescence, and liquidity risk.
Foreign Investment and Emerging Markets Risk: Investments in foreign securities may be riskier than investments in U.S. securities. Potential risks include the risks of illiquidity, increased price volatility, less government regulation, less extensive and less frequent accounting and other reporting requirements, unfavorable changes in currency exchange rates, and economic and political disruptions. These risks are generally greater for investments in emerging markets.
Small/Mid-Cap Stock Risk: Small- and mid-cap stocks are generally more volatile and risky and may be less liquid than large-cap stocks because they may have limited operating histories, narrow product lines, and focus on niche markets.
32 |
THIS PRIVACY POLICY IS NOT PART OF THIS REPORT
Privacy Policy and Practices of The Hartford Financial Services Group, Inc. and its Affiliates
(herein called “we, our and us”)
This Privacy Policy applies to our United States Operations
We value your trust. We are committed to the responsible: a) management; b) use; and c) protection; of Personal Information.
This notice describes how we collect, disclose, and protect Personal Information.
We collect Personal Information to: a) service your Transactions with us; and b) support our business functions.
We may obtain Personal Information from: a) You; b) your Transactions with us; and c) third parties such as a consumer-reporting agency.
Based on the type of product or service You apply for or get from us, Personal Information such as: a) your name; b) your address; c) your income; d) your payment; or e) your credit history; may be gathered from sources such as applications, Transactions, and consumer reports.
To serve You and service our business, we may share certain Personal Information. We will share Personal Information, only as allowed by law, with affiliates such as: a) our insurance companies; b) our employee agents; c) our brokerage firms; and d) our administrators.
As allowed by law, we may share Personal Financial Information with our affiliates to: a) market our products; or b) market our services; to You without providing You with an option to prevent these disclosures. | We may also share Personal Information, only as allowed by law, with unaffiliated third parties including: a) independent agents; b) brokerage firms; c) insurance companies; d) administrators; and e) service providers; who help us serve You and service our business.
When allowed by law, we may share certain Personal Financial Information with other unaffiliated third parties who assist us by performing services or functions such as: a) taking surveys; b) marketing our products or services; or c) offering financial products or services under a joint agreement between us and one or more financial institutions.
We, and third parties we partner with, may track some of the pages You visit through the use of: a) cookies; b) pixel tagging; or c) other technologies; and currently do not process or comply with any web browser’s “do not track” signal or similar mechanism that indicates a request to disable online tracking of individual users who visit our websites or use our services.
We will not sell or share your Personal Financial Information with anyone for purposes unrelated to our business functions without offering You the opportunity to: a) “opt-out;” or b) “opt-in;” as required by law.
We only disclose Personal Health Information with: a) your proper written authorization; or b) as otherwise allowed or required by law.
Our employees have access to Personal Information in the course of doing their jobs, such as: a) underwriting policies; b) paying claims; c) developing new products; or d) advising customers of our products and services. |
We use manual and electronic security procedures to maintain: a) the confidentiality; and b) the integrity of; Personal Information that we have. We use these procedures to guard against unauthorized access.
Some techniques we use to protect Personal Information include: a) secured files; b) user authentication; c) encryption; d) firewall technology; and e) the use of detection software.
We are responsible for and must: a) identify information to be protected; b) provide an adequate level of protection for that data; c) grant access to protected data only to those people who must use it in the performance of their job-related duties.
Employees who violate our Privacy Policy will be subject to discipline, which may include ending their employment with us.
At the start of our business relationship, we will give You a copy of our current Privacy Policy.
We will also give You a copy of our current Privacy Policy once a year if You maintain a continuing business relationship with us.
We will continue to follow our Privacy Policy regarding Personal Information even when a business relationship no longer exists between us. | As used in this Privacy Notice:
Application means your request for our product or service. Personal Financial Information means financial information such as: a) credit history; b) income; c) financial benefits; or d) policy or claim information.
Personal Health Information means health information such as: a) your medical records; or b) information about your illness, disability or injury.
Personal Information means information that identifies You personally and is not otherwise available to the public. It includes: a) Personal Financial Information; and b) Personal Health Information.
Transaction means your business dealings with us, such as: a) your Application; b) your request for us to pay a claim; and c) your request for us to take an action on your account.
You means an individual who has given us Personal Information in conjunction with: a) asking about; b) applying for; or c) obtaining; a financial product or service from us if the product or service is used mainly for personal, family, or household purposes. |
This Privacy Policy is being provided on behalf of the following affiliates of The Hartford Financial Services Group, Inc.:
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HPP Revised February 2015
HARTFORD HLS FUNDS
P.O. Box 14293
Lexington, KY 40512-4293
HARTFORDFUNDS
hartfordfunds.com
Hartford HLS Funds are underwritten and distributed by Hartford Funds Distributors, LLC.
Hartford Series Fund, Inc. is not a subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford") but is underwritten, distributed by and advised by subsidiaries of The Hartford. Investments in Hartford Series Fund, Inc. are not guaranteed by The Hartford or any other entity.
This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution unless preceded or accompanied by a current prospectus for the Fund.
Investors should carefully consider the investment objectives, risks, charges, and expenses of Hartford Funds before investing. This and other information can be found in the prospectus and summary prospectus, which can be obtained by calling 888-843-7824 (or 800-279-1541 for institutional investors). Investors should read them carefully before they invest.
HLSAR-HC14 2-15 113543-4 Printed in U.S.A.
HARTFORDFUNDS
![]() | HARTFORD HIGH YIELD HLS FUND
2014 Annual Report |
A MESSAGE FROM THE PRESIDENT
Dear Fellow Shareholders:
Thank you for investing in Hartford HLS Funds.
Market Review
Nearly six years into a bull market, U.S. equities (as represented by the S&P 500 Index ) notched another positive year in 2014, finishing with a 13.69% gain. Progress was smooth for most of the year, with stocks generally rising amid little volatility. In the fourth quarter, however, the price of oil declined by nearly 40%, returning volatility to the market and paring some of the year’s returns.
As we enter 2015, the price of oil will likely continue playing an important role in market progress, as its effects are widespread. If prices remain low, consumers should benefit by paying less at the gas pump, which increases the amount of money available for discretionary spending. In contrast, low prices may be a detriment to the oil and natural gas industry in the U.S., as well as to the economies of countries that rely more heavily on oil exports.
Central-bank policies will also continue to influence the markets. The U.S. economy has continued to show self-sustaining growth, which has prompted the U.S. Federal Reserve to wind down the quantitative easing programs it initiated after the global financial crisis. In addition, gradual increases in interest rates are expected to begin in 2015, another sign of positive recovery and a return to pre-crisis policy. But in Europe, a slow recovery and fears of deflation have prompted the start of European Central Bank’s own version of quantitative easing to spur growth.
The final weeks of 2014 provided a stark reminder of how unpredictable market movements can be, and how important it is to maintain a diversified portfolio that’s in line with your time horizon and risk tolerance. As we begin 2015, take time to review your portfolio and your overall investment strategy with your financial advisor.
With more than 40 mutual-fund strategies that span a variety of asset classes and investment goals, your financial advisor can work with you to choose options within our fund family that can help you navigate today’s markets with confidence.
Thank you again for investing with Hartford HLS Funds.
James Davey
President
Hartford HLS Funds
1The S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
Table of Contents
This report is prepared for the general information of contract owners and qualified retirement plan participants. It is not an offer of contracts or of qualified retirement plans. It should not be used in connection with any offer, except in conjunction with the appropriate product prospectus which contains all pertinent information including the applicable sales, administrative and other charges.
The views expressed in the Fund’s Manager Discussion under ‘‘Why did the Fund perform this way?’’ and ‘‘What is the outlook?’’ are views of the Fund’s sub-adviser and portfolio management team through the end of the period and are subject to change based on market and other conditions. The Fund’s Manager Discussion is for informational purposes only and does not represent an offer, recommendation or solicitation to buy, hold or sell any security. The specific securities identified and described, if any, do not represent all of the securities purchased or sold and you should not assume that investments in the securities identified and discussed will be profitable.
Hartford High Yield HLS Fund inception 09/30/1998
(sub-advised by Wellington Management Company, LLP)
Investment objective – The Fund seeks to provide high current income, and long-term total return.
Performance Overview 12/31/04 - 12/31/14
The chart above represent the hypothetical growth of a $10,000 investment in class IA. Growth results in classes other then class IA will vary from what is seen above due to differences in the expenses charged to those share classes.
Average Annual Total Returns (as of 12/31/14)
1 Year | 5 Years | 10 Years | ||||||||||
High Yield IA | 2.58% | 8.70% | 7.14% | |||||||||
High Yield IB | 2.31% | 8.43% | 6.86% | |||||||||
Barclays U.S. Corporate High Yield Bond Index | 2.45% | 9.03% | 7.74% |
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of the investment will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain performance data current to the most recent month-end, please visit our website www.hartfordfunds.com.
Total returns presented above were calculated using the Fund’s net asset value available to shareholders for sale or redemption of Fund shares on December 31, 2014, which may exclude investment transactions as of this date. All share class returns assume the reinvestment of all distributions at net asset value and the deduction of all fund expenses.
Performance information includes performance under the Fund’s previous sub-adviser, Hartford Investment Management Company. As of March 5, 2012, Hartford Investment Management Company no longer served as the sub-adviser to the Fund.
Barclays U.S. Corporate High Yield Bond Index is an unmanaged broad-based market-value-weighted index that tracks the total return performance of non-investment grade, fixed-rate, publicly placed, dollar denominated and nonconvertible debt registered with the Securities and Exchange Commission.
The index is unmanaged, and its results include reinvested dividends and/or distributions, but do not reflect the effect of sales charges, commissions, expenses or taxes.
You cannot invest directly in an index.
As shown in the Fund's current prospectus dated May 1, 2014, the total annual operating expense ratios for Class IA and Class IB were 0.75% and 1.00%, respectively. Actual expenses may be higher. Please see the accompanying Financial Highlights for expense ratios for the year ended December 31, 2014.
The chart and table do not reflect the deductions of taxes, sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees or expenses would lower the contract’s or plan’s performance.
All investments are subject to risk including the possible loss of principal. For a discussion of the Fund’s risks, please see the Main Risks section of this report. For more detailed information on the risks associated with an investment in the Fund, please see the prospectus.
2 |
Hartford High Yield HLS Fund
Manager Discussion
December 31, 2014 (Unaudited)
Portfolio Manager |
Christopher A. Jones, CFA |
Senior Managing Director and Fixed Income Portfolio Manager |
How did the Fund perform?
The Class IA shares of the Hartford High Yield HLS Fund returned 2.58% for the twelve-month period ended December 31, 2014, outperforming the Fund’s benchmark, the Barclays U.S. Corporate High Yield Bond Index, which returned 2.45% for the same period. The Fund also outperformed the 0.84% average return of the Lipper High Yield Funds peer group, a group of funds with investment strategies similar to those of the Fund.
Why did the Fund perform this way?
The bond market produced another year of positive total returns fueled by falling global interest rates amid weakening global growth and persistent geopolitical risks. Falling commodity prices, triggered by oil’s largest annual decline since the financial crisis, pushed inflation lower across the globe, stirring up fears of deflation in some regions. Government bond prices gained amid the flight to quality and expectations that the combination of subpar growth and low inflation would keep central banks’ monetary policy accommodative.
The year was characterized by a divergence of economic performance and monetary policy between the U.S. and the rest of the world. The U.S. economy demonstrated resilience at the same time as growth rates in many world economies slowed significantly. The U.S. economy got off to a rough start in 2014 as bad weather hindered growth in the first quarter, but quickly rebounded and went on to post its strongest growth in over a decade in the third quarter due to gains in consumer and business spending. U.S. job growth continued at a steady pace and the unemployment rate declined to a six-year low. Consumer confidence inched higher over the period, supported by an improving labor market, and later buoyed by lower gasoline prices. The housing recovery progressed in fits and starts during the year and home prices moderated after posting a strong gain in calendar year 2013.
Global central banks such as the European Central Bank (ECB) and Bank of Japan (BOJ) adopted more accommodative policy stances in attempts to prop up their respective economies and avert deflation. The U.S. Federal Reserve (Fed) ended its quantitative easing program, which began in 2008, reflecting its confidence in the U.S. economic recovery despite the global slowdown. The Fed took another step in December towards bringing interest rates to normal levels by replacing a pledge to keep borrowing costs low for a “considerable time” with a message of patience.
Developed market bond yields fell during the year as global economic fears kept central banks’ monetary policy accommodative. European government bond yields in particular hit record lows on expectations of ECB sovereign quantitative easing. In the U.S., the Treasury yield curve flattened and longer-term interest rates declined, aided by demand for safe-haven assets and the outlook for slow inflation, while shorter-dated Treasury yields rose in anticipation of tighter Fed monetary policy. Globally, most spread sectors posted positive absolute returns while performance was mixed relative to duration-equivalent government bonds. In particular, among the weaker fixed income sectors were high yield and bank loans, where spreads widened considerably during the fourth quarter due to falling oil prices and its impact on the energy sector. Within investment grade credit, spreads widened modestly and posted negative excess returns. The outperformance of the U.S. economy compared to its global counterparts led to rising volatility and a broad U.S.-dollar rally in the currency markets with the U.S. dollar index hitting an eight-year high in December.
The Fund outperformed the Barclays U.S. Corporate High Yield Bond Index over the twelve month period primarily as a result of sector allocation, in part due to underweight allocations to energy and gaming. In our view, the fundamentals of both industries have deteriorated. Many of the issuers in the Energy sector are Exploration and Production companies. These companies tend to have poor free cash flow metrics, which have been exacerbated by weak natural gas and oil prices. Returns in the gaming sector lagged due to increased competition as more state legislatures pass laws allowing gambling. On the other hand being underweight in the Utilities sector detracted from returns relative to the Barclays U.S. Corporate High Yield Bond Index.
In aggregate, security selection modestly detracted from results relative to the Barclays U.S. Corporate High Yield Bond Index during the period, with weakest selection coming from the non-cable media and Utilities sectors. This was partially offset by our positive stock selection within the Healthcare sector.
Throughout 2014, our overweight position to Intelsat detracted from benchmark-relative performance in the media non-cable sector. Intelsat is an operator of a fleet of communications satellites. We believe Intelsat is one of the best positioned companies in the sector, benefiting from economies of scale advantages over competitors, high EBITDA margins and a significant backlog of revenues. The company had an IPO in April 2013, which gives our bond position further cushion by positioning equity investors lower in the capital structure than our holdings, allowing Intelsat greater access to the capital markets, and reducing financial leverage.
3 |
Hartford High Yield HLS Fund
Manager Discussion – (continued)
December 31, 2014 (Unaudited)
Exposure to TXU Energy, an electric utility company which is in the midst of a restructuring, detracted from relative performance in the Utilities sector. Our portfolio holds the more senior securities in the capital structure, which we believe offer good value in most restructuring scenarios.
In the Healthcare sector, our overweight positions in hospital operators Community Health and HCA added to relative returns. We remain constructive on hospitals in the United States, as we believe they will benefit from the implementation of the Affordable Care Act (ACA). We believe the insurance requirement for all Americans should reduce the amount of bad debt expense that hospitals will have to write off.
Our underweight to BB-rated bonds, which outperformed their lower-rated counterparts due to their greater interest rate sensitivity, detracted from relative performance throughout the year.
A modest cash position detracted from benchmark-relative returns in an upward trending environment. In addition, our credit default swap positions on the CDX index, which are used to tactically adjust our exposure to the market, detracted from relative performance during the period.
What is the outlook?
Our outlook for U.S. high-yield bonds remains positive heading into 2015, based on generally solid fundamentals, a supportive U.S. macroeconomic environment, and appealing valuations. Credit spreads ended the year slightly wide of their long-term historical averages, following substantial spread widening in the energy sector. While acknowledging that there has been a recent pickup in activity such as mergers and acquisitions (M&A) and leveraged buyouts at the margin — which tend to benefit shareholders at the expense of bondholders — we do not believe this is likely to affect default rates in the near to medium term outside of the energy sector. However, should low oil prices persist, we would expect to see default rates pickup within the independent energy and oil field-services sub-sectors, given their revenues are more directly impacted by the decline in oil prices.
Diversification by Security Type
as of December 31, 2014
Category | Percentage of Net Assets | |||
Equity Securities | ||||
Common Stocks | 0.1 | % | ||
Preferred Stocks | 1.4 | |||
Total | 1.5 | % | ||
Fixed Income Securities | ||||
Asset & Commercial Mortgage Backed Securities | 0.0 | % | ||
Corporate Bonds | 88.6 | |||
Senior Floating Rate Interests | 3.1 | |||
Total | 91.7 | % | ||
Short-Term Investments | 5.3 | |||
Other Assets and Liabilities | 1.5 | |||
Total | 100.0 | % |
Credit Exposure |
as of December 31, 2014 |
Credit Rating * | Percentage of Net Assets | |||
Baa/ BBB | 0.6 | % | ||
Ba/ BB | 27.1 | |||
B | 41.4 | |||
Caa/ CCC or Lower | 20.7 | |||
Not Rated | 1.9 | |||
Non-Debt Securities and Other Short-Term Instruments | 6.8 | |||
Other Assets and Liabilities | 1.5 | |||
Total | 100.0 | % |
* | Credit exposure is the long-term credit ratings for the Fund's holdings, as of the date noted, as provided by Standard and Poor's (S&P) or Moody's Investors Service (Moody's) and typically range from AAA/Aaa (highest) to C/D (lowest). Presentation of S&P and Moody's credit ratings in this report have been selected for informational purposes for shareholders, as well as the Fund's consideration of industry practice. If Moody's and S&P assign different ratings, the lower rating is used. Fixed income securities that are not rated by either agency are listed as "Not Rated." Ratings do not apply to the Fund itself or to the Fund's shares. Ratings may change. |
4 |
Schedule of Investments
December 31, 2014
(000’s Omitted)
Shares or Principal Amount ╬ | Market Value ╪ | |||||||
Asset and Commercial Mortgage Backed Securities - 0.0% | ||||||||
Finance and Insurance - 0.0% | ||||||||
Soundview NIM Trust | ||||||||
$ | 2,490 | 0.00%, 12/25/2036 ■● | $ | — | ||||
Total Asset and Commercial Mortgage Backed Securities | ||||||||
(Cost $2,479) | $ | — | ||||||
Corporate Bonds - 88.6% | ||||||||
Administrative, Support, Waste Management and Remediation Services - 0.8% | ||||||||
Casella Waste Systems, Inc. | ||||||||
$ | 1,160 | 7.75%, 02/15/2019 | $ | 1,177 | ||||
ServiceMaster (The) Co. | ||||||||
2,091 | 7.00%, 08/15/2020 | 2,164 | ||||||
3,341 | ||||||||
Arts, Entertainment and Recreation - 6.2% | ||||||||
AMC Entertainment, Inc. | ||||||||
3,269 | 9.75%, 12/01/2020 | 3,555 | ||||||
CCO Holdings LLC | ||||||||
120 | 5.13%, 02/15/2023 | 117 | ||||||
95 | 5.25%, 09/30/2022 | 95 | ||||||
545 | 5.75%, 09/01/2023 | 552 | ||||||
3,077 | 7.38%, 06/01/2020 | 3,261 | ||||||
Cequel Communications Holdings I LLC | ||||||||
3,360 | 5.13%, 12/15/2021 ■ | 3,259 | ||||||
Emdeon, Inc. | ||||||||
1,640 | 11.00%, 12/31/2019 | 1,784 | ||||||
Gannett Co., Inc. | ||||||||
1,515 | 4.88%, 09/15/2021 ■ | 1,504 | ||||||
4,390 | 5.13%, 10/15/2019 | 4,489 | ||||||
250 | 5.50%, 09/15/2024 ■ | 250 | ||||||
750 | 6.38%, 10/15/2023 | 795 | ||||||
Gray Television, Inc. | ||||||||
2,211 | 7.50%, 10/01/2020 | 2,277 | ||||||
NBC Universal Enterprise | ||||||||
2,180 | 5.25%, 12/19/2049 ■ | 2,262 | ||||||
Sirius XM Radio, Inc. | ||||||||
2,420 | 4.63%, 05/15/2023 ■ | 2,263 | ||||||
26,463 | ||||||||
Chemical Manufacturing - 1.5% | ||||||||
Hexion Specialty Chemicals | ||||||||
650 | 8.88%, 02/01/2018 | 578 | ||||||
Ineos Group Holdings plc | ||||||||
4,160 | 5.88%, 02/15/2019 ■ | 3,942 | ||||||
2,040 | 6.13%, 08/15/2018 ■ | 1,953 | ||||||
6,473 | ||||||||
Computer and Electronic Product Manufacturing - 3.2% | ||||||||
Alcatel-Lucent USA, Inc. | ||||||||
2,430 | 6.75%, 11/15/2020 ■ | 2,565 | ||||||
CDW Escrow Corp. | ||||||||
893 | 8.50%, 04/01/2019 | 941 | ||||||
CDW LLC / CDW Finance Corp. | ||||||||
1,780 | 6.00%, 08/15/2022 | 1,838 | ||||||
Freescale Semiconductor, Inc. | ||||||||
4,895 | 6.00%, 01/15/2022 ■ | 5,115 | ||||||
Lucent Technologies, Inc. | ||||||||
2,681 | 6.45%, 03/15/2029 | 2,561 | ||||||
765 | 6.50%, 01/15/2028 | 736 | ||||||
13,756 | ||||||||
Construction - 5.2% | ||||||||
K Hovnanian Enterprises, Inc. | ||||||||
1,705 | 7.00%, 01/15/2019 ■ | 1,628 | ||||||
1,775 | 9.13%, 11/15/2020 ■ | 1,891 | ||||||
KB Home | ||||||||
2,206 | 7.50%, 09/15/2022 | 2,339 | ||||||
2,930 | 8.00%, 03/15/2020 | 3,208 | ||||||
Lennar Corp. | ||||||||
3,440 | 4.75%, 12/15/2017 | 3,526 | ||||||
1,155 | 4.75%, 11/15/2022 | 1,132 | ||||||
M/I Homes, Inc. | ||||||||
566 | 3.00%, 03/01/2018 β | 577 | ||||||
MPH Acquisition Holdings LLC | ||||||||
1,785 | 6.63%, 04/01/2022 ■ | 1,825 | ||||||
Paragon Offshore plc | ||||||||
3,510 | 6.75%, 07/15/2022 ■ | 2,141 | ||||||
Ply Gem Industries, Inc. | ||||||||
4,000 | 6.50%, 02/01/2022 | 3,760 | ||||||
22,027 | ||||||||
Electrical Equipment, Appliance Manufacturing - 0.2% | ||||||||
Sensata Technologies B.V. | ||||||||
775 | 5.63%, 11/01/2024 ■ | 804 | ||||||
Fabricated Metal Product Manufacturing - 0.8% | ||||||||
Entegris, Inc. | ||||||||
3,040 | 6.00%, 04/01/2022 ■ | 3,078 | ||||||
Masco Corp. | ||||||||
320 | 7.13%, 03/15/2020 | 370 | ||||||
3,448 | ||||||||
Finance and Insurance - 8.4% | ||||||||
Banco Bilbao Vizcaya Argentaria S.A. | ||||||||
EUR | 3,600 | 7.00%, 12/29/2049 § | 4,438 | |||||
Barclays Bank plc | ||||||||
3,640 | 8.25%, 12/15/2018 ♠β | 3,731 | ||||||
Blue Racer Midstream LLC | ||||||||
1,085 | 6.13%, 11/15/2022 ■ | 1,047 | ||||||
CIT Group, Inc. | ||||||||
2,261 | 5.25%, 03/15/2018 | 2,357 | ||||||
Credit Agricole S.A. | ||||||||
1,015 | 7.88%, 01/23/2024 ■♠ | 1,033 | ||||||
Credit Suisse Group AG | ||||||||
1,400 | 7.50%, 12/11/2023 ■♠ | 1,456 | ||||||
MSCI, Inc. | ||||||||
1,680 | 5.25%, 11/15/2024 ■ | 1,739 | ||||||
Nationstar Mortgage LLC | ||||||||
3,115 | 6.50%, 07/01/2021 | 2,835 | ||||||
Provident Funding Associates L.P. | ||||||||
3,685 | 6.75%, 06/15/2021 ■ | 3,574 | ||||||
Royal Bank of Scotland Group plc | ||||||||
2,520 | 6.99%, 10/05/2017 ■♠ | 2,835 | ||||||
1,000 | 7.64%, 09/27/2017 ♠Δ | 1,050 | ||||||
Societe Generale | ||||||||
1,355 | 6.00%, 01/27/2020 ■♠ | 1,233 | ||||||
3,780 | 7.88%, 12/18/2023 ■♠ | 3,662 | ||||||
640 | 8.25%, 11/29/2018 §♠ | 657 | ||||||
SoftBank Corp. | ||||||||
2,825 | 4.50%, 04/15/2020 ■ | 2,782 | ||||||
TMX Finance LLC | ||||||||
1,670 | 8.50%, 09/15/2018 ■ | 1,403 | ||||||
35,832 |
The accompanying notes are an integral part of these financial statements.
5 |
Hartford High Yield HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Shares or Principal Amount ╬ | Market Value ╪ | |||||||
Corporate Bonds - 88.6% - (continued) | ||||||||
Food Services - 1.1% | ||||||||
ARAMARK Corp. | ||||||||
$ | 3,245 | 5.75%, 03/15/2020 | $ | 3,351 | ||||
CEC Entertainment, Inc. | ||||||||
1,595 | 8.00%, 02/15/2022 | 1,547 | ||||||
4,898 | ||||||||
Health Care and Social Assistance - 10.4% | ||||||||
Alere, Inc. | ||||||||
3,115 | 6.50%, 06/15/2020 | 3,131 | ||||||
AmSurg Corp. | ||||||||
2,575 | 5.63%, 07/15/2022 ■ | 2,639 | ||||||
Biomet, Inc. | ||||||||
1,420 | 6.50%, 08/01/2020 | 1,519 | ||||||
1,290 | 6.50%, 10/01/2020 | 1,361 | ||||||
Community Health Systems, Inc. | ||||||||
1,296 | 5.13%, 08/15/2018 | 1,341 | ||||||
4,480 | 6.88%, 02/01/2022 | 4,746 | ||||||
2,935 | 7.13%, 07/15/2020 | 3,130 | ||||||
Cubist Pharmaceuticals | ||||||||
707 | 1.88%, 09/01/2020 β | 962 | ||||||
Envision Healthcare Corp. | ||||||||
1,040 | 5.13%, 07/01/2022 ■ | 1,032 | ||||||
Grifols Worldwide Operations Ltd. | ||||||||
1,155 | 5.25%, 04/01/2022 ■ | 1,181 | ||||||
HCA Holdings, Inc. | ||||||||
1,835 | 6.25%, 02/15/2021 | 1,954 | ||||||
5,919 | 7.50%, 11/15/2095 | 5,653 | ||||||
InVentiv Health, Inc. | ||||||||
1,110 | 9.00%, 01/15/2018 ■ | 1,132 | ||||||
Pinnacle Merger Sub, Inc. | ||||||||
1,908 | 9.50%, 10/01/2023 ■ | 2,061 | ||||||
Salix Pharmaceuticals Ltd. | ||||||||
4,500 | 6.00%, 01/15/2021 ■ | 4,590 | ||||||
Tenet Healthcare Corp. | ||||||||
3,030 | 5.00%, 03/01/2019 ■ | 3,034 | ||||||
3,425 | 8.13%, 04/01/2022 | 3,827 | ||||||
Wellcare Health Plans, Inc. | ||||||||
1,255 | 5.75%, 11/15/2020 | 1,296 | ||||||
44,589 | ||||||||
Information - 21.1% | ||||||||
Activision Blizzard, Inc. | ||||||||
6,152 | 5.63%, 09/15/2021 ■ | 6,460 | ||||||
910 | 6.13%, 09/15/2023 ■ | 980 | ||||||
Altice Financing S.A. | ||||||||
885 | 6.50%, 01/15/2022 ■ | 865 | ||||||
1,500 | 7.88%, 12/15/2019 ■ | 1,536 | ||||||
295 | 8.13%, 01/15/2024 ■ | 288 | ||||||
1,080 | 9.88%, 12/15/2020 ■ | 1,154 | ||||||
Audatex North America, Inc. | ||||||||
3,440 | 6.00%, 06/15/2021 ■ | 3,543 | ||||||
DISH DBS Corp. | ||||||||
2,170 | 5.00%, 03/15/2023 | 2,099 | ||||||
2,150 | 5.88%, 07/15/2022 | 2,204 | ||||||
945 | 6.75%, 06/01/2021 | 1,016 | ||||||
2,866 | 7.88%, 09/01/2019 | 3,253 | ||||||
First Data Corp. | ||||||||
1,169 | 6.75%, 11/01/2020 ■ | 1,248 | ||||||
2,895 | 7.38%, 06/15/2019 ■ | 3,047 | ||||||
4,130 | 8.25%, 01/15/2021 ■ | 4,419 | ||||||
Infor Software Parent LLC | ||||||||
3,710 | 7.13%, 05/01/2021 ■ | 3,636 | ||||||
Infor US, Inc. | ||||||||
1,025 | 9.38%, 04/01/2019 | 1,097 | ||||||
Intelsat Jackson Holdings S.A. | ||||||||
2,330 | 6.63%, 12/15/2022 | 2,394 | ||||||
Intelsat Luxembourg S.A. | ||||||||
695 | 6.75%, 06/01/2018 | 709 | ||||||
5,835 | 7.75%, 06/01/2021 | 5,850 | ||||||
Level 3 Escrow, Inc. | ||||||||
2,515 | 5.38%, 08/15/2022 ■ | 2,528 | ||||||
Level 3 Financing, Inc. | ||||||||
970 | 6.13%, 01/15/2021 | 1,004 | ||||||
MetroPCS Wireless, Inc. | ||||||||
1,425 | 6.63%, 11/15/2020 | 1,450 | ||||||
Sprint Communications, Inc. | ||||||||
507 | 7.00%, 03/01/2020 ■ | 547 | ||||||
3,092 | 9.00%, 11/15/2018 ■ | 3,517 | ||||||
Sprint Corp. | ||||||||
6,120 | 7.25%, 09/15/2021 | 6,066 | ||||||
4,305 | 7.88%, 09/15/2023 | 4,250 | ||||||
Syniverse Holdings, Inc. | ||||||||
3,470 | 9.13%, 01/15/2019 | 3,626 | ||||||
T-Mobile USA, Inc. | ||||||||
330 | 6.13%, 01/15/2022 | 335 | ||||||
2,490 | 6.46%, 04/28/2019 | 2,590 | ||||||
490 | 6.50%, 01/15/2024 | 502 | ||||||
635 | 6.63%, 04/28/2021 | 652 | ||||||
2,865 | 6.73%, 04/28/2022 | 2,951 | ||||||
405 | 6.84%, 04/28/2023 | 418 | ||||||
Unitymedia Hessen GmbH & Co. | ||||||||
2,555 | 5.50%, 01/15/2023 ■ | 2,670 | ||||||
UPCB Finance III Ltd. | ||||||||
633 | 6.63%, 07/01/2020 ■ | 665 | ||||||
UPCB Finance VI Ltd. | ||||||||
1,845 | 6.88%, 01/15/2022 ■ | 2,006 | ||||||
Videotron Ltd. | ||||||||
249 | 9.13%, 04/15/2018 | 257 | ||||||
Wind Acquisition Finance S.A. | ||||||||
EUR | 3,565 | 4.00%, 07/15/2020 ■ | 4,231 | |||||
1,145 | 6.50%, 04/30/2020 ■ | 1,171 | ||||||
Windstream Corp. | ||||||||
2,820 | 7.50%, 04/01/2023 | 2,806 | ||||||
90,040 | ||||||||
Machinery Manufacturing - 0.9% | ||||||||
Case New Holland Industrial, Inc. | ||||||||
3,316 | 7.88%, 12/01/2017 | 3,648 | ||||||
Mining - 2.9% | ||||||||
AK Steel Corp. | ||||||||
2,805 | 7.63%, 05/15/2020 | 2,609 | ||||||
2,275 | 7.63%, 10/01/2021 | 2,087 | ||||||
1,285 | 8.38%, 04/01/2022 | 1,169 | ||||||
FMG Resources Aug 2006 | ||||||||
6,390 | 6.88%, 04/01/2022 ■ | 5,320 | ||||||
Steel Dynamics, Inc. | ||||||||
1,130 | 5.50%, 10/01/2024 ■ | 1,158 | ||||||
12,343 | ||||||||
Miscellaneous Manufacturing - 0.5% | ||||||||
DigitalGlobe, Inc. | ||||||||
2,305 | 5.25%, 02/01/2021 ■ | 2,190 |
The accompanying notes are an integral part of these financial statements.
6 |
Hartford High Yield HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Shares or Principal Amount ╬ | Market Value ╪ | |||||||
Corporate Bonds - 88.6% - (continued) | ||||||||
Motor Vehicle and Parts Manufacturing - 2.2% | ||||||||
Chrysler Group LLC | ||||||||
$ | 2,095 | 8.00%, 06/15/2019 | $ | 2,202 | ||||
3,085 | 8.25%, 06/15/2021 | 3,417 | ||||||
General Motors Co. | ||||||||
2,510 | 4.88%, 10/02/2023 | 2,686 | ||||||
915 | 6.25%, 10/02/2043 | 1,093 | ||||||
9,398 | ||||||||
Nonmetallic Mineral Product Manufacturing - 1.9% | ||||||||
Ardagh Finance Holdings S.A. | ||||||||
1,237 | 8.63%, 06/15/2019 ■ | 1,218 | ||||||
Ardagh Packaging Finance plc | ||||||||
2,065 | 6.00%, 06/30/2021 ■ | 1,972 | ||||||
278 | 7.00%, 11/15/2020 ■ | 281 | ||||||
511 | 9.13%, 10/15/2020 ■ | 544 | ||||||
Cemex Finance LLC | ||||||||
2,580 | 6.00%, 04/01/2024 ■ | 2,516 | ||||||
Cemex S.A.B. de C.V. | ||||||||
1,800 | 5.70%, 01/11/2025 ■ | 1,746 | ||||||
8,277 | ||||||||
Other Services - 1.5% | ||||||||
Abengoa Finance | ||||||||
EUR | 665 | 6.00%, 03/31/2021 § | 685 | |||||
EUR | 855 | 6.00%, 03/31/2021 ■ | 881 | |||||
560 | 7.75%, 02/01/2020 ■ | 494 | ||||||
Abengoa Greenfield S.A. | ||||||||
2,310 | 6.50%, 10/01/2019 ■ | 1,975 | ||||||
Service Corp. International | ||||||||
1,995 | 7.63%, 10/01/2018 | 2,225 | ||||||
6,260 | ||||||||
Petroleum and Coal Products Manufacturing - 5.5% | ||||||||
Antero Resources Finance Corp. | ||||||||
2,700 | 6.00%, 12/01/2020 | 2,693 | ||||||
Bonanza Creek Energy, Inc. | ||||||||
1,940 | 6.75%, 04/15/2021 | 1,707 | ||||||
Cobalt International Energy, Inc. | ||||||||
1,790 | 2.63%, 12/01/2019 β | 1,081 | ||||||
Concho Resources, Inc. | ||||||||
1,020 | 5.50%, 10/01/2022 | 1,030 | ||||||
Diamondback Energy, Inc. | ||||||||
2,485 | 7.63%, 10/01/2021 | 2,426 | ||||||
Everest Acquisition LLC | ||||||||
2,642 | 9.38%, 05/01/2020 | 2,669 | ||||||
Harvest Operations Corp. | ||||||||
320 | 6.88%, 10/01/2017 | 308 | ||||||
Range Resources Corp. | ||||||||
500 | 5.00%, 08/15/2022 | 500 | ||||||
Rosetta Resources, Inc. | ||||||||
1,875 | 5.63%, 05/01/2021 | 1,716 | ||||||
1,860 | 5.88%, 06/01/2022 | 1,674 | ||||||
Seadrill Ltd. | ||||||||
1,595 | 6.13%, 09/15/2017 ■ | 1,412 | ||||||
Tullow Oil plc | ||||||||
1,725 | 6.00%, 11/01/2020 ■ | 1,432 | ||||||
2,865 | 6.25%, 04/15/2022 ■ | 2,406 | ||||||
WPX Energy, Inc. | ||||||||
1,420 | 5.25%, 09/15/2024 | 1,321 | ||||||
950 | 6.00%, 01/15/2022 | 914 | ||||||
23,289 | ||||||||
Pipeline Transportation - 0.6% | ||||||||
Energy Transfer Equity L.P. | ||||||||
1,773 | 7.50%, 10/15/2020 | 1,968 | ||||||
Kinder Morgan Finance Co. | ||||||||
450 | 6.00%, 01/15/2018 ■ | 488 | ||||||
2,456 | ||||||||
Plastics and Rubber Products Manufacturing - 0.7% | ||||||||
Associated Materials LLC | ||||||||
1,005 | 9.13%, 11/01/2017 | 829 | ||||||
Nortek, Inc. | ||||||||
2,060 | 8.50%, 04/15/2021 | 2,204 | ||||||
3,033 | ||||||||
Primary Metal Manufacturing - 1.8% | ||||||||
ArcelorMittal | ||||||||
790 | 7.25%, 03/01/2041 | 798 | ||||||
1,320 | 7.50%, 10/15/2039 | 1,366 | ||||||
Constellium N.V. | ||||||||
535 | 5.75%, 05/15/2024 ■ | 465 | ||||||
1,870 | 8.00%, 01/15/2023 ■ | 1,861 | ||||||
United States Steel Corp. | ||||||||
3,026 | 7.38%, 04/01/2020 | 3,177 | ||||||
7,667 | ||||||||
Printing and Related Support Activities - 0.5% | ||||||||
Quad Graphics, Inc. | ||||||||
2,385 | 7.00%, 05/01/2022 ■ | 2,254 | ||||||
Professional, Scientific and Technical Services - 1.2% | ||||||||
Getty Images, Inc. | ||||||||
1,630 | 7.00%, 10/15/2020 ■ | 1,280 | ||||||
SunGard Data Systems, Inc. | ||||||||
490 | 6.63%, 11/01/2019 | 495 | ||||||
1,808 | 7.38%, 11/15/2018 | 1,880 | ||||||
1,520 | 7.63%, 11/15/2020 | 1,611 | ||||||
5,266 | ||||||||
Real Estate, Rental and Leasing - 2.3% | ||||||||
International Lease Finance Corp. | ||||||||
6,766 | 5.88%, 04/01/2019 | 7,290 | ||||||
665 | 5.88%, 08/15/2022 | 722 | ||||||
1,720 | 6.25%, 05/15/2019 | 1,879 | ||||||
9,891 | ||||||||
Retail Trade - 4.3% | ||||||||
99 Cents Only Stores | ||||||||
2,260 | 11.00%, 12/15/2019 | 2,396 | ||||||
Albertson's Holdings LLC | ||||||||
2,250 | 7.75%, 10/15/2022 ■ | 2,306 | ||||||
Building Materials Corp. | ||||||||
3,945 | 5.38%, 11/15/2024 ■ | 3,935 | ||||||
GRD Holding III Corp. | ||||||||
3,095 | 10.75%, 06/01/2019 ■ | 3,381 | ||||||
Michaels Stores, Inc. | ||||||||
2,315 | 5.88%, 12/15/2020 ■ | 2,338 | ||||||
Party City Holdings, Inc. | ||||||||
1,080 | 8.88%, 08/01/2020 | 1,153 | ||||||
PC Nextco Holdings LLC/PC Nextco Finance, Inc. | ||||||||
2,995 | 8.75%, 08/15/2019 | 3,010 | ||||||
18,519 |
The accompanying notes are an integral part of these financial statements.
7 |
Hartford High Yield HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Shares or Principal Amount ╬ | Market Value ╪ | |||||||
Corporate Bonds - 88.6% - (continued) | ||||||||
Soap, Cleaning Compound and Toilet Manufacturing - 0.6% | ||||||||
Sun Products Corp. | ||||||||
$ | 2,885 | 7.75%, 03/15/2021 ■ | $ | 2,438 | ||||
Utilities - 1.3% | ||||||||
Dolphin Subsidiary II, Inc. | ||||||||
3,490 | 7.25%, 10/15/2021 | 3,560 | ||||||
GenOn Americas Generation LLC | ||||||||
1,185 | 9.13%, 05/01/2031 | 1,013 | ||||||
Texas Competitive Electric Holdings Co. LLC | ||||||||
1,640 | 4.63%, 10/01/2020 ■Ϫ | 1,160 | ||||||
5,733 | ||||||||
Wholesale Trade - 1.0% | ||||||||
Dynegy, Inc. | ||||||||
835 | 5.88%, 06/01/2023 | 793 | ||||||
550 | 7.38%, 11/01/2022 ■ | 560 | ||||||
265 | 7.63%, 11/01/2024 ■ | 270 | ||||||
J.M. Huber Corp. | ||||||||
2,290 | 9.88%, 11/01/2019 ■ | 2,519 | ||||||
4,142 | ||||||||
Total Corporate Bonds | ||||||||
(Cost $381,916) | $ | 378,475 | ||||||
Senior Floating Rate Interests ♦ - 3.1% | ||||||||
Computer and Electronic Product Manufacturing - 0.3% | ||||||||
Freescale Semiconductor, Inc. | ||||||||
$ | 1,122 | 5.00%, 01/15/2021 | $ | 1,117 | ||||
Finance and Insurance - 0.2% | ||||||||
Asurion LLC | ||||||||
945 | 8.50%, 03/03/2021 | 936 | ||||||
Mining - 0.4% | ||||||||
Arch Coal, Inc. | ||||||||
2,253 | 6.25%, 05/16/2018 | 1,859 | ||||||
Other Services - 0.7% | ||||||||
Gardner Denver, Inc. | ||||||||
2,977 | 4.25%, 07/30/2020 | 2,780 | ||||||
Retail Trade - 0.8% | ||||||||
Lands' End, Inc. | ||||||||
1,390 | 4.25%, 04/04/2021 | 1,374 | ||||||
Neiman Marcus (The) Group, Inc. | ||||||||
2,198 | 4.25%, 10/25/2020 | 2,146 | ||||||
3,520 | ||||||||
Utilities - 0.7% | ||||||||
Texas Competitive Electric Holdings Co. LLC | ||||||||
4,525 | 4.65%, 10/10/2017 Ψ | 2,921 | ||||||
Total Senior Floating Rate Interests | ||||||||
(Cost $14,131) | $ | 13,133 | ||||||
Common Stocks - 0.1% | ||||||||
Energy - 0.1% | ||||||||
206,275 | KCA Deutag ⌂●† | $ | 424 | |||||
Total Common Stocks | ||||||||
(Cost $2,795) | $ | 424 | ||||||
Preferred Stocks - 1.4% | ||||||||
Diversified Financials - 1.1% | ||||||||
1 | Citigroup Capital XIII | $ | 13 | |||||
171 | GMAC Capital Trust I β | 4,503 | ||||||
4,516 | ||||||||
Telecommunication Services - 0.3% | ||||||||
32 | Intelsat S.A., 5.75% β | 1,521 | ||||||
Total Preferred Stocks | ||||||||
(Cost $5,738) | $ | 6,037 | ||||||
Total Long-Term Investments | ||||||||
(Cost $407,059) | $ | 398,069 | ||||||
Short-Term Investments - 5.3% | ||||||||
Repurchase Agreements - 5.3% | ||||||||
Bank of America Merrill Lynch Repurchase Agreement (maturing on 01/02/2015 in the amount of $22, collateralized by U.S. Treasury Note 0.75%, 2018, value of $23) | ||||||||
$ | 22 | 0.05%, 12/31/2014 | $ | 22 | ||||
Bank of America Merrill Lynch TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $113, collateralized by U.S. Treasury Note 2.50%, 2024, value of $115) | ||||||||
113 | 0.07%, 12/31/2014 | 113 | ||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $2,953, collateralized by U.S. Treasury Bond 3.88% - 5.25%, 2029 - 2040, U.S. Treasury Note 0.25% - 4.63%, 2015 - 2022, value of $3,012) | ||||||||
2,953 | 0.06%, 12/31/2014 | 2,953 | ||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $1,286, collateralized by FHLMC 2.00% - 5.50%, 2019 - 2044, FNMA 2.00% - 4.00%, 2024 - 2042, GNMA 3.00%, 2043, U.S. Treasury Bill 0.07%, 2015, value of $1,312) | ||||||||
1,286 | 0.07%, 12/31/2014 | 1,286 | ||||||
Barclays Capital TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $3,162, collateralized by U.S. Treasury Bond 3.63%, 2043, U.S. Treasury Note 0.88% - 2.00%, 2017 - 2020, value of $3,225) | ||||||||
3,162 | 0.05%, 12/31/2014 | 3,162 | ||||||
Citigroup Global Markets, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $5,652, collateralized by U.S. Treasury Bond 3.63% - 9.88%, 2015 - 2043, U.S. Treasury Note 0.25% - 2.75%, 2015 - 2022, value of $5,765) | ||||||||
5,652 | 0.06%, 12/31/2014 | 5,652 | ||||||
Deutsche Bank Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $917, collateralized by FHLMC 2.00% - 10.50%, 2015 - 2047, FNMA 2.00% - 9.50%, 2015 - 2049, GNMA 2.50% - 10.00%, 2016 - 2055, value of $936) | ||||||||
917 | 0.12%, 12/31/2014 | 917 |
The accompanying notes are an integral part of these financial statements.
8 |
Hartford High Yield HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Shares or Principal Amount ╬ | Market Value ╪ | |||||||||
Short-Term Investments - 5.3% - (continued) | ||||||||||
Repurchase Agreements - 5.3% - (continued) | ||||||||||
RBS Securities, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $241, collateralized by U.S. Treasury Note 0.38% - 2.13%, 2015 - 2016, value of $245) | ||||||||||
$ | 241 | 0.07%, 12/31/2014 | $ | 241 | ||||||
Societe Generale TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $2,689, collateralized by U.S. Treasury Bond 8.75%, 2020, U.S. Treasury Note 0.25% - 2.88%, 2015 - 2022, value of $2,743) | ||||||||||
2,689 | 0.07%, 12/31/2014 | 2,689 | ||||||||
TD Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $5,758, collateralized by FHLMC 3.00% - 4.00%, 2026 - 2044, FNMA 2.50% - 5.00%, 2025 - 2044, value of $5,874) | ||||||||||
5,758 | 0.08%, 12/31/2014 | 5,758 | ||||||||
22,793 | ||||||||||
Total Short-Term Investments | ||||||||||
(Cost $22,793) | $ | 22,793 | ||||||||
Total Investments | ||||||||||
(Cost $429,852) ▲ | 98.5 | % | $ | 420,862 | ||||||
Other Assets and Liabilities | 1.5 | % | 6,367 | |||||||
Total Net Assets | 100.0 | % | $ | 427,229 |
The accompanying notes are an integral part of these financial statements.
9 |
Hartford High Yield HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Note: Percentage of investments as shown is the ratio of the total market value to total net assets.
The Fund may refer to any one or more of the industry classifications used by one or more widely recognized market indices, ratings group indices and/or as defined by Fund management. Industry classifications may not be identical across all security types. | |
Equity industry classifications used in this report are the Global Industry Classification Standard, which was developed by and is the exclusive property and service mark of MSCI, Inc. and Standard & Poor’s. | |
For Fund compliance purposes, the Fund may not use the same classification system shown in this report as these classifications are used for reporting ease. |
▲ | At December 31, 2014, the cost of securities for federal income tax purposes was $429,904 and the aggregate gross unrealized appreciation and depreciation based on that cost were: Unrealized |
Unrealized Appreciation | $ | 9,515 | ||
Unrealized Depreciation | (18,557 | ) | ||
Net Unrealized Depreciation | $ | (9,042 | ) |
╬ | All principal amounts are in U.S. dollars unless otherwise indicated. |
† | These securities are valued in good faith at fair value as determined under policies and procedures established by and under the supervision of the Board of Directors. At December 31, 2014, the aggregate fair value of these securities was $424, which represents 0.1% of total net assets. |
● | Non-income producing. For long-term debt securities, items identified are in default as to payment of interest and/or principal. |
Ψ | The issuer is in bankruptcy. However, the investment held by the Fund is current with respect to interest payments. |
Ϫ | The issuer is in bankruptcy. The investment held by the Fund has made partial interest payments. |
Δ | Variable rate securities; the rate reported is the coupon rate in effect at December 31, 2014. |
♦ | Senior floating rate interests generally pay interest rates which are periodically adjusted by reference to a base short-term, floating lending rate plus a premium. The base lending rates are primarily the LIBOR, and secondarily the prime rate offered by one or more major United States banks (the "Prime Rate") and the certificate of deposit rate or other base lending rates used by commercial lenders. Senior floating rate interests often require prepayments from excess cash flows or permit the borrower to repay at its election. The rate at which the borrower repays cannot be predicted with accuracy. As a result, the actual remaining maturity may be substantially less than the stated maturities shown. Unless otherwise noted, the interest rate disclosed for these securities represents the average coupon as of December 31, 2014. |
■ | Securities issued within terms of a private placement memorandum, exempt from registration under Rule 144A under the Securities Act of 1933, as amended, and may be sold only to qualified institutional buyers. Unless otherwise noted, these holdings are determined to be liquid. At December 31, 2014, the aggregate value of these securities was $166,224, which represents 38.9% of total net assets. |
§ | These securities were sold to the Fund under Regulation S, rules governing offers and sales made outside the United States without registration under the Securities Act of 1933, as amended. The Fund may only be able to resell these securities in the United States if an exemption from registration under the federal and state securities laws is available, or the Fund may only be able to sell these securities outside of the United States (such as on a foreign exchange) to a non-U.S. person. Unless otherwise indicated, these holdings are determined to be liquid. At December 31, 2014, the aggregate value of these securities was $5,780, which represents 1.4% of total net assets. |
⌂ | The following securities are considered illiquid. Illiquid securities are often purchased in private placement transactions, are often not registered under the Securities Act of 1933, as amended, and may have contractual restrictions on resale. Illiquid securities may lack a readily available market or their valuation has not changed for a certain period of time. |
Period Acquired | Shares/ Par | Security | Cost Basis | |||||||
03/2011 | 206,275 | KCA Deutag | $ | 2,795 |
At December 31, 2014, the aggregate value of these securities was $424, which represents 0.1% of total net assets. |
β | Convertible security. |
♠ | Perpetual maturity security. Maturity date shown is the next call date or final legal maturity date, whichever comes first. |
The accompanying notes are an integral part of these financial statements.
10 |
Hartford High Yield HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Cash pledged and received as collateral in connection with derivatives at December 31, 2014:
Pledged | Received | |||||||
Centrally cleared swaps contracts | $ | 256 | $ | – | ||||
Total | $ | 256 | $ | – |
Centrally Cleared Credit Default Swap Contracts Outstanding at December 31, 2014 |
Clearing | Notional | (Pay)/ Receive Fixed | Expiration | Market | Unrealized Appreciation/ (Depreciation) | Variation Margin | ||||||||||||||||||||||||||||
Reference Entity | House (a) | Amount (b) | Rate | Date | Cost Basis | Value ╪ | Asset | Liability | Asset | Liability | ||||||||||||||||||||||||
Credit default swaps on indices: | ||||||||||||||||||||||||||||||||||
Sell protection: | ||||||||||||||||||||||||||||||||||
CDX.NA.HY.23 | CME | USD 5,400 | 5.00 | % | 12/20/19 | $ | 337 | $ | 335 | $ | – | $ | (2 | ) | $ | 4 | $ | – |
(a) | The FCM to the contracts is GSC. |
(b) | The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement. |
Foreign Currency Contracts Outstanding at December 31, 2014 |
Unrealized Appreciation/(Depreciation) | ||||||||||||||||||||||
Currency | Buy / Sell | Delivery Date | Counterparty | Contract Amount | Market Value ╪ | Asset | Liability | |||||||||||||||
EUR | Sell | 01/16/2015 | JPM | $ | 11,082 | $ | 10,800 | $ | 282 | $ | – |
╪ | See Significant Accounting Policies of accompanying Notes to Financial Statements regarding valuation of securities. |
GLOSSARY: (abbreviations used in preceding Schedule of Investments) | ||
Counterparty Abbreviations: | ||
CME | Chicago Mercantile Exchange | |
FCM | Futures Commission Merchant | |
GSC | Goldman Sachs & Co. | |
JPM | JP Morgan Chase & Co. | |
Currency Abbreviations: | ||
EUR | EURO | |
USD | U.S. Dollar | |
Index Abbreviations: | ||
CDX.NA.HY | Credit Derivatives North American High Yield | |
Other Abbreviations: | ||
FHLMC | Federal Home Loan Mortgage Corp. | |
FNMA | Federal National Mortgage Association | |
GNMA | Government National Mortgage Association | |
LIBOR | London Interbank Offered Rate |
The accompanying notes are an integral part of these financial statements.
11 |
Hartford High Yield HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Investment Valuation Hierarchy Level Summary |
December 31, 2014 |
Total | Level 1 ♦ | Level 2 ♦ | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Asset and Commercial Mortgage Backed Securities | $ | – | $ | – | $ | – | $ | – | ||||||||
Common Stocks ‡ | 424 | – | – | 424 | ||||||||||||
Corporate Bonds | 378,475 | – | 378,475 | – | ||||||||||||
Preferred Stocks | 6,037 | 6,037 | – | – | ||||||||||||
Senior Floating Rate Interests | 13,133 | – | 13,133 | – | ||||||||||||
Short-Term Investments | 22,793 | – | 22,793 | – | ||||||||||||
Total | $ | 420,862 | $ | 6,037 | $ | 414,401 | $ | 424 | ||||||||
Foreign Currency Contracts * | $ | 282 | $ | – | $ | 282 | $ | – | ||||||||
Total | $ | 282 | $ | – | $ | 282 | $ | – | ||||||||
Liabilities: | ||||||||||||||||
Swaps - Credit Default * | $ | 2 | $ | – | $ | 2 | $ | – | ||||||||
Total | $ | 2 | $ | – | $ | 2 | $ | – |
♦ | For the year ended December 31, 2014, there were no transfers between Level 1 and Level 2. |
‡ | The Fund has all or primarily all of the equity securities categorized in a particular level. Refer to the Schedule of Investments for further industry breakout. |
* | Derivative instruments (excluding purchased and written options, if applicable) are valued at the unrealized appreciation/depreciation on the investments. |
Following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value: |
Balance as of December 31, 2013 | Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Net Amortization | Purchases | Sales | Transfers Into Level 3 | Transfers Out of Level 3 | Balance as of December 31, 2014 | ||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||
Asset & Commercial Mortgage Backed Securities | $ | — | $ | — | $ — | * | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
Common Stocks | 1,526 | (17 | ) | (1,085 | )† | — | — | — | — | — | 424 | |||||||||||||||||||||||||
Preferred Stocks | 160 | (160 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
Total | $ | 1,686 | $ | (177 | ) | $ | (1,085 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 424 |
* | Change in unrealized appreciation (depreciation) in the current period relating to assets still held at December 31, 2014 was zero. |
† | Change in unrealized appreciation (depreciation) in the current period relating to assets still held at December 31, 2014 was $(1,085). |
Note: | For purposes of reporting transfers between different hierarchy levels, both transfers in and out of each level, as applicable, are shown as if they occurred at the beginning of the period. |
The accompanying notes are an integral part of these financial statements.
12 |
Hartford High Yield HLS Fund |
Statement of Assets and Liabilities |
December 31, 2014 |
(000’s Omitted) |
Assets: | ||||
Investments in securities, at market value (cost $429,852) | $ | 420,862 | ||
Cash | 369 | * | ||
Unrealized appreciation on foreign currency contracts | 282 | |||
Receivables: | ||||
Investment securities sold | 586 | |||
Fund shares sold | 60 | |||
Dividends and interest | 6,018 | |||
Variation margin on financial derivative instruments | 4 | |||
Total assets | 428,181 | |||
Liabilities: | ||||
Payables: | ||||
Fund shares redeemed | 830 | |||
Investment management fees | 66 | |||
Distribution fees | 6 | |||
Accrued expenses | 50 | |||
Total liabilities | 952 | |||
Net assets | $ | 427,229 | ||
Summary of Net Assets: | ||||
Capital stock and paid-in-capital | $ | 421,272 | ||
Undistributed net investment income | 24,718 | |||
Accumulated net realized loss | (10,044 | ) | ||
Unrealized depreciation of investments and the translations of assets and liabilities denominated in foreign currency | (8,717 | ) | ||
Net assets | $ | 427,229 | ||
Shares authorized | 2,800,000 | |||
Par value | $ | 0.001 | ||
Class IA: Net asset value per share | $ | 8.45 | ||
Shares outstanding | 38,086 | |||
Net assets | $ | 321,650 | ||
Class IB: Net asset value per share | $ | 8.32 | ||
Shares outstanding | 12,697 | |||
Net assets | $ | 105,579 |
* Cash of $256 was pledged as collateral for open financial derivative instruments at December 31, 2014.
The accompanying notes are an integral part of these financial statements.
13 |
Statement of Operations
For the Year Ended December 31, 2014
(000’s Omitted)
Investment Income: | ||||
Dividends | $ | 530 | ||
Interest | 28,758 | |||
Total investment income, net | 29,288 | |||
Expenses: | ||||
Investment management fees | 3,400 | |||
Transfer agent fees | 5 | |||
Distribution fees - Class IB | 297 | |||
Custodian fees | 10 | |||
Accounting services fees | 97 | |||
Board of Directors' fees | 13 | |||
Audit fees | 15 | |||
Other expenses | 125 | |||
Total expenses (before fees paid indirectly) | 3,962 | |||
Custodian fee offset | — | |||
Total fees paid indirectly | — | |||
Total expenses, net | 3,962 | |||
Net Investment Income | 25,326 | |||
Net Realized Gain on Investments, Other Financial Instruments and Foreign Currency Transactions: | ||||
Net realized gain on investments | 7,882 | |||
Net realized gain on swap contracts | 409 | |||
Net realized gain on foreign currency contracts | 1,102 | |||
Net realized gain on other foreign currency transactions | 21 | |||
Net Realized Gain on Investments, Other Financial Instruments and Foreign Currency Transactions | 9,414 | |||
Net Changes in Unrealized Depreciation of Investments, Other Financial Instruments and Foreign Currency Transactions: | ||||
Net unrealized depreciation of investments | (20,679 | ) | ||
Net unrealized depreciation of swap contracts | (634 | ) | ||
Net unrealized appreciation of foreign currency contracts | 284 | |||
Net unrealized depreciation on translation of other assets and liabilities in foreign currencies | (6 | ) | ||
Net Changes in Unrealized Depreciation of Investments, Other Financial Instruments and Foreign Currency Transactions | (21,035 | ) | ||
Net Loss on Investments, Other Financial Instruments and Foreign Currency Transactions | (11,621 | ) | ||
Net Increase in Net Assets Resulting from Operations | $ | 13,705 |
The accompanying notes are an integral part of these financial statements.
14 |
Statement of Changes in Net Assets
(000’s Omitted)
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Operations: | ||||||||
Net investment income | $ | 25,326 | $ | 34,064 | ||||
Net realized gain on investments, other financial instruments and foreign currency transactions | 9,414 | 14,695 | ||||||
Net unrealized depreciation of investments, other financial instruments and foreign currency transactions | (21,035 | ) | (13,756 | ) | ||||
Net Increase in Net Assets Resulting from Operations | 13,705 | 35,003 | ||||||
Distributions to Shareholders: | ||||||||
From net investment income | ||||||||
Class IA | (26,652 | ) | (33,749 | ) | ||||
Class IB | (8,503 | ) | (10,240 | ) | ||||
Total distributions | (35,155 | ) | (43,989 | ) | ||||
Capital Share Transactions: | ||||||||
Class IA | ||||||||
Sold | 26,543 | 71,995 | ||||||
Issued on reinvestment of distributions | 26,652 | 33,749 | ||||||
Redeemed | (104,814 | ) | (213,606 | ) | ||||
Total capital share transactions | (51,619 | ) | (107,862 | ) | ||||
Class IB | ||||||||
Sold | 5,349 | 26,312 | ||||||
Issued on reinvestment of distributions | 8,503 | 10,240 | ||||||
Redeemed | (28,595 | ) | (57,755 | ) | ||||
Total capital share transactions | (14,743 | ) | (21,203 | ) | ||||
Net decrease from capital share transactions | (66,362 | ) | (129,065 | ) | ||||
Net Decrease in Net Assets | (87,812 | ) | (138,051 | ) | ||||
Net Assets: | ||||||||
Beginning of period | 515,041 | 653,092 | ||||||
End of period | $ | 427,229 | $ | 515,041 | ||||
Undistributed (distributions in excess of) net investment income | $ | 24,718 | $ | 34,482 | ||||
Shares: | ||||||||
Class IA | ||||||||
Sold | 2,977 | 7,914 | ||||||
Issued on reinvestment of distributions | 3,067 | 3,933 | ||||||
Redeemed | (11,724 | ) | (23,548 | ) | ||||
Total share activity | (5,680 | ) | (11,701 | ) | ||||
Class IB | ||||||||
Sold | 611 | 2,947 | ||||||
Issued on reinvestment of distributions | 993 | 1,210 | ||||||
Redeemed | (3,248 | ) | (6,452 | ) | ||||
Total share activity | (1,644 | ) | (2,295 | ) | ||||
The accompanying notes are an integral part of these financial statements.
15 |
Notes to Financial Statements
December 31, 2014
(000’s Omitted)
Organization:
Hartford High Yield HLS Fund (the "Fund") serves as an underlying investment option for certain variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company (“HLIC”) and its affiliates and certain qualified retirement plans. The Fund may also serve as an underlying investment option for certain variable annuity and variable life separate accounts of other insurance companies. Owners of variable annuity contracts and policyholders of variable life insurance contracts may choose the funds permitted in the variable insurance contract prospectus. In addition, participants in certain qualified retirement plans may choose the Fund if permitted by their plans.
Hartford Series Fund, Inc. (the “Company”) is an open-end registered management investment company comprised of fifteen portfolios. Financial statements for the Fund, a series of the Company, are included in this report.
The Company is organized under the laws of the State of Maryland and is registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (“1940 Act”). The Fund is a diversified open-end management investment company. The Fund is an investment company and applies specialized accounting and reporting under Accounting Standards Codification Topic 946, Financial Services - Investment Companies.
The Fund is divided into Class IA and Class IB shares. Each class is offered at the per share net asset value (“NAV”) without a sales charge and is subject to the same expenses, except that the Class IB shares are subject to distribution and service fees charged pursuant to a Distribution Plan adopted in accordance with Rule 12b-1 under the 1940 Act.
Significant Accounting Policies:
The following is a summary of significant accounting policies of the Fund in the preparation of its financial statements, which are in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The preparation of financial statements in accordance with U.S. GAAP may require 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
Determination of Net Asset Value – The NAV of each class of the Fund's shares is determined as of the close of regular trading (normally 4:00 p.m. Eastern Time) (the “NYSE Close”) on each day that the New York Stock Exchange (the “Exchange”) is open (“Valuation Date”). Information that becomes known to the Fund after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the NAV determined earlier that day.
Investment Valuation and Fair Value Measurements – For purposes of calculating the NAV, portfolio investments and other assets held by the Fund's portfolio for which market quotes are readily available are valued at market value. Market value is generally determined on the basis of last reported sales prices or official close price. If no sales are reported, market value is based on quotes obtained from a quotation reporting system, established market makers, or independent pricing services. If market prices are not readily available or are deemed unreliable, the Fund will use the fair value of the investment as determined in good faith under policies and procedures established by and under the supervision of the Company's Board of Directors. Market quotes are considered not readily available where there is an absence of current or reliable market-based data (e.g., trade information or indicative market quotes), including where events occur after the close of the relevant market, but prior to the NYSE Close, that materially affect the values of the Fund's portfolio investments or assets. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the investments trade do not open for trading for the entire day and no other market prices are available. There can be no assurance that the Fund could obtain the fair market value assigned to an investment if the Fund were to sell the investment at approximately the time at which the Fund determines its NAV.
Fixed income investments (other than short-term obligations), non-exchange traded derivatives and centrally cleared swaps held by the Fund are normally valued on the basis of quotes obtained from independent pricing services or brokers and dealers in accordance with procedures established by the Company's Board of Directors. Prices obtained from independent pricing services use information provided by market makers or estimates of market values through accepted market modeling, trading and pricing conventions. Inputs to the models may include, but are not limited to, prepayment speeds, pricing spread, yield, trade information, dealer quotes, market
16 |
Hartford High Yield HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
color, cash flow models and the investment’s terms and conditions. Generally, the Fund may use fair valuation in regard to fixed income investments when the Fund holds defaulted or distressed investments or investments in a company in which a reorganization is pending. Senior floating rate interests generally trade in over-the-counter (“OTC”) markets and are priced through an independent pricing service utilizing independent market quotations from loan dealers or financial institutions. A composite bid price is used, which is an average of the dealer marks and dealer runs. Short-term investments maturing in 60 days or less are generally valued at amortized cost, if their original term to maturity was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if the original term to maturity exceeded 60 days, which approximates fair value.
Investments valued in currencies other than U.S. dollars are converted to U.S. dollars using exchange rates obtained from independent pricing services for calculation of the NAV. As a result, the NAV of the Fund’s shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of investments traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that the NYSE is closed and the market value may change on days when an investor is not able to purchase, redeem or exchange shares of the Fund.
Foreign currency contracts represent agreements to exchange currencies on specific future dates at predetermined rates. Foreign currency contracts are valued using foreign currency exchange rates and forward rates as provided by an independent pricing service on the Valuation Date.
Financial instruments for which prices are not available from an independent pricing service may be valued using market quotations obtained from one or more dealers that make markets in the respective financial instrument in accordance with procedures established by the Company's Board of Directors.
U.S. GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants. The U.S. GAAP fair value measurement standards require disclosure of a fair value hierarchy for each major category of assets and liabilities. Various inputs are used in determining the fair value of the Fund’s investments. These inputs are summarized into three broad hierarchy levels. This hierarchy is based on whether the valuation inputs are observable or unobservable. These levels are:
Level 1 – Quoted prices in active markets for identical investments. Level 1 may include exchange traded instruments, such as domestic equities, some foreign equities, options, futures, mutual funds, exchange traded funds, rights and warrants.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar investments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 2 may include debt investments that are traded less frequently than exchange traded instruments and which are valued using independent pricing services; foreign equities, which are principally traded on certain foreign markets and are adjusted daily pursuant to a fair value pricing service in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close; senior floating rate interests, which are valued using an aggregate of dealer bids; short-term investments, which are valued at amortized cost; and swaps, which are valued based upon the terms of each swap contract.
Level 3 – Significant unobservable inputs that are supported by limited or no market activity. Level 3 may include financial instruments whose values are determined using indicative market quotes or require significant management judgment or estimation. These unobservable valuation inputs may include estimates for current yields, maturity/duration, prepayment speed, and indicative market quotes for comparable investments along with other assumptions relating to credit quality, collateral value, complexity of the investment structure, general market conditions and liquidity. This category may include investments where trading has been halted or there are certain restrictions on trading. While these investments are priced using unobservable inputs, the valuation of these investments reflects the best available data and management believes the prices are a reasonable representation of exit price.
The Board of Directors of the Company generally reviews and approves the “Procedures for Valuation of Portfolio Securities” at least once a year. These procedures define how investments are to be valued, including the formation and activities of a Valuation Committee. The Valuation Committee is responsible for determining in good faith the fair value of investments when the value cannot be obtained from primary pricing services or alternative sources or if the valuation of an investment as provided
17 |
Hartford High Yield HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
by the primary pricing service or alternative source is believed not to reflect the investment’s fair value as of the Valuation Date. Voting members of the Valuation Committee include the Fund's Treasurer or designee and a Vice President of the investment manager or designee. An Assistant Vice President of the Fund with legal expertise or designee is also included on the Valuation Committee as a non-voting advisory member. In addition, the Fund’s Chief Compliance Officer shall designate a member of the compliance group to attend Valuation Committee meetings as a non-voting resource, to monitor for and provide guidance with respect to compliance with these procedures. Two members of the Valuation Committee or their designees, representing different departments, shall constitute a quorum for purposes of permitting the Valuation Committee to take action. The Valuation Committee will consider all relevant factors in determining an investment’s fair value, and may seek the advice of the Fund’s sub-adviser, knowledgeable brokers, and legal counsel in making such determination. The Valuation Committee reports to the Audit Committee of the Company's Board of Directors. The Audit Committee receives quarterly written reports which include details of all fair-valued investments, including the reason for the fair valuation, and an indication, when possible, of the accuracy of the valuation by disclosing the next available reliable public price quotation or the disposition price of such investments (the “look-back” test). The Board of Directors then must consider for ratification all of the fair value determinations made during the previous quarter.
Valuation levels are not necessarily indicative of the risk associated with investing in such investments. Individual investments within any of the above mentioned asset classes may be assigned a different hierarchical level than those presented above, as individual circumstances dictate.
For additional information, refer to the Investment Valuation Hierarchy Level Summary and the Level 3 roll-forward reconciliation, if applicable, which is included in the Schedule of Investments.
Investment Transactions and Investment Income – Investment transactions are recorded as of the trade date (the date the order to buy or sell is executed) for financial reporting purposes. Investments purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Realized gains and losses are determined on the basis of identified cost.
Trade date for senior floating rate interests purchased in the primary loan market is considered the date on which the loan allocations are determined. Trade date for senior floating rate interests purchased in the secondary loan market is the date on which the transaction is entered into.
Dividend income from domestic securities is accrued on the ex-dividend date. Interest income, including amortization of premium, accretion of discounts, inflation adjustments and additional principal received in-kind in lieu of cash, is accrued on a daily basis. Paydown gains and losses on mortgage related and other asset backed securities are included in interest income in the Statement of Operations, as applicable.
Foreign Currency Transactions – Assets and liabilities denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates in effect on the valuation date. Purchases and sales of investments, income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions.
The Fund does not isolate that portion of portfolio investment valuation resulting from fluctuations in the foreign currency exchange rates from the fluctuations arising from changes in the market prices of investments held. Exchange rate fluctuations are included with the net realized and unrealized gain or loss on investments in the accompanying financial statements.
Net realized foreign exchange gains or losses arise from sales of foreign currencies and the difference between asset and liability amounts initially stated in foreign currencies and the U.S. dollar value of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of other assets and liabilities at the end of the reporting period, resulting from changes in the exchange rates.
Joint Trading Account – The Fund may invest cash balances into a joint trading account that may be invested in one or more repurchase agreements.
18 |
Hartford High Yield HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Fund Share Valuation and Dividend Distributions to Shareholders – Orders for the Fund’s shares are executed in accordance with the investment instructions of the contract holders and plan participants. The NAV of the Fund’s shares is determined as of the close of business on each business day of the Exchange. The NAV is determined separately for each class of shares of the Fund by dividing the Fund’s net assets attributable to that class by the number of shares of the class outstanding. Each class of shares offered by the Fund has equal rights as to assets and voting privileges (except that shareholders of a class have exclusive voting rights regarding any matter relating solely to that class of shares). Income and non-class specific expenses are allocated daily to each class on the basis of the relative net assets of the class. Realized and unrealized gains and losses are allocated daily based on the relative net assets of each class of shares of the Fund.
Orders for the purchase of the Fund’s shares received prior to the close of the Exchange on any day the Exchange is open for business are priced at the NAV determined as of the close of the Exchange. Orders received after the close of the Exchange, or on a day on which the Exchange and/or the Fund is not open for business, are priced at the next determined NAV.
Dividends are declared pursuant to a policy adopted by the Company's Board of Directors based upon the investment performance of the Fund. The policy of the Fund is to pay dividends from net investment income and realized gains, if any, at least once a year.
Net investment income, dividends and distributions from net realized gains and capital are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP with respect to character and timing (see Federal Income Taxes: Distributions and Components of Distributable Earnings and Reclassification of Capital Accounts).
Securities and Other Investments:
Repurchase Agreements – A repurchase agreement is an agreement by which a counterparty agrees to sell an investment and agrees to repurchase the investment sold from the buyer at a mutually agreed upon time and price. During the period of the repurchase agreement, the counterparty will deposit cash and or securities in a third party custodial account to serve as collateral. At the time the Fund enters into a repurchase agreement, the value of the underlying collateral, including accrued interest, will be equal to or exceed the value of the repurchase agreement. Repurchase agreements expose the Fund to counterparty risk - that is, the risk that the counterparty will not fulfill its obligations. To minimize counterparty risk, the investments that serve to collateralize the repurchase agreement are held by the Fund’s custodian in book entry or physical form in the custodial account of the Fund or in a third party custodial account. Repurchase agreements are valued at cost plus accrued interest, which approximates fair value. Repurchase agreements have master netting arrangements which allow the Fund to offset amounts owed to a counterparty with amounts owed by the counterparty, including any collateral. Upon an event of default under a master repurchase agreement, the non-defaulting party may close out all transactions traded under such agreement and net amounts owed under each transaction to one net amount payable by one party to the other. Absent an event of default, the master repurchase agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty. The Fund, as shown on the Schedule of Investments, had outstanding repurchase agreements and related collateral as of December 31, 2014.
Illiquid and Restricted Investments – The Fund is permitted to invest up to 15% of its net assets in illiquid investments. Illiquid investments are those that may not be sold or disposed of in the ordinary course of business within seven days, at approximately the price used to determine the Fund’s NAV. The Fund may not be able to sell illiquid investments when its sub-adviser considers it desirable to do so or may have to sell such investments at a price that is lower than the price that could be obtained if the investments were more liquid. A sale of illiquid investments may require more time and may result in higher dealer discounts and other selling expenses than does the sale of those that are liquid. Illiquid investments also may be more difficult to value due to the unavailability of reliable market quotations for such investments, and an investment in them may have an adverse impact on the Fund’s NAV. The Fund may also purchase certain restricted investments that can only be resold to certain qualified investors and may be determined to be liquid pursuant to policies and guidelines established by the Company's Board of Directors. The Fund, as shown on the Schedule of Investments, had illiquid or restricted investments as of December 31, 2014.
Investments Purchased on a When-Issued or Delayed-Delivery Basis – Delivery and payment for investments that have been purchased by the Fund on a forward commitment, or when-issued or delayed-delivery basis, take place beyond the customary settlement period. The Fund may dispose of or renegotiate a delayed-delivery transaction after it is entered into, and may sell
19 |
Hartford High Yield HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
delayed-delivery investments before they are delivered, which may result in a realized gain or loss. During this period, such investments are subject to market fluctuations, and the Fund identifies investments segregated in its records with a value at least equal to the amount of the commitment. The Fund had no when-issued or delayed-delivery investments as of December 31, 2014.
Senior Floating Rate Interests – The Fund may invest in senior floating rate interests. Senior floating rate interests hold the most senior position in the capital structure of a business entity (the “Borrower”), are typically secured by specific collateral and have a claim on the assets and/or stock of the Borrower that is senior to the assets held by subordinated debtholders and stockholders of the Borrower. Senior floating rate interests are typically structured and administered by a financial institution that acts as the agent of the lenders participating in the senior floating rate interest. The Fund may invest in multiple series or tranches of a senior floating rate interest, which may have varying terms and carry different associated risks. The Fund may also enter into unfunded loan commitments, which are contractual obligations for future funding. Unfunded loan commitments may include revolving credit facilities, which may obligate the Fund to supply additional cash to the borrower on demand, representing a potential financial obligation by the Fund in the future. The Fund may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a senior floating rate interest. In certain circumstances, the Fund may receive various fees upon the restructure of a senior floating rate interest by a borrower. Fees earned/paid are recorded as a component of income or realized gain/loss in the Statement of Operations.
Senior floating rate interests are typically rated below-investment-grade, which suggests the risk of default is higher, and generally pay higher interest rates than investment-grade debt securities. A default could lead to non-payment of income or principal, which would result in a reduction of investment income to the Fund, and there can be no assurance that the liquidation of any collateral would satisfy the Borrower’s obligation in the event of non-payment of scheduled interest or principal payments, or that such collateral could be readily liquidated. The Fund, as shown on the Schedule of Investments, had senior floating rate interests as of December 31, 2014.
Mortgage Related and Other Asset Backed Securities – The Fund may invest in mortgage related and other asset backed securities. These securities include mortgage pass-through securities, collateralized mortgage obligations, commercial mortgage backed securities, stripped mortgage backed securities, asset backed securities, collateralized debt obligations and other securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property. Mortgage related securities are created from pools of residential or commercial mortgage loans, including mortgage loans made by savings and loan institutions, mortgage bankers, commercial banks and other similar financial institutions. Asset backed securities are created from many types of assets, including auto loans, credit card receivables, home equity loans, and student loans. These securities provide a monthly payment that consists of both interest and principal payments. Interest payments may be determined by fixed or adjustable rates. The rate of pre-payments on underlying mortgages will affect the price and volatility of a mortgage related security, and may have the effect of shortening or extending the effective duration of the security relative to what was anticipated at the time of purchase. The timely payment of principal and interest of certain mortgage related securities is guaranteed by the full faith and credit of the United States Government. Mortgage related and other asset backed securities created and guaranteed by non-governmental issuers, including government-sponsored corporations, may be supported by various forms of insurance or guarantees, but there can be no assurance that the private insurers or guarantors can meet their obligations under the insurance policies or guarantee arrangements. The Fund, as shown on the Schedule of Investments, had outstanding mortgage related and other asset backed securities as of December 31, 2014.
Financial Derivative Instruments:
The following disclosures contain information on how and why the Fund uses derivative instruments, the credit-risk-related contingent features in certain derivative instruments and how derivative instruments affect the Fund’s financial position and results of operations. The location and fair value amounts of these instruments on the Statement of Assets and Liabilities and the realized gains and losses and changes in unrealized gains and losses on the Statement of Operations, each categorized by type of derivative contract, are included in the following Additional Derivative Instrument Information footnote. The derivative instruments outstanding as of year-end are disclosed in the notes to the Schedule of Investments, if applicable. The amounts of realized gains and losses and changes in unrealized gains and losses on derivative instruments during the year are disclosed in the Statement of Operations.
Foreign Currency Contracts – The Fund may enter into foreign currency contracts that obligate the Fund to purchase or sell currencies at specified future dates. Foreign currency contracts are used to hedge the currency exposure associated with some or all
20 |
Hartford High Yield HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
of the Fund’s investments and/or as part of an investment strategy. Foreign currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. The Fund will record a realized gain or loss when the foreign currency contract is settled.
Foreign currency contracts involve elements of market risk in excess of the amounts reflected in the Statement of Assets and Liabilities. In addition, risks may arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of the contracts and from unanticipated movements in the value of the foreign currencies relative to the U.S. dollar. The Fund, as shown on the Schedule of Investments, had outstanding foreign currency contracts as of December 31, 2014.
Swap Contracts – The Fund may invest in swap contracts. Swap contracts are agreements to exchange or swap investment cash flows, assets, foreign currencies or market-linked returns at specified, future intervals. Swap contracts are either privately negotiated in the over-the-counter market (“OTC swaps”) or cleared in a central clearing house (“centrally cleared swaps”). The Fund may enter into credit default, total return, cross-currency, interest rate, inflation and other forms of swap contracts to manage its exposure to credit, currency, interest rate, commodity and inflation risk. Swap contracts are also used to gain exposure to certain markets. In connection with these contracts, investments or cash may be identified as collateral or margin in accordance with the terms of the respective swap contracts and/or master netting arrangement to provide assets of value and recourse in the event of default or bankruptcy/insolvency.
Swaps are valued based on custom valuations furnished by an independent pricing service. Swaps for which prices are not available from an independent pricing service are valued in accordance with procedures established by the Company's Board of Directors. Changes in market value, if any, are reflected as a component of net changes in unrealized appreciation or depreciation on the Statement of Operations. Daily changes in valuation of centrally cleared swaps, if any, are recorded as a receivable or payable for the change in value (“variation margin”) on the Statement of Assets and Liabilities. Realized gains or losses on centrally cleared swaps are recorded upon the termination of the swap. OTC swap payments received or paid at the beginning of the measurement period are reflected as such on the Statement of Assets and Liabilities and represent premiums paid or received upon entering into the swap contract to compensate for differences between the stated terms of the swap contract and prevailing market conditions (credit spreads, currency exchange rates, interest rates and other relevant factors). These upfront premiums are recorded as realized gains or losses on the Statement of Operations upon termination or maturity of the swap. A liquidation payment received or made at the termination or maturity of the swap is recorded as a realized gain or loss on the Statement of Operations. Net periodic payments received or paid by the Fund are included as part of realized gains or losses on the Statement of Operations.
Entering into these contracts involves, to varying degrees, elements of liquidation, counterparty, credit and market risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these contracts, that the counterparty to the contracts may default on its obligation to perform or disagree as to the meaning of contractual terms in the contracts, and that there may be unfavorable changes in market conditions (credit spreads, currency exchange rates, interest rates and other relevant factors).
The Fund’s maximum risk of loss from counterparty risk for OTC swaps is the net value of the discounted cash flows to be received from the counterparty over the contract’s remaining life, and current market value, to the extent that amount is positive. The risk is mitigated by having a master netting arrangement between the Fund and the counterparty, which allows for the netting of payments made or received (although such amounts are presented on a gross basis within the Statement of Assets and Liabilities, as applicable) as well as the posting of collateral to the Fund to cover the Fund’s exposure to the counterparty. In a centrally cleared swap, while the Fund enters into an agreement with a clearing broker to execute contracts with a counterparty, the performance of the swap is guaranteed by the central clearinghouse, which reduces the Fund’s exposure to counterparty risk. The Fund is still exposed to the counterparty risk through the clearing broker and clearinghouse. The clearinghouse attempts to minimize this risk to its participants through the use of mandatory margin requirements, daily cash settlements and other procedures. Likewise, the clearing broker reduces its risk through margin requirements and required segregation of customer balances.
Credit Default Swap Contracts – The credit default swap market allows the Fund to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults of corporate and sovereign issuers, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. Certain credit default swaps involve the exchange of a fixed rate premium for
21 |
Hartford High Yield HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
protection against the loss in value of an underlying investment or index in the event of a credit event, such as payment default or bankruptcy.
Under a credit default swap contract, one party acts as guarantor by receiving the fixed periodic payment in exchange for the commitment to purchase the underlying investment at par if the defined credit event occurs. Upon the occurrence of a defined credit event, the difference between the value of the reference obligation and the swap’s notional amount is recorded as realized gain or loss on swap transactions in the Statement of Operations. A “buyer” of credit protection agrees to pay a counterparty to assume the credit risk of an issuer upon the occurrence of certain events. The “seller” of the protection receives periodic payments and agrees to assume the credit risk of an issuer upon the occurrence of certain events. Although specified events are contract specific, credit events are generally defined as bankruptcy, failure to pay, restructuring, obligation acceleration, obligation default or repudiation/moratorium. A “seller’s” exposure is limited to the total notional amount of the credit default swap contract. These potential amounts would be partially offset by any recovery values of the respective referenced obligations or upfront payments received upon entering into the contract.
Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap contracts on corporate issues, sovereign government issues or U.S. municipal issues as of year-end are disclosed in the notes to the Schedule of Investments, as applicable, and serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and there may also be upfront payments required to be made to enter into the contract. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the contract. For credit default swap contracts on credit indices, the quoted market prices and resulting values serve as the indicator of the current status of the payment/performance risk. Increasing market values, in absolute terms when compared to the notional amount of the swap, represent a deterioration of the referenced equity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the contract. The Fund, as shown on the Schedule of Investments, had outstanding credit default swap contracts as of December 31, 2014.
Additional Derivative Instrument Information:
Fair Value of Derivative Instruments on the Statement of Assets and Liabilities as of December 31, 2014:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts | Foreign Exchange Contracts | Credit Contracts | Equity Contracts | Commodity Contracts | Other Contracts | Total | ||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||
Unrealized appreciation on foreign currency contracts | $ | — | $ | 282 | $ | — | $ | — | $ | — | $ | — | $ | 282 | ||||||||||||||
Variation margin receivable * | — | — | 4 | — | — | — | 4 | |||||||||||||||||||||
Total | $ | — | $ | 282 | $ | 4 | $ | — | $ | — | $ | — | $ | 286 |
* Only current day's variation margin is reported within the Statement of Assets and Liabilities. The variation margin is included in the open centrally cleared swaps net cumulative depreciation of $(2) as reported in the Schedule of Investments.
The volume of derivatives that is presented in the Schedule of Investments is consistent with the derivative activity during the year ended December 31, 2014.
22 |
Hartford High Yield HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
The Effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2014:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts | Foreign Exchange Contracts | Credit Contracts | Equity Contracts | Commodity Contracts | Other Contracts | Total | ||||||||||||||||||||||
Realized Gain on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net realized gain on swap contracts | $ | — | $ | — | $ | 409 | $ | — | $ | — | $ | — | $ | 409 | ||||||||||||||
Net realized gain on foreign currency contracts | — | 1,102 | — | — | — | — | 1,102 | |||||||||||||||||||||
Total | $ | — | $ | 1,102 | $ | 409 | $ | — | $ | — | $ | — | $ | 1,511 | ||||||||||||||
Net Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net change in unrealized depreciation of swap contracts | $ | — | $ | — | $ | (634 | ) | $ | — | $ | — | $ | — | $ | (634 | ) | ||||||||||||
Net change in unrealized appreciation of foreign currency contracts | — | 284 | — | — | — | — | 284 | |||||||||||||||||||||
Total | $ | — | $ | 284 | $ | (634 | ) | $ | — | $ | — | $ | — | $ | (350 | ) |
Balance Sheet Offsetting Information - The following discloses both gross information and net information about instruments and transactions eligible for offset in the financial statements, and instruments and transactions that are subject to a master netting arrangement, as well as amounts related to margin, reflected as financial collateral (including cash collateral), held at clearing brokers, counterparties and the Fund’s custodian. The master netting arrangements allow the clearing brokers to net any collateral held in or on behalf of the Fund, or liabilities or payment obligations of the clearing brokers to the Fund, against any liabilities or payment obligations of the Fund to the clearing brokers. The Fund is required to deposit financial collateral (including cash collateral) at the Futures Commission Merchant's ("FCM") custodian on behalf of clearing brokers and counterparties to continually meet the original and maintenance requirements established by the clearing brokers and counterparties for certain derivative types. Such requirements are specific to the respective clearing broker or counterparty. Certain master netting arrangements may not be enforceable in the bankruptcy proceedings of a counterparty.
Offsetting of Financial Assets and Derivative Assets as of December 31, 2014:
Gross Amounts* of Assets Presented in Statement of Assets and Liabilities | Financial Instruments with Allowable Netting | Non-cash Collateral Received | Cash Collateral Received | Net Amount (not less than $0) | ||||||||||||||||
Description | ||||||||||||||||||||
Swap contracts - variation margin receivable | $ | 4 | $ | — | $ | — | $ | — | □ | $ | 4 | |||||||||
Unrealized appreciation on foreign currency contracts | 282 | — | — | — | 282 | |||||||||||||||
Total subject to a master netting or similar arrangement | $ | 286 | $ | — | $ | — | $ | — | $ | 286 |
* Gross amounts are presented here as there are no amounts netted within the Statement of Assets and Liabilities.
¨ The Fund has pledged $256 as collateral for open centrally cleared swap contracts held at December 31, 2014.
Principal Risks:
Credit risk depends largely on the perceived financial health of bond issuers. In general, the credit rating is inversely related to the credit risk of the issuer. Higher rated bonds generally are deemed to have less credit risk, while lower or unrated bonds are deemed to have higher risk of default. The share price, yield and total return of a fund that holds securities with higher credit risk may be more volatile than those of a fund that holds bonds with lower credit risk. Similar to credit risk, the Fund may be exposed to counterparty risk, or the risk that an institution or other entity with which the Fund has unsettled or open transactions will default.
The Fund’s investments expose the Fund to various risks including, but not limited to, interest rate, prepayment, extension, foreign currency and equity risks. Interest rate risk is the risk that fixed income securities will decline in value because of changes in interest rates. As nominal interest rates rise, the values of certain fixed income securities held by the Fund are likely to decrease. A nominal interest rate can be described as the sum of a real interest rate and an expected inflation rate. Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter
23 |
Hartford High Yield HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
durations. Duration is useful primarily as a measure of the sensitivity of a fixed income security’s market price to interest rate (i.e., yield) movements. Senior floating rate interests and securities subject to prepayment and extension risk generally offer less potential for gains when interest rates decline. Rising interest rates may cause prepayments to occur at a slower than expected rate, thereby effectively lengthening the maturity of the security and making the security more sensitive to interest rate changes. Prepayment and extension risk are major risks of mortgage backed securities, senior floating rate interests and certain asset backed securities. For certain asset backed securities, the actual maturity may be less than the stated maturity shown in the Schedule of Investments, if applicable. As a result, the timing of income recognition relating to these securities may vary based upon the actual maturity.
If the Fund invests directly in foreign currencies or in securities that trade in, and receive revenues in, foreign currencies, or in derivatives that provide exposure to foreign currencies, it will be subject to the risk that those currencies will decline in value relative to the base currency (U.S. dollars) of the Fund, or, in the case of hedging positions, that the Fund’s base currency will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities, such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad. As a result, the Fund’s investments in foreign currency denominated securities may reduce the returns of the Fund. The market values of equity securities, such as common stocks and preferred stocks, or equity related investments, such as futures and options, may decline due to general market conditions which are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. The market value of equity securities may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities and equity related investments generally have greater market price volatility than fixed income securities.
Federal Income Taxes:
Federal Income Taxes – For federal income tax purposes, the Fund intends to continue to qualify as a Regulated Investment Company ("RIC") under Subchapter M of the Internal Revenue Code (“IRC”) by distributing substantially all of its taxable net investment income and net realized capital gains to its shareholders and otherwise complying with the requirements of the IRC. The Fund has distributed substantially all of its income and capital gains in prior years, if applicable, and intends to distribute substantially all of its income and capital gains prior to the next fiscal year-end. Accordingly, no provision for federal income or excise taxes has been made in the accompanying financial statements. Distributions from short-term capital gains are treated as ordinary income distributions for federal income tax purposes.
Net Investment Income (Loss), Net Realized Gains (Losses) and Distributions – Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of losses deferred due to wash sale adjustments, foreign currency gains and losses, adjustments related to Passive Foreign Investment Companies ("PFICs"), Real Estate Investment Trusts ("REITs"), RICs, certain derivatives and partnerships. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund.
Distributions and Components of Distributable Earnings – The tax character of distributions paid by the Fund for the periods indicated is as follows (as adjusted for dividends payable, if applicable):
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Ordinary Income | $ | 35,155 | $ | 43,989 |
24 |
Hartford High Yield HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
As of December 31, 2014, the Fund’s components of distributable earnings (deficit) on a tax basis are as follows:
Amount | ||||
Undistributed Ordinary Income | $ | 24,914 | ||
Accumulated Capital and Other Losses* | (9,709 | ) | ||
Unrealized Depreciation† | (9,051 | ) | ||
Total Accumulated Earnings | $ | 6,154 |
* | The Fund has capital loss carryforwards that are identified in the Capital Loss Carryforward note that follows. | |
† | Differences between book-basis and tax-basis unrealized appreciation (depreciation) may be attributable to the losses deferred due to wash sale adjustments, foreign currency gains and losses and adjustments related to PFICs, REITs, RICs, certain derivatives and partnerships. |
Reclassification of Capital Accounts – The Fund may record reclassifications in its capital accounts. These reclassifications have no impact on the total net assets of the Fund. The reclassifications are a result of permanent differences between U.S. GAAP and tax accounting for such items as foreign currency, PFICs, expiration or utilization of capital loss carryforwards or net operating losses. Adjustments are made to reflect the impact these items have on current and future distributions to shareholders. Therefore, the source of the Fund’s distributions may be shown in the accompanying Statement of Changes in Net Assets as from undistributed net investment income, from accumulated net realized gains on investments or from capital depending on the type of book and tax differences that exist. For the year ended December 31, 2014, the Fund recorded reclassifications to increase (decrease) the accounts listed below:
Amount | ||||
Undistributed Net Investment Income (Loss) | $ | 65 | ||
Accumulated Net Realized Gain (Loss) | (65 | ) |
Capital Loss Carryforward – On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which made changes to the capital loss carryforward rules. The changes are effective for taxable years beginning after the date of enactment. Under the Act, funds are permitted to carry forward capital losses for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital loss carryforwards retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under prior regulation.
At December 31, 2014 (tax year end), the Fund had capital loss carryforwards for U.S. federal income tax purposes as follows:
Year of Expiration | Amount | |||
2017 | $ | 9,709 | ||
Total | $ | 9,709 |
During the year ended December 31, 2014, the Fund utilized $9,548 of prior year capital loss carryforwards.
Accounting for Uncertainty in Income Taxes – The Fund has adopted financial reporting rules that require the Fund to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions. Generally, tax authorities can examine all tax returns filed for the last three years. The Fund does not have an examination in progress.
The Fund has reviewed all open tax years and major jurisdictions and concluded that these financial reporting rules had no effect on the Fund’s financial position or results of operations. There is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on the tax return for the fiscal year ended December 31, 2014. The Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
25 |
Hartford High Yield HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Expenses:
Investment Management Agreement – Hartford Funds Management Company, LLC ("HFMC") serves as the Fund’s investment manager pursuant to an Investment Management Agreement with the Company. HFMC is an indirect wholly owned subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford"). The investment manager has overall investment supervisory responsibility for the Fund. In addition, the investment manager provides administrative personnel, services, equipment, facilities and office space for proper operation of the Fund. HFMC has contracted with Wellington Management Company, LLP ("Wellington Management") under a sub-advisory agreement for the provision of day-to-day investment management services to the Fund in accordance with the Fund’s investment objective and policies. The Fund pays a fee to the investment manager, a portion of which may be used to compensate Wellington Management.
The schedule below reflects the rates of compensation paid to the investment manager for investment management services rendered as of December 31, 2014; the rates are accrued daily and paid monthly:
Average Daily Net Assets | Annual Fee | |
On first $500 million | 0.7000% | |
On next $500 million | 0.6750% | |
On next $1.5 billion | 0.6250% | |
On next $2.5 billion | 0.6150% | |
On next $5 billion | 0.6050% | |
Over $10 billion | 0.5950% |
Accounting Services Agreement – Pursuant to the Fund Accounting Agreement between HFMC and the Company, on behalf of the Fund, HFMC provides accounting services to the Fund and receives monthly compensation based on the Fund’s average daily net assets at the rates set forth below. The Fund’s accounting services fees are accrued daily and paid monthly.
Average Daily Net Assets | Annual Fee | |
On first $5 billion | 0.020% | |
On next $5 billion | 0.015% | |
Over $10 billion | 0.010% |
Operating Expenses – Allocable expenses incurred by the Company are allocated to each Fund and allocated to classes within a Fund in proportion to the average daily net assets of the Fund and each class, except where allocation of certain expenses is more fairly made directly to the Fund or to specific classes within a Fund.
Fees Paid Indirectly – The Fund's custodian has agreed to reduce its fees when the Fund maintains cash on deposit in a non-interest-bearing custody account. For the year ended December 31, 2014, this amount, if any, is included in the Statement of Operations.
The ratio of expenses to average net assets in the accompanying financial highlights excludes the reduction in expenses related to fees paid indirectly. The annualized expense ratio after waivers for the period listed below reflecting the reduction for fees paid indirectly is as follows:
Year Ended December 31, 2014 | |||
Class IA | 0.75% | ||
Class IB | 1.00 |
Distribution Plan for Class IB Shares – Hartford Funds Distributors, LLC (“HFD”), an indirect wholly owned subsidiary of The Hartford, is the principal underwriter and distributor of the Fund. The Company, on behalf of the Fund, has adopted a Distribution Plan pursuant to Rule 12b-1 of the 1940 Act for Class IB shares.
26 |
Hartford High Yield HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
The Distribution Plan provides that the Fund may pay annually up to 0.25% of the average daily net assets of the Fund attributable to its Class IB shares for activities primarily intended to result in the sale of Class IB shares. The Board has the authority to suspend or reduce these payments at any point in time. Under the terms of the Distribution Plan and the principal underwriting agreement, the Fund is authorized to make payments monthly to the distributor that may be used to pay or reimburse entities providing distribution and shareholder servicing with respect to the Class IB shares for such entities’ fees or expenses incurred or paid in that regard. The distribution fees paid during the period can be found on the Statement of Operations. These fees are accrued daily and paid monthly or at such other intervals as the Board of Directors may determine.
Other Related Party Transactions – Certain officers of the Fund are directors and/or officers of HFMC and/or The Hartford or its subsidiaries. For the year ended December 31, 2014, a portion of the Fund's Chief Compliance Officer's compensation was paid by all the investment companies in the Hartford fund complex. The portion allocated to the Fund, as represented in other expenses on the Statement of Operations, was in the amount of $1. Hartford Administrative Services Company ("HASCO"), an indirect wholly owned subsidiary of The Hartford, provides transfer agent services to the Fund. Effective December 1, 2014, pursuant to a sub-transfer agency agreement between HASCO and Boston Financial Data Services, Inc. (“BFDS”), HASCO delegated certain transfer agent, dividend disbursing agent and shareholder servicing agent functions to BFDS. HASCO is compensated by the Fund based on the number of classes plus out of pocket expenses for providing such services, a portion of which may be used to compensate BFDS. The amount paid to HASCO can be found in the Statement of Operations. These fees are accrued daily and paid monthly.
Investment Transactions:
For the year ended December 31, 2014, the cost of purchases and proceeds from sales of investment securities (excluding short-term investments) were as follows:
Excluding U.S. Government Obligations | U.S. Government Obligations | Total | ||||||||||
Cost of Purchases | $ | 181,212 | $ | — | $ | 181,212 | ||||||
Sales Proceeds | 275,351 | — | 275,351 |
Line of Credit:
The Fund is one of several Hartford Funds that participate in a $500 million committed revolving line of credit facility. The facility is to be used for temporary or emergency purposes. Under the arrangement, the funds are required to own securities having a market value in excess of 300% of the total bank borrowings. The interest rate on borrowings varies depending on the nature of the loan. The facility also requires a fee to be paid based on the amount of the commitment. This commitment fee is allocated to all the funds participating in the line of credit based on the average net assets of the funds. During the year ended December 31, 2014, the Fund did not have any borrowings under this facility.
Indemnifications:
Under the Company's organizational documents, the Company shall indemnify its officers and directors to the full extent required or permitted under Maryland General Corporation Law and the federal securities laws. In addition, the Company, on behalf of the Fund, may enter into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, as of the date of these financial statements, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Pending Legal Proceedings:
On February 25, 2011, Jennifer L. Kasilag, Louis Mellinger, Judith M. Menendez, Jacqueline M. Robinson, and Linda A. Russell filed a derivative lawsuit against Hartford Investment Financial Services, LLC (“HIFSCO”) (now known as HFD) on behalf of six Hartford retail mutual funds in the United States District Court for the District of New Jersey, alleging that HIFSCO received excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the 1940 Act when serving as investment manager and
27 |
Hartford High Yield HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
principal underwriter, respectively, to the Hartford retail mutual funds. Although this action was purportedly filed on behalf of certain of the Hartford Funds, none of the Hartford Funds is itself a defendant to the suit. HIFSCO moved to dismiss and, in September 2011, the motion was granted in part and denied in part, with leave to amend the complaint. In November 2011, plaintiffs filed an amended complaint on behalf of certain Hartford retail mutual funds, The Hartford Global Health Fund (now known as The Hartford Healthcare Fund), The Hartford Conservative Allocation Fund, The Hartford Growth Opportunities Fund, The Hartford Inflation Plus Fund, The Hartford Advisers Fund (now known as The Hartford Balanced Fund), and The Hartford Capital Appreciation Fund. Plaintiffs seek to rescind the investment management agreements and distribution plans between HIFSCO and these funds and to recover the total fees charged thereunder or, in the alternative, to recover any improper compensation HIFSCO received, in addition to lost earnings. HIFSCO filed a partial motion to dismiss the amended complaint and, in December 2012, the court dismissed without prejudice the claims regarding distribution fees and denied the motion with respect to the advisory fees claims. HIFSCO disputes the allegations and intends to defend vigorously.
In March 2014, the plaintiffs filed a new complaint that added as new plaintiffs The Hartford Floating Rate Fund and The Hartford Small Company Fund, two Hartford retail mutual funds, and named as a defendant HFMC, which assumed the role as investment manager to the funds as of January 2013. HFMC and HIFSCO dispute the allegations and intend to defend vigorously.
This action concerns the activities of HIFSCO in its capacity as investment manager and principal underwriter to the Hartford retail mutual funds and does not concern HIFSCO’s activities in its capacity as principal underwriter to the HLS funds. For this reason, no accrual for litigation relating to this matter has been recorded in the financial statements of the Fund.
Recent Accounting Pronouncement:
In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, modifying Accounting Standards Codification Topic 860. The amended guidance changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. The guidance also requires new disclosures for certain transfers accounted for as sales and collateral supporting transactions that are accounted for as secured borrowings. ASU 2014-11 is effective for annual and interim periods beginning after December 15, 2014, except for the disclosures related to secured borrowings, which are effective for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The adoption of ASU 2014-11 is not expected to have a material impact on the Fund’s results of operations or financial position, but may impact the Fund’s disclosures.
Subsequent Event:
Effective on or after January 1, 2015, pursuant to an agreement between the Hartford Funds and State Street Bank and Trust Company ("State Street"), State Street replaced, or is scheduled to replace, JP Morgan Chase Bank, N.A. ("JP Morgan Chase") as the Fund's primary custodian. JP Morgan Chase may serve as custodian of certain Fund assets. In addition, on or after the same date, HFMC has delegated, or will delegate, certain accounting and administrative services functions to State Street. The costs and expenses of such delegation will be borne by HFMC, not by the Funds, and HFMC will compensate State Street for its services out of its own resources.
28 |
Financial Highlights
─ Selected Per-Share Data(A) ─ | ─ Ratios and Supplemental Data ─ | |||||||||||||||||||||||||||||||||||||||||||||||||||
Class | Net Asset Value at Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Investment Operations | Dividends from Net Investment Income | Distributions from Realized Capital Gains | Total Dividends and Distributions | Net Asset Value at End of Period | Total Return(B) | Net Assets at End of Period (000s) | Ratio of Expenses to Average Net Assets Before Adjust- ments(C) | Ratio of Expenses to Average Net Assets After Adjust- ments(C) | Ratio of Net Investment Income (Loss) to Average Net Assets | |||||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 8.90 | $ | 0.47 | $ | (0.22 | ) | $ | 0.25 | $ | (0.70 | ) | $ | – | $ | (0.70 | ) | $ | 8.45 | 2.58 | % | $ | 321,650 | 0.75 | % | 0.75 | % | 5.28 | % | |||||||||||||||||||||||
IB | 8.77 | 0.44 | (0.22 | ) | 0.22 | (0.67 | ) | – | (0.67 | ) | 8.32 | 2.31 | 105,579 | 1.00 | 1.00 | 5.02 | ||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 9.09 | $ | 0.54 | $ | 0.01 | $ | 0.55 | $ | (0.74 | ) | $ | – | $ | (0.74 | ) | $ | 8.90 | 6.43 | % | $ | 389,340 | 0.75 | % | 0.75 | % | 5.90 | % | ||||||||||||||||||||||||
IB | 8.96 | 0.50 | 0.03 | 0.53 | (0.72 | ) | – | (0.72 | ) | 8.77 | 6.17 | 125,701 | 1.00 | 1.00 | 5.64 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2012 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 8.70 | $ | 0.58 | $ | 0.63 | $ | 1.21 | $ | (0.82 | ) | $ | – | $ | (0.82 | ) | $ | 9.09 | 14.31 | % | $ | 504,042 | 0.75 | % | 0.75 | % | 6.37 | % | ||||||||||||||||||||||||
IB | 8.59 | 0.55 | 0.62 | 1.17 | (0.80 | ) | – | (0.80 | ) | 8.96 | 14.03 | 149,050 | 1.00 | 1.00 | 6.12 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 9.15 | $ | 0.71 | $ | (0.31 | ) | $ | 0.40 | $ | (0.85 | ) | $ | – | $ | (0.85 | ) | $ | 8.70 | 4.69 | % | $ | 548,608 | 0.74 | % | 0.74 | % | 7.68 | % | |||||||||||||||||||||||
IB | 9.04 | 0.67 | (0.30 | ) | 0.37 | (0.82 | ) | – | (0.82 | ) | 8.59 | 4.44 | 160,060 | 0.99 | 0.99 | 7.43 | ||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2010 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 7.94 | $ | 0.75 | $ | 0.52 | $ | 1.27 | $ | (0.06 | ) | $ | – | $ | (0.06 | ) | $ | 9.15 | 16.15 | % | $ | 602,493 | 0.75 | % | 0.75 | % | 8.80 | % | ||||||||||||||||||||||||
IB | 7.86 | 0.72 | 0.52 | 1.24 | (0.06 | ) | – | (0.06 | ) | 9.04 | 15.86 | 186,357 | 1.00 | 1.00 | 8.57 |
(A) | Information presented relates to a share outstanding throughout the indicated period. Net investment income (loss) per share amounts are calculated based on average shares outstanding unless otherwise noted. |
(B) | The figures do not include sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees would lower the Fund's performance. |
(C) | Adjustments include waivers and reimbursements, if applicable. Ratios do not include fees paid indirectly (see Expenses in the accompanying Notes to Financial Statements). |
Portfolio Turnover Rate for All Share Classes | ||||
For the Year Ended December 31, 2014 | 39% | |||
For the Year Ended December 31, 2013 | 46 | |||
For the Year Ended December 31, 2012 | 94 | |||
For the Year Ended December 31, 2011 | 88 | |||
For the Year Ended December 31, 2010 | 139 |
29 |
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Hartford Series Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Hartford High Yield HLS Fund (one of the portfolios constituting Hartford Series Fund, Inc. (the Funds)) as of December 31, 2014, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2014, by correspondence with the custodian, agent banks and brokers or by other appropriate auditing procedures where replies from agent banks and brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Hartford High Yield HLS Fund of the Hartford Series Fund, Inc. at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Minneapolis, Minnesota
February 13, 2015
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Directors and Officers (Unaudited)
The Board of Directors of the Company (the "Directors") appoints officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the Directors. Each Director serves until his or her death, resignation, or retirement or until the next annual meeting of shareholders is held or until his or her successor is elected and qualifies.
Directors and officers who are employed by or who have a financial interest in The Hartford Financial Services Group, Inc. ("The Hartford") are considered “interested” persons of the Fund pursuant to the 1940 Act. The "interested" Directors and officers are reflected in the chart below. Each Director serves as a director for The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., Hartford Series Fund, Inc., and Hartford HLS Series Fund II, Inc., and as a trustee for The Hartford Alternative Strategies Fund, which, as of December 31, 2014, collectively consist of 66 funds. Correspondence may be sent to Directors and officers c/o Hartford Funds, 5 Radnor Corporate Center, Suite 300, 100 Matsonford Road, Radnor, Pennsylvania 19087, except that correspondence to Mr. Annoni, Mr. Dressen and Ms. Quade may be sent to 500 Bielenberg Drive, Suite 500, Woodbury, Minnesota 55125.
The table below sets forth, for each Director and officer, his or her name, year of birth, current position with the Company and date first elected or appointed to Hartford Series Fund, Inc. ("HSF") and Hartford HLS Series Fund II, Inc. ("HSF2"), principal occupation, and, for Directors, other directorships held. The Fund’s Statement of Additional Information contains further information on the Directors and is available free of charge by calling 1-888-843-7824 or writing to: Hartford HLS Funds, c/o Hartford Life Insurance Company/Hartford Life and Annuity Insurance Company, P.O. Box 14293, Lexington, KY 40512-4293 for variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates; Hartford Funds, P.O. Box 55022, Boston, MA 02205-5022 for all shareholders except variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates.
Information on the aggregate remuneration paid to the directors of the Company can be found in the Statement of Operations herein. The Fund pays to The Hartford a portion of the Chief Compliance Officer’s compensation, but does not pay salaries or compensation to any of its other officers or Directors who are employed by The Hartford.
Non-Interested Directors
Hilary E. Ackermann (1956) Director since September 23, 2014
Ms. Ackermann served as Chief Risk Officer at Goldman Sachs Bank USA from October 2008 to November 2011 and serves as a Director of Dynegy, Inc., an independent power company, from October 2012 to present.
Lynn S. Birdsong (1946) Director since 2003, Chairman of the Investment Committee since 2014
Mr. Birdsong is a private investor. Mr. Birdsong currently serves as a Director of Aberdeen Global and Aberdeen Global II (investment funds) (September 2014 to present) and as an Independent Director of Nomura Partners Funds, Inc. (formerly, The Japan Fund) (April 2003 to present). Mr. Birdsong served as Director of the Sovereign High Yield Investment Company (April 2010 to September 2014). From 2003 to March 2005, Mr. Birdsong was an Independent Director of the Atlantic Whitehall Funds. From 1979 to 2002, Mr. Birdsong was a Managing Director of Zurich Scudder Investments, an investment management firm. During his employment with Scudder, Mr. Birdsong was an Interested Director of The Japan Fund. Mr. Birdsong served as Co-Chairman of the Investment Committee of The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., HSF, HSF2 and The Hartford Alternative Strategies Fund from 2005 to 2014.
Robert M. Gavin, Jr. (1940) Director since 2002 (HSF) and 1986 (HSF2), Chairman of the Board for each since 2004
Dr. Gavin is an educational consultant. Prior to September 1, 2001, he was President of Cranbrook Education Community and prior to July 1996, he was President of Macalester College, St. Paul, Minnesota.
Duane E. Hill (1945) Director since 2001 (HSF) and 2002 (HSF2), Chairman of the Nominating Committee since 2003
Mr. Hill is a Partner of TSG Ventures L.P., a private equity investment company. Mr. Hill is a former partner of TSG Capital Group, a private equity investment firm that served as sponsor and lead investor in leveraged buyouts of middle market companies.
Sandra S. Jaffee (1941) Director since 2005
Ms. Jaffee is the founder and Chief Executive Officer of a private company, Homeworks Concierge, LLC, which provides residential property management services in Westchester County, New York (January 2012 to present). Ms. Jaffee served as Chairman (2008 to 2009) and Chief Executive Officer of Fortent (formerly Searchspace Group), a leading provider of compliance/regulatory technology to financial institutions from August 2005 to August 2009. From August 2004 to August 2005, Ms. Jaffee served as an Entrepreneur in Residence with Warburg Pincus, a private equity firm. Prior to joining Warburg Pincus, Ms. Jaffee served as Executive Vice President at Citigroup, from September 1995 to July 2004, where she was President and Chief Executive Officer of Citibank’s Global Securities
31 |
Hartford High Yield HLS Fund
Directors and Officers (Unaudited) –(continued)
Services (1995 to 2003). Ms. Jaffee served as a member of the Board of Directors of Broadridge Financial Solutions (November 2010 to November 2014). Ms. Jaffee currently serves as a member of the Board of Directors of Global Camps Africa (a non-profit organization) (January 2015 to present) as well as a Trustee of Muhlenberg College (September 2007 to present).
William P. Johnston (1944) Director since 2005, Chairman of the Compliance Committee since 2005
In June 2006, Mr. Johnston was appointed as Senior Advisor to The Carlyle Group, a global private equity and other alternative asset investment firm and currently serves as an Operating Executive. In July 2006, Mr. Johnston was elected to the Board of Directors of MultiPlan, Inc. and served as a Director (July 2006 to August 2010). In August 2007, Mr. Johnston was elected to the Board of Directors of LifeCare Holdings, Inc. and served as a Director (August 2007 to June 2013). In February 2008, Mr. Johnston was elected to the Board of Directors of HCR-ManorCare, Inc. In May 2006, Mr. Johnston was elected to the Supervisory Board of Fresenius Medical Care AG & Co. KGaA, after its acquisition of Renal Care Group, Inc. in March 2006. Mr. Johnston joined Renal Care Group in November 2002 as a member of the Board of Directors and served as Chairman of the Board from March 2003 through March 2006. From 2002 through 2013, Mr. Johnston served as a Board member of the Georgia O’Keefe Museum. From September 1987 to December 2002, Mr. Johnston was with Equitable Securities Corporation (and its successors, SunTrust Equitable Securities and SunTrust Robinson Humphrey) serving in various investment banking and managerial positions, including Managing Director and Head of Investment Banking, Chief Executive Officer and Vice Chairman.
Phillip O. Peterson (1944) Director since 2002 (HSF) and 2000 (HSF2), Chairman of the Audit Committee since 2002
Mr. Peterson is a mutual fund industry consultant. He was a partner of KPMG LLP (an accounting firm) until July 1999. Mr. Peterson joined William Blair Funds in February 2007 as a member of the Board of Trustees. From February 2012 to February 2014, Mr. Peterson served as a Trustee of Symetra Variable Mutual Funds. From January 2004 to April 2005, Mr. Peterson served as Independent President of the Strong Mutual Funds.
Lemma W. Senbet (1946) Director since 2005
Dr. Senbet is the William E. Mayer Chair Professor of Finance at the University of Maryland, Robert H. Smith School of Business. He was chair of the Finance Department of the University of Maryland, Robert H. Smith School of Business from 1998 to 2006. Since June 2013, he has been on leave from the University to serve as Executive Director of African Economic Research Consortium which focuses on economic policy research and training. Previously, he was a chaired professor of finance at the University of Wisconsin-Madison. Also, he was a Director of the Fortis Funds from March 2000 to July 2002. Dr. Senbet served as Director of the American Finance Association and President of the Western Finance Association. In 2006, Dr. Senbet was inducted Fellow of Financial Management Association International for his career-long distinguished scholarship and professional service.
Interested Directors and Officers
James E. Davey (1964) Director since 2012, President and Chief Executive Officer since 2010
Mr. Davey serves as Executive Vice President of Hartford Life Insurance Company (“HLIC”) and The Hartford. Additionally, Mr. Davey serves as Chairman of the Board, Manager and Senior Managing Director of Hartford Funds Distributors, LLC (“HFD”). He also currently serves as Director, Chairman of the Board, President and Senior Managing Director of Hartford Administrative Services Company (“HASCO”). Mr. Davey also serves as Manager, Chairman of the Board and Senior Managing Director for Hartford Funds Management Company, LLC (“HFMC”) and Director, Chairman of the Board and Senior Managing Director for Hartford Funds Management Group, Inc. ("HFMG"). Mr. Davey has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Davey joined The Hartford in 2002.
Lowndes A. Smith* (1939) Director since 1996 (HSF) and 2002 (HSF2), Co-Chairman of the Investment Committee since 2005
Mr. Smith served as Vice Chairman of The Hartford from February 1997 to January 2002, as President and Chief Executive Officer of Hartford Life, Inc. from February 1997 to January 2002, and as President and Chief Operating Officer of The Hartford Life Insurance Companies from January 1989 to January 2002. Mr. Smith serves as a Director of White Mountains Insurance Group Ltd. (October 2003 to current); One Beacon Insurance (October 2006 to current); Symetra Financial (August 2007 to current) and is a Managing Director of Whittington Gray Associates (January 2007 to current).
* Mr. Smith resigned as a Director of Hartford Mutual Funds, Inc., Hartford Mutual Funds II, Inc., HSF and HSF2 and as a Trustee of The Hartford Alternative Strategies Fund effective September 17, 2014.
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Hartford High Yield HLS Fund
Directors and Officers (Unaudited) – (continued)
Other Officers
Mark A. Annoni (1964) Vice President, Controller and Treasurer since 2012
Mr. Annoni currently serves as the Assistant Vice President of HLIC (February 2004 to present) and Senior Vice President of HFMG (December 2013 to present). Mr. Annoni has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Annoni joined The Hartford in 2001.
Michael R. Dressen (1963) AML Compliance Officer since 2011
Mr. Dressen currently serves as Assistant Vice President of HLIC. He also serves as Chief Compliance Officer and AML Compliance Officer of HASCO and as AML Officer of HFD. Mr. Dressen has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
Edward P. Macdonald (1967) Vice President, Secretary and Chief Legal Officer since 2005
Mr. Macdonald currently serves as Assistant Secretary, Executive Vice President and Deputy General Counsel of HFD, HASCO, HFMC and HFMG. He also serves as Vice President of HLIC. Mr. Macdonald has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Macdonald joined The Hartford in 2005.
Joseph G. Melcher (1973) Vice President and Chief Compliance Officer since 2013
Mr. Melcher currently serves as Executive Vice President of HFD, HFMG and HASCO. Mr. Melcher also currently serves as Executive Vice President and Chief Compliance Officer of HFMC. Mr. Melcher has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds since joining The Hartford in 2012. Prior to joining The Hartford, Mr. Melcher worked at Touchstone Investments, a member of the Western & Southern Financial Group, where he held the position of Vice President and Chief Compliance Officer from 2010 through 2012 and Assistant Vice President, Compliance from 2005 to 2010.
Vernon J. Meyer (1964) Vice President since 2006
Mr. Meyer currently serves as Senior Vice President of HLIC. He also currently serves as Managing Director and Chief Investment Officer of HFMC and Managing Director of HFMG. Mr. Meyer has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Meyer joined The Hartford in 2004.
Laura S. Quade (1969) Vice President since 2012
Ms. Quade currently serves as Vice President of HASCO, HFD and HFMG. She is the Head of Operations of HASCO and formerly served as Director, Enterprise Operations of HLIC. Ms. Quade has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Ms. Quade joined The Hartford in 2001.
Martin A. Swanson** (1962) Vice President since 2010
Mr. Swanson currently serves as Vice President of HLIC. Mr. Swanson also serves as Managing Director, Chief Marketing Officer and Principal of HFD and Managing Director of HFMG. Mr. Swanson has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
** Mr. Swanson resigned as an officer effective November 6, 2014.
HOW TO OBTAIN A COPY OF THE FUND’S PROXY VOTING POLICIES AND VOTING RECORDS (UNAUDITED)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information about how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov. The Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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Hartford High Yield HLS Fund
Expense Example (Unaudited)
Your Fund's Expenses
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including investment management fees, distribution and/or service (12b-1) fees, if any, and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period of June 30, 2014 through December 31, 2014.
Actual Expenses
The first set of columns of the table below provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second set of columns of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as taxes, sales charges (loads), or fees which may be applied at the variable life insurance, variable annuity, or qualified retirement plan product level. Therefore, the second set of columns of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would be higher. Expenses are equal to the Fund's annualized expense ratios multiplied by average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
Actual return | Hypothetical (5% return before expenses) | |||||||||||||||||||||||||||||||||||
Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Annualized expense ratio | Days in the current 1/2 year | Days in the full year | ||||||||||||||||||||||||||||
Class IA | $ | 1,000.00 | $ | 972.30 | $ | 3.73 | $ | 1,000.00 | $ | 1,021.42 | $ | 3.82 | 0.75 | % | 184 | 365 | ||||||||||||||||||||
Class IB | $ | 1,000.00 | $ | 971.10 | $ | 4.97 | $ | 1,000.00 | $ | 1,020.16 | $ | 5.09 | 1.00 | 184 | 365 | |||||||||||||||||||||
34 |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited)
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of directors, including a majority of those directors who are not “interested persons” of the mutual fund, as defined in the 1940 Act (the “Independent Directors”), annually review and consider the continuation of the mutual fund’s investment advisory and sub-advisory agreements. At its meeting held on August 5-6, 2014, the Board of Directors (the “Board”) of Hartford Series Fund, Inc., including each of the Independent Directors, unanimously voted to approve the continuation of the investment management agreement for Hartford High Yield HLS Fund (the “Fund”) with Hartford Funds Management Company, LLC (“HFMC”) and the continuation of the investment sub-advisory agreement between HFMC and the Fund’s sub-adviser, Wellington Management Company, LLP (the “Sub-adviser,” and together with HFMC, the “Advisers”) (collectively, the “Agreements”).
In the months preceding the August 5-6, 2014 meeting, the Board requested, received and reviewed written responses from the Advisers to questions posed to them on behalf of the Independent Directors and supporting materials relating to those questions and responses. The Board considered information furnished to the Board at its meetings throughout the year, as well as information specifically prepared in connection with the annual approval of the Agreements at the Board’s meetings held on June 17-18, 2014 and August 5-6, 2014. Information provided to the Board at its meetings throughout the year included, among other things, reports on Fund performance, legal and compliance matters, sales and marketing activity, shareholder services, and the other services provided to the Fund by the Advisers and their affiliates. The Board also received in-person presentations by Fund officers and representatives of HFMC at the Board’s meetings on June 17-18, 2014 and August 5-6, 2014 concerning the Agreements.
The Independent Directors, advised by independent legal counsel, engaged service providers to assist them with evaluating the Agreements with respect to the Fund. Lipper Inc. (“Lipper”), an independent provider of investment company data, was retained to provide the Board with reports on how the Fund’s contractual management fees, actual management fees, other non-management fees, overall expense ratios and investment performance compared to those of mutual funds with similar investment objectives. The Independent Directors also engaged an independent financial services consultant (the “Consultant”) to assist them in evaluating the Fund’s management fees, sub-advisory fees, other non-management fees, overall expense ratios and investment performance. In addition, the Consultant reviewed the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement.
In determining whether to continue the Agreements for the Fund, the members of the Board reviewed and evaluated information and factors they believed to be relevant and appropriate in light of the information that the Board deemed necessary and appropriate through the exercise of its reasonable business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination to continue the Agreements was based on a comprehensive consideration of all information provided to the Board throughout the year and specifically with respect to the continuation of the Agreements. A more detailed discussion of the factors the Board considered with respect to its approval of the Agreements is provided below.
Nature, Extent and Quality of Services Provided by the Advisers
The Board requested and considered information concerning the nature, extent and quality of the services provided to the Fund by the Advisers. The Board considered, among other things, the terms of the Agreements and the range of services provided by the Advisers. The Board considered the Advisers’ professional personnel who provide services to the Fund, including each Adviser’s ability and experience in attracting and retaining qualified personnel to service the Fund. The Board considered each Adviser’s reputation and overall financial strength, as well as its willingness to consider and implement organizational and operational changes designed to enhance services to the Hartford Funds. In addition, the Board considered the quality of each Adviser’s communications with the Board and responsiveness to Board inquiries and requests made from time to time with respect to the Fund and other Hartford Funds.
The Board also requested and evaluated information concerning each Adviser’s regulatory and compliance environment. In this regard, the Board requested and reviewed information on each Adviser’s compliance policies and procedures, compliance history, and a report from the Fund’s Chief Compliance Officer on each Adviser’s compliance with applicable laws and regulations, including responses to regulatory developments and compliance issues raised by regulators. The Board also noted the Advisers’ support of the Fund’s compliance control structure, particularly the resources devoted by the Advisers in support of the Fund’s obligations pursuant to Rule 38a-1 under the 1940 Act.
With respect to HFMC, the Board noted that under the Agreements, HFMC is responsible for the management of the Fund, including oversight of fund operations and service providers, as well as investment advisory services in connection with selecting, monitoring and supervising the Sub-adviser. The Board considered HFMC’s ongoing monitoring of people, process and performance, including its quarterly reviews of each of the Hartford Funds, semi-annual meetings with the leaders of each Fund’s portfolio management team, and oversight of the Hartford Funds’ approximately 37 portfolio managers. The Board recognized that HFMC has demonstrated a record of making changes to the management
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Hartford High Yield HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) - (continued)
and/or strategies of the Hartford Funds when warranted. The Board considered HFMC’s oversight of the Sub-adviser’s investment approach and results, process for monitoring best execution of portfolio trades by the Sub-adviser, and approach to risk management with respect to the Fund and the service providers to the Fund. The Board also considered HFMC’s oversight of compliance with the Fund’s objective and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over time led to an increase in the scope of HFMC’s services in this regard.
In addition, the Board considered HFMC’s ongoing commitment to review and rationalize the Hartford Funds product line-up and the expenses that HFMC had incurred in connection with fund combinations in recent years. The Board considered that HFMC or its affiliates are responsible for providing the Fund’s officers. The Board also noted that Hartford Life Insurance Company (“HLIC”) provides administrative services to the Fund. The Board considered its experiences with HFMC and HLIC with respect to each of these services.
With respect to the Sub-adviser, which provides certain day-to-day portfolio management services for the Fund, the Board considered the quality of the Fund’s portfolio manager, the Sub-adviser’s other investment personnel, its investment philosophy and process, investment research capabilities and resources, performance record, trade execution capabilities and experience. The Board considered the experience of the Fund’s portfolio manager, the number of accounts managed by the portfolio manager, and the Sub-adviser’s method for compensating the portfolio manager.
Based on these considerations, the Board concluded that it was satisfied with the nature, extent and quality of the services provided to the Fund by HFMC and the Sub-adviser.
Performance of the Fund and the Advisers
The Board considered the investment performance of the Fund. In this regard, the Board reviewed the performance of the Fund over different time periods presented in the materials and evaluated HFMC’s analysis of the Fund’s performance for these time periods. The Board considered information and materials provided to the Board by the Advisers concerning Fund performance, as well as information from Lipper comparing the investment performance of the Fund to an appropriate benchmark and universe of peer funds. The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1- and 5-year periods and the 3rd quintile for the 3-year period. The Board also noted that the Fund’s performance was in line with its benchmark for the 1- and 3-year periods and below its benchmark for the 5-year period.
The Board considered the detailed investment analytics reports provided by Hartford Funds’ Investment Advisory Group throughout the year. These reports include, among other things, information on the Fund’s gross and net returns, the Fund’s investment performance relative to an appropriate benchmark and peer group, various statistics concerning the Fund’s portfolio, and a narrative summary of various factors affecting Fund performance. The Board considered the Advisers’ cooperation with the Investment Committee, which assists the Board in evaluating the performance of the Fund at periodic meetings throughout the year. The Board also considered the analysis provided by the Consultant relating to the Fund’s performance track record.
In light of all the considerations noted above, the Board concluded that it had continued confidence in HFMC’s and the Sub-adviser’s overall capabilities to manage the Fund.
Costs of the Services and Profitability of the Advisers
The Board reviewed information regarding HFMC’s cost to provide investment management and related services to the Fund and HFMC’s profitability, both overall and for the Fund, on a pre-tax basis without regard to distribution expenses. The Board also requested and reviewed information about the profitability to HFMC and its affiliates from all services provided to the Fund and all aspects of their relationship with the Fund. The Board also requested and received information relating to the operations and profitability of the Sub-adviser.
The Board considered the Consultant’s review of the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement, noting the Consultant’s view that Hartford Funds’ process for calculating and reporting Fund profitability is reasonable. In this regard, the Board noted that the Consultant performed a full review of this process in light of the recent restructuring of the Hartford Funds business and reported that the approach to analyzing Fund profitability, including the use of common expense allocation methodologies, is reasonable, sound and well within common industry practice.
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Hartford High Yield HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) - (continued)
Based on these considerations, the Board concluded that the profits anticipated to be realized by the Advisers and their affiliates from their relationships with the Fund would not be excessive.
Comparison of Fees and Services Provided by the Advisers
The Board considered comparative information with respect to the management fees to be paid by the Fund to HFMC and the total expense ratios of the Fund. The Board also considered comparative information with respect to the sub-advisory fees to be paid by HFMC to the Sub-adviser. In this regard, the Board requested and reviewed information from HFMC and the Sub-adviser relating to the management and sub-advisory fees, including the sub-advisory fee schedule for the Fund, and total operating expenses for the Fund. The Board considered that the management fee for the Fund includes the fee paid to HLIC for providing certain administrative services to the Fund. With respect to the sub-advisory fee schedule, the Board considered representations from HFMC and the Sub-adviser that the Sub-adviser’s fees were negotiated at arm’s length on a fund-by-fund basis. The Board also reviewed information from Lipper comparing the Fund’s contractual management fees, actual management fees and overall expense ratios relative to a group of funds selected by Lipper, in consultation with the Consultant, and a broader universe of funds selected by Lipper. The Board noted that the Fund’s contractual management fee, actual management fee and total expenses (less 12b-1 and shareholder service fees) were in the 5th quintile of its expense group.
While the Board recognized that comparisons between the Fund and peer funds may be imprecise, given the different service levels and characteristics of mutual funds and the different business models and cost structures of the Advisers, the comparative information provided by Lipper assisted the Board in evaluating the reasonableness of the Fund’s management and sub-advisory fees and total operating expenses. In addition, the Board considered the analysis and recommendations of the Consultant relating to the Fund’s management and sub-advisory fees and total operating expenses.
Based on these considerations, the Board concluded that the Fund’s fees and total operating expenses, in conjunction with the information about quality of services, profitability, economies of scale, and other matters discussed, were reasonable in light of the services provided.
Economies of Scale
The Board requested and considered information regarding the Advisers’ realization of economies of scale with respect to the Fund and whether the fee levels reflect these economies of scale for the benefit of the Fund’s shareholders. The Board reviewed the breakpoints in the management fee schedule for the Fund, which reduce fee rates as Fund assets grow over time. The Board recognized that a fund with assets beyond the highest breakpoint level will continue to benefit from economies of scale because additional assets are charged the lowest breakpoint fee resulting in lower overall effective management fee rates. The Board also recognized that a fee schedule that reaches a lower breakpoint quickly provides shareholders with the benefit of anticipated or potential economies of scale. The Board noted the effect of the sale and run-off of the variable annuity business on the HLS Funds.
The Board reviewed and evaluated materials from Lipper and the Consultant showing how management fee schedules of peer funds reflect economies of scale for the benefit of shareholders as a peer fund’s assets hypothetically increase over time. Based on information provided by HFMC, Lipper, and the Consultant, the Board recognized that there is no uniform methodology for establishing breakpoints or uniform pattern in asset levels that trigger breakpoints or the amounts of breakpoints triggered.
After considering all of the information available to it, the Board concluded that it was satisfied with the extent to which economies of scale would be shared for the benefit of the Fund’s shareholders based on currently available information and the effective advisory fees and expense ratios for the Fund at its current and reasonably anticipated asset levels. The Board noted, however, that it would continue to monitor future growth in Fund assets and the appropriateness of additional breakpoints.
Other Benefits
The Board considered other benefits to the Advisers and their affiliates from their relationships with the Fund, including the role of the Fund in supporting the variable life insurance and variable annuity products offered by The Hartford.
The Board noted that HLIC, an affiliate of HFMC, receives fees for providing certain administrative services to the Fund and that HFMC receives fees for fund accounting and related services from the Fund. The Board considered information on profits to HLIC and HFMC for such services. The Board also considered that Hartford Administrative Services Company (“HASCO”), the Fund’s transfer agent and an affiliate of HFMC,
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Hartford High Yield HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) - (continued)
receives transfer agency compensation from the Fund, and the Board reviewed information on the profitability of the Fund’s transfer agency function to HASCO. The Board considered information provided by HASCO indicating that the transfer agent fees charged by HASCO to the Fund were fair and reasonable based on publicly available information.
The Board also considered that Hartford Funds Distributors, LLC (“HFD”), an affiliate of HFMC, serves as principal underwriter of the Fund. As principal underwriter, HFD receives 12b-1 fees from the Fund. The Board also noted that certain affiliates of HFD distribute shares of the Fund and receive compensation in that connection.
The Board considered the benefits, if any, to the Sub-adviser from any use of the Fund’s brokerage commissions to obtain soft dollar research, and representations from HFMC and the Sub-adviser that the Sub-adviser would not make any revenue-sharing payments or any other type of distribution payments to HFMC or its affiliates.
The Board considered the benefits to shareholders of being part of the Hartford Funds family of funds. The Board considered HFMC’s efforts to provide investors in the family with a broad range of investment styles and asset classes.
* * * *
Based upon its review of these various factors, among others, the Board concluded that it is in the best interests of the Fund and its shareholders for the Board to approve the Agreements for an additional year. In reaching this decision, the Board did not assign relative weights to the factors discussed above or deem any one or group of them to be controlling in and of themselves. In connection with their deliberations, the Independent Directors met separately in executive session on several occasions, with independent legal counsel and the Consultant, to review the relevant materials and consider their responsibilities under relevant laws and regulations.
38 |
Main Risks (Unaudited)
The main risks of investing in the Fund are described below.
Market, Selection and Strategy Risk: The Fund’s share price may fluctuate due to market risk and/or security selections that may underperform the market or relevant benchmarks. If the sub-adviser's investment strategy does not perform as expected, the Fund could underperform its peers or lose money. There is no guarantee the Fund will achieve its stated objective.
Junk Bond Risk: Investments in junk bonds involve greater risk of price volatility, illiquidity, and default than higher-rated debt securities.
Fixed Income Risk: The Fund is subject to interest rate risk (the risk that the value of an investment decreases when interest rates rise), credit risk (the risk that the issuing company of a security is unable to pay interest and principal when due), liquidity risk (the risk that an investment may be difficult to sell at an advantageous time or price) and call risk (the risk that an investment may be redeemed early).
Foreign Investment Risk: Investments in foreign securities may be riskier than investments in U.S. securities. Potential risks include the risks of illiquidity, increased price volatility, less government regulation, less extensive and less frequent accounting and other reporting requirements, unfavorable changes in currency exchange rates, and economic and political disruptions.
Derivatives Risk: Investments in derivatives can be volatile. Potential risks include currency risk, leverage risk (the risk that small market movements may result in large changes in the value of an investment), liquidity risk, index risk, pricing risk, and counterparty risk (the risk that the counterparty may be unwilling or unable to honor its obligations).
Active Trading Risk: Actively trading investments may result in higher costs (thus affecting performance).
39 |
THIS PRIVACY POLICY IS NOT PART OF THIS REPORT
Privacy Policy and Practices of The Hartford Financial Services Group, Inc. and its Affiliates
(herein called “we, our and us”)
This Privacy Policy applies to our United States Operations
We value your trust. We are committed to the responsible: a) management; b) use; and c) protection; of Personal Information.
This notice describes how we collect, disclose, and protect Personal Information.
We collect Personal Information to: a) service your Transactions with us; and b) support our business functions.
We may obtain Personal Information from: a) You; b) your Transactions with us; and c) third parties such as a consumer-reporting agency.
Based on the type of product or service You apply for or get from us, Personal Information such as: a) your name; b) your address; c) your income; d) your payment; or e) your credit history; may be gathered from sources such as applications, Transactions, and consumer reports.
To serve You and service our business, we may share certain Personal Information. We will share Personal Information, only as allowed by law, with affiliates such as: a) our insurance companies; b) our employee agents; c) our brokerage firms; and d) our administrators.
As allowed by law, we may share Personal Financial Information with our affiliates to: a) market our products; or b) market our services; to You without providing You with an option to prevent these disclosures. | We may also share Personal Information, only as allowed by law, with unaffiliated third parties including: a) independent agents; b) brokerage firms; c) insurance companies; d) administrators; and e) service providers; who help us serve You and service our business.
When allowed by law, we may share certain Personal Financial Information with other unaffiliated third parties who assist us by performing services or functions such as: a) taking surveys; b) marketing our products or services; or c) offering financial products or services under a joint agreement between us and one or more financial institutions.
We, and third parties we partner with, may track some of the pages You visit through the use of: a) cookies; b) pixel tagging; or c) other technologies; and currently do not process or comply with any web browser’s “do not track” signal or similar mechanism that indicates a request to disable online tracking of individual users who visit our websites or use our services.
We will not sell or share your Personal Financial Information with anyone for purposes unrelated to our business functions without offering You the opportunity to: a) “opt-out;” or b) “opt-in;” as required by law.
We only disclose Personal Health Information with: a) your proper written authorization; or b) as otherwise allowed or required by law.
Our employees have access to Personal Information in the course of doing their jobs, such as: a) underwriting policies; b) paying claims; c) developing new products; or d) advising customers of our products and services. |
We use manual and electronic security procedures to maintain: a) the confidentiality; and b) the integrity of; Personal Information that we have. We use these procedures to guard against unauthorized access.
Some techniques we use to protect Personal Information include: a) secured files; b) user authentication; c) encryption; d) firewall technology; and e) the use of detection software.
We are responsible for and must: a) identify information to be protected; b) provide an adequate level of protection for that data; c) grant access to protected data only to those people who must use it in the performance of their job-related duties.
Employees who violate our Privacy Policy will be subject to discipline, which may include ending their employment with us.
At the start of our business relationship, we will give You a copy of our current Privacy Policy.
We will also give You a copy of our current Privacy Policy once a year if You maintain a continuing business relationship with us.
We will continue to follow our Privacy Policy regarding Personal Information even when a business relationship no longer exists between us. | As used in this Privacy Notice:
Application means your request for our product or service.
Personal Financial Information means financial information such as: a) credit history; b) income; c) financial benefits; or d) policy or claim information.
Personal Health Information means health information such as: a) your medical records; or b) information about your illness, disability or injury.
Personal Information means information that identifies You personally and is not otherwise available to the public. It includes: a) Personal Financial Information; and b) Personal Health Information .
Transaction means your business dealings with us, such as: a) your Application; b) your request for us to pay a claim; and c) your request for us to take an action on your account.
You means an individual who has given us Personal Information in conjunction with: a) asking about; b) applying for; or c) obtaining; a financial product or service from us if the product or service is used mainly for personal, family, or household purposes. |
This Privacy Policy is being provided on behalf of the following affiliates of The Hartford Financial Services Group, Inc.:
1stAGChoice, Inc.; Access CoverageCorp, Inc.; Access CoverageCorp Technologies, Inc.; American Maturity Life Insurance Company; Archway 60 R, LLC; Business Management Group, Inc.; DMS R, LLC; First State Insurance Company; Fountain Investors I LLC; Fountain Investors II LLC; Fountain Investors III LLC; Fountain Investors IV LLC; FTC Resolution Company LLC; Hart Re Group L.L.C.; Hartford Accident and Indemnity Company; Hartford Administrative Services Company; Hartford Casualty General Agency, Inc.; Hartford Casualty Insurance Company; Hartford Financial Services, LLC; Hartford Fire General Agency, Inc.; Hartford Fire Insurance Company; Hartford Funds Distributors, LLC; Hartford Funds Management Company, LLC; Hartford Funds Management Group, Inc.; Hartford Holdings, Inc.; Hartford HLS Series Fund II, Inc.; Hartford Insurance Company of Illinois; Hartford Insurance Company of the Midwest; Hartford Insurance Company of the Southeast; Hartford Integrated Technologies, Inc.; Hartford International Life Reassurance Corporation; Hartford Investment Management Company; Hartford Life and Accident Insurance Company; Hartford Life and Annuity Insurance Company; Hartford Life Insurance Company; Hartford Life, Inc.; Hartford Life International Holding Company; Hartford Life Private Placement, LLC; Hartford Lloyd’s Corporation; Hartford Lloyd’s Insurance Company; Hartford of Texas General Agency, Inc.; Hartford Residual Market, L.C.C.; Hartford Securities Distribution Company, Inc.; Hartford Series Fund, Inc.; Hartford Specialty Insurance Services of Texas, LLC; Hartford Strategic Investments, LLC; Hartford Underwriters General Agency, Inc.; Hartford Underwriters Insurance Company; Hartford-Comprehensive Employee Benefit Service Company; HDC R, LLC.; Heritage Holdings, Inc.; HIMCO Distribution Services Company; HIMCO Variable Insurance Trust; HLA LLC; HL Investment Advisors, LLC; Horizon Management Group, LLC; HRA Brokerage Services, Inc.; Lanidex Class B, LLC; New England Insurance Company; New England Reinsurance Corporation; Nutmeg Insurance Agency, Inc.; Nutmeg Insurance Company; Pacific Insurance Company, Limited; Planco, LLC; Property and Casualty Insurance Company of Hartford; Revere R, LLC; RVR R, LLC; Sentinel Insurance Company, Ltd.; Sunstone R, LLC; Symphony R, LLC; The Evergreen Group Incorporated; The Hartford Alternative Strategies Fund; The Hartford Mutual Funds, Inc.; The Hartford Mutual Funds II, Inc.; Trumbull Flood Management, L.L.C.; Trumbull Insurance Company; Twin City Fire Insurance Company.
HPP Revised February 2015
HARTFORD HLS FUNDS
P.O. Box 14293
Lexington, KY 40512-4293
HARTFORDFUNDS
hartfordfunds.com
Hartford HLS Funds are underwritten and distributed by Hartford Funds Distributors, LLC.
Hartford Series Fund, Inc. is not a subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford") but is underwritten, distributed by and advised by subsidiaries of The Hartford. Investments in Hartford Series Fund, Inc. are not guaranteed by The Hartford or any other entity.
This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution unless preceded or accompanied by a current prospectus for the Fund.
Investors should carefully consider the investment objectives, risks, charges, and expenses of Hartford Funds before investing. This and other information can be found in the prospectus and summary prospectus, which can be obtained by calling 888-843-7824 (or 800-279-1541 for institutional investors). Investors should read them carefully before they invest.
HLSAR-HY14 2-15 113544-4 Printed in U.S.A.
HARTFORDFUNDS
![]() | HARTFORD INTERNATIONAL
2014 Annual Report |
A MESSAGE FROM THE PRESIDENT
Dear Fellow Shareholders:
Thank you for investing in Hartford HLS Funds.
Market Review
Nearly six years into a bull market, U.S. equities (as represented by the S&P 500 Index ) notched another positive year in 2014, finishing with a 13.69% gain. Progress was smooth for most of the year, with stocks generally rising amid little volatility. In the fourth quarter, however, the price of oil declined by nearly 40%, returning volatility to the market and paring some of the year’s returns.
As we enter 2015, the price of oil will likely continue playing an important role in market progress, as its effects are widespread. If prices remain low, consumers should benefit by paying less at the gas pump, which increases the amount of money available for discretionary spending. In contrast, low prices may be a detriment to the oil and natural gas industry in the U.S., as well as to the economies of countries that rely more heavily on oil exports.
Central-bank policies will also continue to influence the markets. The U.S. economy has continued to show self-sustaining growth, which has prompted the U.S. Federal Reserve to wind down the quantitative easing programs it initiated after the global financial crisis. In addition, gradual increases in interest rates are expected to begin in 2015, another sign of positive recovery and a return to pre-crisis policy. But in Europe, a slow recovery and fears of deflation have prompted the start of European Central Bank’s own version of quantitative easing to spur growth.
The final weeks of 2014 provided a stark reminder of how unpredictable market movements can be, and how important it is to maintain a diversified portfolio that’s in line with your time horizon and risk tolerance. As we begin 2015, take time to review your portfolio and your overall investment strategy with your financial advisor.
With more than 40 mutual-fund strategies that span a variety of asset classes and investment goals, your financial advisor can work with you to choose options within our fund family that can help you navigate today’s markets with confidence.
Thank you again for investing with Hartford HLS Funds.
James Davey
President
Hartford HLS Funds
1The S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
Hartford International Opportunities HLS Fund
Table of Contents
This report is prepared for the general information of contract owners and qualified retirement plan participants. It is not an offer of contracts or of qualified retirement plans. It should not be used in connection with any offer, except in conjunction with the appropriate product prospectus which contains all pertinent information including the applicable sales, administrative and other charges.
The views expressed in the Fund’s Manager Discussion under ‘‘Why did the Fund perform this way?’’ and ‘‘What is the outlook?’’ are views of the Fund’s sub-adviser and portfolio management team through the end of the period and are subject to change based on market and other conditions. The Fund’s Manager Discussion is for informational purposes only and does not represent an offer, recommendation or solicitation to buy, hold or sell any security. The specific securities identified and described, if any, do not represent all of the securities purchased or sold and you should not assume that investments in the securities identified and discussed will be profitable.
Hartford International Opportunities HLS Fund inception 07/02/1990
(sub-advised by Wellington Management Company, LLP)
Investment objective – The Fund seeks long-term growth of capital.
Performance Overview 12/31/04 - 12/31/14
The chart above represents the hypothetical growth of a $10,000 investment in Class IA. Growth results in classes other than Class IA will vary from what is seen above due to differences in the expenses charged to those share classes.
Average Annual Total Returns (as of 12/31/14)
1 Year | 5 Years | 10 Years | |
International Opportunities IA | -3.87% | 6.70% | 6.84% |
International Opportunities IB | -4.14% | 6.44% | 6.57% |
MSCI All Country World ex USA Index | -3.43% | 4.89% | 5.59% |
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of the investment will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain performance data current to the most recent month-end, please visit our website www.hartfordfunds.com.
Total returns presented above were calculated using the Fund’s net asset value available to shareholders for sale or redemption of Fund shares on December 31, 2014, which may exclude investment transactions as of this date. All share class returns assume the reinvestment of all distributions at net asset value and the deduction of all fund expenses.
MSCI All Country World ex USA Index is a broad-based, unmanaged, market capitalization weighted, total return index that measures the performance of both developed and emerging stock markets, excluding the U.S. The index is calculated to exclude companies and share classes which cannot be freely purchased by foreigners.
The index is unmanaged, and its results include reinvested dividends and/or distributions, but do not reflect the effect of sales charges, commissions, expenses or taxes.
You cannot invest directly in an index.
As shown in the Fund's current prospectus dated May 1, 2014, the total annual operating expense ratios for Class IA and Class IB were 0.74% and 0.99%, respectively. Actual expenses may be higher. Please see the accompanying Financial Highlights for expense ratios for the year ended December 31, 2014.
The chart and table do not reflect the deductions of taxes, sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees or expenses would lower the contract’s or plan’s performance.
All investments are subject to risk including the possible loss of principal. For a discussion of the Fund’s risks, please see the Main Risks section of this report. For more detailed information on the risks associated with an investment in the Fund, please see the prospectus.
2 |
Hartford International Opportunities HLS Fund
Manager Discussion
December 31, 2014 (Unaudited)
Portfolio Managers | |
Nicolas M. Choumenkovitch | Tara E. Stilwell, CFA |
Senior Managing Director and Equity Portfolio Manager | Senior Managing Director and Equity Portfolio Manager |
How did the Fund perform?
The Class IA of the Hartford International Opportunities HLS Fund returned -3.87% for the twelve-month period ended December 31, 2014, underperforming the Fund’s benchmark, the MSCI All Country World ex USA Index, which returned -3.43% for the same period. The Fund outperformed the -4.62% average return of the Lipper International Multi-Cap Growth Funds peer group, a group of funds with investment strategies similar to those of the Fund.
Why did the Fund perform this way?
International equities fell over the full year period driven primarily by a pullback in the second half of 2014. Despite ongoing geopolitical tensions in Ukraine and the Middle East, concerns about a Chinese economic growth slowdown, and unsettling economic and political developments in several other emerging market countries, the five-year-old bull market continued in the first half of 2014. Robust merger and acquisition activity, along with continued accommodative monetary policy from central banks around the globe, aided positive investor sentiment in May and June. However, Portuguese banking woes, European economic malaise, and the prospect of an accelerated U.S. Federal Reserve (Fed) interest-rate-increase timeline all contributed to stall the global stock rally near the tail end of the period. In addition, China's property slump and poor gross domestic product (GDP) readings in Japan and the eurozone raised the specter of a slowdown in global economic growth. Nevertheless, there were several positive developments in the second half of 2014, including an encouraging U.S. corporate earnings season and the fastest U.S. economic growth in more than a decade during the third quarter. Accommodative global monetary policy continued to be a central theme through year end. The Bank of Japan unexpectedly expanded its quantitative easing (QE) policy in late October, the People's Bank of China surprised markets in November with its first rate cut in two years, and the European Central Bank maintained its stance implying interest rates will remain low, with hints of sovereign QE beginning early in 2015. Despite these positives, many market participants found ample reason to reassess their risk appetites. During the period, emerging market equities underperformed their developed market counterparts and U.S. stocks generally outperformed non-U.S. stocks.
Non-U.S. stocks, as measured by the MSCI All Country World ex USA Index, fell during the period (-3.43%). Seven of ten sectors in the index posted negative returns; Healthcare (+8%), Information Technology (+5%), and Utilities (+4%) led the index while Energy (-19%), Materials (-13%), and Industrials (-6%) lagged on a relative basis.
The Fund’s relative performance benefitted from strong security selection in Information Technology, Consumer Discretionary and Healthcare as well as an overweight in the Healthcare sector. However, this was offset by weaker stock selection in the Financials, Industrials and Telecommunication Services sectors and underweight allocations to Financials and Consumer Staples.
The largest relative detractors from returns relative to the MSCI All Country World ex USA Index included BG Group (Energy), Rexel (capital goods), and Deutche Lufthansa (Industrials). Shares of BG Group, a U.K.-based natural gas-focused oil and gas exploration company, declined as a result of weak earnings in their exploration and production sector over the period. Shares of Rexel, a France-based global distributor of low voltage electrical products, declined due to downward pressure on margins driven by weaker than expected performance by the company’s non-residential business lines. Shares of Deutsche Lufthansa, a German international airline, suffered following disappointing earnings driven by unused capacity due to the economic slowdown in Europe. Alpha Bank (Financials) also detracted from absolute and relative performance.
Top contributors to absolute performance and performance relative to the MSCI All Country World ex-USA Index during the period included NXP Semiconductors (Information Technology), AstraZeneca (Healthcare), and Tim Hortons (Consumer Discretionary). Shares of AstraZeneca, a U.K.-based multinational pharmaceutical company focused on cardiovascular, gastrointestinal, respiratory, oncology, and neuroscience treatments, outperformed on news that U.S.-based pharmaceutical giant Pfizer offered to acquire the company at a price that AstraZeneca dismissed as too low. The company also has a number of drugs in phase III trials; that number has doubled over the past year and new management is allocating capital to drive long-term growth through investments in immuno-oncology and selective acquisitions. Shares of NXP Semiconductors, a Netherlands-based semiconductor company, gained as NXP continued to benefit from a powerful combination of product cycles, structural cost savings, margin expansion, and a competitive advantage in sizable markets such as identification and smart mobile businesses. Shares of Tim Hortons, the dominant player in the Canadian away-from-home coffee market, rose during the period on the announcement of takeover bid from Burger King.
Derivatives are not used in a significant manner in the Fund and did not have a material impact on performance during the period.
3 |
Hartford International Opportunities HLS Fund
Manager Discussion – (continued)
December 31, 2014 (Unaudited)
What is the outlook?
In 2015, we believe global economic growth will likely continue to be moderate. Going forward, we think that we should begin to see productivity gains contribute more to growth. We believe future returns on assets should improve as recent advances in technology gain traction and capital shifts towards business models that require less of it. Additionally, it appears that lower commodity prices, which should help the consumer, also should contribute to global productivity by stemming the flow of capital to resource-driven economies and allowing it to remain in more efficient and productive ones. In this lower growth environment, we are looking to invest in companies which we feel can improve returns on capital by restructuring and building efficiencies in their operations. We also seek to identify companies that can sustain their returns on capital through competitive advantages.
At the end of the period, relative to the MSCI All Country World ex USA Index we were most overweight Healthcare, Information Technology and Financials sectors, and most underweight Consumer Staples, Materials, and Telecommunication Services sectors. On a regional basis, we ended the period with an overweight to Japan and select European countries, including Belgium, France, Italy, and Switzerland. We ended the period underweight Asia Pacific ex Japan and emerging markets.
Diversification by Sector
as of December 31, 2014
Sector | Percentage of Net Assets | |||
Equity Securities | ||||
Consumer Discretionary | 10.9 | % | ||
Consumer Staples | 7.1 | |||
Energy | 6.3 | |||
Financials | 27.4 | |||
Health Care | 15.3 | |||
Industrials | 9.5 | |||
Information Technology | 10.4 | |||
Materials | 5.0 | |||
Services | 3.4 | |||
Utilities | 3.6 | |||
Total | 98.9 | % | ||
Short-Term Investments | 1.2 | |||
Other Assets and Liabilities | (0.1 | ) | ||
Total | 100.0 | % |
A sector may be comprised of several industries. For Fund compliance purposes, the Fund may not use the same classification system and these sector classifications are used for reporting ease.
Currency Concentration of Securities
as of December 31, 2014
Percentage of | ||||
Description | Net Assets | |||
Brazilian Real | 0.5 | % | ||
British Pound | 14.2 | |||
Canadian Dollar | 5.6 | |||
Danish Kroner | 0.2 | |||
Euro | 30.0 | |||
Hong Kong Dollar | 4.1 | |||
Indian Rupee | 2.7 | |||
Japanese Yen | 19.2 | |||
Republic of Korea Won | 1.2 | |||
Swedish Krona | 3.7 | |||
Swiss Franc | 9.9 | |||
Taiwanese Dollar | 2.3 | |||
Turkish New Lira | 0.5 | |||
United States Dollar | 6.0 | |||
Other Assets and Liabilities | (0.1 | ) | ||
Total | 100.0 | % |
4 |
Hartford International Opportunities HLS Fund
Schedule of Investments
December 31, 2014
(000’s Omitted)
Shares or Principal Amount | Market Value ╪ | |||||||
Common Stocks - 98.9% | ||||||||
Belgium - 3.4% | ||||||||
397 | Anheuser-Busch InBev N.V. | $ | 44,655 | |||||
86 | Umicore S.A. | 3,465 | ||||||
48,120 | ||||||||
Brazil - 0.9% | ||||||||
606 | BB Seguridade Participacoes | 7,332 | ||||||
802 | Petroleo Brasileiro S.A. ADR | 5,858 | ||||||
13,190 | ||||||||
Canada - 5.6% | ||||||||
264 | Canadian National Railway Co. | 18,202 | ||||||
675 | Imperial Oil Ltd. | 29,092 | ||||||
157 | Restaurant Brands International, Inc. | 6,161 | ||||||
542 | Transcanada Corp. | 26,637 | ||||||
80,092 | ||||||||
China - 5.1% | ||||||||
195 | Alibaba Group Holding Ltd. ● | 20,251 | ||||||
48 | Baidu, Inc. ADR ● | 10,885 | ||||||
14,302 | China Construction Bank | 11,682 | ||||||
1,979 | ENN Energy Holdings Ltd. | 11,197 | ||||||
4,733 | Lenovo Group Ltd. | 6,179 | ||||||
4,516 | PetroChina Co., Ltd. | 5,013 | ||||||
3,688 | PICC Property and Casualty Co., Ltd. | 7,117 | ||||||
72,324 | ||||||||
Colombia - 0.1% | ||||||||
94 | Grupo Aval Acciones y Valores S.A. | 975 | ||||||
Denmark - 0.2% | ||||||||
163 | H. Lundbeck A/S | 3,242 | ||||||
Finland - 0.6% | ||||||||
196 | Kone Oyj Class B | 8,912 | ||||||
France - 9.5% | ||||||||
281 | Air Liquide | 34,760 | ||||||
116 | BNP Paribas | 6,826 | ||||||
189 | Cie Generale d'Optique Essilor International S.A. | 21,051 | ||||||
278 | Groupe Eurotunnel S.A. | 3,588 | ||||||
235 | Legrand S.A. | 12,325 | ||||||
531 | Orange S.A. | 9,032 | ||||||
505 | Rexel S.A. | 9,053 | ||||||
103 | Schneider Electric S.A. | 7,526 | ||||||
114 | Societe Generale Class A | 4,767 | ||||||
102 | Unibail Rodamco REIT | 26,285 | ||||||
135,213 | ||||||||
Germany - 3.0% | ||||||||
157 | Brenntag AG | 8,784 | ||||||
70 | Continental AG | 14,752 | ||||||
556 | Deutsche Annington Immobile | 18,889 | ||||||
42,425 | ||||||||
Greece - 1.1% | ||||||||
15,693 | Alpha Bank A.E. ● | 8,816 | ||||||
690 | Hellenic Telecommunications Organization S.A. ● | 7,547 | ||||||
16,363 | ||||||||
Hong Kong - 1.2% | ||||||||
746 | Hong Kong Exchanges & Clearing Ltd. | 16,463 | ||||||
India - 2.7% | ||||||||
3,898 | ICICI Bank Ltd. | 21,694 | ||||||
853 | ITC Ltd. | 4,971 | ||||||
1,019 | Power Grid Corp. of India Ltd. | 2,220 | ||||||
783 | Punjab National Bank | 2,696 | ||||||
1,505 | State Bank of India | 7,394 | ||||||
38,975 | ||||||||
Ireland - 2.8% | ||||||||
33,393 | Bank of Ireland ● | 12,532 | ||||||
1,154 | CRH plc | 27,680 | ||||||
40,212 | ||||||||
Italy - 6.7% | ||||||||
967 | Assicurazioni Generali S.p.A. | 19,848 | ||||||
272 | Banca Generali S.p.A. | 7,562 | ||||||
1,359 | FinecoBank Banca Fineco S.p.A. ● | 7,659 | ||||||
3,950 | Intesa Sanpaolo S.p.A. | 11,457 | ||||||
493 | Luxottica Group S.p.A. | 27,040 | ||||||
4,552 | Snam S.p.A. | 22,530 | ||||||
96,096 | ||||||||
Japan - 19.2% | ||||||||
272 | Aisin Seiki Co., Ltd. | 9,775 | ||||||
365 | Asahi Group Holdings Ltd. | 11,284 | ||||||
236 | Asics Corp. | 5,683 | ||||||
89 | Daito Trust Construction Co., Ltd. | 10,128 | ||||||
589 | Daiwa House Industry Co., Ltd. ‡ | 11,122 | ||||||
260 | Eisai Co., Ltd. | 10,055 | ||||||
2,150 | Hitachi Ltd. | 15,869 | ||||||
941 | Isuzu Motors Ltd. | 11,460 | ||||||
66 | Japan Exchange Group, Inc. | 1,538 | ||||||
254 | Kansai Electric Power Co., Inc. ● | 2,418 | ||||||
268 | Kyushu Electric Power Co., Inc. ● | 2,685 | ||||||
511 | M3, Inc. | 8,547 | ||||||
189 | Mitsubishi Estate Co., Ltd. | 3,982 | ||||||
3,533 | Mitsubishi UFJ Financial Group, Inc. | 19,411 | ||||||
701 | Mitsui Fudosan Co., Ltd. | 18,804 | ||||||
3,389 | NEC Corp. | 9,848 | ||||||
241 | Nippon Telegraph & Telephone Corp. | 12,290 | ||||||
361 | Olympus Corp. ● | 12,632 | ||||||
272 | Ono Pharmaceutical Co., Ltd. ☼ | 24,077 | ||||||
503 | Rakuten, Inc. | 7,000 | ||||||
638 | Seven & I Holdings Co., Ltd. | 22,965 | ||||||
183 | Shikoku Electric Power Co. ● | 2,221 | ||||||
712 | T&D Holdings, Inc. | 8,537 | ||||||
339 | Takeda Pharmaceutical Co., Ltd. | 14,042 | ||||||
287 | Tokio Marine Holdings, Inc. | 9,324 | ||||||
1,998 | Toshiba Corp. | 8,427 | ||||||
274,124 | ||||||||
Jersey - 0.4% | ||||||||
1,313 | Glencore plc | 6,062 | ||||||
Netherlands - 6.5% | ||||||||
116 | ASML Holding N.V. | 12,503 | ||||||
1,991 | ING Groep N.V. ● | 25,724 | ||||||
6,302 | Koninklijke (Royal) KPN N.V. | 19,897 | ||||||
237 | NXP Semiconductors N.V. ● | 18,127 | ||||||
501 | Royal Dutch Shell plc | 16,726 | ||||||
92,977 | ||||||||
Romania - 0.3% | ||||||||
294 | Electrica S.A. ■● | 3,617 | ||||||
South Korea - 1.2% | ||||||||
318 | Hynix Semiconductor, Inc. ● | 13,583 |
The accompanying notes are an integral part of these financial statements.
5 |
Hartford International Opportunities HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Shares or Principal Amount | Market Value ╪ | |||||||||||
Common Stocks - 98.9% - (continued) | ||||||||||||
South Korea - 1.2% - (continued) | ||||||||||||
84 | Korea Electric Power Corp. | $ | 3,221 | |||||||||
16,804 | ||||||||||||
Spain - 0.7% | ||||||||||||
1,983 | CaixaBank | 10,390 | ||||||||||
Sweden - 3.7% | ||||||||||||
441 | Assa Abloy Ab | 23,313 | ||||||||||
567 | Electrolux AB Series B | 16,569 | ||||||||||
609 | SKF AB Class B | 12,827 | ||||||||||
52,709 | ||||||||||||
Switzerland - 9.9% | ||||||||||||
141 | Adecco S.A. | 9,726 | ||||||||||
57 | Compagnie Financiere Richemont S.A. | 5,013 | ||||||||||
627 | Julius Baer Group Ltd. | 28,616 | ||||||||||
529 | Novartis AG | 49,044 | ||||||||||
87 | Roche Holding AG | 23,548 | ||||||||||
1,455 | UBS AG ● | 25,018 | ||||||||||
140,965 | ||||||||||||
Taiwan - 2.3% | ||||||||||||
7,589 | Taiwan Semiconductor Manufacturing Co., Ltd. | 33,433 | ||||||||||
Turkey - 0.5% | ||||||||||||
1,792 | Turkiye Garanti Bankasi A.S. | 7,200 | ||||||||||
United Kingdom - 10.7% | ||||||||||||
62 | Al Noor Hospitals Group | 956 | ||||||||||
707 | AstraZeneca plc | 49,967 | ||||||||||
452 | BG Group plc | 6,051 | ||||||||||
72 | Derwent London plc REIT | 3,341 | ||||||||||
660 | Diageo Capital plc | 18,904 | ||||||||||
1,276 | Direct Line Insurance Group plc | 5,773 | ||||||||||
1,669 | International Consolidated Airlines Group S.A. ● | 12,564 | ||||||||||
114 | NMC Health plc | 808 | ||||||||||
118 | Schroders plc | 4,890 | ||||||||||
1,666 | Sky plc | 23,257 | ||||||||||
1,293 | WPP plc | 26,889 | ||||||||||
153,400 | ||||||||||||
United States - 0.6% | ||||||||||||
325 | Markit Ltd. ● | 8,582 | ||||||||||
Total Common Stocks | ||||||||||||
(Cost $1,353,916) | $ | 1,412,865 | ||||||||||
Total Long-Term Investments | ||||||||||||
(Cost $1,353,916) | $ | 1,412,865 | ||||||||||
Short-Term Investments - 1.2% | ||||||||||||
Repurchase Agreements - 1.2% | ||||||||||||
Bank of America Merrill Lynch Repurchase Agreement (maturing on 01/02/2015 in the amount of $17, collateralized by U.S. Treasury Note 0.75%, 2018, value of $17) | ||||||||||||
$ | 17 | 0.05%, 12/31/2014 | $ | 17 | ||||||||
Bank of America Merrill Lynch TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $85, collateralized by U.S. Treasury Note 2.50%, 2024, value of $87) | ||||||||||||
85 | 0.07%, 12/31/2014 | 85 | ||||||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $2,223, collateralized by U.S. Treasury Bond 3.88% - 5.25%, 2029 - 2040, U.S. Treasury Note 0.25% - 4.63%, 2015 - 2022, value of $2,268) | ||||||||||||
2,223 | 0.06%, 12/31/2014 | 2,223 | ||||||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $969, collateralized by FHLMC 2.00% - 5.50%, 2019 - 2044, FNMA 2.00% - 4.00%, 2024 - 2042, GNMA 3.00%, 2043, U.S. Treasury Bill 0.07%, 2015, value of $988) | ||||||||||||
969 | 0.07%, 12/31/2014 | 969 | ||||||||||
Barclays Capital TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $2,381, collateralized by U.S. Treasury Bond 3.63%, 2043, U.S. Treasury Note 0.88% - 2.00%, 2017 - 2020, value of $2,429) | ||||||||||||
2,381 | 0.05%, 12/31/2014 | 2,381 | ||||||||||
Citigroup Global Markets, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $4,256, collateralized by U.S. Treasury Bond 3.63% - 9.88%, 2015 - 2043, U.S. Treasury Note 0.25% - 2.75%, 2015 - 2022, value of $4,341) | ||||||||||||
4,256 | 0.06%, 12/31/2014 | 4,256 | ||||||||||
Deutsche Bank Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $691, collateralized by FHLMC 2.00% - 10.50%, 2015 - 2047, FNMA 2.00% - 9.50%, 2015 - 2049, GNMA 2.50% - 10.00%, 2016 - 2055, value of $705) | ||||||||||||
691 | 0.12%, 12/31/2014 | 691 | ||||||||||
RBS Securities, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $181, collateralized by U.S. Treasury Note 0.38% - 2.13%, 2015 - 2016, value of $185) | ||||||||||||
181 | 0.07%, 12/31/2014 | 181 | ||||||||||
Societe Generale TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $2,025, collateralized by U.S. Treasury Bond 8.75%, 2020, U.S. Treasury Note 0.25% - 2.88%, 2015 - 2022, value of $2,065) | ||||||||||||
2,025 | 0.07%, 12/31/2014 | 2,025 | ||||||||||
TD Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $4,337, collateralized by FHLMC 3.00% - 4.00%, 2026 - 2044, FNMA 2.50% - 5.00%, 2025 - 2044, value of $4,423) | ||||||||||||
4,337 | 0.08%, 12/31/2014 | 4,337 | ||||||||||
17,165 | ||||||||||||
Total Short-Term Investments | ||||||||||||
(Cost $17,165) | $ | 17,165 | ||||||||||
Total Investments | ||||||||||||
(Cost $1,371,081) ▲ | 100.1 | % | $ | 1,430,030 | ||||||||
Other Assets and Liabilities | (0.1 | )% | (1,031 | ) | ||||||||
Total Net Assets | 100.0 | % | $ | 1,428,999 |
The accompanying notes are an integral part of these financial statements.
6 |
Hartford International Opportunities HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Note: | Percentage of investments as shown is the ratio of the total market value to total net assets. |
Prices of foreign equities that are principally traded on certain foreign markets may be adjusted daily pursuant to a fair value pricing service approved by the Board of Directors in order to reflect an adjustment for factors occurring after the close of certain foreign markets but before the close of the New York Stock Exchange.
Equity industry classifications used in this report are the Global Industry Classification Standard, which was developed by and is the exclusive property and service mark of MSCI, Inc. and Standard & Poor’s.
For Fund compliance purposes, the Fund may not use the same classification system shown in this report as these classifications are used for reporting ease.
▲ | At December 31, 2014, the cost of securities for federal income tax purposes was $1,380,178 and the aggregate gross unrealized appreciation and depreciation based on that cost were: |
Unrealized Appreciation | $ | 119,231 | ||
Unrealized Depreciation | (69,379 | ) | ||
Net Unrealized Appreciation | $ | 49,852 |
● | Non-income producing. |
■ | Securities issued within terms of a private placement memorandum, exempt from registration under Rule 144A under the Securities Act of 1933, as amended, and may be sold only to qualified institutional buyers. Unless otherwise noted, these holdings are determined to be liquid. At December 31, 2014, the aggregate value of these securities was $3,617, which represents 0.3% of total net assets. |
☼ | This security, or a portion of this security, was purchased on a when-issued or delayed-delivery basis. The cost of these securities was $3,692 at December 31, 2014. |
‡ | This security, or a portion of this security, has been segregated to cover funding requirements on investment transactions settling in the future. |
Foreign Currency Contracts Outstanding at December 31, 2014
Unrealized Appreciation/(Depreciation) | ||||||||||||||||||||||
Currency | Buy / Sell | Delivery Date | Counterparty | Contract Amount | Market Value ╪ | Asset | Liability | |||||||||||||||
EUR | Sell | 01/05/2015 | BOA | $ | 72 | $ | 72 | $ | – | $ | – | |||||||||||
EUR | Sell | 01/02/2015 | SSG | 69 | 69 | – | – | |||||||||||||||
GBP | Sell | 01/05/2015 | BOA | 306 | 306 | – | – | |||||||||||||||
GBP | Sell | 01/02/2015 | SSG | 74 | 74 | – | – | |||||||||||||||
JPY | Buy | 01/05/2015 | BOA | 1,903 | 1,911 | 8 | – | |||||||||||||||
JPY | Buy | 01/06/2015 | BOA | 1,142 | 1,147 | 5 | – | |||||||||||||||
Total | $ | 13 | $ | – |
╪ | See Significant Accounting Policies of accompanying Notes to Financial Statements regarding valuation of securities. |
GLOSSARY: (abbreviations used in preceding Schedule of Investments) | ||
Counterparty Abbreviations: | ||
BOA | Banc of America Securities LLC | |
SSG | State Street Global Markets LLC | |
Currency Abbreviations: | ||
EUR | EURO | |
GBP | British Pound | |
JPY | Japanese Yen | |
Other Abbreviations: | ||
ADR | American Depositary Receipt | |
FHLMC | Federal Home Loan Mortgage Corp. | |
FNMA | Federal National Mortgage Association | |
GNMA | Government National Mortgage Association | |
REIT | Real Estate Investment Trust |
The accompanying notes are an integral part of these financial statements.
7 |
Hartford International Opportunities HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Investment Valuation Hierarchy Level Summary
December 31, 2014
Total | Level 1 ♦ | Level 2 ♦ | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Common Stocks | ||||||||||||||||
Belgium | $ | 48,120 | $ | – | $ | 48,120 | $ | – | ||||||||
Brazil | 13,190 | 13,190 | – | – | ||||||||||||
Canada | 80,092 | 80,092 | – | – | ||||||||||||
China | 72,324 | 31,136 | 41,188 | – | ||||||||||||
Colombia | 975 | 975 | – | – | ||||||||||||
Denmark | 3,242 | – | 3,242 | – | ||||||||||||
Finland | 8,912 | – | 8,912 | – | ||||||||||||
France | 135,213 | – | 135,213 | – | ||||||||||||
Germany | 42,425 | – | 42,425 | – | ||||||||||||
Greece | 16,363 | – | 16,363 | – | ||||||||||||
Hong Kong | 16,463 | – | 16,463 | – | ||||||||||||
India | 38,975 | – | 38,975 | – | ||||||||||||
Ireland | 40,212 | – | 40,212 | – | ||||||||||||
Italy | 96,096 | – | 96,096 | – | ||||||||||||
Japan | 274,124 | – | 274,124 | – | ||||||||||||
Jersey | 6,062 | – | 6,062 | – | ||||||||||||
Netherlands | 92,977 | 18,127 | 74,850 | – | ||||||||||||
Romania | 3,617 | 3,617 | – | – | ||||||||||||
South Korea | 16,804 | – | 16,804 | – | ||||||||||||
Spain | 10,390 | – | 10,390 | – | ||||||||||||
Sweden | 52,709 | – | 52,709 | – | ||||||||||||
Switzerland | 140,965 | 25,018 | 115,947 | – | ||||||||||||
Taiwan | 33,433 | – | 33,433 | – | ||||||||||||
Turkey | 7,200 | – | 7,200 | – | ||||||||||||
United Kingdom | 153,400 | 956 | 152,444 | – | ||||||||||||
United States | 8,582 | 8,582 | – | – | ||||||||||||
Total | $ | 1,412,865 | $ | 181,693 | $ | 1,231,172 | $ | – | ||||||||
Short-Term Investments | 17,165 | – | 17,165 | – | ||||||||||||
Total | $ | 1,430,030 | $ | 181,693 | $ | 1,248,337 | $ | – | ||||||||
Foreign Currency Contracts* | $ | 13 | $ | – | $ | 13 | $ | – | ||||||||
Total | $ | 13 | $ | – | $ | 13 | $ | – | ||||||||
Liabilities: | ||||||||||||||||
Foreign Currency Contracts* | $ | – | $ | – | $ | – | $ | – | ||||||||
Total | $ | – | $ | – | $ | – | $ | – |
♦ | For the year ended December 31, 2014, investments valued at $16,053 were transferred from Level 1 to Level 2, and investments valued at $2,680 were transferred from Level 2 to Level 1. Investments are transferred between Level 1 and Level 2 for a variety of reasons including, but not limited to: |
1) | Foreign equities for which a fair value price is more representative of exit value than the local market close (transfer into Level Foreign equities for which the local market close is more representative of exit value (transfer into Level 1). |
2) | U.S. Treasury securities that no longer represent the most recent issue (transfer into Level 2). |
3) | Equity investments with no observable trading but a bid or mean price is used (transfer into Level 2). Equity investments using observable quoted prices in an active market (transfer into Level 1). |
* | Derivative instruments (excluding purchased and written options, if applicable) are valued at the unrealized appreciation/depreciation on the investments. |
Note: | For purposes of reporting transfers between different hierarchy levels, both transfers in and out of each level, as applicable, are shown as if they occurred at the beginning of the period. |
The accompanying notes are an integral part of these financial statements.
8 |
Hartford International Opportunities HLS Fund
Statement of Assets and Liabilities
December 31, 2014
(000’s Omitted)
Assets: | ||||
Investments in securities, at market value (cost $1,371,081) | $ | 1,430,030 | ||
Cash | — | |||
Foreign currency on deposit with custodian (cost $—) | — | |||
Unrealized appreciation on foreign currency contracts | 13 | |||
Receivables: | ||||
Investment securities sold | 1,155 | |||
Fund shares sold | 306 | |||
Dividends and interest | 2,159 | |||
Other assets | — | |||
Total assets | 1,433,663 | |||
Liabilities: | ||||
Unrealized depreciation on foreign currency contracts | — | |||
Payables: | ||||
Investment securities purchased | 3,692 | |||
Fund shares redeemed | 616 | |||
Investment management fees | 217 | |||
Distribution fees | 10 | |||
Accrued expenses | 129 | |||
Total liabilities | 4,664 | |||
Net assets | $ | 1,428,999 | ||
Summary of Net Assets: | ||||
Capital stock and paid-in-capital | $ | 1,779,474 | ||
Undistributed net investment income | 16,429 | |||
Accumulated net realized loss | (425,674 | ) | ||
Unrealized appreciation of investments and the translations of assets and liabilities denominated in foreign currency | 58,770 | |||
Net assets | $ | 1,428,999 | ||
Shares authorized | 2,825,000 | |||
Par value | $ | 0.001 | ||
Class IA: Net asset value per share | $ | 14.13 | ||
Shares outstanding | 87,746 | |||
Net assets | $ | 1,239,946 | ||
Class IB: Net asset value per share | $ | 14.29 | ||
Shares outstanding | 13,229 | |||
Net assets | $ | 189,053 |
The accompanying notes are an integral part of these financial statements.
9 |
Hartford International Opportunities HLS Fund
Statement of Operations
For the Year Ended December 31, 2014
(000’s Omitted
Investment Income: | ||||
Dividends | $ | 35,149 | ||
Interest | 18 | |||
Less: Foreign tax withheld | (4,041 | ) | ||
Total investment income, net | 31,126 | |||
Expenses: | ||||
Investment management fees | 10,480 | |||
Transfer agent fees | 7 | |||
Distribution fees - Class IB | 508 | |||
Custodian fees | 136 | |||
Accounting services fees | 246 | |||
Board of Directors' fees | 41 | |||
Audit fees | 43 | |||
Other expenses | 269 | |||
Total expenses (before fees paid indirectly) | 11,730 | |||
Commission recapture | (48 | ) | ||
Custodian fee offset | — | |||
Total fees paid indirectly | (48 | ) | ||
Total expenses, net | 11,682 | |||
Net Investment Income | 19,444 | |||
Net Realized Gain on Investments and Foreign Currency Transactions: | ||||
Net realized gain on investments | 137,806 | |||
Net realized loss on foreign currency contracts | (677 | ) | ||
Net realized gain on other foreign currency transactions | 137 | |||
Net Realized Gain on Investments and Foreign Currency Transactions | 137,266 | |||
Net Changes in Unrealized Depreciation of Investments and Foreign Currency Transactions: | (218,169 | ) | ||
Net unrealized depreciation of investments | (217,935 | ) | ||
Net unrealized appreciation of foreign currency contracts | 18 | |||
Net unrealized depreciation on translation of other assets and liabilities in foreign currencies | (252 | ) | ||
Net Changes in Unrealized Depreciation of Investments and Foreign Currency Transactions | (218,169 | ) | ||
Net Loss on Investments and Foreign Currency Transactions | (80,903 | ) | ||
Net Decrease in Net Assets Resulting from Operations | $ | (61,459 | ) |
The accompanying notes are an integral part of these financial statements.
10 |
Hartford International Opportunities HLS Fund
Statement of Changes in Net Assets
(000’s Omitted)
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Operations: | ||||||||
Net investment income | $ | 19,444 | $ | 26,814 | ||||
Net realized gain on investments and foreign currency transactions | 137,266 | 165,288 | ||||||
Net unrealized appreciation (depreciation) of investments and foreign currency transactions | (218,169 | ) | 113,198 | |||||
Net Increase (Decrease) in Net Assets Resulting from Operations | (61,459 | ) | 305,300 | |||||
Distributions to Shareholders: | ||||||||
From net investment income | ||||||||
Class IA | (28,436 | ) | (28,319 | ) | ||||
Class IB | (4,045 | ) | (3,870 | ) | ||||
Total distributions | (32,481 | ) | (32,189 | ) | ||||
Capital Share Transactions: | ||||||||
Class IA | ||||||||
Sold | 169,767 | 170,972 | ||||||
Issued on reinvestment of distributions | 28,436 | 28,319 | ||||||
Redeemed | (331,506 | ) | (284,350 | ) | ||||
Total capital share transactions | (133,303 | ) | (85,059 | ) | ||||
Class IB | ||||||||
Sold | 31,233 | 25,317 | ||||||
Issued on reinvestment of distributions | 4,045 | 3,870 | ||||||
Redeemed | (48,501 | ) | (71,682 | ) | ||||
Total capital share transactions | (13,223 | ) | (42,495 | ) | ||||
Net decrease from capital share transactions | (146,526 | ) | (127,554 | ) | ||||
Net Increase (Decrease) in Net Assets | (240,466 | ) | 145,557 | |||||
Net Assets: | ||||||||
Beginning of period | 1,669,465 | 1,523,908 | ||||||
End of period | $ | 1,428,999 | $ | 1,669,465 | ||||
Undistributed (distributions in excess of) net investment income | $ | 16,429 | $ | 25,773 | ||||
Shares: | ||||||||
Class IA | ||||||||
Sold | 11,515 | 12,510 | ||||||
Issued on reinvestment of distributions | 1,907 | 2,067 | ||||||
Redeemed | (22,388 | ) | (21,051 | ) | ||||
Total share activity | (8,966 | ) | (6,474 | ) | ||||
Class IB | ||||||||
Sold | 2,025 | 1,861 | ||||||
Issued on reinvestment of distributions | 268 | 279 | ||||||
Redeemed | (3,237 | ) | (5,258 | ) | ||||
Total share activity | (944 | ) | (3,118 | ) |
The accompanying notes are an integral part of these financial statements.
11 |
Hartford International Opportunities HLS Fund
Notes to Financial Statements
December 31, 2014
(000’s Omitted)
Organization:
Hartford International Opportunities HLS Fund (the "Fund") serves as an underlying investment option for certain variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company (“HLIC”) and its affiliates and certain qualified retirement plans. The Fund may also serve as an underlying investment option for certain variable annuity and variable life separate accounts of other insurance companies. Owners of variable annuity contracts and policyholders of variable life insurance contracts may choose the funds permitted in the variable insurance contract prospectus. In addition, participants in certain qualified retirement plans may choose the Fund if permitted by their plans.
Hartford Series Fund, Inc. (the “Company”) is an open-end registered management investment company comprised of fifteen portfolios. Financial statements for the Fund, a series of the Company, are included in this report.
The Company is organized under the laws of the State of Maryland and is registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (“1940 Act”). The Fund is a diversified open-end management investment company. The Fund is an investment company and applies specialized accounting and reporting under Accounting Standards Codification Topic 946, Financial Services - Investment Companies.
The Fund is divided into Class IA, Class IB and Class IC shares. Each class is offered at the per share net asset value (“NAV”) without a sales charge and is subject to the same expenses, except that the Class IB and Class IC shares are subject to distribution and service fees charged pursuant to a Distribution Plan adopted in accordance with Rule 12b-1 under the 1940 Act and Class IC shares are also subject to an administrative service fee. Class IC shares have not commenced operations as of the date of this report.
Significant Accounting Policies:
The following is a summary of significant accounting policies of the Fund in the preparation of its financial statements, which are in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The preparation of financial statements in accordance with U.S. GAAP may require 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
Determination of Net Asset Value – The NAV of each class of the Fund's shares is determined as of the close of regular trading (normally 4:00 p.m. Eastern Time) (the “NYSE Close”) on each day that the New York Stock Exchange (the “Exchange”) is open (“Valuation Date”). Information that becomes known to the Fund after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the NAV determined earlier that day.
Investment Valuation and Fair Value Measurements – For purposes of calculating the NAV, portfolio investments and other assets held by the Fund's portfolio for which market quotes are readily available are valued at market value. Market value is generally determined on the basis of last reported sales prices or official close price. If no sales are reported, market value is based on quotes obtained from a quotation reporting system, established market makers, or independent pricing services. If market prices are not readily available or are deemed unreliable, the Fund will use the fair value of the investment as determined in good faith under policies and procedures established by and under the supervision of the Company's Board of Directors. Market quotes are considered not readily available where there is an absence of current or reliable market-based data (e.g., trade information or indicative market quotes), including where events occur after the close of the relevant market, but prior to the NYSE Close, that materially affect the values of the Fund's portfolio investments or assets. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the investments trade do not open for trading for the entire day and no other market prices are available. In addition, prices of foreign equities that are principally traded on certain foreign markets may be adjusted daily pursuant to a fair value pricing service approved by the Board of Directors in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close. Investments that are primarily traded on foreign markets may trade on days that are not business days of the Fund. The value of the foreign investments in which the Fund invests may change on days when a shareholder will not be able to purchase or redeem shares of the Fund. Fair value pricing is subjective in nature and the use of fair value pricing by the Fund may cause the NAV of its shares to differ significantly from the NAV that would have been calculated using market prices at the close of the exchange on which a portfolio investment is primarily
12 |
Hartford International Opportunities HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
traded. There can be no assurance that the Fund could obtain the fair market value assigned to an investment if the Fund were to sell the investment at approximately the time at which the Fund determines its NAV.
Investments valued in currencies other than U.S. dollars are converted to U.S. dollars using exchange rates obtained from independent pricing services for calculation of the NAV. As a result, the NAV of the Fund’s shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of investments traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that the NYSE is closed and the market value may change on days when an investor is not able to purchase, redeem or exchange shares of the Fund.
Foreign currency contracts represent agreements to exchange currencies on specific future dates at predetermined rates. Foreign currency contracts are valued using foreign currency exchange rates and forward rates as provided by an independent pricing service on the Valuation Date.
Financial instruments for which prices are not available from an independent pricing service may be valued using market quotations obtained from one or more dealers that make markets in the respective financial instrument in accordance with procedures established by the Company's Board of Directors.
U.S. GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants. The U.S. GAAP fair value measurement standards require disclosure of a fair value hierarchy for each major category of assets and liabilities. Various inputs are used in determining the fair value of the Fund’s investments. These inputs are summarized into three broad hierarchy levels. This hierarchy is based on whether the valuation inputs are observable or unobservable. These levels are:
Level 1 – Quoted prices in active markets for identical investments. Level 1 may include exchange traded instruments, such as domestic equities, some foreign equities, options, futures, mutual funds, exchange traded funds, rights and warrants.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar investments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 2 may include debt investments that are traded less frequently than exchange traded instruments and which are valued using independent pricing services; foreign equities, which are principally traded on certain foreign markets and are adjusted daily pursuant to a fair value pricing service in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close; senior floating rate interests, which are valued using an aggregate of dealer bids; short-term investments, which are valued at amortized cost; and swaps, which are valued based upon the terms of each swap contract.
Level 3 – Significant unobservable inputs that are supported by limited or no market activity. Level 3 may include financial instruments whose values are determined using indicative market quotes or require significant management judgment or estimation. These unobservable valuation inputs may include estimates for current yields, maturity/duration, prepayment speed, and indicative market quotes for comparable investments along with other assumptions relating to credit quality, collateral value, complexity of the investment structure, general market conditions and liquidity. This category may include investments where trading has been halted or there are certain restrictions on trading. While these investments are priced using unobservable inputs, the valuation of these investments reflects the best available data and management believes the prices are a reasonable representation of exit price.
The Board of Directors of the Company generally reviews and approves the “Procedures for Valuation of Portfolio Securities” at least once a year. These procedures define how investments are to be valued, including the formation and activities of a Valuation Committee. The Valuation Committee is responsible for determining in good faith the fair value of investments when the value cannot be obtained from primary pricing services or alternative sources or if the valuation of an investment as provided by the primary pricing service or alternative source is believed not to reflect the investment’s fair value as of the Valuation Date. Voting members of the Valuation Committee include the Fund's Treasurer or designee and a Vice President of the investment manager or designee. An Assistant Vice President of the Fund with legal expertise or designee is also included on the Valuation Committee as a non-voting advisory member. In addition, the Fund’s Chief Compliance Officer shall designate a member of the compliance group to attend Valuation Committee meetings as a non-voting resource, to monitor for and provide guidance with
13 |
Hartford International Opportunities HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
respect to compliance with these procedures. Two members of the Valuation Committee or their designees, representing different departments, shall constitute a quorum for purposes of permitting the Valuation Committee to take action. The Valuation Committee will consider all relevant factors in determining an investment’s fair value, and may seek the advice of the Fund’s sub-adviser, knowledgeable brokers, and legal counsel in making such determination. The Valuation Committee reports to the Audit Committee of the Company's Board of Directors. The Audit Committee receives quarterly written reports which include details of all fair-valued investments, including the reason for the fair valuation, and an indication, when possible, of the accuracy of the valuation by disclosing the next available reliable public price quotation or the disposition price of such investments (the “look-back” test). The Board of Directors then must consider for ratification all of the fair value determinations made during the previous quarter.
Valuation levels are not necessarily indicative of the risk associated with investing in such investments. Individual investments within any of the above mentioned asset classes may be assigned a different hierarchical level than those presented above, as individual circumstances dictate.
For additional information, refer to the Investment Valuation Hierarchy Level Summary which is included in the Schedule of Investments.
Investment Transactions and Investment Income – Investment transactions are recorded as of the trade date (the date the order to buy or sell is executed) for financial reporting purposes. Investments purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Realized gains and losses are determined on the basis of identified cost.
Dividend income from domestic securities is accrued on the ex-dividend date. In general, dividend income from foreign securities is recorded on the ex-date; however, dividend notifications in certain foreign jurisdictions may not be available in a timely manner and as a result, the Fund will record the dividend as soon as the relevant details (i.e., rate per share, payment date, shareholders of record, etc.) are publicly available. Interest income, including amortization of premium, accretion of discounts, inflation adjustments and additional principal received in-kind in lieu of cash, is accrued on a daily basis.
Foreign Currency Transactions – Assets and liabilities denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates in effect on the valuation date. Purchases and sales of investments, income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions.
The Fund does not isolate that portion of portfolio investment valuation resulting from fluctuations in the foreign currency exchange rates from the fluctuations arising from changes in the market prices of investments held. Exchange rate fluctuations are included with the net realized and unrealized gain or loss on investments in the accompanying financial statements.
Net realized foreign exchange gains or losses arise from sales of foreign currencies and the difference between asset and liability amounts initially stated in foreign currencies and the U.S. dollar value of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of other assets and liabilities at the end of the reporting period, resulting from changes in the exchange rates.
Joint Trading Account – The Fund may invest cash balances into a joint trading account that may be invested in one or more repurchase agreements.
Fund Share Valuation and Dividend Distributions to Shareholders – Orders for the Fund’s shares are executed in accordance with the investment instructions of the contract holders and plan participants. The NAV of the Fund’s shares is determined as of the close of business on each business day of the Exchange. The NAV is determined separately for each class of shares of the Fund by dividing the Fund’s net assets attributable to that class by the number of shares of the class outstanding. Each class of shares offered by the Fund has equal rights as to assets and voting privileges (except that shareholders of a class have exclusive voting rights regarding any matter relating solely to that class of shares). Income and non-class specific expenses are allocated daily to each class on the basis of the relative net assets of the class. Realized and unrealized gains and losses are allocated daily based on the relative net assets of each class of shares of the Fund.
14 |
Hartford International Opportunities HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Orders for the purchase of the Fund’s shares received prior to the close of the Exchange on any day the Exchange is open for business are priced at the NAV determined as of the close of the Exchange. Orders received after the close of the Exchange, or on a day on which the Exchange and/or the Fund is not open for business, are priced at the next determined NAV.
Dividends are declared pursuant to a policy adopted by the Company's Board of Directors based upon the investment performance of the Fund. The policy of the Fund is to pay dividends from net investment income and realized gains, if any, at least once a year.
Net investment income, dividends and distributions from net realized gains and capital are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP with respect to character and timing (see Federal Income Taxes: Distributions and Components of Distributable Earnings and Reclassification of Capital Accounts).
Securities and Other Investments:
Repurchase Agreements – A repurchase agreement is an agreement by which a counterparty agrees to sell an investment and agrees to repurchase the investment sold from the buyer at a mutually agreed upon time and price. During the period of the repurchase agreement, the counterparty will deposit cash and or securities in a third party custodial account to serve as collateral. At the time the Fund enters into a repurchase agreement, the value of the underlying collateral, including accrued interest, will be equal to or exceed the value of the repurchase agreement. Repurchase agreements expose the Fund to counterparty risk - that is, the risk that the counterparty will not fulfill its obligations. To minimize counterparty risk, the investments that serve to collateralize the repurchase agreement are held by the Fund’s custodian in book entry or physical form in the custodial account of the Fund or in a third party custodial account. Repurchase agreements are valued at cost plus accrued interest, which approximates fair value. Repurchase agreements have master netting arrangements which allow the Fund to offset amounts owed to a counterparty with amounts owed by the counterparty, including any collateral. Upon an event of default under a master repurchase agreement, the non-defaulting party may close out all transactions traded under such agreement and net amounts owed under each transaction to one net amount payable by one party to the other. Absent an event of default, the master repurchase agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty. The Fund, as shown on the Schedule of Investments, had outstanding repurchase agreements and related collateral as of December 31, 2014.
Illiquid and Restricted Investments – The Fund is permitted to invest up to 15% of its net assets in illiquid investments. Illiquid investments are those that may not be sold or disposed of in the ordinary course of business within seven days, at approximately the price used to determine the Fund’s NAV. The Fund may not be able to sell illiquid investments when its sub-adviser considers it desirable to do so or may have to sell such investments at a price that is lower than the price that could be obtained if the investments were more liquid. A sale of illiquid investments may require more time and may result in higher dealer discounts and other selling expenses than does the sale of those that are liquid. Illiquid investments also may be more difficult to value due to the unavailability of reliable market quotations for such investments, and an investment in them may have an adverse impact on the Fund’s NAV. The Fund may also purchase certain restricted investments that can only be resold to certain qualified investors and may be determined to be liquid pursuant to policies and guidelines established by the Company's Board of Directors. The Fund, as shown on the Schedule of Investments, had illiquid or restricted investments as of December 31, 2014.
Investments Purchased on a When-Issued or Delayed-Delivery Basis – Delivery and payment for investments that have been purchased by the Fund on a forward commitment, or when-issued or delayed-delivery basis, take place beyond the customary settlement period. The Fund may dispose of or renegotiate a delayed-delivery transaction after it is entered into, and may sell delayed-delivery investments before they are delivered, which may result in a realized gain or loss. During this period, such investments are subject to market fluctuations, and the Fund identifies investments segregated in its records with a value at least equal to the amount of the commitment. The Fund, as shown on the Schedule of Investments, had when-issued or delayed-delivery investments as of December 31, 2014.
Financial Derivative Instruments:
The following disclosures contain information on how and why the Fund uses derivative instruments, the credit-risk-related contingent features in certain derivative instruments and how derivative instruments affect the Fund’s financial position and results of operations. The
15 |
Hartford International Opportunities HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
location and fair value amounts of these instruments on the Statement of Assets and Liabilities and the realized gains and losses and changes in unrealized gains and losses on the Statement of Operations, each categorized by type of derivative contract, are included in the following Additional Derivative Instrument Information footnote. The derivative instruments outstanding as of year-end are disclosed in the notes to the Schedule of Investments, if applicable. The amounts of realized gains and losses and changes in unrealized gains and losses on derivative instruments during the year are disclosed in the Statement of Operations.
Foreign Currency Contracts – The Fund may enter into foreign currency contracts that obligate the Fund to purchase or sell currencies at specified future dates. Foreign currency contracts are used to hedge the currency exposure associated with some or all of the Fund’s investments and/or as part of an investment strategy. Foreign currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. The Fund will record a realized gain or loss when the foreign currency contract is settled.
Foreign currency contracts involve elements of market risk in excess of the amounts reflected in the Statement of Assets and Liabilities. In addition, risks may arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of the contracts and from unanticipated movements in the value of the foreign currencies relative to the U.S. dollar. The Fund, as shown on the Schedule of Investments, had outstanding foreign currency contracts as of December 31, 2014.
Additional Derivative Instrument Information:
Fair Value of Derivative Instruments on the Statement of Assets and Liabilities as of December 31, 2014:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts | Foreign Exchange Contracts | Credit Contracts | Equity Contracts | Commodity Contracts | Other Contracts | Total | ||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||
Unrealized appreciation on foreign currency contracts | $ | — | $ | 13 | $ | — | $ | — | $ | — | $ | — | $ | 13 | ||||||||||||||
Total | $ | — | $ | 13 | $ | — | $ | — | $ | — | $ | — | $ | 13 | ||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||
Unrealized depreciation on foreign currency contracts | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
Total | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
The volume of derivatives that is presented in the Schedule of Investments is consistent with the derivative activity during the year ended December 31, 2014.
The Effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2014:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts | Foreign Exchange Contracts | Credit Contracts | Equity Contracts | Commodity Contracts | Other Contracts | Total | ||||||||||||||||||||||
Realized Loss on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net realized loss on foreign currency contracts | $ | — | $ | (677 | ) | $ | — | $ | — | $ | — | $ | — | $ | (677 | ) | ||||||||||||
Total | $ | — | $ | (677 | ) | $ | — | $ | — | $ | — | $ | — | $ | (677 | ) | ||||||||||||
Net Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net change in unrealized appreciation of foreign currency contracts | $ | — | $ | 18 | $ | — | $ | — | $ | — | $ | — | $ | 18 | ||||||||||||||
Total | $ | — | $ | 18 | $ | — | $ | — | $ | — | $ | — | $ | 18 |
The derivatives held by the Fund as of December 31, 2014 are not subject to a master netting arrangement; therefore, no balance sheet offsetting disclosure is presented.
16 |
Hartford International Opportunities HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Principal Risks:
The Fund may be exposed to counterparty risk, or the risk that an institution or other entity with which the Fund has unsettled or open transactions will default.
If the Fund invests directly in foreign currencies or in securities that trade in, and receive revenues in, foreign currencies, or in derivatives that provide exposure to foreign currencies, it will be subject to the risk that those currencies will decline in value relative to the base currency (U.S. dollars) of the Fund, or, in the case of hedging positions, that the Fund’s base currency will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities, such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad. As a result, the Fund’s investments in foreign currency denominated securities may reduce the returns of the Fund. The market values of equity securities, such as common stocks and preferred stocks, or equity related investments, such as futures and options, may decline due to general market conditions which are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. The market value of equity securities may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities and equity related investments generally have greater market price volatility than fixed income securities.
Federal Income Taxes:
Federal Income Taxes – For federal income tax purposes, the Fund intends to continue to qualify as a Regulated Investment Company ("RIC") under Subchapter M of the Internal Revenue Code (“IRC”) by distributing substantially all of its taxable net investment income and net realized capital gains to its shareholders and otherwise complying with the requirements of the IRC. The Fund has distributed substantially all of its income and capital gains in prior years, if applicable, and intends to distribute substantially all of its income and capital gains prior to the next fiscal year-end. Accordingly, no provision for federal income or excise taxes has been made in the accompanying financial statements. Distributions from short-term capital gains are treated as ordinary income distributions for federal income tax purposes.
Net Investment Income (Loss), Net Realized Gains (Losses) and Distributions – Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of losses deferred due to wash sale adjustments, foreign currency gains and losses, adjustments related to Passive Foreign Investment Companies ("PFICs"), Real Estate Investment Trusts ("REITs"), RICs, certain derivatives and partnerships. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund.
Distributions and Components of Distributable Earnings – The tax character of distributions paid by the Fund for the periods indicated is as follows (as adjusted for dividends payable, if applicable):
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Ordinary Income | $ | 32,481 | $ | 32,189 |
17 |
Hartford International Opportunities HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
As of December 31, 2014, the Fund’s components of distributable earnings (deficit) on a tax basis are as follows:
Amount | ||||
Undistributed Ordinary Income | $ | 20,056 | ||
Accumulated Capital and Other Losses* | (420,204 | ) | ||
Unrealized Appreciation† | 49,673 | |||
Total Accumulated Deficit | $ | (350,475 | ) |
* | The Fund has capital loss carryforwards that are identified in the Capital Loss Carryforward note that follows. |
† | Differences between book-basis and tax-basis unrealized appreciation (depreciation) may be attributable to the losses deferred due to wash sale adjustments, foreign currency gains and losses and adjustments related to PFICs, REITs, RICs, certain derivatives and partnerships. |
Reclassification of Capital Accounts – The Fund may record reclassifications in its capital accounts. These reclassifications have no impact on the total net assets of the Fund. The reclassifications are a result of permanent differences between U.S. GAAP and tax accounting for such items as foreign currency, PFICs, expiration or utilization of capital loss carryforwards or net operating losses. Adjustments are made to reflect the impact these items have on current and future distributions to shareholders. Therefore, the source of the Fund’s distributions may be shown in the accompanying Statement of Changes in Net Assets as from undistributed net investment income, from accumulated net realized gains on investments or from capital depending on the type of book and tax differences that exist. For the year ended December 31, 2014, the Fund recorded reclassifications to increase (decrease) the accounts listed below:
Amount | ||||
Undistributed Net Investment Income (Loss) | $ | 3,693 | ||
Accumulated Net Realized Gain (Loss) | (3,693 | ) |
Capital Loss Carryforward – On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which made changes to the capital loss carryforward rules. The changes are effective for taxable years beginning after the date of enactment. Under the Act, funds are permitted to carry forward capital losses for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital loss carryforwards retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under prior regulation.
At December 31, 2014 (tax year end), the Fund had capital loss carryforwards for U.S. federal income tax purposes as follows:
Year of Expiration | Amount | |||
2016 | $ | 132,604 | ||
2017 | 287,600 | |||
Total | $ | 420,204 |
During the year ended December 31, 2014, the Fund utilized $136,388 of prior year capital loss carryforwards.
Accounting for Uncertainty in Income Taxes – The Fund has adopted financial reporting rules that require the Fund to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions. Generally, tax authorities can examine all tax returns filed for the last three years. The Fund does not have an examination in progress.
The Fund has reviewed all open tax years and major jurisdictions and concluded that these financial reporting rules had no effect on the Fund’s financial position or results of operations. There is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on the tax return for the fiscal year ended December 31, 2014. The Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
18 |
Hartford International Opportunities HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Expenses:
Investment Management Agreement – Hartford Funds Management Company, LLC ("HFMC") serves as the Fund’s investment manager pursuant to an Investment Management Agreement with the Company. HFMC is an indirect wholly owned subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford"). The investment manager has overall investment supervisory responsibility for the Fund. In addition, the investment manager provides administrative personnel, services, equipment, facilities and office space for proper operation of the Fund. HFMC has contracted with Wellington Management Company, LLP ("Wellington Management") under a sub-advisory agreement for the provision of day-to-day investment management services to the Fund in accordance with the Fund’s investment objective and policies. The Fund pays a fee to the investment manager, a portion of which may be used to compensate Wellington Management.
The schedule below reflects the rates of compensation paid to the investment manager for investment management services rendered as of December 31, 2014; the rates are accrued daily and paid monthly:
Average Daily Net Assets | Annual Fee | |||
On first $250 million | 0.7750% | |||
On next $250 million | 0.7250% | |||
On next $500 million | 0.6750% | |||
On next $1.5 billion | 0.6250% | |||
On next $2.5 billion | 0.6200% | |||
On next $5 billion | 0.6150% | |||
Over $10 billion | 0.6100% |
Accounting Services Agreement – Pursuant to the Fund Accounting Agreement between HFMC and the Company, on behalf of the Fund, HFMC provides accounting services to the Fund and receives monthly compensation based on the Fund’s average daily net assets at the rates set forth below. The Fund’s accounting services fees are accrued daily and paid monthly.
Average Daily Net Assets | Annual Fee | |||
On first $5 billion | 0.016% | |||
On next $5 billion | 0.013% | |||
Over $10 billion | 0.010% |
Operating Expenses – Allocable expenses incurred by the Company are allocated to each Fund and allocated to classes within a Fund in proportion to the average daily net assets of the Fund and each class, except where allocation of certain expenses is more fairly made directly to the Fund or to specific classes within a Fund.
Fees Paid Indirectly – The Company, on behalf of the Fund, has entered into agreements with State Street Global Markets, LLC and Russell Implementation Services, Inc. to partially recapture non-discounted trade commissions. Such rebates are used to pay a portion of the Fund’s expenses. In addition, the Fund's custodian has agreed to reduce its fees when the Fund maintains cash on deposit in a non-interest-bearing custody account. For the year ended December 31, 2014, these amounts, if any, are included in the Statement of Operations.
The ratio of expenses to average net assets in the accompanying financial highlights excludes the reduction in expenses related to fees paid indirectly. The annualized expense ratio after waivers for the period listed below reflecting the reduction for fees paid indirectly is as follows:
Year Ended December 31, 2014 | ||||
Class IA | 0.73% | |||
Class IB | 0.98 |
19 |
Hartford International Opportunities HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Distribution Plan for Class IB Shares – Hartford Funds Distributors, LLC (“HFD”), an indirect wholly owned subsidiary of The Hartford, is the principal underwriter and distributor of the Fund. The Company, on behalf of the Fund, has adopted a Distribution Plan pursuant to Rule 12b-1 of the 1940 Act for Class IB shares.
The Distribution Plan provides that the Fund may pay annually up to 0.25% of the average daily net assets of the Fund attributable to its Class IB shares for activities primarily intended to result in the sale of Class IB shares. The Board has the authority to suspend or reduce these payments at any point in time. Under the terms of the Distribution Plan and the principal underwriting agreement, the Fund is authorized to make payments monthly to the distributor that may be used to pay or reimburse entities providing distribution and shareholder servicing with respect to the Class IB shares for such entities’ fees or expenses incurred or paid in that regard. The distribution fees paid during the period can be found on the Statement of Operations. These fees are accrued daily and paid monthly or at such other intervals as the Board of Directors may determine.
Other Related Party Transactions – Certain officers of the Fund are directors and/or officers of HFMC and/or The Hartford or its subsidiaries. For the year ended December 31, 2014, a portion of the Fund's Chief Compliance Officer's compensation was paid by all the investment companies in the Hartford fund complex. The portion allocated to the Fund, as represented in other expenses on the Statement of Operations, was in the amount of $2. Hartford Administrative Services Company ("HASCO"), an indirect wholly owned subsidiary of The Hartford, provides transfer agent services to the Fund. Effective December 1, 2014, pursuant to a sub-transfer agency agreement between HASCO and Boston Financial Data Services, Inc. (“BFDS”), HASCO delegated certain transfer agent, dividend disbursing agent and shareholder servicing agent functions to BFDS. HASCO is compensated by the Fund based on the number of classes plus out of pocket expenses for providing such services, a portion of which may be used to compensate BFDS. The amount paid to HASCO can be found in the Statement of Operations. These fees are accrued daily and paid monthly.
Investment Transactions:
For the year ended December 31, 2014, the cost of purchases and proceeds from sales of investment securities (excluding short-term investments) were as follows:
Excluding U.S. Government Obligations | U.S. Government Obligations | Total | ||||||||||
Cost of Purchases | $ | 1,358,898 | $ | — | $ | 1,358,898 | ||||||
Sales Proceeds | 1,508,697 | — | 1,508,697 |
Line of Credit:
The Fund is one of several Hartford Funds that participate in a $500 million committed revolving line of credit facility. The facility is to be used for temporary or emergency purposes. Under the arrangement, the funds are required to own securities having a market value in excess of 300% of the total bank borrowings. The interest rate on borrowings varies depending on the nature of the loan. The facility also requires a fee to be paid based on the amount of the commitment. This commitment fee is allocated to all the funds participating in the line of credit based on the average net assets of the funds. During the year ended December 31, 2014, the Fund did not have any borrowings under this facility.
Indemnifications:
Under the Company's organizational documents, the Company shall indemnify its officers and directors to the full extent required or permitted under Maryland General Corporation Law and the federal securities laws. In addition, the Company, on behalf of the Fund, may enter into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, as of the date of these financial statements, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
20 |
Hartford International Opportunities HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Pending Legal Proceedings:
On February 25, 2011, Jennifer L. Kasilag, Louis Mellinger, Judith M. Menendez, Jacqueline M. Robinson, and Linda A. Russell filed a derivative lawsuit against Hartford Investment Financial Services, LLC (“HIFSCO”) (now known as HFD) on behalf of six Hartford retail mutual funds in the United States District Court for the District of New Jersey, alleging that HIFSCO received excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the 1940 Act when serving as investment manager and principal underwriter, respectively, to the Hartford retail mutual funds. Although this action was purportedly filed on behalf of certain of the Hartford Funds, none of the Hartford Funds is itself a defendant to the suit. HIFSCO moved to dismiss and, in September 2011, the motion was granted in part and denied in part, with leave to amend the complaint. In November 2011, plaintiffs filed an amended complaint on behalf of certain Hartford retail mutual funds, The Hartford Global Health Fund (now known as The Hartford Healthcare Fund), The Hartford Conservative Allocation Fund, The Hartford Growth Opportunities Fund, The Hartford Inflation Plus Fund, The Hartford Advisers Fund (now known as The Hartford Balanced Fund), and The Hartford Capital Appreciation Fund. Plaintiffs seek to rescind the investment management agreements and distribution plans between HIFSCO and these funds and to recover the total fees charged thereunder or, in the alternative, to recover any improper compensation HIFSCO received, in addition to lost earnings. HIFSCO filed a partial motion to dismiss the amended complaint and, in December 2012, the court dismissed without prejudice the claims regarding distribution fees and denied the motion with respect to the advisory fees claims. HIFSCO disputes the allegations and intends to defend vigorously.
In March 2014, the plaintiffs filed a new complaint that added as new plaintiffs The Hartford Floating Rate Fund and The Hartford Small Company Fund, two Hartford retail mutual funds, and named as a defendant HFMC, which assumed the role as investment manager to the funds as of January 2013. HFMC and HIFSCO dispute the allegations and intend to defend vigorously.
This action concerns the activities of HIFSCO in its capacity as investment manager and principal underwriter to the Hartford retail mutual funds and does not concern HIFSCO’s activities in its capacity as principal underwriter to the HLS funds. For this reason, no accrual for litigation relating to this matter has been recorded in the financial statements of the Fund.
Recent Accounting Pronouncement:
In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, modifying Accounting Standards Codification Topic 860. The amended guidance changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. The guidance also requires new disclosures for certain transfers accounted for as sales and collateral supporting transactions that are accounted for as secured borrowings. ASU 2014-11 is effective for annual and interim periods beginning after December 15, 2014, except for the disclosures related to secured borrowings, which are effective for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The adoption of ASU 2014-11 is not expected to have a material impact on the Fund’s results of operations or financial position, but may impact the Fund’s disclosures.
Subsequent Event:
Effective on or after January 1, 2015, pursuant to an agreement between the Hartford Funds and State Street Bank and Trust Company ("State Street"), State Street replaced, or is scheduled to replace, JP Morgan Chase Bank, N.A. ("JP Morgan Chase") as the Fund's primary custodian. JP Morgan Chase may serve as custodian of certain Fund assets. In addition, on or after the same date, HFMC has delegated, or will delegate, certain accounting and administrative services functions to State Street. The costs and expenses of such delegation will be borne by HFMC, not by the Funds, and HFMC will compensate State Street for its services out of its own resources.
21 |
Hartford International Opportunities HLS Fund
Financial Highlights
─ Selected Per-Share Data(A) ─ | ─ Ratios and Supplemental Data ─ | |||||||||||||||||||||||||||||||||||||||||||||||||||
Class | Net Asset Value at | Net Investment Income (Loss) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Investment Operations | Dividends from Net Investment Income | Distributions from Realized Capital Gains | Total Dividends | Net Asset Value at End of Period | Total Return(B) | Net Assets at End of Period (000s) | Ratio of Assets | Ratio of Expenses to Average Net Assets After Adjust- ments(C) | Ratio of Net Investment Income (Loss) to Average Net Assets | |||||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 15.03 | $ | 0.19 | $ | (0.75 | ) | $ | (0.56 | ) | $ | (0.34 | ) | $ | – | $ | (0.34 | ) | $ | 14.13 | (3.87 | )% | $ | 1,239,946 | 0.73 | % | 0.73 | % | 1.30 | % | ||||||||||||||||||||||
IB | 15.20 | 0.15 | (0.76 | ) | (0.61 | ) | (0.30 | ) | – | (0.30 | ) | 14.29 | (4.14 | ) | 189,053 | 0.98 | 0.98 | 1.02 | ||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 12.63 | $ | 0.24 | $ | 2.45 | $ | 2.69 | $ | (0.29 | ) | $ | – | $ | (0.29 | ) | $ | 15.03 | 21.55 | % | $ | 1,454,018 | 0.74 | % | 0.74 | % | 1.76 | % | ||||||||||||||||||||||||
IB | 12.76 | 0.21 | 2.49 | 2.70 | (0.26 | ) | – | (0.26 | ) | 15.20 | 21.28 | 215,447 | 0.99 | 0.99 | 1.55 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2012 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 10.72 | $ | 0.26 | $ | 1.88 | $ | 2.14 | $ | (0.23 | ) | $ | – | $ | (0.23 | ) | $ | 12.63 | 20.20 | % | $ | 1,303,209 | 0.74 | % | 0.74 | % | 1.88 | % | ||||||||||||||||||||||||
IB | 10.82 | 0.25 | 1.88 | 2.13 | (0.19 | ) | – | (0.19 | ) | 12.76 | 19.89 | 220,699 | 0.99 | 0.99 | 1.64 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2011 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 12.46 | $ | 0.21 | $ | (1.94 | ) | $ | (1.73 | ) | $ | (0.01 | ) | $ | – | $ | (0.01 | ) | $ | 10.72 | (13.97 | )% | $ | 1,287,917 | 0.73 | % | 0.73 | % | 1.66 | % | ||||||||||||||||||||||
IB | 12.61 | 0.19 | (1.97 | ) | (1.78 | ) | (0.01 | ) | – | (0.01 | ) | 10.82 | (14.19 | ) | 232,707 | 0.98 | 0.98 | 1.41 | ||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2010 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 11.01 | $ | 0.13 | $ | 1.46 | $ | 1.59 | $ | (0.14 | ) | $ | – | $ | (0.14 | ) | $ | 12.46 | 14.49 | % | $ | 1,705,757 | 0.74 | % | 0.74 | % | 1.19 | % | ||||||||||||||||||||||||
IB | 11.15 | 0.11 | 1.46 | 1.57 | (0.11 | ) | – | (0.11 | ) | 12.61 | 14.20 | 328,671 | 0.99 | 0.99 | 0.94 |
(A) | Information presented relates to a share outstanding throughout the indicated period. Net investment income (loss) per share amounts are calculated based on average shares outstanding unless otherwise noted. |
(B) | The figures do not include sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees would lower the Fund's performance. |
(C) | Adjustments include waivers and reimbursements, if applicable. Ratios do not include fees paid indirectly (see Expenses in the accompanying Notes to Financial Statements). |
(D) | Net investment income (loss) per share amounts have been calculated using the SEC method. |
Portfolio Turnover Rate for All Share Classes | ||||
For the Year Ended December 31, 2014 | 90% | |||
For the Year Ended December 31, 2013 | 100 | |||
For the Year Ended December 31, 2012 | 95 | |||
For the Year Ended December 31, 2011 | 111 | |||
For the Year Ended December 31, 2010 | 128 (A) |
(A) | During the year ended December 31, 2010, the Fund incurred $456.2 million in sales associated with the transition of assets from Hartford International Growth HLS Fund and Hartford International Small Company HLS Fund, which merged into the Fund on April 16, 2010. These sales were excluded from the portfolio turnover calculation. |
22 |
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Hartford Series Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Hartford International Opportunities HLS Fund (one of the portfolios constituting Hartford Series Fund, Inc. (the Funds)) as of December 31, 2014, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Hartford International Opportunities HLS Fund of the Hartford Series Fund, Inc. at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Minneapolis, Minnesota
February 13, 2015
23 |
Hartford International Opportunities HLS Fund
Directors and Officers (Unaudited)
The Board of Directors of the Company (the "Directors") appoints officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the Directors. Each Director serves until his or her death, resignation, or retirement or until the next annual meeting of shareholders is held or until his or her successor is elected and qualifies.
Directors and officers who are employed by or who have a financial interest in The Hartford Financial Services Group, Inc. ("The Hartford") are considered “interested” persons of the Fund pursuant to the 1940 Act. The "interested" Directors and officers are reflected in the chart below. Each Director serves as a director for The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., Hartford Series Fund, Inc., and Hartford HLS Series Fund II, Inc., and as a trustee for The Hartford Alternative Strategies Fund, which, as of December 31, 2014, collectively consist of 66 funds. Correspondence may be sent to Directors and officers c/o Hartford Funds, 5 Radnor Corporate Center, Suite 300, 100 Matsonford Road, Radnor, Pennsylvania 19087, except that correspondence to Mr. Annoni, Mr. Dressen and Ms. Quade may be sent to 500 Bielenberg Drive, Suite 500, Woodbury, Minnesota 55125.
The table below sets forth, for each Director and officer, his or her name, year of birth, current position with the Company and date first elected or appointed to Hartford Series Fund, Inc. ("HSF") and Hartford HLS Series Fund II, Inc. ("HSF2"), principal occupation, and, for Directors, other directorships held. The Fund’s Statement of Additional Information contains further information on the Directors and is available free of charge by calling 1-888-843-7824 or writing to: Hartford HLS Funds, c/o Hartford Life Insurance Company/Hartford Life and Annuity Insurance Company, P.O. Box 14293, Lexington, KY 40512-4293 for variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates; Hartford Funds, P.O. Box 55022, Boston, MA 02205-5022 for all shareholders except variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates.
Information on the aggregate remuneration paid to the directors of the Company can be found in the Statement of Operations herein. The Fund pays to The Hartford a portion of the Chief Compliance Officer’s compensation, but does not pay salaries or compensation to any of its other officers or Directors who are employed by The Hartford.
Non-Interested Directors
Hilary E. Ackermann (1956) Director since September 23, 2014
Ms. Ackermann served as Chief Risk Officer at Goldman Sachs Bank USA from October 2008 to November 2011 and serves as a Director of Dynegy, Inc., an independent power company, from October 2012 to present.
Lynn S. Birdsong (1946) Director since 2003, Chairman of the Investment Committee since 2014
Mr. Birdsong is a private investor. Mr. Birdsong currently serves as a Director of Aberdeen Global and Aberdeen Global II (investment funds) (September 2014 to present) and as an Independent Director of Nomura Partners Funds, Inc. (formerly, The Japan Fund) (April 2003 to present). Mr. Birdsong served as Director of the Sovereign High Yield Investment Company (April 2010 to September 2014). From 2003 to March 2005, Mr. Birdsong was an Independent Director of the Atlantic Whitehall Funds. From 1979 to 2002, Mr. Birdsong was a Managing Director of Zurich Scudder Investments, an investment management firm. During his employment with Scudder, Mr. Birdsong was an Interested Director of The Japan Fund. Mr. Birdsong served as Co-Chairman of the Investment Committee of The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., HSF, HSF2 and The Hartford Alternative Strategies Fund from 2005 to 2014.
Robert M. Gavin, Jr. (1940) Director since 2002 (HSF) and 1986 (HSF2), Chairman of the Board for each since 2004
Dr. Gavin is an educational consultant. Prior to September 1, 2001, he was President of Cranbrook Education Community and prior to July 1996, he was President of Macalester College, St. Paul, Minnesota.
Duane E. Hill (1945) Director since 2001 (HSF) and 2002 (HSF2), Chairman of the Nominating Committee since 2003
Mr. Hill is a Partner of TSG Ventures L.P., a private equity investment company. Mr. Hill is a former partner of TSG Capital Group, a private equity investment firm that served as sponsor and lead investor in leveraged buyouts of middle market companies.
Sandra S. Jaffee (1941) Director since 2005
Ms. Jaffee is the founder and Chief Executive Officer of a private company, Homeworks Concierge, LLC, which provides residential property management services in Westchester County, New York (January 2012 to present). Ms. Jaffee served as Chairman (2008 to 2009) and Chief Executive Officer of Fortent (formerly Searchspace Group), a leading provider of compliance/regulatory technology to financial institutions from August 2005 to August 2009. From August 2004 to August 2005, Ms. Jaffee served as an Entrepreneur in Residence with Warburg Pincus, a private equity firm. Prior to joining Warburg Pincus, Ms. Jaffee served as Executive Vice President at Citigroup, from September 1995 to July 2004, where she was President and Chief Executive Officer of Citibank’s Global Securities
24 |
Hartford International Opportunities HLS Fund
Directors and Officers (Unaudited) – (continued)
Services (1995 to 2003). Ms. Jaffee served as a member of the Board of Directors of Broadridge Financial Solutions (November 2010 to November 2014). Ms. Jaffee currently serves as a member of the Board of Directors of Global Camps Africa (a non-profit organization) (January 2015 to present) as well as a Trustee of Muhlenberg College (September 2007 to present).
William P. Johnston (1944) Director since 2005, Chairman of the Compliance Committee since 2005
In June 2006, Mr. Johnston was appointed as Senior Advisor to The Carlyle Group, a global private equity and other alternative asset investment firm and currently serves as an Operating Executive. In July 2006, Mr. Johnston was elected to the Board of Directors of MultiPlan, Inc. and served as a Director (July 2006 to August 2010). In August 2007, Mr. Johnston was elected to the Board of Directors of LifeCare Holdings, Inc. and served as a Director (August 2007 to June 2013). In February 2008, Mr. Johnston was elected to the Board of Directors of HCR-ManorCare, Inc. In May 2006, Mr. Johnston was elected to the Supervisory Board of Fresenius Medical Care AG & Co. KGaA, after its acquisition of Renal Care Group, Inc. in March 2006. Mr. Johnston joined Renal Care Group in November 2002 as a member of the Board of Directors and served as Chairman of the Board from March 2003 through March 2006. From 2002 through 2013, Mr. Johnston served as a Board member of the Georgia O’Keefe Museum. From September 1987 to December 2002, Mr. Johnston was with Equitable Securities Corporation (and its successors, SunTrust Equitable Securities and SunTrust Robinson Humphrey) serving in various investment banking and managerial positions, including Managing Director and Head of Investment Banking, Chief Executive Officer and Vice Chairman.
Phillip O. Peterson (1944) Director since 2002 (HSF) and 2000 (HSF2), Chairman of the Audit Committee since 2002
Mr. Peterson is a mutual fund industry consultant. He was a partner of KPMG LLP (an accounting firm) until July 1999. Mr. Peterson joined William Blair Funds in February 2007 as a member of the Board of Trustees. From February 2012 to February 2014, Mr. Peterson served as a Trustee of Symetra Variable Mutual Funds. From January 2004 to April 2005, Mr. Peterson served as Independent President of the Strong Mutual Funds.
Lemma W. Senbet (1946) Director since 2005
Dr. Senbet is the William E. Mayer Chair Professor of Finance at the University of Maryland, Robert H. Smith School of Business. He was chair of the Finance Department of the University of Maryland, Robert H. Smith School of Business from 1998 to 2006. Since June 2013, he has been on leave from the University to serve as Executive Director of African Economic Research Consortium which focuses on economic policy research and training. Previously, he was a chaired professor of finance at the University of Wisconsin-Madison. Also, he was a Director of the Fortis Funds from March 2000 to July 2002. Dr. Senbet served as Director of the American Finance Association and President of the Western Finance Association. In 2006, Dr. Senbet was inducted Fellow of Financial Management Association International for his career-long distinguished scholarship and professional service.
Interested Directors and Officers
James E. Davey (1964) Director since 2012, President and Chief Executive Officer since 2010
Mr. Davey serves as Executive Vice President of Hartford Life Insurance Company (“HLIC”) and The Hartford. Additionally, Mr. Davey serves as Chairman of the Board, Manager and Senior Managing Director of Hartford Funds Distributors, LLC (“HFD”). He also currently serves as Director, Chairman of the Board, President and Senior Managing Director of Hartford Administrative Services Company (“HASCO”). Mr. Davey also serves as Manager, Chairman of the Board and Senior Managing Director for Hartford Funds Management Company, LLC (“HFMC”) and Director, Chairman of the Board and Senior Managing Director for Hartford Funds Management Group, Inc. ("HFMG"). Mr. Davey has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Davey joined The Hartford in 2002.
Lowndes A. Smith* (1939) Director since 1996 (HSF) and 2002 (HSF2), Co-Chairman of the Investment Committee since 2005
Mr. Smith served as Vice Chairman of The Hartford from February 1997 to January 2002, as President and Chief Executive Officer of Hartford Life, Inc. from February 1997 to January 2002, and as President and Chief Operating Officer of The Hartford Life Insurance Companies from January 1989 to January 2002. Mr. Smith serves as a Director of White Mountains Insurance Group Ltd. (October 2003 to current); One Beacon Insurance (October 2006 to current); Symetra Financial (August 2007 to current) and is a Managing Director of Whittington Gray Associates (January 2007 to current).
* Mr. Smith resigned as a Director of Hartford Mutual Funds, Inc., Hartford Mutual Funds II, Inc., HSF and HSF2 and as a Trustee of The Hartford Alternative Strategies Fund effective September 17, 2014.
25 |
Hartford International Opportunities HLS Fund
Directors and Officers (Unaudited) – (continued)
Other Officers
Mark A. Annoni (1964) Vice President, Controller and Treasurer since 2012
Mr. Annoni currently serves as the Assistant Vice President of HLIC (February 2004 to present) and Senior Vice President of HFMG (December 2013 to present). Mr. Annoni has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Annoni joined The Hartford in 2001.
Michael R. Dressen (1963) AML Compliance Officer since 2011
Mr. Dressen currently serves as Assistant Vice President of HLIC. He also serves as Chief Compliance Officer and AML Compliance Officer of HASCO and as AML Officer of HFD. Mr. Dressen has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
Edward P. Macdonald (1967) Vice President, Secretary and Chief Legal Officer since 2005
Mr. Macdonald currently serves as Assistant Secretary, Executive Vice President and Deputy General Counsel of HFD, HASCO, HFMC and HFMG. He also serves as Vice President of HLIC. Mr. Macdonald has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Macdonald joined The Hartford in 2005.
Joseph G. Melcher (1973) Vice President and Chief Compliance Officer since 2013
Mr. Melcher currently serves as Executive Vice President of HFD, HFMG and HASCO. Mr. Melcher also currently serves as Executive Vice President and Chief Compliance Officer of HFMC. Mr. Melcher has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds since joining The Hartford in 2012. Prior to joining The Hartford, Mr. Melcher worked at Touchstone Investments, a member of the Western & Southern Financial Group, where he held the position of Vice President and Chief Compliance Officer from 2010 through 2012 and Assistant Vice President, Compliance from 2005 to 2010.
Vernon J. Meyer (1964) Vice President since 2006
Mr. Meyer currently serves as Senior Vice President of HLIC. He also currently serves as Managing Director and Chief Investment Officer of HFMC and Managing Director of HFMG. Mr. Meyer has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Meyer joined The Hartford in 2004.
Laura S. Quade (1969) Vice President since 2012
Ms. Quade currently serves as Vice President of HASCO, HFD and HFMG. She is the Head of Operations of HASCO and formerly served as Director, Enterprise Operations of HLIC. Ms. Quade has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Ms. Quade joined The Hartford in 2001.
Martin A. Swanson** (1962) Vice President since 2010
Mr. Swanson currently serves as Vice President of HLIC. Mr. Swanson also serves as Managing Director, Chief Marketing Officer and Principal of HFD and Managing Director of HFMG. Mr. Swanson has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
** Mr. Swanson resigned as an officer effective November 6, 2014.
HOW TO OBTAIN A COPY OF THE FUND’S PROXY VOTING POLICIES AND VOTING RECORDS (UNAUDITED)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information about how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov. The Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
26 |
Hartford International Opportunities HLS Fund
Expense Example (Unaudited)
Your Fund's Expenses
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including investment management fees, distribution and/or service (12b-1) fees, if any, and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period of June 30, 2014 through December 31, 2014.
Actual Expenses
The first set of columns of the table below provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second set of columns of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as taxes, sales charges (loads), or fees which may be applied at the variable life insurance, variable annuity, or qualified retirement plan product level. Therefore, the second set of columns of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would be higher. Expenses are equal to the Fund's annualized expense ratios multiplied by average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
Actual return | Hypothetical (5% return before expenses) | |||||||||||||||||||||||||||||||||||
Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Annualized expense ratio | Days in the current 1/2 year | Days in the full year | ||||||||||||||||||||||||||||
Class IA | $ | 1,000.00 | $ | 930.30 | $ | 3.55 | $ | 1,000.00 | $ | 1,021.53 | $ | 3.72 | 0.73 | % | 184 | 365 | ||||||||||||||||||||
Class IB | $ | 1,000.00 | $ | 928.70 | $ | 4.76 | $ | 1,000.00 | $ | 1,020.27 | $ | 4.99 | 0.98 | 184 | 365 |
27 |
Hartford International Opportunities HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited)
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of directors, including a majority of those directors who are not “interested persons” of the mutual fund, as defined in the 1940 Act (the “Independent Directors”), annually review and consider the continuation of the mutual fund’s investment advisory and sub-advisory agreements. At its meeting held on August 5-6, 2014, the Board of Directors (the “Board”) of Hartford Series Fund, Inc., including each of the Independent Directors, unanimously voted to approve the continuation of the investment management agreement for Hartford International Opportunities HLS Fund (the “Fund”) with Hartford Funds Management Company, LLC (“HFMC”) and the continuation of the investment sub-advisory agreement between HFMC and the Fund’s sub-adviser, Wellington Management Company, LLP (the “Sub-adviser,” and together with HFMC, the “Advisers”) (collectively, the “Agreements”).
In the months preceding the August 5-6, 2014 meeting, the Board requested, received and reviewed written responses from the Advisers to questions posed to them on behalf of the Independent Directors and supporting materials relating to those questions and responses. The Board considered information furnished to the Board at its meetings throughout the year, as well as information specifically prepared in connection with the annual approval of the Agreements at the Board’s meetings held on June 17-18, 2014 and August 5-6, 2014. Information provided to the Board at its meetings throughout the year included, among other things, reports on Fund performance, legal and compliance matters, sales and marketing activity, shareholder services, and the other services provided to the Fund by the Advisers and their affiliates. The Board also received in-person presentations by Fund officers and representatives of HFMC at the Board’s meetings on June 17-18, 2014 and August 5-6, 2014 concerning the Agreements.
The Independent Directors, advised by independent legal counsel, engaged service providers to assist them with evaluating the Agreements with respect to the Fund. Lipper Inc. (“Lipper”), an independent provider of investment company data, was retained to provide the Board with reports on how the Fund’s contractual management fees, actual management fees, other non-management fees, overall expense ratios and investment performance compared to those of mutual funds with similar investment objectives. The Independent Directors also engaged an independent financial services consultant (the “Consultant”) to assist them in evaluating the Fund’s management fees, sub-advisory fees, other non-management fees, overall expense ratios and investment performance. In addition, the Consultant reviewed the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement.
In determining whether to continue the Agreements for the Fund, the members of the Board reviewed and evaluated information and factors they believed to be relevant and appropriate in light of the information that the Board deemed necessary and appropriate through the exercise of its reasonable business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination to continue the Agreements was based on a comprehensive consideration of all information provided to the Board throughout the year and specifically with respect to the continuation of the Agreements. A more detailed discussion of the factors the Board considered with respect to its approval of the Agreements is provided below.
Nature, Extent and Quality of Services Provided by the Advisers
The Board requested and considered information concerning the nature, extent and quality of the services provided to the Fund by the Advisers. The Board considered, among other things, the terms of the Agreements and the range of services provided by the Advisers. The Board considered the Advisers’ professional personnel who provide services to the Fund, including each Adviser’s ability and experience in attracting and retaining qualified personnel to service the Fund. The Board considered each Adviser’s reputation and overall financial strength, as well as its willingness to consider and implement organizational and operational changes designed to enhance services to the Hartford Funds. In addition, the Board considered the quality of each Adviser’s communications with the Board and responsiveness to Board inquiries and requests made from time to time with respect to the Fund and other Hartford Funds.
The Board also requested and evaluated information concerning each Adviser’s regulatory and compliance environment. In this regard, the Board requested and reviewed information on each Adviser’s compliance policies and procedures, compliance history, and a report from the Fund’s Chief Compliance Officer on each Adviser’s compliance with applicable laws and regulations, including responses to regulatory developments and compliance issues raised by regulators. The Board also noted the Advisers’ support of the Fund’s compliance control structure, particularly the resources devoted by the Advisers in support of the Fund’s obligations pursuant to Rule 38a-1 under the 1940 Act.
With respect to HFMC, the Board noted that under the Agreements, HFMC is responsible for the management of the Fund, including oversight of fund operations and service providers, as well as investment advisory services in connection with selecting, monitoring and supervising the Sub-adviser. The Board considered HFMC’s ongoing monitoring of people, process and performance, including its quarterly reviews of each of the Hartford Funds, semi-annual meetings with the leaders of each Fund’s portfolio management team, and oversight of the Hartford Funds’ approximately 37 portfolio managers. The Board recognized that HFMC has demonstrated a record of making changes to the management
28 |
Hartford International Opportunities HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
and/or strategies of the Hartford Funds when warranted. The Board considered HFMC’s oversight of the Sub-adviser’s investment approach and results, process for monitoring best execution of portfolio trades by the Sub-adviser, and approach to risk management with respect to the Fund and the service providers to the Fund. The Board also considered HFMC’s oversight of compliance with the Fund’s objective and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over time led to an increase in the scope of HFMC’s services in this regard.
In addition, the Board considered HFMC’s ongoing commitment to review and rationalize the Hartford Funds product line-up and the expenses that HFMC had incurred in connection with fund combinations in recent years. The Board considered that HFMC or its affiliates are responsible for providing the Fund’s officers. The Board also noted that Hartford Life Insurance Company (“HLIC”) provides administrative services to the Fund. The Board considered its experiences with HFMC and HLIC with respect to each of these services.
With respect to the Sub-adviser, which provides certain day-to-day portfolio management services for the Fund, the Board considered the quality of the Fund’s portfolio managers, the Sub-adviser’s other investment personnel, its investment philosophy and process, investment research capabilities and resources, performance record, trade execution capabilities and experience. The Board considered the experience of the Fund’s portfolio managers, the number of accounts managed by the portfolio managers, and the Sub-adviser’s method for compensating the portfolio managers.
Based on these considerations, the Board concluded that it was satisfied with the nature, extent and quality of the services provided to the Fund by HFMC and the Sub-adviser.
Performance of the Fund and the Advisers
The Board considered the investment performance of the Fund. In this regard, the Board reviewed the performance of the Fund over different time periods presented in the materials and evaluated HFMC’s analysis of the Fund’s performance for these time periods. The Board considered information and materials provided to the Board by the Advisers concerning Fund performance, as well as information from Lipper comparing the investment performance of the Fund to an appropriate benchmark and universe of peer funds. The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period and the 3rd quintile for the 3- and 5-year periods. The Board also noted that the Fund’s performance was above its benchmark for the 1-, 3- and 5-year periods.
The Board considered the detailed investment analytics reports provided by Hartford Funds’ Investment Advisory Group throughout the year. These reports include, among other things, information on the Fund’s gross and net returns, the Fund’s investment performance relative to an appropriate benchmark and peer group, various statistics concerning the Fund’s portfolio, and a narrative summary of various factors affecting Fund performance. The Board considered the Advisers’ cooperation with the Investment Committee, which assists the Board in evaluating the performance of the Fund at periodic meetings throughout the year.
In light of all the considerations noted above, the Board concluded that it had continued confidence in HFMC’s and the Sub-adviser’s overall capabilities to manage the Fund.
Costs of the Services and Profitability of the Advisers
The Board reviewed information regarding HFMC’s cost to provide investment management and related services to the Fund and HFMC’s profitability, both overall and for the Fund, on a pre-tax basis without regard to distribution expenses. The Board also requested and reviewed information about the profitability to HFMC and its affiliates from all services provided to the Fund and all aspects of their relationship with the Fund. The Board also requested and received information relating to the operations and profitability of the Sub-adviser.
The Board considered the Consultant’s review of the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement, noting the Consultant’s view that Hartford Funds’ process for calculating and reporting Fund profitability is reasonable. In this regard, the Board noted that the Consultant performed a full review of this process in light of the recent restructuring of the Hartford Funds business and reported that the approach to analyzing Fund profitability, including the use of common expense allocation methodologies, is reasonable, sound and well within common industry practice.
Based on these considerations, the Board concluded that the profits anticipated to be realized by the Advisers and their affiliates from their relationships with the Fund would not be excessive.
29 |
Hartford International Opportunities HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
Comparison of Fees and Services Provided by the Advisers
The Board considered comparative information with respect to the management fees to be paid by the Fund to HFMC and the total expense ratios of the Fund. The Board also considered comparative information with respect to the sub-advisory fees to be paid by HFMC to the Sub-adviser. In this regard, the Board requested and reviewed information from HFMC and the Sub-adviser relating to the management and sub-advisory fees, including the sub-advisory fee schedule for the Fund, and total operating expenses for the Fund. The Board considered that the management fee for the Fund includes the fee paid to HLIC for providing certain administrative services to the Fund. With respect to the sub-advisory fee schedule, the Board considered representations from HFMC and the Sub-adviser that the Sub-adviser’s fees were negotiated at arm’s length on a fund-by-fund basis. The Board also reviewed information from Lipper comparing the Fund’s contractual management fees, actual management fees and overall expense ratios relative to a group of funds selected by Lipper, in consultation with the Consultant, and a broader universe of funds selected by Lipper. The Board noted that the Fund’s contractual management fee, actual management fee and total expenses (less 12b-1 and shareholder service fees) were in the 1st quintile of its expense group.
While the Board recognized that comparisons between the Fund and peer funds may be imprecise, given the different service levels and characteristics of mutual funds and the different business models and cost structures of the Advisers, the comparative information provided by Lipper assisted the Board in evaluating the reasonableness of the Fund’s management and sub-advisory fees and total operating expenses. In addition, the Board considered the analysis and recommendations of the Consultant relating to the Fund’s management and sub-advisory fees and total operating expenses.
Based on these considerations, the Board concluded that the Fund’s fees and total operating expenses, in conjunction with the information about quality of services, profitability, economies of scale, and other matters discussed, were reasonable in light of the services provided.
Economies of Scale
The Board requested and considered information regarding the Advisers’ realization of economies of scale with respect to the Fund and whether the fee levels reflect these economies of scale for the benefit of the Fund’s shareholders. The Board reviewed the breakpoints in the management fee schedule for the Fund, which reduce fee rates as Fund assets grow over time. The Board recognized that a fund with assets beyond the highest breakpoint level will continue to benefit from economies of scale because additional assets are charged the lowest breakpoint fee resulting in lower overall effective management fee rates. The Board also recognized that a fee schedule that reaches a lower breakpoint quickly provides shareholders with the benefit of anticipated or potential economies of scale. The Board noted the effect of the sale and run-off of the variable annuity business on the HLS Funds.
The Board reviewed and evaluated materials from Lipper and the Consultant showing how management fee schedules of peer funds reflect economies of scale for the benefit of shareholders as a peer fund’s assets hypothetically increase over time. Based on information provided by HFMC, Lipper, and the Consultant, the Board recognized that there is no uniform methodology for establishing breakpoints or uniform pattern in asset levels that trigger breakpoints or the amounts of breakpoints triggered.
After considering all of the information available to it, the Board concluded that it was satisfied with the extent to which economies of scale would be shared for the benefit of the Fund’s shareholders based on currently available information and the effective advisory fees and expense ratios for the Fund at its current and reasonably anticipated asset levels. The Board noted, however, that it would continue to monitor future growth in Fund assets and the appropriateness of additional breakpoints.
Other Benefits
The Board considered other benefits to the Advisers and their affiliates from their relationships with the Fund, including the role of the Fund in supporting the variable life insurance and variable annuity products offered by The Hartford.
The Board noted that HLIC, an affiliate of HFMC, receives fees for providing certain administrative services to the Fund and that HFMC receives fees for fund accounting and related services from the Fund. The Board considered information on profits to HLIC and HFMC for such services. The Board also considered that Hartford Administrative Services Company (“HASCO”), the Fund’s transfer agent and an affiliate of HFMC, receives transfer agency compensation from the Fund, and the Board reviewed information on the profitability of the Fund’s transfer agency function to HASCO. The Board considered information provided by HASCO indicating that the transfer agent fees charged by HASCO to the Fund were fair and reasonable based on publicly available information.
30 |
Hartford International Opportunities HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
The Board also considered that Hartford Funds Distributors, LLC (“HFD”), an affiliate of HFMC, serves as principal underwriter of the Fund. As principal underwriter, HFD receives 12b-1 fees from the Fund. The Board also noted that certain affiliates of HFD distribute shares of the Fund and receive compensation in that connection.
The Board considered benefits to the Sub-adviser from its use of the Fund’s brokerage commissions to obtain soft dollar research, and representations from HFMC and the Sub-adviser that the Sub-adviser would not make any revenue-sharing payments or any other type of distribution payments to HFMC or its affiliates.
The Board considered the benefits to shareholders of being part of the Hartford Funds family of funds. The Board considered HFMC’s efforts to provide investors in the family with a broad range of investment styles and asset classes.
* * * *
Based upon its review of these various factors, among others, the Board concluded that it is in the best interests of the Fund and its shareholders for the Board to approve the Agreements for an additional year. In reaching this decision, the Board did not assign relative weights to the factors discussed above or deem any one or group of them to be controlling in and of themselves. In connection with their deliberations, the Independent Directors met separately in executive session on several occasions, with independent legal counsel and the Consultant, to review the relevant materials and consider their responsibilities under relevant laws and regulations.
31 |
Hartford International Opportunities HLS Fund
Main Risks (Unaudited)
The main risks of investing in the Fund are described below.
Market, Selection and Strategy Risk: The Fund’s share price may fluctuate due to market risk and/or security selections that may underperform the market or relevant benchmarks. If the sub-adviser's investment strategy does not perform as expected, the Fund could underperform its peers or lose money. There is no guarantee the Fund will achieve its stated objective.
Foreign Investment and Emerging Markets Risk: Investments in foreign securities may be riskier than investments in U.S. securities. Potential risks include the risks of illiquidity, increased price volatility, less government regulation, less extensive and less frequent accounting and other reporting requirements, unfavorable changes in currency exchange rates, and economic and political disruptions. These risks are generally greater for investments in emerging markets.
Mid-Cap Stock Risk: Mid-cap stocks are generally more volatile and risky and may be less liquid than large-cap stocks because they may have limited operating histories, narrow product lines, and focus on niche markets.
Active Trading Risk: Actively trading investments may result in higher costs (thus affecting performance).
32 |
THIS PRIVACY POLICY IS NOT PART OF THIS REPORT
Privacy Policy and Practices of The Hartford Financial Services Group, Inc. and its Affiliates
(herein called “we, our and us”)
This Privacy Policy applies to our United States Operations
We value your trust. We are committed to the responsible: a) management; b) use; and c) protection; of Personal Information.
This notice describes how we collect, disclose, and protect Personal Information.
We collect Personal Information to: a) service your Transactions with us; and b) support our business functions.
We may obtain Personal Information from: a) You; b) your Transactions with us; and c) third parties such as a consumer-reporting agency.
Based on the type of product or service You apply for or get from us, Personal Information such as: a) your name; b) your address; c) your income; d) your payment; or e) your credit history; may be gathered from sources such as applications, Transactions, and consumer reports.
To serve You and service our business, we may share certain Personal Information. We will share Personal Information, only as allowed by law, with affiliates such as: a) our insurance companies; b) our employee agents; c) our brokerage firms; and d) our administrators.
As allowed by law, we may share Personal Financial Information with our affiliates to: a) market our products; or b) market our services; to You without providing You with an option to prevent these disclosures. | We may also share Personal Information, only as allowed by law, with unaffiliated third parties including: a) independent agents; b) brokerage firms; c) insurance companies; d) administrators; and e) service providers; who help us serve You and service our business.
When allowed by law, we may share certain Personal Financial Information with other unaffiliated third parties who assist us by performing services or functions such as: a) taking surveys; b) marketing our products or services; or c) offering financial products or services under a joint agreement between us and one or more financial institutions.
We, and third parties we partner with, may track some of the pages You visit through the use of: a) cookies; b) pixel tagging; or c) other technologies; and currently do not process or comply with any web browser’s “do not track” signal or similar mechanism that indicates a request to disable online tracking of individual users who visit our websites or use our services.
We will not sell or share your Personal Financial Information with anyone for purposes unrelated to our business functions without offering You the opportunity to: a) “opt-out;” or b) “opt-in;” as required by law.
We only disclose Personal Health Information with: a) your proper written authorization; or b) as otherwise allowed or required by law.
Our employees have access to Personal Information in the course of doing their jobs, such as: a) underwriting policies; b) paying claims; c) developing new products; or d) advising customers of our products and services. |
We use manual and electronic security procedures to maintain: a) the confidentiality; and b) the integrity of; Personal Information that we have. We use these procedures to guard against unauthorized access.
Some techniques we use to protect Personal Information include: a) secured files; b) user authentication; c) encryption; d) firewall technology; and e) the use of detection software.
We are responsible for and must: a) identify information to be protected; b) provide an adequate level of protection for that data; c) grant access to protected data only to those people who must use it in the performance of their job-related duties.
Employees who violate our Privacy Policy will be subject to discipline, which may include ending their employment with us.
At the start of our business relationship, we will give You a copy of our current Privacy Policy.
We will also give You a copy of our current Privacy Policy once a year if You maintain a continuing business relationship with us.
We will continue to follow our Privacy Policy regarding Personal Information even when a business relationship no longer exists between us. | As used in this Privacy Notice:
Application means your request for our product or service.
Personal Financial Information means financial information such as: a) credit history; b) income; c) financial benefits; or d) policy or claim information.
Personal Health Information means health information such as: a) your medical records; or b) information about your illness, disability or injury.
Personal Information means information that identifies You personally and is not otherwise available to the public. It includes: a) Personal Financial Information; and b) Personal Health Information.
Transaction means your business dealings with us, such as: a) your Application; b) your request for us to pay a claim; and c) your request for us to take an action on your account.
You means an individual who has given us Personal Information in conjunction with: a) asking about; b) applying for; or c) obtaining; a financial product or service from us if the product or service is used mainly for personal, family, or household purposes. |
This Privacy Policy is being provided on behalf of the following affiliates of The Hartford Financial Services Group, Inc.:
1stAGChoice, Inc.; Access CoverageCorp, Inc.; Access CoverageCorp Technologies, Inc.; American Maturity Life Insurance Company; Archway 60 R, LLC; Business Management Group, Inc.; DMS R, LLC; First State Insurance Company; Fountain Investors I LLC; Fountain Investors II LLC; Fountain Investors III LLC; Fountain Investors IV LLC; FTC Resolution Company LLC; Hart Re Group L.L.C.; Hartford Accident and Indemnity Company; Hartford Administrative Services Company; Hartford Casualty General Agency, Inc.; Hartford Casualty Insurance Company; Hartford Financial Services, LLC; Hartford Fire General Agency, Inc.; Hartford Fire Insurance Company; Hartford Funds Distributors, LLC; Hartford Funds Management Company, LLC; Hartford Funds Management Group, Inc.; Hartford Holdings, Inc.; Hartford HLS Series Fund II, Inc.; Hartford Insurance Company of Illinois; Hartford Insurance Company of the Midwest; Hartford Insurance Company of the Southeast; Hartford Integrated Technologies, Inc.; Hartford International Life Reassurance Corporation; Hartford Investment Management Company; Hartford Life and Accident Insurance Company; Hartford Life and Annuity Insurance Company; Hartford Life Insurance Company; Hartford Life, Inc.; Hartford Life International Holding Company; Hartford Life Private Placement, LLC; Hartford Lloyd’s Corporation; Hartford Lloyd’s Insurance Company; Hartford of Texas General Agency, Inc.; Hartford Residual Market, L.C.C.; Hartford Securities Distribution Company, Inc.; Hartford Series Fund, Inc.; Hartford Specialty Insurance Services of Texas, LLC; Hartford Strategic Investments, LLC; Hartford Underwriters General Agency, Inc.; Hartford Underwriters Insurance Company; Hartford-Comprehensive Employee Benefit Service Company; HDC R, LLC.; Heritage Holdings, Inc.; HIMCO Distribution Services Company; HIMCO Variable Insurance Trust; HLA LLC; HL Investment Advisors, LLC; Horizon Management Group, LLC; HRA Brokerage Services, Inc.; Lanidex Class B, LLC; New England Insurance Company; New England Reinsurance Corporation; Nutmeg Insurance Agency, Inc.; Nutmeg Insurance Company; Pacific Insurance Company, Limited; Planco, LLC; Property and Casualty Insurance Company of Hartford; Revere R, LLC; RVR R, LLC; Sentinel Insurance Company, Ltd.; Sunstone R, LLC; Symphony R, LLC; The Evergreen Group Incorporated; The Hartford Alternative Strategies Fund; The Hartford Mutual Funds, Inc.; The Hartford Mutual Funds II, Inc.; Trumbull Flood Management, L.L.C.; Trumbull Insurance Company; Twin City Fire Insurance Company.
HPP Revised February 2015
HARTFORD HLS FUNDS
P.O. Box 14293
Lexington, KY 40512-4293
HARTFORDFUNDS
hartfordfunds.com
Hartford HLS Funds are underwritten and distributed by Hartford Funds Distributors, LLC.
Hartford Series Fund, Inc. is not a subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford") but is underwritten, distributed by and advised by subsidiaries of The Hartford. Investments in Hartford Series Fund, Inc. are not guaranteed by The Hartford or any other entity.
This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution unless preceded or accompanied by a current prospectus for the Fund.
Investors should carefully consider the investment objectives, risks, charges, and expenses of Hartford Funds before investing. This and other information can be found in the prospectus and summary prospectus, which can be obtained by calling 888-843-7824 (or 800-279-1541 for institutional investors). Investors should read them carefully before they invest.
HLSAR-IO14 2-15 113546-4 Printed in U.S.A.
HARTFORDFUNDS
![]() | HARTFORD MIDCAP HLS FUND |
A MESSAGE FROM THE PRESIDENT
Dear Fellow Shareholders:
Thank you for investing in Hartford HLS Funds.
Market Review
Nearly six years into a bull market, U.S. equities (as represented by the S&P 500 Index ) notched another positive year in 2014, finishing with a 13.69% gain. Progress was smooth for most of the year, with stocks generally rising amid little volatility. In the fourth quarter, however, the price of oil declined by nearly 40%, returning volatility to the market and paring some of the year’s returns.
As we enter 2015, the price of oil will likely continue playing an important role in market progress, as its effects are widespread. If prices remain low, consumers should benefit by paying less at the gas pump, which increases the amount of money available for discretionary spending. In contrast, low prices may be a detriment to the oil and natural gas industry in the U.S., as well as to the economies of countries that rely more heavily on oil exports.
Central-bank policies will also continue to influence the markets. The U.S. economy has continued to show self-sustaining growth, which has prompted the U.S. Federal Reserve to wind down the quantitative easing programs it initiated after the global financial crisis. In addition, gradual increases in interest rates are expected to begin in 2015, another sign of positive recovery and a return to pre-crisis policy. But in Europe, a slow recovery and fears of deflation have prompted the start of European Central Bank’s own version of quantitative easing to spur growth.
The final weeks of 2014 provided a stark reminder of how unpredictable market movements can be, and how important it is to maintain a diversified portfolio that’s in line with your time horizon and risk tolerance. As we begin 2015, take time to review your portfolio and your overall investment strategy with your financial advisor.
With more than 40 mutual-fund strategies that span a variety of asset classes and investment goals, your financial advisor can work with you to choose options within our fund family that can help you navigate today’s markets with confidence.
Thank you again for investing with Hartford HLS Funds.
James Davey
President
Hartford HLS Funds
1 The S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
Table of Contents
This report is prepared for the general information of contract owners and qualified retirement plan participants. It is not an offer of contracts or of qualified retirement plans. It should not be used in connection with any offer, except in conjunction with the appropriate product prospectus which contains all pertinent information including the applicable sales, administrative and other charges.
The views expressed in the Fund’s Manager Discussion under ‘‘Why did the Fund perform this way?’’ and ‘‘What is the outlook?’’ are views of the Fund’s sub-adviser and portfolio management team through the end of the period and are subject to change based on market and other conditions. The Fund’s Manager Discussion is for informational purposes only and does not represent an offer, recommendation or solicitation to buy, hold or sell any security. The specific securities identified and described, if any, do not represent all of the securities purchased or sold and you should not assume that investments in the securities identified and discussed will be profitable.
Hartford MidCap HLS Fund inception 07/14/1997
(sub-advised by Wellington Management Company, LLP)
Investment objective – The Fund seeks long-term growth of capital.
Performance Overview 12/31/04 - 12/31/14
The chart above represents the hypothetical growth of a $10,000 investment in Class IA. Growth results in classes other than Class IA will vary from what is seen above due to differences in the expenses charged to those share classes.
Average Annual Total Returns (as of 12/31/14)
1 Year | 5 Years | 10 Years | ||||
MidCap IA | 11.37% | 16.15% | 10.42% | |||
MidCap IB | 11.09% | 15.86% | 10.14% | |||
S&P MidCap 400 Index | 9.77% | 16.54% | 9.71% |
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of the investment will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain performance data current to the most recent month-end, please visit our website www.hartfordfunds.com.
Total returns presented above were calculated using the Fund’s net asset value available to shareholders for sale or redemption of Fund shares on December 31, 2014, which may exclude investment transactions as of this date. All share class returns assume the reinvestment of all distributions at net asset value and the deduction of all fund expenses.
S&P MidCap 400 Index is an unmanaged index of common stocks of companies chosen by S&P designed to represent price movements in the mid-cap U.S. equity market.
The index is unmanaged, and its results include reinvested dividends and/or distributions, but do not reflect the effect of sales charges, commissions, expenses or taxes.
You cannot invest directly in an index.
As shown in the Fund's current prospectus dated May 1, 2014, the total annual operating expense ratios for Class IA and Class IB were 0.71% and 0.96%, respectively. Actual expenses may be higher. Please see the accompanying Financial Highlights for expense ratios for the year ended December 31, 2014.
The chart and table do not reflect the deductions of taxes, sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees or expenses would lower the contract’s or plan’s performance.
All investments are subject to risk including the possible loss of principal. For a discussion of the Fund’s risks, please see the Main Risks section of this report. For more detailed information on the risks associated with an investment in the Fund, please see the prospectus.
2 |
Hartford MidCap HLS Fund
Manager Discussion |
December 31, 2014 (Unaudited) |
Portfolio Managers | |
Philip W. Ruedi, CFA | Mark A. Whitaker, CFA |
Senior Managing Director and Equity Portfolio Manager | Managing Director and Equity Portfolio Manager |
How did the Fund perform?
The Class IA shares of the Hartford MidCap HLS Fund returned 11.37% for the twelve-month period ended December 31, 2014, outperforming the Fund’s benchmark, the S&P MidCap 400 Index, which returned 9.77% for the same period. The Fund also outperformed the 8.37% average return of the Lipper Mid-Cap Core Funds peer group, a group of funds with investment strategies similar to those of the Fund.
Why did the Fund perform this way?
U.S. equities surged during the period, despite bouts of significant volatility. After finishing their best year since 1997, U.S. stocks began 2014 with their worst month in nearly two years. Worries about an economic slowdown in China and general angst surrounding emerging markets overshadowed a fairly benign domestic environment. However, robust merger and acquisition activity, an uncontested increase in the debt ceiling from Congress, renewed signs of life in the housing market, and the best payroll gain in more than two years helped stoke investors' risk appetites in the first half of the period. A pullback in July ended a streak of five consecutive monthly gains. Fear gripped the market as heightened geopolitical risks, a potential Portuguese banking crisis, and worries of U.S. Federal Reserve (Fed) tightening took center stage. Stocks rebounded in August based on encouraging economic data, headlined by better-than-expected gross domestic product (GDP) growth and signs that the housing recovery still had legs. However, the reality of quantitative easing ending and the prospect of higher federal funds rates in mid-2015 contributed to increased risk aversion levels. Stocks rebounded again in October, hitting an all-time high on the heels of a positive earnings season and generally solid economic data. The rally continued in November after Republicans took control of the U.S. Senate but stocks pulled back slightly near month-end, led by weakness in the Energy sector associated with the significant decline in oil prices. In December, U.S. equities closed at an all-time high on December 29th but fell 1.4% during the final two trading days of the year. The Fed helped to support riskier assets at the end of the year after it stated it can be "patient" with regards to starting the process of bringing interest rates to normal levels. Returns also varied noticeably by market-cap, as small- and mid-cap stocks underperformed large-cap stocks.
Overall equity market performance was positive for the period across all market capitalizations: mid cap (+10%), large cap (+14%), and small cap equities (+5%) all rose, as represented by the S&P MidCap 400, S&P 500, and Russell 2000 Indices, respectively. Within the S&P MidCap 400 Index, nine out of ten sectors posted positive returns during the twelve-month period. The Consumer Staples (+35.5%), Telecommunication Services (+27.9%), and Healthcare (+24.0%) sectors performed best while the Energy (-25.6%), Industrials (+1.4%) and Materials (+5.6%) sectors lagged on a relative basis.
The Fund’s outperformance versus the S&P MidCap 400 Index during the period was driven by strong security selection in the Healthcare, Industrials, and Consumer Discretionary sectors. Weak stock selection in the Information Technology and Financials sectors only slightly offset those gains. Sector allocation, which is a residual of our bottom-up stock selection process, detracted from relative performance during the period. Primary drivers included overweight allocations to Energy and Industrials and an underweight allocation to Financials.
Top contributors to relative and absolute performance during the period were Alkermes (Healthcare), NXP Semiconductors (Information Technology), and Robert Half International (Industrials). Alkermes is a U.S. biopharmaceutical company that focuses on treatments for central nervous system diseases and disorders. The stock rose as the market was encouraged by the company's expanding research and development activities and rapid pipeline progression. Shares of NXP Semiconductors, a Netherlands-based semiconductor company, rose as the company continued to show strong earnings quality, cash flow quality, operating efficiency, and balance sheet quality. Robert Half International, a U.S.-based employment and staffing agency, saw shares rise as the company benefitted from the cyclical pick-up in demand for permanent replacement hires in the U.S.
Top detractors from relative performance during the period were SkyWorks (Information Technology), Jacobs Engineering (Industrials), and HomeAway (Information Technology). SkyWorks, a U.S.-based wireless and higher performance analog semiconductor supplier, rose drastically over the period as the company benefitted from market share and content gains across multiple handset platforms. Not holding this benchmark name in the Fund detracted from relative performance over the period. Jacobs Engineering is a professional services firm that helps corporate and government customers design and build construction projects. Shares fell as sales growth in 2014 was slower than markets had expected due to slower than expected activity in the Australian mining industry and in Europe. HomeAway, an online vacation home rental service, saw its shares fall after management guided to slower than expected sales growth. Trimble Navigation (Information Technology) also detracted from absolute performance during the period.
Derivatives are not used in a significant manner in this Fund and did not have a material impact on performance during the period.
3 |
Hartford MidCap HLS Fund
Manager Discussion – (continued) |
December 31, 2014 (Unaudited) |
What is the outlook?
We believe that mid cap equities represent “the sweet spot” of the stock market, offering the stability and quality of market leading companies, an advantage over small caps, plus the opportunity for significant, dynamic growth in revenues and earnings that many large cap companies lack. We believe that our F/V/E framework, which incorporates fundamentals, valuation, and expectations in our assessment of each company we consider, enables us to create a balanced portfolio of quality businesses and broad diversification across market sectors, all while seeking to maintain style purity of our mid-cap equity approach.
The global economic cycle continues to advance at a moderate pace with a mix of stronger growth in the U.S. and more sluggish activity in Europe, Japan, and China. We believe the U.S. economy is on track for a self-sustaining expansion and should, due to a steadily improving labor market, experience rising wage inflation and a moderate increase in policy rates next year.
At the end of the period, our largest overweights relative to the S&P MidCap 400 Index were in the Healthcare and Industrials sectors. Our largest underweights were in the Financials and Materials sectors.
Diversification by Sector
as of December 31, 2014
Sector | Percentage of Net Assets | |||
Equity Securities | ||||
Consumer Discretionary | 13.7 | % | ||
Consumer Staples | 2.9 | |||
Energy | 5.9 | |||
Financials | 13.7 | |||
Health Care | 20.1 | |||
Industrials | 19.0 | |||
Information Technology | 19.1 | |||
Materials | 3.2 | |||
Utilities | 2.3 | |||
Total | 99.9 | % | ||
Short-Term Investments | 0.1 | |||
Other Assets and Liabilities | 0.0 | |||
Total | 100.0 | % |
A sector may be comprised of several industries. For Fund compliance purposes, the Fund may not use the same classification system and these sector classifications are used for reporting ease.
4 |
Schedule of Investments |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount | Market Value ╪ | |||||||
Common Stocks - 99.9% | ||||||||
Automobiles and Components - 2.7% | ||||||||
665 | Allison Transmission Holdings, Inc. | $ | 22,530 | |||||
379 | Harley-Davidson, Inc. | 24,949 | ||||||
47,479 | ||||||||
Banks - 3.7% | ||||||||
90 | Cullen/Frost Bankers, Inc. | 6,335 | ||||||
192 | East West Bancorp, Inc. | 7,444 | ||||||
331 | First Republic Bank | 17,273 | ||||||
272 | M&T Bank Corp. | 34,118 | ||||||
65,170 | ||||||||
Capital Goods - 7.4% | ||||||||
166 | Colfax Corp. ● | 8,553 | ||||||
252 | IDEX Corp. | 19,641 | ||||||
343 | Jacobs Engineering Group, Inc. ● | 15,343 | ||||||
282 | Lennox International, Inc. | 26,856 | ||||||
268 | MSC Industrial Direct Co., Inc. | 21,785 | ||||||
294 | PACCAR, Inc. | 19,987 | ||||||
167 | Pall Corp. | 16,936 | ||||||
129,101 | ||||||||
Commercial and Professional Services - 8.8% | ||||||||
342 | Clean Harbors, Inc. ● | 16,454 | ||||||
499 | Equifax, Inc. | 40,338 | ||||||
335 | Manpowergroup, Inc. | 22,870 | ||||||
721 | Robert Half International, Inc. | 42,070 | ||||||
266 | Trinet Group, Inc. ● | 8,334 | ||||||
536 | Waste Connections, Inc. | 23,584 | ||||||
153,650 | ||||||||
Consumer Durables and Apparel - 1.8% | ||||||||
24 | NVR, Inc. ● | 30,433 | ||||||
Consumer Services - 1.6% | ||||||||
425 | Apollo Education Group, Inc. ● | 14,485 | ||||||
280 | DeVry Education Group, Inc. | 13,295 | ||||||
27,780 | ||||||||
Diversified Financials - 4.1% | ||||||||
261 | Invesco Ltd. | 10,329 | ||||||
154 | Moody's Corp. | 14,793 | ||||||
292 | MSCI, Inc. | 13,870 | ||||||
229 | Northern Trust Corp. | 15,420 | ||||||
441 | SEI Investments Co. | 17,641 | ||||||
72,053 | ||||||||
Energy - 5.9% | ||||||||
112 | Cimarex Energy Co. | 11,872 | ||||||
802 | Cobalt International Energy, Inc. ● | 7,127 | ||||||
349 | Consol Energy, Inc. | 11,801 | ||||||
31 | Diamondback Energy, Inc. ● | 1,878 | ||||||
214 | Energen Corp. | 13,614 | ||||||
143 | EQT Corp. | 10,833 | ||||||
235 | Gulfport Energy Corp. ● | 9,798 | ||||||
553 | Memorial Resource Development Corp. ● | 9,966 | ||||||
796 | Patterson-UTI Energy, Inc. | 13,203 | ||||||
546 | QEP Resources, Inc. | 11,031 | ||||||
37 | World Fuel Services Corp. | 1,750 | ||||||
102,873 | ||||||||
Food and Staples Retailing - 0.6% | ||||||||
116 | PriceSmart, Inc. | 10,552 | ||||||
Food, Beverage and Tobacco - 2.3% | ||||||||
187 | Molson Coors Brewing Co. | 13,928 | ||||||
245 | Monster Beverage Corp. ● | 26,591 | ||||||
40,519 | ||||||||
Health Care Equipment and Services - 8.2% | ||||||||
500 | Envision Healthcare Holdings ● | 17,342 | ||||||
589 | IMS Health Holdings, Inc. ● | 15,093 | ||||||
216 | MEDNAX, Inc. ● | 14,259 | ||||||
257 | Omnicare, Inc. | 18,731 | ||||||
368 | Patterson Cos., Inc. | 17,711 | ||||||
223 | Sirona Dental Systems, Inc. ● | 19,526 | ||||||
263 | Team Health Holdings ● | 15,111 | ||||||
237 | Universal Health Services, Inc. Class B | 26,365 | ||||||
144,138 | ||||||||
Insurance - 5.9% | ||||||||
46 | Alleghany Corp. ● | 21,427 | ||||||
39 | Fairfax Financial Holdings Ltd. | 20,513 | ||||||
49 | Markel Corp. ● | 33,219 | ||||||
278 | W.R. Berkley Corp. | 14,244 | ||||||
22 | White Mountains Insurance Group Ltd. | 13,979 | ||||||
103,382 | ||||||||
Materials - 3.2% | ||||||||
244 | Packaging Corp. of America | 19,007 | ||||||
52 | Sherwin-Williams Co. | 13,806 | ||||||
270 | Silgan Holdings, Inc. | 14,473 | ||||||
467 | Steel Dynamics, Inc. | 9,225 | ||||||
56,511 | ||||||||
Media - 0.6% | ||||||||
612 | Pandora Media, Inc. ● | 10,907 | ||||||
Pharmaceuticals, Biotechnology and Life Sciences - 11.9% | ||||||||
31 | Agios Pharmaceuticals, Inc. ● | 3,515 | ||||||
877 | Alkermes plc ● | 51,378 | ||||||
150 | Alnylam Pharmaceuticals, Inc. ● | 14,520 | ||||||
235 | Hospira, Inc. ● | 14,383 | ||||||
345 | Incyte Corp. ● | 25,227 | ||||||
762 | Ironwood Pharmaceuticals, Inc. ● | 11,672 | ||||||
83 | Jazz Pharmaceuticals plc ● | 13,665 | ||||||
189 | Medivation, Inc. ● | 18,822 | ||||||
52 | Mettler-Toledo International, Inc. ● | 15,601 | ||||||
202 | Salix Pharmaceuticals Ltd. ● | 23,220 | ||||||
153 | Waters Corp. ● | 17,210 | ||||||
209,213 | ||||||||
Retailing - 7.0% | ||||||||
288 | Advance Automotive Parts, Inc. | 45,808 | ||||||
480 | CarMax, Inc. ● | 31,977 | ||||||
674 | HomeAway, Inc. ● | 20,084 | ||||||
101 | Tiffany & Co. | 10,794 | ||||||
195 | TripAdvisor, Inc. ● | 14,581 | ||||||
123,244 | ||||||||
Semiconductors and Semiconductor Equipment - 1.4% | ||||||||
129 | First Solar, Inc. ● | 5,739 | ||||||
173 | NXP Semiconductors N.V. ● | 13,251 | ||||||
239 | SunPower Corp. ● | 6,178 | ||||||
25,168 | ||||||||
Software and Services - 11.2% | ||||||||
450 | Akamai Technologies, Inc. ● | 28,360 | ||||||
183 | Factset Research Systems, Inc. | 25,792 | ||||||
2,099 | Genpact Ltd. ● | 39,738 | ||||||
256 | Solera Holdings, Inc. | 13,113 | ||||||
1,051 | Vantiv, Inc. ● | 35,636 |
The accompanying notes are an integral part of these financial statements.
5 |
Hartford MidCap HLS Fund
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount | Market Value ╪ | |||||||||||
Common Stocks - 99.9% - (continued) | ||||||||||||
Software and Services - 11.2% - (continued) | ||||||||||||
277 | VeriSign, Inc. ● | $ | 15,815 | |||||||||
213 | WEX, Inc. ● | 21,069 | ||||||||||
310 | Yelp, Inc. ● | 16,941 | ||||||||||
196,464 | ||||||||||||
Technology Hardware and Equipment - 6.5% | ||||||||||||
331 | Amphenol Corp. Class A | 17,793 | ||||||||||
385 | CDW Corp. of Delaware | 13,540 | ||||||||||
107 | F5 Networks, Inc. ● | 13,919 | ||||||||||
107 | FEI Co. | 9,627 | ||||||||||
845 | National Instruments Corp. | 26,258 | ||||||||||
380 | Nimble Storage, Inc. ● | 10,456 | ||||||||||
845 | Trimble Navigation Ltd. ● | 22,427 | ||||||||||
114,020 | ||||||||||||
Transportation - 2.8% | ||||||||||||
35 | AMERCO, Inc. | 9,928 | ||||||||||
179 | Genesee & Wyoming, Inc. Class A ● | 16,095 | ||||||||||
219 | J.B. Hunt Transport Services, Inc. | 18,445 | ||||||||||
291 | JetBlue Airways Corp. ● | 4,617 | ||||||||||
49,085 | ||||||||||||
Utilities - 2.3% | ||||||||||||
136 | Northeast Utilities | 7,280 | ||||||||||
616 | UGI Corp. | 23,394 | ||||||||||
169 | Wisconsin Energy Corp. | 8,894 | ||||||||||
39,568 | ||||||||||||
Total Common Stocks | ||||||||||||
( Cost $1,340,431) | $ | 1,751,310 | ||||||||||
Total Long-Term Investments | ||||||||||||
(Cost $1,340,431) | $ | 1,751,310 | ||||||||||
Short-Term Investments - 0.1% | ||||||||||||
Repurchase Agreements - 0.1% | ||||||||||||
Bank of America Merrill Lynch Repurchase Agreement (maturing on 01/02/2015 in the amount of $1, collateralized by U.S. Treasury Note 0.75%, 2018, value of $1) | ||||||||||||
$ | 1 | 0.05%, 12/31/2014 | $ | 1 | ||||||||
Bank of America Merrill Lynch TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $7, collateralized by U.S. Treasury Note 2.50%, 2024, value of $7) | ||||||||||||
7 | 0.07%, 12/31/2014 | 7 | ||||||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $182, collateralized by U.S. Treasury Bond 3.88% - 5.25%, 2029 - 2040, U.S. Treasury Note 0.25% - 4.63%, 2015 - 2022, value of $186) | ||||||||||||
182 | 0.06%, 12/31/2014 | 182 | ||||||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $79, collateralized by FHLMC 2.00% - 5.50%, 2019 - 2044, FNMA 2.00% - 4.00%, 2024 - 2042, GNMA 3.00%, 2043, U.S. Treasury Bill 0.07%, 2015, value of $81) | ||||||||||||
79 | 0.07%, 12/31/2014 | 79 | ||||||||||
Barclays Capital TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $195, collateralized by U.S. Treasury Bond 3.63%, 2043, U.S. Treasury Note 0.88% - 2.00%, 2017 - 2020, value of $199) | ||||||||||||
195 | 0.05%, 12/31/2014 | 195 | ||||||||||
Citigroup Global Markets, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $348, collateralized by U.S. Treasury Bond 3.63% - 9.88%, 2015 - 2043, U.S. Treasury Note 0.25% - 2.75%, 2015 - 2022, value of $355) | ||||||||||||
348 | 0.06%, 12/31/2014 | 348 | ||||||||||
Deutsche Bank Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $57, collateralized by FHLMC 2.00% - 10.50%, 2015 - 2047, FNMA 2.00% - 9.50%, 2015 - 2049, GNMA 2.50% - 10.00%, 2016 - 2055, value of $58) | ||||||||||||
57 | 0.12%, 12/31/2014 | 57 | ||||||||||
RBS Securities, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $15, collateralized by U.S. Treasury Note 0.38% - 2.13%, 2015 - 2016, value of $15) | ||||||||||||
15 | 0.07%, 12/31/2014 | 15 | ||||||||||
Societe Generale TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $166, collateralized by U.S. Treasury Bond 8.75%, 2020, U.S. Treasury Note 0.25% - 2.88%, 2015 - 2022, value of $169) | ||||||||||||
166 | 0.07%, 12/31/2014 | 166 | ||||||||||
TD Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $355, collateralized by FHLMC 3.00% - 4.00%, 2026 - 2044, FNMA 2.50% - 5.00%, 2025 - 2044, value of $362) | ||||||||||||
355 | 0.08%, 12/31/2014 | 355 | ||||||||||
1,405 | ||||||||||||
Total Short-Term Investments | ||||||||||||
(Cost $1,405) | $ | 1,405 | ||||||||||
Total Investments | ||||||||||||
(Cost $1,341,836) ▲ | 100.0 | % | $ | 1,752,715 | ||||||||
Other Assets and Liabilities | — | % | 240 | |||||||||
Total Net Assets | 100.0 | % | $ | 1,752,955 |
The accompanying notes are an integral part of these financial statements.
6 |
Hartford MidCap HLS Fund
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Note: | Percentage of investments as shown is the ratio of the total market value to total net assets. |
Prices of foreign equities that are principally traded on certain foreign markets may be adjusted daily pursuant to a fair value pricing service approved by the Board of Directors in order to reflect an adjustment for factors occurring after the close of certain foreign markets but before the close of the New York Stock Exchange.
Equity industry classifications used in this report are the Global Industry Classification Standard, which was developed by and is the exclusive property and service mark of MSCI, Inc. and Standard & Poor’s.
For Fund compliance purposes, the Fund may not use the same classification system shown in this report as these classifications are used for reporting ease.
▲ | At December 31, 2014, the cost of securities for federal income tax purposes was $1,344,348 and the aggregate gross unrealized appreciation and depreciation based on that cost were: |
Unrealized Appreciation | $ | 458,066 | ||
Unrealized Depreciation | (49,699 | ) | ||
Net Unrealized Appreciation | $ | 408,367 |
● | Non-income producing. |
╪ | See Significant Accounting Policies of accompanying Notes to Financial Statements regarding valuation of securities. |
GLOSSARY: (abbreviations used in preceding Schedule of Investments) | |
Other Abbreviations: | |
FHLMC | Federal Home Loan Mortgage Corp. |
FNMA | Federal National Mortgage Association |
GNMA | Government National Mortgage Association |
The accompanying notes are an integral part of these financial statements.
7 |
Hartford MidCap HLS Fund
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Investment Valuation Hierarchy Level Summary
December 31, 2014
Total | Level 1 ♦ | Level 2 ♦ | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Common Stocks ‡ | $ | 1,751,310 | $ | 1,751,310 | $ | – | $ | – | ||||||||
Short-Term Investments | 1,405 | – | 1,405 | – | ||||||||||||
Total | $ | 1,752,715 | $ | 1,751,310 | $ | 1,405 | $ | – |
♦ | For the year ended December 31, 2014, there were no transfers between Level 1 and Level 2. |
‡ | The Fund has all or primarily all of the equity securities categorized in a particular level. Refer to the Schedule of Investments for further industry breakout. |
Note: | For purposes of reporting transfers between different hierarchy levels, both transfers in and out of each level, as applicable, are shown as if they occurred at the beginning of the period. |
The accompanying notes are an integral part of these financial statements.
8 |
Hartford MidCap HLS Fund |
Statement of Assets and Liabilities |
December 31, 2014 |
(000’s Omitted) |
Assets: | ||||
Investments in securities, at market value (cost $1,341,836) | $ | 1,752,715 | ||
Cash | 2 | |||
Receivables: | ||||
Fund shares sold | 956 | |||
Dividends and interest | 953 | |||
Other assets | — | |||
Total assets | 1,754,626 | |||
Liabilities: | ||||
Payables: | ||||
Fund shares redeemed | 1,350 | |||
Investment management fees | 262 | |||
Distribution fees | 5 | |||
Accrued expenses | 54 | |||
Total liabilities | 1,671 | |||
Net assets | $ | 1,752,955 | ||
Summary of Net Assets: | ||||
Capital stock and paid-in-capital | $ | 1,133,930 | ||
Undistributed net investment income | 1,490 | |||
Accumulated net realized gain | 206,656 | |||
Unrealized appreciation of investments | 410,879 | |||
Net assets | $ | 1,752,955 | ||
Shares authorized | 2,600,000 | |||
Par value | $ | 0.001 | ||
Class IA: Net asset value per share | $ | 37.28 | ||
Shares outstanding | 44,778 | |||
Net assets | $ | 1,669,393 | ||
Class IB: Net asset value per share | $ | 36.83 | ||
Shares outstanding | 2,269 | |||
Net assets | $ | 83,562 |
The accompanying notes are an integral part of these financial statements.
9 |
Hartford MidCap HLS Fund |
Statement of Operations |
For the Year Ended December 31, 2014 |
(000’s Omitted) |
Investment Income: | ||||
Dividends | $ | 13,505 | ||
Interest | 3 | |||
Less: Foreign tax withheld | (41 | ) | ||
Total investment income, net | 13,467 | |||
Expenses: | ||||
Investment management fees | 11,363 | |||
Transfer agent fees | 6 | |||
Distribution fees - Class IB | 207 | |||
Custodian fees | 11 | |||
Accounting services fees | 168 | |||
Board of Directors' fees | 42 | |||
Audit fees | 25 | |||
Other expenses | 155 | |||
Total expenses (before fees paid indirectly) | 11,977 | |||
Commission recapture | (28 | ) | ||
Custodian fee offset | — | |||
Total fees paid indirectly | (28 | ) | ||
Total expenses, net | 11,949 | |||
Net Investment Income | 1,518 | |||
Net Realized Gain on Investments and Foreign Currency Transactions: | ||||
Net realized gain on investments | 225,617 | |||
Net realized gain on foreign currency contracts | 16 | |||
Net realized loss on other foreign currency transactions | (16 | ) | ||
Net Realized Gain on Investments and Foreign Currency Transactions | 225,617 | |||
Net Changes in Unrealized Depreciation of Investments: | ||||
Net unrealized depreciation of investments | (47,544 | ) | ||
Net Changes in Unrealized Depreciation of Investments | (47,544 | ) | ||
Net Gain on Investments and Foreign Currency Transactions | 178,073 | |||
Net Increase in Net Assets Resulting from Operations | $ | 179,591 |
The accompanying notes are an integral part of these financial statements.
10 |
Hartford MidCap HLS Fund |
Statement of Changes in Net Assets |
|
(000’s Omitted) |
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Operations: | ||||||||
Net investment income | $ | 1,518 | $ | 3,040 | ||||
Net realized gain on investments and foreign currency transactions | 225,617 | 203,130 | ||||||
Net unrealized appreciation (depreciation) of investments | (47,544 | ) | 297,608 | |||||
Net Increase in Net Assets Resulting from Operations | 179,591 | 503,778 | ||||||
Distributions to Shareholders: | ||||||||
From net investment income | ||||||||
Class IA | (1,570 | ) | (1,638 | ) | ||||
Class IB | — | (14 | ) | |||||
Total from net investment income | (1,570 | ) | (1,652 | ) | ||||
From net realized gain on investments | ||||||||
Class IA | (190,670 | ) | (53,879 | ) | ||||
Class IB | (10,000 | ) | (3,100 | ) | ||||
Total from net realized gain on investments | (200,670 | ) | (56,979 | ) | ||||
Total distributions | (202,240 | ) | (58,631 | ) | ||||
Capital Share Transactions: | ||||||||
Class IA | ||||||||
Sold | 344,107 | 98,550 | ||||||
Issued on reinvestment of distributions | 192,240 | 55,517 | ||||||
Redeemed | (329,179 | ) | (418,031 | ) | ||||
Total capital share transactions | 207,168 | (263,964 | ) | |||||
Class IB | ||||||||
Sold | 6,044 | 11,537 | ||||||
Issued on reinvestment of distributions | 10,000 | 3,114 | ||||||
Redeemed | (13,717 | ) | (25,943 | ) | ||||
Total capital share transactions | 2,327 | (11,292 | ) | |||||
Net increase (decrease) from capital share transactions | 209,495 | (275,256 | ) | |||||
Net Increase in Net Assets | 186,846 | 169,891 | ||||||
Net Assets: | ||||||||
Beginning of period | 1,566,109 | 1,396,218 | ||||||
End of period | $ | 1,752,955 | $ | 1,566,109 | ||||
Undistributed (distributions in excess of) net investment income | $ | 1,490 | $ | 1,609 | ||||
Shares: | ||||||||
Class IA | ||||||||
Sold | 8,941 | 3,001 | ||||||
Issued on reinvestment of distributions | 5,168 | 1,576 | ||||||
Redeemed | (8,510 | ) | (12,467 | ) | ||||
Total share activity | 5,599 | (7,890 | ) | |||||
Class IB | ||||||||
Sold | 158 | 353 | ||||||
Issued on reinvestment of distributions | 272 | 90 | ||||||
Redeemed | (360 | ) | (784 | ) | ||||
Total share activity | 70 | (341 | ) | |||||
The accompanying notes are an integral part of these financial statements.
11 |
Hartford MidCap HLS Fund |
Notes to Financial Statements |
December 31, 2014 |
(000’s Omitted) |
Organization:
Hartford MidCap HLS Fund (the "Fund") serves as an underlying investment option for certain variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company (“HLIC”) and its affiliates and certain qualified retirement plans. The Fund may also serve as an underlying investment option for certain variable annuity and variable life separate accounts of other insurance companies. Owners of variable annuity contracts and policyholders of variable life insurance contracts may choose the funds permitted in the variable insurance contract prospectus. In addition, participants in certain qualified retirement plans may choose the Fund if permitted by their plans.
Hartford Series Fund, Inc. (the “Company”) is an open-end registered management investment company comprised of fifteen portfolios. Financial statements for the Fund, a series of the Company, are included in this report.
The Company is organized under the laws of the State of Maryland and is registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (“1940 Act”). The Fund is a diversified open-end management investment company. The Fund is an investment company and applies specialized accounting and reporting under Accounting Standards Codification Topic 946, Financial Services - Investment Companies.
The Fund is divided into Class IA, Class IB and Class IC shares. Each class is offered at the per share net asset value (“NAV”) without a sales charge and is subject to the same expenses, except that the Class IB and Class IC shares are subject to distribution and service fees charged pursuant to a Distribution Plan adopted in accordance with Rule 12b-1 under the 1940 Act and Class IC shares are also subject to an administrative service fee. Class IC shares have not commenced operations as of the date of this report.
Significant Accounting Policies:
The following is a summary of significant accounting policies of the Fund in the preparation of its financial statements, which are in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The preparation of financial statements in accordance with U.S. GAAP may require 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
Determination of Net Asset Value – The NAV of each class of the Fund's shares is determined as of the close of regular trading (normally 4:00 p.m. Eastern Time) (the “NYSE Close”) on each day that the New York Stock Exchange (the “Exchange”) is open (“Valuation Date”). Information that becomes known to the Fund after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the NAV determined earlier that day.
Investment Valuation and Fair Value Measurements – For purposes of calculating the NAV, portfolio investments and other assets held by the Fund's portfolio for which market quotes are readily available are valued at market value. Market value is generally determined on the basis of last reported sales prices or official close price. If no sales are reported, market value is based on quotes obtained from a quotation reporting system, established market makers, or independent pricing services. If market prices are not readily available or are deemed unreliable, the Fund will use the fair value of the investment as determined in good faith under policies and procedures established by and under the supervision of the Company's Board of Directors. Market quotes are considered not readily available where there is an absence of current or reliable market-based data (e.g., trade information or indicative market quotes), including where events occur after the close of the relevant market, but prior to the NYSE Close, that materially affect the values of the Fund's portfolio investments or assets. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the investments trade do not open for trading for the entire day and no other market prices are available. In addition, prices of foreign equities that are principally traded on certain foreign markets may be adjusted daily pursuant to a fair value pricing service approved by the Board of Directors in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close. Investments that are primarily traded on foreign markets may trade on days that are not business days of the Fund. The value of the foreign investments in which the Fund invests may change on days when a shareholder will not be able to purchase or redeem shares of the Fund. Fair value pricing is subjective in nature and the use of fair value pricing by the Fund may cause the NAV of its shares to differ significantly from the NAV that would have been calculated using market prices at the close of the exchange on which a portfolio investment is primarily
12 |
Hartford MidCap HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
traded. There can be no assurance that the Fund could obtain the fair market value assigned to an investment if the Fund were to sell the investment at approximately the time at which the Fund determines its NAV.
Investments valued in currencies other than U.S. dollars are converted to U.S. dollars using exchange rates obtained from independent pricing services for calculation of the NAV. As a result, the NAV of the Fund’s shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of investments traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that the NYSE is closed and the market value may change on days when an investor is not able to purchase, redeem or exchange shares of the Fund.
Foreign currency contracts represent agreements to exchange currencies on specific future dates at predetermined rates. Foreign currency contracts are valued using foreign currency exchange rates and forward rates as provided by an independent pricing service on the Valuation Date.
Financial instruments for which prices are not available from an independent pricing service may be valued using market quotations obtained from one or more dealers that make markets in the respective financial instrument in accordance with procedures established by the Company's Board of Directors.
U.S. GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants. The U.S. GAAP fair value measurement standards require disclosure of a fair value hierarchy for each major category of assets and liabilities. Various inputs are used in determining the fair value of the Fund’s investments. These inputs are summarized into three broad hierarchy levels. This hierarchy is based on whether the valuation inputs are observable or unobservable. These levels are:
Level 1 – Quoted prices in active markets for identical investments. Level 1 may include exchange traded instruments, such as domestic equities, some foreign equities, options, futures, mutual funds, exchange traded funds, rights and warrants.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar investments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 2 may include debt investments that are traded less frequently than exchange traded instruments and which are valued using independent pricing services; foreign equities, which are principally traded on certain foreign markets and are adjusted daily pursuant to a fair value pricing service in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close; senior floating rate interests, which are valued using an aggregate of dealer bids; short-term investments, which are valued at amortized cost; and swaps, which are valued based upon the terms of each swap contract.
Level 3 – Significant unobservable inputs that are supported by limited or no market activity. Level 3 may include financial instruments whose values are determined using indicative market quotes or require significant management judgment or estimation. These unobservable valuation inputs may include estimates for current yields, maturity/duration, prepayment speed, and indicative market quotes for comparable investments along with other assumptions relating to credit quality, collateral value, complexity of the investment structure, general market conditions and liquidity. This category may include investments where trading has been halted or there are certain restrictions on trading. While these investments are priced using unobservable inputs, the valuation of these investments reflects the best available data and management believes the prices are a reasonable representation of exit price.
The Board of Directors of the Company generally reviews and approves the “Procedures for Valuation of Portfolio Securities” at least once a year. These procedures define how investments are to be valued, including the formation and activities of a Valuation Committee. The Valuation Committee is responsible for determining in good faith the fair value of investments when the value cannot be obtained from primary pricing services or alternative sources or if the valuation of an investment as provided by the primary pricing service or alternative source is believed not to reflect the investment’s fair value as of the Valuation Date. Voting members of the Valuation Committee include the Fund's Treasurer or designee and a Vice President of the investment manager or designee. An Assistant Vice President of the Fund with legal expertise or designee is also included on the Valuation Committee as a non-voting advisory member. In addition, the Fund’s Chief Compliance Officer shall designate a member of the compliance group to attend Valuation Committee meetings as a non-voting resource, to monitor for and provide guidance with
13 |
Hartford MidCap HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
respect to compliance with these procedures. Two members of the Valuation Committee or their designees, representing different departments, shall constitute a quorum for purposes of permitting the Valuation Committee to take action. The Valuation Committee will consider all relevant factors in determining an investment’s fair value, and may seek the advice of the Fund’s sub-adviser, knowledgeable brokers, and legal counsel in making such determination. The Valuation Committee reports to the Audit Committee of the Company's Board of Directors. The Audit Committee receives quarterly written reports which include details of all fair-valued investments, including the reason for the fair valuation, and an indication, when possible, of the accuracy of the valuation by disclosing the next available reliable public price quotation or the disposition price of such investments (the “look-back” test). The Board of Directors then must consider for ratification all of the fair value determinations made during the previous quarter.
Valuation levels are not necessarily indicative of the risk associated with investing in such investments. Individual investments within any of the above mentioned asset classes may be assigned a different hierarchical level than those presented above, as individual circumstances dictate.
For additional information, refer to the Investment Valuation Hierarchy Level Summary which is included in the Schedule of Investments.
Investment Transactions and Investment Income – Investment transactions are recorded as of the trade date (the date the order to buy or sell is executed) for financial reporting purposes. Investments purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Realized gains and losses are determined on the basis of identified cost.
Dividend income from domestic securities is accrued on the ex-dividend date. In general, dividend income from foreign securities is recorded on the ex-date; however, dividend notifications in certain foreign jurisdictions may not be available in a timely manner and as a result, the Fund will record the dividend as soon as the relevant details (i.e., rate per share, payment date, shareholders of record, etc.) are publicly available. Interest income, including amortization of premium, accretion of discounts, inflation adjustments and additional principal received in-kind in lieu of cash, is accrued on a daily basis.
Foreign Currency Transactions – Assets and liabilities denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates in effect on the valuation date. Purchases and sales of investments, income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions.
The Fund does not isolate that portion of portfolio investment valuation resulting from fluctuations in the foreign currency exchange rates from the fluctuations arising from changes in the market prices of investments held. Exchange rate fluctuations are included with the net realized and unrealized gain or loss on investments in the accompanying financial statements.
Net realized foreign exchange gains or losses arise from sales of foreign currencies and the difference between asset and liability amounts initially stated in foreign currencies and the U.S. dollar value of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of other assets and liabilities at the end of the reporting period, resulting from changes in the exchange rates.
Joint Trading Account – The Fund may invest cash balances into a joint trading account that may be invested in one or more repurchase agreements.
Fund Share Valuation and Dividend Distributions to Shareholders – Orders for the Fund’s shares are executed in accordance with the investment instructions of the contract holders and plan participants. The NAV of the Fund’s shares is determined as of the close of business on each business day of the Exchange. The NAV is determined separately for each class of shares of the Fund by dividing the Fund’s net assets attributable to that class by the number of shares of the class outstanding. Each class of shares offered by the Fund has equal rights as to assets and voting privileges (except that shareholders of a class have exclusive voting rights regarding any matter relating solely to that class of shares). Income and non-class specific expenses are allocated daily to each class on the basis of the relative net assets of the class. Realized and unrealized gains and losses are allocated daily based on the relative net assets of each class of shares of the Fund.
14 |
Hartford MidCap HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Orders for the purchase of the Fund’s shares received prior to the close of the Exchange on any day the Exchange is open for business are priced at the NAV determined as of the close of the Exchange. Orders received after the close of the Exchange, or on a day on which the Exchange and/or the Fund is not open for business, are priced at the next determined NAV.
Dividends are declared pursuant to a policy adopted by the Company's Board of Directors based upon the investment performance of the Fund. The policy of the Fund is to pay dividends from net investment income and realized gains, if any, at least once a year.
Net investment income, dividends and distributions from net realized gains and capital are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP with respect to character and timing (see Federal Income Taxes: Distributions and Components of Distributable Earnings and Reclassification of Capital Accounts).
Securities and Other Investments:
Repurchase Agreements – A repurchase agreement is an agreement by which a counterparty agrees to sell an investment and agrees to repurchase the investment sold from the buyer at a mutually agreed upon time and price. During the period of the repurchase agreement, the counterparty will deposit cash and or securities in a third party custodial account to serve as collateral. At the time the Fund enters into a repurchase agreement, the value of the underlying collateral, including accrued interest, will be equal to or exceed the value of the repurchase agreement. Repurchase agreements expose the Fund to counterparty risk - that is, the risk that the counterparty will not fulfill its obligations. To minimize counterparty risk, the investments that serve to collateralize the repurchase agreement are held by the Fund’s custodian in book entry or physical form in the custodial account of the Fund or in a third party custodial account. Repurchase agreements are valued at cost plus accrued interest, which approximates fair value. Repurchase agreements have master netting arrangements which allow the Fund to offset amounts owed to a counterparty with amounts owed by the counterparty, including any collateral. Upon an event of default under a master repurchase agreement, the non-defaulting party may close out all transactions traded under such agreement and net amounts owed under each transaction to one net amount payable by one party to the other. Absent an event of default, the master repurchase agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty. The Fund, as shown on the Schedule of Investments, had outstanding repurchase agreements and related collateral as of December 31, 2014.
Financial Derivative Instruments:
The following disclosures contain information on how and why the Fund uses derivative instruments, the credit-risk-related contingent features in certain derivative instruments and how derivative instruments affect the Fund’s financial position and results of operations. The location and fair value amounts of these instruments on the Statement of Assets and Liabilities and the realized gains and losses and changes in unrealized gains and losses on the Statement of Operations, each categorized by type of derivative contract, are included in the following Additional Derivative Instrument Information footnote. The derivative instruments outstanding as of year-end are disclosed in the notes to the Schedule of Investments, if applicable. The amounts of realized gains and losses and changes in unrealized gains and losses on derivative instruments during the year are disclosed in the Statement of Operations.
Foreign Currency Contracts – The Fund may enter into foreign currency contracts that obligate the Fund to purchase or sell currencies at specified future dates. Foreign currency contracts are used to hedge the currency exposure associated with some or all of the Fund’s investments and/or as part of an investment strategy. Foreign currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. The Fund will record a realized gain or loss when the foreign currency contract is settled.
Foreign currency contracts involve elements of market risk in excess of the amounts reflected in the Statement of Assets and Liabilities. In addition, risks may arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of the contracts and from unanticipated movements in the value of the foreign currencies relative to the U.S. dollar. The Fund had no outstanding foreign currency contracts as of December 31, 2014.
15 |
Hartford MidCap HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Additional Derivative Instrument Information:
The volume of derivative activity was minimal during the year ended December 31, 2014.
The Effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2014:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts | Foreign Exchange Contracts | Credit Contracts | Equity Contracts | Commodity Contracts | Other Contracts | Total | ||||||||||||||||||||||
Realized Gain on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net realized gain on foreign currency contracts | $ | — | $ | 16 | $ | — | $ | — | $ | — | $ | — | $ | 16 | ||||||||||||||
Total | $ | — | $ | 16 | $ | — | $ | — | $ | — | $ | — | $ | 16 |
Principal Risks:
The Fund may be exposed to counterparty risk, or the risk that an institution or other entity with which the Fund has unsettled or open transactions will default.
If the Fund invests directly in foreign currencies or in securities that trade in, and receive revenues in, foreign currencies, or in derivatives that provide exposure to foreign currencies, it will be subject to the risk that those currencies will decline in value relative to the base currency (U.S. dollars) of the Fund, or, in the case of hedging positions, that the Fund’s base currency will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities, such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad. As a result, the Fund’s investments in foreign currency denominated securities may reduce the returns of the Fund. The market values of equity securities, such as common stocks and preferred stocks, or equity related investments, such as futures and options, may decline due to general market conditions which are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. The market value of equity securities may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities and equity related investments generally have greater market price volatility than fixed income securities.
Federal Income Taxes:
Federal Income Taxes – For federal income tax purposes, the Fund intends to continue to qualify as a Regulated Investment Company ("RIC") under Subchapter M of the Internal Revenue Code (“IRC”) by distributing substantially all of its taxable net investment income and net realized capital gains to its shareholders and otherwise complying with the requirements of the IRC. The Fund has distributed substantially all of its income and capital gains in prior years, if applicable, and intends to distribute substantially all of its income and capital gains prior to the next fiscal year-end. Accordingly, no provision for federal income or excise taxes has been made in the accompanying financial statements. Distributions from short-term capital gains are treated as ordinary income distributions for federal income tax purposes.
Net Investment Income (Loss), Net Realized Gains (Losses) and Distributions – Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of losses deferred due to wash sale adjustments, foreign currency gains and losses, adjustments related to Passive Foreign Investment Companies ("PFICs"), Real Estate Investment Trusts ("REITs"), RICs, certain derivatives and partnerships. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund.
16 |
Hartford MidCap HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Distributions and Components of Distributable Earnings – The tax character of distributions paid by the Fund for the periods indicated is as follows (as adjusted for dividends payable, if applicable):
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Ordinary Income | $ | 27,985 | $ | 13,250 | ||||
Long-Term Capital Gains* | 174,255 | 45,381 |
* | The Fund designates these distributions as long-term capital gain dividends pursuant to IRC Sec. 852(b)(3)(C). |
As of December 31, 2014, the Fund’s components of distributable earnings (deficit) on a tax basis are as follows:
Amount | ||||
Undistributed Ordinary Income | $ | 13,049 | ||
Undistributed Long-Term Capital Gain | 197,609 | |||
Unrealized Appreciation* | 408,367 | |||
Total Accumulated Earnings | $ | 619,025 |
* | Differences between book-basis and tax-basis unrealized appreciation (depreciation) may be attributable to the losses deferred due to wash sale adjustments, foreign currency gains and losses and adjustments related to PFICs, REITs, RICs, certain derivatives and partnerships. |
Reclassification of Capital Accounts – The Fund may record reclassifications in its capital accounts. These reclassifications have no impact on the total net assets of the Fund. The reclassifications are a result of permanent differences between U.S. GAAP and tax accounting for such items as foreign currency, PFICs, expiration or utilization of capital loss carryforwards or net operating losses. Adjustments are made to reflect the impact these items have on current and future distributions to shareholders. Therefore, the source of the Fund’s distributions may be shown in the accompanying Statement of Changes in Net Assets as from undistributed net investment income, from accumulated net realized gains on investments or from capital depending on the type of book and tax differences that exist. For the year ended December 31, 2014, the Fund recorded reclassifications to increase (decrease) the accounts listed below:
Amount | ||||
Undistributed Net Investment Income (Loss) | $ | (67 | ) | |
Accumulated Net Realized Gain (Loss) | 67 |
Capital Loss Carryforward – On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which made changes to the capital loss carryforward rules. The changes are effective for taxable years beginning after the date of enactment. Under the Act, funds are permitted to carry forward capital losses for an unlimited period. Additionally, capital loss carryforwards retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under prior regulation.
The Fund had no capital loss carryforward for U.S. federal income tax purposes as of December 31, 2014.
Accounting for Uncertainty in Income Taxes – The Fund has adopted financial reporting rules that require the Fund to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions. Generally, tax authorities can examine all tax returns filed for the last three years. The Fund does not have an examination in progress.
The Fund has reviewed all open tax years and major jurisdictions and concluded that these financial reporting rules had no effect on the Fund’s financial position or results of operations. There is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on the tax return for the fiscal year ended December 31, 2014. The Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
17 |
Hartford MidCap HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Expenses:
Investment Management Agreement – Hartford Funds Management Company, LLC ("HFMC") serves as the Fund’s investment manager pursuant to an Investment Management Agreement with the Company. HFMC is an indirect wholly owned subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford"). The investment manager has overall investment supervisory responsibility for the Fund. In addition, the investment manager provides administrative personnel, services, equipment, facilities and office space for proper operation of the Fund. HFMC has contracted with Wellington Management Company, LLP ("Wellington Management") under a sub-advisory agreement for the provision of day-to-day investment management services to the Fund in accordance with the Fund’s investment objective and policies. The Fund pays a fee to the investment manager, a portion of which may be used to compensate Wellington Management.
The schedule below reflects the rates of compensation paid to the investment manager for investment management services rendered as of December 31, 2014; the rates are accrued daily and paid monthly:
Average Daily Net Assets | Annual Fee | |||
On first $250 million | 0.7750% | |||
On next $250 million | 0.7250% | |||
On next $500 million | 0.6750% | |||
On next $4 billion | 0.6250% | |||
On next $5 billion | 0.6225% | |||
Over $10 billion | 0.6200% |
Accounting Services Agreement – Pursuant to the Fund Accounting Agreement between HFMC and the Company, on behalf of the Fund, HFMC provides accounting services to the Fund and receives monthly compensation based on the Fund’s average daily net assets at the rates set forth below. The Fund’s accounting services fees are accrued daily and paid monthly.
Average Daily Net Assets | Annual Fee | |||
All Assets | 0.010% |
Operating Expenses – Allocable expenses incurred by the Company are allocated to each Fund and allocated to classes within a Fund in proportion to the average daily net assets of the Fund and each class, except where allocation of certain expenses is more fairly made directly to the Fund or to specific classes within a Fund.
Fees Paid Indirectly – The Company, on behalf of the Fund, has entered into agreements with State Street Global Markets, LLC and Russell Implementation Services, Inc. to partially recapture non-discounted trade commissions. Such rebates are used to pay a portion of the Fund’s expenses. In addition, the Fund's custodian has agreed to reduce its fees when the Fund maintains cash on deposit in a non-interest-bearing custody account. For the year ended December 31, 2014, these amounts, if any, are included in the Statement of Operations.
The ratio of expenses to average net assets in the accompanying financial highlights excludes the reduction in expenses related to fees paid indirectly. The annualized expense ratio after waivers for the period listed below reflecting the reduction for fees paid indirectly is as follows:
Year Ended December 31, 2014 | ||||
Class IA | 0.70% | |||
Class IB | 0.95 |
Distribution Plan for Class IB Shares – Hartford Funds Distributors, LLC (“HFD”), an indirect wholly owned subsidiary of The Hartford, is the principal underwriter and distributor of the Fund. The Company, on behalf of the Fund, has adopted a Distribution Plan pursuant to Rule 12b-1 of the 1940 Act for Class IB shares.
18 |
Hartford MidCap HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
The Distribution Plan provides that the Fund may pay annually up to 0.25% of the average daily net assets of the Fund attributable to its Class IB shares for activities primarily intended to result in the sale of Class IB shares. The Board has the authority to suspend or reduce these payments at any point in time. Under the terms of the Distribution Plan and the principal underwriting agreement, the Fund is authorized to make payments monthly to the distributor that may be used to pay or reimburse entities providing distribution and shareholder servicing with respect to the Class IB shares for such entities’ fees or expenses incurred or paid in that regard. The distribution fees paid during the period can be found on the Statement of Operations. These fees are accrued daily and paid monthly or at such other intervals as the Board of Directors may determine.
Other Related Party Transactions – Certain officers of the Fund are directors and/or officers of HFMC and/or The Hartford or its subsidiaries. For the year ended December 31, 2014, a portion of the Fund's Chief Compliance Officer's compensation was paid by all the investment companies in the Hartford fund complex. The portion allocated to the Fund, as represented in other expenses on the Statement of Operations, was in the amount of $2. Hartford Administrative Services Company ("HASCO"), an indirect wholly owned subsidiary of The Hartford, provides transfer agent services to the Fund. Effective December 1, 2014, pursuant to a sub-transfer agency agreement between HASCO and Boston Financial Data Services, Inc. (“BFDS”), HASCO delegated certain transfer agent, dividend disbursing agent and shareholder servicing agent functions to BFDS. HASCO is compensated by the Fund based on the number of classes plus out of pocket expenses for providing such services, a portion of which may be used to compensate BFDS. The amount paid to HASCO can be found in the Statement of Operations. These fees are accrued daily and paid monthly.
Investment Transactions:
For the year ended December 31, 2014, the cost of purchases and proceeds from sales of investment securities (excluding short-term investments) were as follows:
Excluding U.S. Government Obligations | U.S. Government Obligations | Total | ||||||||||
Cost of Purchases | $ | 737,625 | $ | — | $ | 737,625 | ||||||
Sales Proceeds | 727,290 | — | 727,290 |
Line of Credit:
The Fund is one of several Hartford Funds that participate in a $500 million committed revolving line of credit facility. The facility is to be used for temporary or emergency purposes. Under the arrangement, the funds are required to own securities having a market value in excess of 300% of the total bank borrowings. The interest rate on borrowings varies depending on the nature of the loan. The facility also requires a fee to be paid based on the amount of the commitment. This commitment fee is allocated to all the funds participating in the line of credit based on the average net assets of the funds. During the year ended December 31, 2014, the Fund did not have any borrowings under this facility.
Indemnifications:
Under the Company's organizational documents, the Company shall indemnify its officers and directors to the full extent required or permitted under Maryland General Corporation Law and the federal securities laws. In addition, the Company, on behalf of the Fund, may enter into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, as of the date of these financial statements, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Pending Legal Proceedings:
On February 25, 2011, Jennifer L. Kasilag, Louis Mellinger, Judith M. Menendez, Jacqueline M. Robinson, and Linda A. Russell filed a derivative lawsuit against Hartford Investment Financial Services, LLC (“HIFSCO”) (now known as HFD) on behalf of six Hartford retail mutual funds in the United States District Court for the District of New Jersey, alleging that HIFSCO received excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the 1940 Act when serving as investment manager and
19 |
Hartford MidCap HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
principal underwriter, respectively, to the Hartford retail mutual funds. Although this action was purportedly filed on behalf of certain of the Hartford Funds, none of the Hartford Funds is itself a defendant to the suit. HIFSCO moved to dismiss and, in September 2011, the motion was granted in part and denied in part, with leave to amend the complaint. In November 2011, plaintiffs filed an amended complaint on behalf of certain Hartford retail mutual funds, The Hartford Global Health Fund (now known as The Hartford Healthcare Fund), The Hartford Conservative Allocation Fund, The Hartford Growth Opportunities Fund, The Hartford Inflation Plus Fund, The Hartford Advisers Fund (now known as The Hartford Balanced Fund), and The Hartford Capital Appreciation Fund. Plaintiffs seek to rescind the investment management agreements and distribution plans between HIFSCO and these funds and to recover the total fees charged thereunder or, in the alternative, to recover any improper compensation HIFSCO received, in addition to lost earnings. HIFSCO filed a partial motion to dismiss the amended complaint and, in December 2012, the court dismissed without prejudice the claims regarding distribution fees and denied the motion with respect to the advisory fees claims. HIFSCO disputes the allegations and intends to defend vigorously.
In March 2014, the plaintiffs filed a new complaint that added as new plaintiffs The Hartford Floating Rate Fund and The Hartford Small Company Fund, two Hartford retail mutual funds, and named as a defendant HFMC, which assumed the role as investment manager to the funds as of January 2013. HFMC and HIFSCO dispute the allegations and intend to defend vigorously.
This action concerns the activities of HIFSCO in its capacity as investment manager and principal underwriter to the Hartford retail mutual funds and does not concern HIFSCO’s activities in its capacity as principal underwriter to the HLS funds. For this reason, no accrual for litigation relating to this matter has been recorded in the financial statements of the Fund.
Recent Accounting Pronouncement:
In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, modifying Accounting Standards Codification Topic 860. The amended guidance changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. The guidance also requires new disclosures for certain transfers accounted for as sales and collateral supporting transactions that are accounted for as secured borrowings. ASU 2014-11 is effective for annual and interim periods beginning after December 15, 2014, except for the disclosures related to secured borrowings, which are effective for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The adoption of ASU 2014-11 is not expected to have a material impact on the Fund’s results of operations or financial position, but may impact the Fund’s disclosures.
Subsequent Event:
Effective on or after January 1, 2015, pursuant to an agreement between the Hartford Funds and State Street Bank and Trust Company ("State Street"), State Street replaced, or is scheduled to replace, JP Morgan Chase Bank, N.A. ("JP Morgan Chase") as the Fund's primary custodian. JP Morgan Chase may serve as custodian of certain Fund assets. In addition, on or after the same date, HFMC has delegated, or will delegate, certain accounting and administrative services functions to State Street. The costs and expenses of such delegation will be borne by HFMC, not by the Funds, and HFMC will compensate State Street for its services out of its own resources.
20 |
Hartford MidCap HLS Fund |
Financial Highlights |
─ Selected Per-Share Data(A) ─ | ─ Ratios and Supplemental Data ─ | |||||||||||||||||||||||||||||||||||||||||||||||||||
Class | Net Asset Value at Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Investment Operations | Dividends from Net Investment Income | Distributions from Realized Capital Gains | Total Dividends and Distributions | Net Asset Value at End of Period | Total Return(B) | Net Assets at End of Period (000s) | Ratio of Expenses to Average Net Assets Before Adjust- ments(C) | Ratio of Expenses to Average Net Assets After Adjust- ments(C) | Ratio of Net Investment Income (Loss) to Average Net Assets | |||||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 37.87 | $ | 0.04 | $ | 4.22 | $ | 4.26 | $ | (0.04) | $ | (4.81) | $ | (4.85) | $ | 37.28 | 11.37 | % | $ | 1,669,393 | 0.70 | % | 0.70 | % | 0.10% | |||||||||||||||||||||||||||
IB | 37.52 | (0.06) | 4.18 | 4.12 | – | (4.81) | (4.81) | 36.83 | 11.09 | 83,562 | 0.95 | 0.95 | (0.15) | |||||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 28.16 | $ | 0.07 | $ | 11.02 | $ | 11.09 | $ | (0.04 | ) | $ | (1.34 | ) | $ | (1.38 | ) | $ | 37.87 | 39.82 | % | $ | 1,483,626 | 0.71 | % | 0.71 | % | 0.21 | % | |||||||||||||||||||||||
IB | 27.95 | (0.02 | ) | 10.94 | 10.92 | (0.01 | ) | (1.34 | ) | (1.35 | ) | 37.52 | 39.46 | 82,483 | 0.96 | 0.96 | (0.05 | ) | ||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2012 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 23.77 | $ | 0.24 | $ | 4.38 | $ | 4.62 | $ | (0.23 | ) | $ | – | $ | (0.23 | ) | $ | 28.16 | 19.44 | % | $ | 1,325,221 | 0.71 | % | 0.71 | % | 0.84 | % | ||||||||||||||||||||||||
IB | 23.59 | 0.17 | 4.35 | 4.52 | (0.16 | ) | – | (0.16 | ) | 27.95 | 19.14 | 70,997 | 0.96 | 0.96 | 0.59 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2011 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 26.01 | $ | 0.15 | $ | (2.20 | ) | $ | (2.05 | ) | $ | (0.19 | ) | $ | – | $ | (0.19 | ) | $ | 23.77 | (7.92 | )% | $ | 1,212,257 | 0.71 | % | 0.71 | % | 0.48 | % | ||||||||||||||||||||||
IB | 25.74 | 0.07 | (2.17 | ) | (2.10 | ) | (0.05 | ) | – | (0.05 | ) | 23.59 | (8.16 | ) | 70,188 | 0.96 | 0.96 | 0.18 | ||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2010 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 21.12 | $ | 0.10 | $ | 4.85 | $ | 4.95 | $ | (0.06 | ) | $ | – | $ | (0.06 | ) | $ | 26.01 | 23.45 | % | $ | 1,722,182 | 0.70 | % | 0.70 | % | 0.44 | % | ||||||||||||||||||||||||
IB | 20.92 | 0.04 | 4.79 | 4.83 | (0.01 | ) | – | (0.01 | ) | 25.74 | 23.15 | 124,465 | 0.95 | 0.95 | 0.12 |
(A) | Information presented relates to a share outstanding throughout the indicated period. Net investment income (loss) per share amounts are calculated based on average shares outstanding unless otherwise noted. |
(B) | The figures do not include sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees would lower the Fund's performance. |
(C) | Adjustments include waivers and reimbursements, if applicable. Ratios do not include fees paid indirectly (see Expenses in the accompanying Notes to Financial Statements). |
(D) | Net investment income (loss) per share amounts have been calculated using the SEC method. |
Portfolio Turnover Rate for All Share Classes | ||||
For the Year Ended December 31, 2014 | 42% | |||
For the Year Ended December 31, 2013 | 34 | |||
For the Year Ended December 31, 2012 | 51 | |||
For the Year Ended December 31, 2011 | 69 | |||
For the Year Ended December 31, 2010 | 52 |
21 |
Report of Independent Registered Public Accounting Firm |
The Board of Directors and Shareholders of |
Hartford Series Fund, Inc. |
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Hartford MidCap HLS Fund (one of the portfolios constituting Hartford Series Fund, Inc. (the Funds)) as of December 31, 2014, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2014, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Hartford MidCap HLS Fund of the Hartford Series Fund, Inc. at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
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Minneapolis, Minnesota | |
February 13, 2015 |
22 |
Hartford MidCap HLS Fund |
Directors and Officers (Unaudited) |
The Board of Directors of the Company (the "Directors") appoints officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the Directors. Each Director serves until his or her death, resignation, or retirement or until the next annual meeting of shareholders is held or until his or her successor is elected and qualifies.
Directors and officers who are employed by or who have a financial interest in The Hartford Financial Services Group, Inc. ("The Hartford") are considered “interested” persons of the Fund pursuant to the 1940 Act. The "interested" Directors and officers are reflected in the chart below. Each Director serves as a director for The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., Hartford Series Fund, Inc., and Hartford HLS Series Fund II, Inc., and as a trustee for The Hartford Alternative Strategies Fund, which, as of December 31, 2014, collectively consist of 66 funds. Correspondence may be sent to Directors and officers c/o Hartford Funds, 5 Radnor Corporate Center, Suite 300, 100 Matsonford Road, Radnor, Pennsylvania 19087, except that correspondence to Mr. Annoni, Mr. Dressen and Ms. Quade may be sent to 500 Bielenberg Drive, Suite 500, Woodbury, Minnesota 55125.
The table below sets forth, for each Director and officer, his or her name, year of birth, current position with the Company and date first elected or appointed to Hartford Series Fund, Inc. ("HSF") and Hartford HLS Series Fund II, Inc. ("HSF2"), principal occupation, and, for Directors, other directorships held. The Fund’s Statement of Additional Information contains further information on the Directors and is available free of charge by calling 1-888-843-7824 or writing to: Hartford HLS Funds, c/o Hartford Life Insurance Company/Hartford Life and Annuity Insurance Company, P.O. Box 14293, Lexington, KY 40512-4293 for variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates; Hartford Funds, P.O. Box 55022, Boston, MA 02205-5022 for all shareholders except variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates.
Information on the aggregate remuneration paid to the directors of the Company can be found in the Statement of Operations herein. The Fund pays to The Hartford a portion of the Chief Compliance Officer’s compensation, but does not pay salaries or compensation to any of its other officers or Directors who are employed by The Hartford.
Non-Interested Directors
Hilary E. Ackermann (1956) Director since September 23, 2014
Ms. Ackermann served as Chief Risk Officer at Goldman Sachs Bank USA from October 2008 to November 2011 and serves as a Director of Dynegy, Inc., an independent power company, from October 2012 to present.
Lynn S. Birdsong (1946) Director since 2003, Chairman of the Investment Committee since 2014
Mr. Birdsong is a private investor. Mr. Birdsong currently serves as a Director of Aberdeen Global and Aberdeen Global II (investment funds) (September 2014 to present) and as an Independent Director of Nomura Partners Funds, Inc. (formerly, The Japan Fund) (April 2003 to present). Mr. Birdsong served as Director of the Sovereign High Yield Investment Company (April 2010 to September 2014). From 2003 to March 2005, Mr. Birdsong was an Independent Director of the Atlantic Whitehall Funds. From 1979 to 2002, Mr. Birdsong was a Managing Director of Zurich Scudder Investments, an investment management firm. During his employment with Scudder, Mr. Birdsong was an Interested Director of The Japan Fund. Mr. Birdsong served as Co-Chairman of the Investment Committee of The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., HSF, HSF2 and The Hartford Alternative Strategies Fund from 2005 to 2014.
Robert M. Gavin, Jr. (1940) Director since 2002 (HSF) and 1986 (HSF2), Chairman of the Board for each since 2004
Dr. Gavin is an educational consultant. Prior to September 1, 2001, he was President of Cranbrook Education Community and prior to July 1996, he was President of Macalester College, St. Paul, Minnesota.
Duane E. Hill (1945) Director since 2001 (HSF) and 2002 (HSF2), Chairman of the Nominating Committee since 2003
Mr. Hill is a Partner of TSG Ventures L.P., a private equity investment company. Mr. Hill is a former partner of TSG Capital Group, a private equity investment firm that served as sponsor and lead investor in leveraged buyouts of middle market companies.
Sandra S. Jaffee (1941) Director since 2005
Ms. Jaffee is the founder and Chief Executive Officer of a private company, Homeworks Concierge, LLC, which provides residential property management services in Westchester County, New York (January 2012 to present). Ms. Jaffee served as Chairman (2008 to 2009) and Chief Executive Officer of Fortent (formerly Searchspace Group), a leading provider of compliance/regulatory technology to financial institutions from August 2005 to August 2009. From August 2004 to August 2005, Ms. Jaffee served as an Entrepreneur in Residence with Warburg Pincus, a private equity firm. Prior to joining Warburg Pincus, Ms. Jaffee served as Executive Vice President at Citigroup, from September 1995 to July 2004, where she was President and Chief Executive Officer of Citibank’s Global Securities
23 |
Hartford MidCap HLS Fund |
Directors and Officers (Unaudited) – (continued) |
Services (1995 to 2003). Ms. Jaffee served as a member of the Board of Directors of Broadridge Financial Solutions (November 2010 to November 2014). Ms. Jaffee currently serves as a member of the Board of Directors of Global Camps Africa (a non-profit organization) (January 2015 to present) as well as a Trustee of Muhlenberg College (September 2007 to present).
William P. Johnston (1944) Director since 2005, Chairman of the Compliance Committee since 2005
In June 2006, Mr. Johnston was appointed as Senior Advisor to The Carlyle Group, a global private equity and other alternative asset investment firm and currently serves as an Operating Executive. In July 2006, Mr. Johnston was elected to the Board of Directors of MultiPlan, Inc. and served as a Director (July 2006 to August 2010). In August 2007, Mr. Johnston was elected to the Board of Directors of LifeCare Holdings, Inc. and served as a Director (August 2007 to June 2013). In February 2008, Mr. Johnston was elected to the Board of Directors of HCR-ManorCare, Inc. In May 2006, Mr. Johnston was elected to the Supervisory Board of Fresenius Medical Care AG & Co. KGaA, after its acquisition of Renal Care Group, Inc. in March 2006. Mr. Johnston joined Renal Care Group in November 2002 as a member of the Board of Directors and served as Chairman of the Board from March 2003 through March 2006. From 2002 through 2013, Mr. Johnston served as a Board member of the Georgia O’Keefe Museum. From September 1987 to December 2002, Mr. Johnston was with Equitable Securities Corporation (and its successors, SunTrust Equitable Securities and SunTrust Robinson Humphrey) serving in various investment banking and managerial positions, including Managing Director and Head of Investment Banking, Chief Executive Officer and Vice Chairman.
Phillip O. Peterson (1944) Director since 2002 (HSF) and 2000 (HSF2), Chairman of the Audit Committee since 2002
Mr. Peterson is a mutual fund industry consultant. He was a partner of KPMG LLP (an accounting firm) until July 1999. Mr. Peterson joined William Blair Funds in February 2007 as a member of the Board of Trustees. From February 2012 to February 2014, Mr. Peterson served as a Trustee of Symetra Variable Mutual Funds. From January 2004 to April 2005, Mr. Peterson served as Independent President of the Strong Mutual Funds.
Lemma W. Senbet (1946) Director since 2005
Dr. Senbet is the William E. Mayer Chair Professor of Finance at the University of Maryland, Robert H. Smith School of Business. He was chair of the Finance Department of the University of Maryland, Robert H. Smith School of Business from 1998 to 2006. Since June 2013, he has been on leave from the University to serve as Executive Director of African Economic Research Consortium which focuses on economic policy research and training. Previously, he was a chaired professor of finance at the University of Wisconsin-Madison. Also, he was a Director of the Fortis Funds from March 2000 to July 2002. Dr. Senbet served as Director of the American Finance Association and President of the Western Finance Association. In 2006, Dr. Senbet was inducted Fellow of Financial Management Association International for his career-long distinguished scholarship and professional service.
Interested Directors and Officers
James E. Davey (1964) Director since 2012, President and Chief Executive Officer since 2010
Mr. Davey serves as Executive Vice President of Hartford Life Insurance Company (“HLIC”) and The Hartford. Additionally, Mr. Davey serves as Chairman of the Board, Manager and Senior Managing Director of Hartford Funds Distributors, LLC (“HFD”). He also currently serves as Director, Chairman of the Board, President and Senior Managing Director of Hartford Administrative Services Company (“HASCO”). Mr. Davey also serves as Manager, Chairman of the Board and Senior Managing Director for Hartford Funds Management Company, LLC (“HFMC”) and Director, Chairman of the Board and Senior Managing Director for Hartford Funds Management Group, Inc. ("HFMG"). Mr. Davey has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Davey joined The Hartford in 2002.
Lowndes A. Smith* (1939) Director since 1996 (HSF) and 2002 (HSF2), Co-Chairman of the Investment Committee since 2005
Mr. Smith served as Vice Chairman of The Hartford from February 1997 to January 2002, as President and Chief Executive Officer of Hartford Life, Inc. from February 1997 to January 2002, and as President and Chief Operating Officer of The Hartford Life Insurance Companies from January 1989 to January 2002. Mr. Smith serves as a Director of White Mountains Insurance Group Ltd. (October 2003 to current); One Beacon Insurance (October 2006 to current); Symetra Financial (August 2007 to current) and is a Managing Director of Whittington Gray Associates (January 2007 to current).
* Mr. Smith resigned as a Director of Hartford Mutual Funds, Inc., Hartford Mutual Funds II, Inc., HSF and HSF2 and as a Trustee of The Hartford Alternative Strategies Fund effective September 17, 2014.
24 |
Hartford MidCap HLS Fund |
Directors and Officers (Unaudited) – (continued) |
Other Officers
Mark A. Annoni (1964) Vice President, Controller and Treasurer since 2012
Mr. Annoni currently serves as the Assistant Vice President of HLIC (February 2004 to present) and Senior Vice President of HFMG (December 2013 to present). Mr. Annoni has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Annoni joined The Hartford in 2001.
Michael R. Dressen (1963) AML Compliance Officer since 2011
Mr. Dressen currently serves as Assistant Vice President of HLIC. He also serves as Chief Compliance Officer and AML Compliance Officer of HASCO and as AML Officer of HFD. Mr. Dressen has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
Edward P. Macdonald (1967) Vice President, Secretary and Chief Legal Officer since 2005
Mr. Macdonald currently serves as Assistant Secretary, Executive Vice President and Deputy General Counsel of HFD, HASCO, HFMC and HFMG. He also serves as Vice President of HLIC. Mr. Macdonald has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Macdonald joined The Hartford in 2005.
Joseph G. Melcher (1973) Vice President and Chief Compliance Officer since 2013
Mr. Melcher currently serves as Executive Vice President of HFD, HFMG and HASCO. Mr. Melcher also currently serves as Executive Vice President and Chief Compliance Officer of HFMC. Mr. Melcher has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds since joining The Hartford in 2012. Prior to joining The Hartford, Mr. Melcher worked at Touchstone Investments, a member of the Western & Southern Financial Group, where he held the position of Vice President and Chief Compliance Officer from 2010 through 2012 and Assistant Vice President, Compliance from 2005 to 2010.
Vernon J. Meyer (1964) Vice President since 2006
Mr. Meyer currently serves as Senior Vice President of HLIC. He also currently serves as Managing Director and Chief Investment Officer of HFMC and Managing Director of HFMG. Mr. Meyer has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Meyer joined The Hartford in 2004.
Laura S. Quade (1969) Vice President since 2012
Ms. Quade currently serves as Vice President of HASCO, HFD and HFMG. She is the Head of Operations of HASCO and formerly served as Director, Enterprise Operations of HLIC. Ms. Quade has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Ms. Quade joined The Hartford in 2001.
Martin A. Swanson** (1962) Vice President since 2010
Mr. Swanson currently serves as Vice President of HLIC. Mr. Swanson also serves as Managing Director, Chief Marketing Officer and Principal of HFD and Managing Director of HFMG. Mr. Swanson has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
** Mr. Swanson resigned as an officer effective November 6, 2014.
HOW TO OBTAIN A COPY OF THE FUND’S PROXY VOTING POLICIES AND VOTING RECORDS (UNAUDITED)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information about how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov. The Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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Hartford MidCap HLS Fund |
Expense Example (Unaudited) |
Your Fund's Expenses
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including investment management fees, distribution and/or service (12b-1) fees, if any, and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period of June 30, 2014 through December 31, 2014.
Actual Expenses
The first set of columns of the table below provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second set of columns of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as taxes, sales charges (loads), or fees which may be applied at the variable life insurance, variable annuity, or qualified retirement plan product level. Therefore, the second set of columns of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would be higher. Expenses are equal to the Fund's annualized expense ratios multiplied by average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
Actual return | Hypothetical (5% return before expenses) | |||||||||||||||||||||||||||||||||
Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Annualized expense ratio | Days in the current 1/2 year | Days in the full year | ||||||||||||||||||||||||||
Class IA | $ | 1,000.00 | $ | 1,001.60 | $ | 3.53 | $ | 1,000.00 | $ | 1,021.68 | $ | 3.57 | 0.70 | % | 184 | 365 | ||||||||||||||||||
Class IB | $ | 1,000.00 | $ | 1,000.30 | $ | 4.79 | $ | 1,000.00 | $ | 1,020.42 | $ | 4.84 | 0.95 | 184 | 365 | |||||||||||||||||||
26 |
Hartford MidCap HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) |
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of directors, including a majority of those directors who are not “interested persons” of the mutual fund, as defined in the 1940 Act (the “Independent Directors”), annually review and consider the continuation of the mutual fund’s investment advisory and sub-advisory agreements. At its meeting held on August 5-6, 2014, the Board of Directors (the “Board”) of Hartford Series Fund, Inc., including each of the Independent Directors, unanimously voted to approve the continuation of the investment management agreement for Hartford MidCap HLS Fund (the “Fund”) with Hartford Funds Management Company, LLC (“HFMC”) and the continuation of the investment sub-advisory agreement between HFMC and the Fund’s sub-adviser, Wellington Management Company, LLP (the “Sub-adviser,” and together with HFMC, the “Advisers”) (collectively, the “Agreements”).
In the months preceding the August 5-6, 2014 meeting, the Board requested, received and reviewed written responses from the Advisers to questions posed to them on behalf of the Independent Directors and supporting materials relating to those questions and responses. The Board considered information furnished to the Board at its meetings throughout the year, as well as information specifically prepared in connection with the annual approval of the Agreements at the Board’s meetings held on June 17-18, 2014 and August 5-6, 2014. Information provided to the Board at its meetings throughout the year included, among other things, reports on Fund performance, legal and compliance matters, sales and marketing activity, shareholder services, and the other services provided to the Fund by the Advisers and their affiliates. The Board also received in-person presentations by Fund officers and representatives of HFMC at the Board’s meetings on June 17-18, 2014 and August 5-6, 2014 concerning the Agreements.
The Independent Directors, advised by independent legal counsel, engaged service providers to assist them with evaluating the Agreements with respect to the Fund. Lipper Inc. (“Lipper”), an independent provider of investment company data, was retained to provide the Board with reports on how the Fund’s contractual management fees, actual management fees, other non-management fees, overall expense ratios and investment performance compared to those of mutual funds with similar investment objectives. The Independent Directors also engaged an independent financial services consultant (the “Consultant”) to assist them in evaluating the Fund’s management fees, sub-advisory fees, other non-management fees, overall expense ratios and investment performance. In addition, the Consultant reviewed the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement.
In determining whether to continue the Agreements for the Fund, the members of the Board reviewed and evaluated information and factors they believed to be relevant and appropriate in light of the information that the Board deemed necessary and appropriate through the exercise of its reasonable business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination to continue the Agreements was based on a comprehensive consideration of all information provided to the Board throughout the year and specifically with respect to the continuation of the Agreements. A more detailed discussion of the factors the Board considered with respect to its approval of the Agreements is provided below.
Nature, Extent and Quality of Services Provided by the Advisers
The Board requested and considered information concerning the nature, extent and quality of the services provided to the Fund by the Advisers. The Board considered, among other things, the terms of the Agreements and the range of services provided by the Advisers. The Board considered the Advisers’ professional personnel who provide services to the Fund, including each Adviser’s ability and experience in attracting and retaining qualified personnel to service the Fund. The Board considered each Adviser’s reputation and overall financial strength, as well as its willingness to consider and implement organizational and operational changes designed to enhance services to the Hartford Funds. In addition, the Board considered the quality of each Adviser’s communications with the Board and responsiveness to Board inquiries and requests made from time to time with respect to the Fund and other Hartford Funds.
The Board also requested and evaluated information concerning each Adviser’s regulatory and compliance environment. In this regard, the Board requested and reviewed information on each Adviser’s compliance policies and procedures, compliance history, and a report from the Fund’s Chief Compliance Officer on each Adviser’s compliance with applicable laws and regulations, including responses to regulatory developments and compliance issues raised by regulators. The Board also noted the Advisers’ support of the Fund’s compliance control structure, particularly the resources devoted by the Advisers in support of the Fund’s obligations pursuant to Rule 38a-1 under the 1940 Act.
With respect to HFMC, the Board noted that under the Agreements, HFMC is responsible for the management of the Fund, including oversight of fund operations and service providers, as well as investment advisory services in connection with selecting, monitoring and supervising the Sub-adviser. The Board considered HFMC’s ongoing monitoring of people, process and performance, including its quarterly reviews of each of the Hartford Funds, semi-annual meetings with the leaders of each Fund’s portfolio management team, and oversight of the Hartford Funds’ approximately 37 portfolio managers. The Board recognized that HFMC has demonstrated a record of making changes to the management
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Hartford MidCap HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued) |
and/or strategies of the Hartford Funds when warranted. The Board considered HFMC’s oversight of the Sub-adviser’s investment approach and results, process for monitoring best execution of portfolio trades by the Sub-adviser, and approach to risk management with respect to the Fund and the service providers to the Fund. The Board also considered HFMC’s oversight of compliance with the Fund’s objective and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over time led to an increase in the scope of HFMC’s services in this regard.
In addition, the Board considered HFMC’s ongoing commitment to review and rationalize the Hartford Funds product line-up and the expenses that HFMC had incurred in connection with fund combinations in recent years. The Board considered that HFMC or its affiliates are responsible for providing the Fund’s officers. The Board also noted that Hartford Life Insurance Company (“HLIC”) provides administrative services to the Fund. The Board considered its experiences with HFMC and HLIC with respect to each of these services.
With respect to the Sub-adviser, which provides certain day-to-day portfolio management services for the Fund, the Board considered the quality of the Fund’s portfolio managers, the Sub-adviser’s other investment personnel, its investment philosophy and process, investment research capabilities and resources, performance record, trade execution capabilities and experience. The Board considered the experience of the Fund’s portfolio managers, the number of accounts managed by the portfolio managers, and the Sub-adviser’s method for compensating the portfolio managers.
Based on these considerations, the Board concluded that it was satisfied with the nature, extent and quality of the services provided to the Fund by HFMC and the Sub-adviser.
Performance of the Fund and the Advisers
The Board considered the investment performance of the Fund. In this regard, the Board reviewed the performance of the Fund over different time periods presented in the materials and evaluated HFMC’s analysis of the Fund’s performance for these time periods. The Board considered information and materials provided to the Board by the Advisers concerning Fund performance, as well as information from Lipper comparing the investment performance of the Fund to an appropriate benchmark and universe of peer funds. The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1- and 3-year periods and the 5th quintile for the 5-year period. The Board also noted that the Fund’s performance was above its benchmark for the 1- and 3-year periods and below its benchmark for the 5-year period.
The Board considered the detailed investment analytics reports provided by Hartford Funds’ Investment Advisory Group throughout the year. These reports include, among other things, information on the Fund’s gross and net returns, the Fund’s investment performance relative to an appropriate benchmark and peer group, various statistics concerning the Fund’s portfolio, and a narrative summary of various factors affecting Fund performance. The Board considered the Advisers’ cooperation with the Investment Committee, which assists the Board in evaluating the performance of the Fund at periodic meetings throughout the year. The Board also considered the analysis provided by the Consultant relating to the Fund’s performance track record.
In light of all the considerations noted above, the Board concluded that it had continued confidence in HFMC’s and the Sub-adviser’s overall capabilities to manage the Fund.
Costs of the Services and Profitability of the Advisers
The Board reviewed information regarding HFMC’s cost to provide investment management and related services to the Fund and HFMC’s profitability, both overall and for the Fund, on a pre-tax basis without regard to distribution expenses. The Board also requested and reviewed information about the profitability to HFMC and its affiliates from all services provided to the Fund and all aspects of their relationship with the Fund. The Board also requested and received information relating to the operations and profitability of the Sub-adviser.
The Board considered the Consultant’s review of the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement, noting the Consultant’s view that Hartford Funds’ process for calculating and reporting Fund profitability is reasonable. In this regard, the Board noted that the Consultant performed a full review of this process in light of the recent restructuring of the Hartford Funds business and reported that the approach to analyzing Fund profitability, including the use of common expense allocation methodologies, is reasonable, sound and well within common industry practice.
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Hartford MidCap HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued) |
Based on these considerations, the Board concluded that the profits anticipated to be realized by the Advisers and their affiliates from their relationships with the Fund would not be excessive.
Comparison of Fees and Services Provided by the Advisers
The Board considered comparative information with respect to the management fees to be paid by the Fund to HFMC and the total expense ratios of the Fund. The Board also considered comparative information with respect to the sub-advisory fees to be paid by HFMC to the Sub-adviser. In this regard, the Board requested and reviewed information from HFMC and the Sub-adviser relating to the management and sub-advisory fees, including the sub-advisory fee schedule for the Fund, and total operating expenses for the Fund. The Board considered that the management fee for the Fund includes the fee paid to HLIC for providing certain administrative services to the Fund. With respect to the sub-advisory fee schedule, the Board considered representations from HFMC and the Sub-adviser that the Sub-adviser’s fees were negotiated at arm’s length on a fund-by-fund basis. The Board also reviewed information from Lipper comparing the Fund’s contractual management fees, actual management fees and overall expense ratios relative to a group of funds selected by Lipper, in consultation with the Consultant, and a broader universe of funds selected by Lipper. The Board noted that the Fund’s contractual management fee and actual management fee were in the 2nd quintile of its expense group, while its total expenses (less 12b-1 and shareholder service fees) were in the 1st quintile.
While the Board recognized that comparisons between the Fund and peer funds may be imprecise, given the different service levels and characteristics of mutual funds and the different business models and cost structures of the Advisers, the comparative information provided by Lipper assisted the Board in evaluating the reasonableness of the Fund’s management and sub-advisory fees and total operating expenses. In addition, the Board considered the analysis and recommendations of the Consultant relating to the Fund’s management and sub-advisory fees and total operating expenses.
Based on these considerations, the Board concluded that the Fund’s fees and total operating expenses, in conjunction with the information about quality of services, profitability, economies of scale, and other matters discussed, were reasonable in light of the services provided.
Economies of Scale
The Board requested and considered information regarding the Advisers’ realization of economies of scale with respect to the Fund and whether the fee levels reflect these economies of scale for the benefit of the Fund’s shareholders. The Board reviewed the breakpoints in the management fee schedule for the Fund, which reduce fee rates as Fund assets grow over time. The Board recognized that a fund with assets beyond the highest breakpoint level will continue to benefit from economies of scale because additional assets are charged the lowest breakpoint fee resulting in lower overall effective management fee rates. The Board also recognized that a fee schedule that reaches a lower breakpoint quickly provides shareholders with the benefit of anticipated or potential economies of scale. The Board noted the effect of the sale and run-off of the variable annuity business on the HLS Funds.
The Board reviewed and evaluated materials from Lipper and the Consultant showing how management fee schedules of peer funds reflect economies of scale for the benefit of shareholders as a peer fund’s assets hypothetically increase over time. Based on information provided by HFMC, Lipper, and the Consultant, the Board recognized that there is no uniform methodology for establishing breakpoints or uniform pattern in asset levels that trigger breakpoints or the amounts of breakpoints triggered.
After considering all of the information available to it, the Board concluded that it was satisfied with the extent to which economies of scale would be shared for the benefit of the Fund’s shareholders based on currently available information and the effective advisory fees and expense ratios for the Fund at its current and reasonably anticipated asset levels. The Board noted, however, that it would continue to monitor future growth in Fund assets and the appropriateness of additional breakpoints.
Other Benefits
The Board considered other benefits to the Advisers and their affiliates from their relationships with the Fund, including the role of the Fund in supporting the variable life insurance and variable annuity products offered by The Hartford.
The Board noted that HLIC, an affiliate of HFMC, receives fees for providing certain administrative services to the Fund and that HFMC receives fees for fund accounting and related services from the Fund. The Board considered information on profits to HLIC and HFMC for such services. The Board also considered that Hartford Administrative Services Company (“HASCO”), the Fund’s transfer agent and an affiliate of HFMC,
29 |
Hartford MidCap HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued) |
receives transfer agency compensation from the Fund, and the Board reviewed information on the profitability of the Fund’s transfer agency function to HASCO. The Board considered information provided by HASCO indicating that the transfer agent fees charged by HASCO to the Fund were fair and reasonable based on publicly available information.
The Board also considered that Hartford Funds Distributors, LLC (“HFD”), an affiliate of HFMC, serves as principal underwriter of the Fund. As principal underwriter, HFD receives 12b-1 fees from the Fund. The Board also noted that certain affiliates of HFD distribute shares of the Fund and receive compensation in that connection.
The Board considered benefits to the Sub-adviser from its use of the Fund’s brokerage commissions to obtain soft dollar research, and representations from HFMC and the Sub-adviser that the Sub-adviser would not make any revenue-sharing payments or any other type of distribution payments to HFMC or its affiliates.
The Board considered the benefits to shareholders of being part of the Hartford Funds family of funds. The Board considered HFMC’s efforts to provide investors in the family with a broad range of investment styles and asset classes.
* * * *
Based upon its review of these various factors, among others, the Board concluded that it is in the best interests of the Fund and its shareholders for the Board to approve the Agreements for an additional year. In reaching this decision, the Board did not assign relative weights to the factors discussed above or deem any one or group of them to be controlling in and of themselves. In connection with their deliberations, the Independent Directors met separately in executive session on several occasions, with independent legal counsel and the Consultant, to review the relevant materials and consider their responsibilities under relevant laws and regulations.
30 |
Hartford MidCap HLS Fund |
Main Risks (Unaudited) |
The main risks of investing in the Fund are described below.
Market, Selection and Strategy Risk: The Fund’s share price may fluctuate due to market risk and/or security selections that may underperform the market or relevant benchmarks. If the sub-adviser's investment strategy does not perform as expected, the Fund could underperform its peers or lose money. There is no guarantee the Fund will achieve its stated objective.
Mid-Cap Stock Risk: Mid-cap stocks are generally more volatile and risky and may be less liquid than large-cap stocks because they may have limited operating histories, narrow product lines, and focus on niche markets.
Foreign Investment Risk: Investments in foreign securities may be riskier than investments in U.S. securities. Potential risks include the risks of illiquidity, increased price volatility, less government regulation, less extensive and less frequent accounting and other reporting requirements, unfavorable changes in currency exchange rates, and economic and political disruptions.
31 |
THIS PRIVACY POLICY IS NOT PART OF THIS REPORT
Privacy Policy and Practices of The Hartford Financial Services Group, Inc. and its Affiliates
(herein called “we, our and us”)
This Privacy Policy applies to our United States Operations
We value your trust. We are committed to the responsible:
This notice describes how we collect, disclose, and protect Personal Information.
We collect Personal Information to:
We may obtain Personal Information from:
Based on the type of product or service You apply for or get from us, Personal Information such as:
To serve You and service our business, we may share certain Personal Information. We will share Personal Information, only as allowed by law, with affiliates such as:
As allowed by law, we may share Personal Financial Information with our affiliates to: | We may also share Personal Information, only as allowed by law, with unaffiliated third parties including: a) independent agents; b) brokerage firms; c) insurance companies; d) administrators; and e) service providers; who help us serve You and service our business.
When allowed by law, we may share certain Personal Financial Information with other unaffiliated third parties who assist us by performing services or functions such as:
We, and third parties we partner with, may track some of the pages You visit through the use of:
We will not sell or share your Personal Financial Information with anyone for purposes unrelated to our business functions without offering You the opportunity to:
We only disclose Personal Health Information with:
Our employees have access to Personal Information in the course of doing their jobs, such as:
|
We use manual and electronic security procedures to maintain:
Some techniques we use to protect Personal Information include:
We are responsible for and must:
Employees who violate our Privacy Policy will be subject to discipline, which may include ending their employment with us.
At the start of our business relationship, we will give You a copy of our current Privacy Policy.
We will also give You a copy of our current Privacy Policy once a year if You maintain a continuing business relationship with us.
We will continue to follow our Privacy Policy regarding Personal Information even when a business relationship no longer exists between us. | As used in this Privacy Notice: Application means your request for our product or service. Personal Financial Information means financial information such as: a) credit history; b) income; c) financial benefits; or d) policy or claim information. Personal Health Information means health information such as: a) your medical records; or b) information about your illness, disability or injury. Personal Information means information that identifies You personally and is not otherwise available to the public. It includes: a) Personal Financial Information; and b) Personal Health Information . Transaction means your business dealings with us, such as: a) your Application; b) your request for us to pay a claim; and c) your request for us to take an action on your account. You means an individual who has given us Personal Information in conjunction with: a) asking about; b) applying for; or c) obtaining; a financial product or service from us if the product or service is used mainly for personal, family, or household purposes. |
This Privacy Policy is being provided on behalf of the following affiliates of The Hartford Financial Services Group, Inc.:
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HPP Revised February 2015
HARTFORD HLS FUNDS | |
P.O. Box 14293 | |
Lexington, KY 40512-4293 | |
HARTFORDFUNDS
hartfordfunds.com
Hartford HLS Funds are underwritten and distributed by Hartford Funds Distributors, LLC.
Hartford Series Fund, Inc. is not a subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford") but is underwritten, distributed by and advised by subsidiaries of The Hartford. Investments in Hartford Series Fund, Inc. are not guaranteed by The Hartford or any other entity.
This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution unless preceded or accompanied by a current prospectus for the Fund.
Investors should carefully consider the investment objectives, risks, charges, and expenses of Hartford Funds before investing. This and other information can be found in the prospectus and summary prospectus, which can be obtained by calling 888-843-7824 (or 800-279-1541 for institutional investors). Investors should read them carefully before they invest.
HLSAR-MC14 2-15 113547-4 Printed in U.S.A.
HARTFORDFUNDS
![]() | HARTFORD MIDCAP VALUE HLS FUND
2014 Annual Report |
A MESSAGE FROM THE PRESIDENT
Dear Fellow Shareholders:
Thank you for investing in Hartford HLS Funds.
Market Review
Nearly six years into a bull market, U.S. equities (as represented by the S&P 500 Index ) notched another positive year in 2014, finishing with a 13.69% gain. Progress was smooth for most of the year, with stocks generally rising amid little volatility. In the fourth quarter, however, the price of oil declined by nearly 40%, returning volatility to the market and paring some of the year’s returns.
As we enter 2015, the price of oil will likely continue playing an important role in market progress, as its effects are widespread. If prices remain low, consumers should benefit by paying less at the gas pump, which increases the amount of money available for discretionary spending. In contrast, low prices may be a detriment to the oil and natural gas industry in the U.S., as well as to the economies of countries that rely more heavily on oil exports.
Central-bank policies will also continue to influence the markets. The U.S. economy has continued to show self-sustaining growth, which has prompted the U.S. Federal Reserve to wind down the quantitative easing programs it initiated after the global financial crisis. In addition, gradual increases in interest rates are expected to begin in 2015, another sign of positive recovery and a return to pre-crisis policy. But in Europe, a slow recovery and fears of deflation have prompted the start of European Central Bank’s own version of quantitative easing to spur growth.
The final weeks of 2014 provided a stark reminder of how unpredictable market movements can be, and how important it is to maintain a diversified portfolio that’s in line with your time horizon and risk tolerance. As we begin 2015, take time to review your portfolio and your overall investment strategy with your financial advisor.
With more than 40 mutual-fund strategies that span a variety of asset classes and investment goals, your financial advisor can work with you to choose options within our fund family that can help you navigate today’s markets with confidence.
Thank you again for investing with Hartford HLS Funds.
James Davey
President
Hartford HLS Funds
1The S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
Hartford MidCap Value HLS Fund
Table of Contents
This report is prepared for the general information of contract owners and qualified retirement plan participants. It is not an offer of contracts or of qualified retirement plans. It should not be used in connection with any offer, except in conjunction with the appropriate product prospectus which contains all pertinent information including the applicable sales, administrative and other charges.
The views expressed in the Fund’s Manager Discussion under ‘‘Why did the Fund perform this way?’’ and ‘‘What is the outlook?’’ are views of the Fund’s sub-adviser and portfolio management team through the end of the period and are subject to change based on market and other conditions. The Fund’s Manager Discussion is for informational purposes only and does not represent an offer, recommendation or solicitation to buy, hold or sell any security. The specific securities identified and described, if any, do not represent all of the securities purchased or sold and you should not assume that investments in the securities identified and discussed will be profitable.
Hartford MidCap Value HLS Fund inception 04/30/2001 | |
(sub-advised by Wellington Management Company, LLP) | |
Investment objective – The Fund seeks long-term capital appreciation. |
Performance Overview 12/31/04 - 12/31/14
The chart above represents the hypothetical growth of a $10,000 investment in Class IA. Growth results in classes other than Class IA will vary from what is seen above due to difference in the expenses charged to those share classes.
Average Annual Total Returns (as of 12/31/14) |
1 Year | 5 Years | 10 Years | |
MidCap Value IA | 8.22% | 15.74% | 9.01% |
MidCap Value IB | 7.91% | 15.44% | 8.74% |
Russell 2500 Value Index | 7.11% | 15.48% | 7.91% |
Russell MidCap Value Index | 14.75% | 17.43% | 9.43% |
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of the investment will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain performance data current to the most recent month-end, please visit our website www.hartfordfunds.com.
Total returns presented above were calculated using the Fund’s net asset value available to shareholders for sale or redemption of Fund shares on December 31, 2014, which may exclude investment transactions as of this date. All share class returns assume the reinvestment of all distributions at net asset value and the deduction of all fund expenses.
Russell 2500 Value Index is an unmanaged index that measures the performance of those Russell 2500 Index companies with lower price-to-book ratios and lower forecasted growth values. The Russell 2500 Index is an unmanaged index that measures the performance of the 2,500 smallest U.S. companies based on total market capitalization.
Russell MidCap Value Index measures the performance of the mid-cap value segment of the U.S. equity universe. It includes those Russell MidCap Index companies with lower price-to-book ratios and lower forecasted growth values.
The indices are unmanaged, and their results include reinvested dividends and/or distributions, but do not reflect the effect of sales charges, commissions, expenses or taxes.
You cannot invest directly in an index.
As shown in the Fund's current prospectus dated May 1, 2014, the total annual operating expense ratios for Class IA and Class IB were 0.84% and 1.09%, respectively. Actual expenses may be higher. Please see the accompanying Financial Highlights for expense ratios for the year ended December 31, 2014.
The chart and table do not reflect the deductions of taxes, sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees or expenses would lower the contract’s or plan’s performance.
All investments are subject to risk including the possible loss of principal. For a discussion of the Fund’s risks, please see the Main Risks section of this report. For more detailed information on the risks associated with an investment in the Fund, please see the prospectus.
2 |
Hartford MidCap Value HLS Fund
Manager Discussion
December 31, 2014 (Unaudited)
Portfolio Manager |
James N. Mordy |
Senior Manging Director and Equity Portfolio Manager |
How did the Fund perform?
The Class IA shares of the Hartford MidCap Value HLS Fund returned 8.22% for the twelve-month period ended December 31, 2014, outperforming the Fund’s benchmark, the Russell 2500 Value Index, which returned 7.11% for the same period. The Fund underperformed the Russell MidCap Value Index, which returned 14.75% for the same period. The Fund underperformed the 8.37% average return of the Lipper Mid-Cap Core Fund peer group, a group of funds with investment strategies similar to those of the Fund.
Why did the Fund perform this way?
U.S. equities surged during the period, despite bouts of significant volatility. After finishing their best year since 1997, U.S. stocks began 2014 with their worst month in nearly two years. Worries about an economic slowdown in China and general angst surrounding emerging markets overshadowed a fairly benign domestic environment. However, robust merger and acquisition activity, an uncontested increase in the debt ceiling from Congress, renewed signs of life in the housing market, and the best payroll gain in more than two years helped stoke investors' risk appetites in the first half of the period. A pullback in July ended a streak of five consecutive monthly gains. Fear gripped the market as heightened geopolitical risks, a potential Portuguese banking crisis, and worries of U.S. Federal Reserve (Fed) tightening took center stage. Stocks rebounded in August based on encouraging economic data, headlined by better-than-expected gross domestic product (GDP) growth and signs that the housing recovery still had legs. However, the reality of quantitative easing ending and the prospect of higher federal funds rates in mid-2015 contributed to increased risk aversion levels. Stocks rebounded again in October, hitting an all-time high on the heels of a positive earnings season and generally solid economic data. The rally continued in November after Republicans took control of the U.S. Senate but stocks pulled back slightly near month-end, led by weakness in the Energy sector associated with the significant decline in oil prices. In December, U.S. equities closed at an all-time high on December 29th but fell 1.4% during the final two trading days of the year. The Fed helped to support riskier assets at the end of the year after it stated it can be "patient" with regards to starting the process of bringing interest rates to normal levels. Returns also varied noticeably by market-cap, as small- and mid-cap stocks underperformed large-cap stocks.
Overall equity market performance was positive for the period across all market capitalizations: mid cap (+10%), large cap (+14%), and small cap equities (+5%) all rose, as represented by the S&P 400 MidCap, S&P 500, and Russell 2000 Indices, respectively. Seven out of ten sectors in the Russell 2500 Value Index rose during the period, with Utilities (+24%), Healthcare (+20%), and Consumer Staples (+13%) performing the best. Energy (-34%), Materials (-8%) and Industrials (-2%) lagged on a relative basis.
The Fund’s relative outperformance versus the Russell 2500 Value Index was driven by security selection. Strong stock selection within the Information Technology, Industrials, and Energy sectors outweighed weaker stock selection within the Financials, Healthcare, Materials, and Consumer Staples sectors. Sector allocation, a result of the bottom-up security selection process, detracted from relative results. A slight overweight to Energy, and underweights to Financials and Utilities detracted. An overweight allocation to Healthcare contributed to benchmark-relative performance. A modest cash position in an upward trending market environment detracted from relative results.
The largest contributors to absolute and benchmark-relative performance included Skyworks Solutions (Information Technology), NXP Semiconductors (Information Technology), and Avago Technologies (Information Technology). Shares of Skyworks Solutions, a leading supplier of mixed-signal analog semiconductors, outperformed as the company continued to gain on expectations of growth in radio-frequency demand driven by the smartphone market including Apple, Samsung, and demand from China continued share and content gains from a broadening customer base in the smartphone market as well as better-than-forecast growth from Skyworks' increasingly important integrated analog solution segment also contributed to outperformance. NXP Semiconductors, a Netherlands-based semiconductor company, saw shares rise as it continued to show strong earnings quality, cash flow quality, operating efficiency, and balance sheet quality. Shares of Avago Technologies, a supplier of analog semiconductor devices outperformed. In addition to solid operating results from Avago's core businesses (driven by 4G smartphone content gains and a recovery in high-margin industrial end markets), Avago generated significant earnings accretion from recent acquisitions. After a run of strong performance, the Fund sold out of Avago in 2014 and is looking at new opportunities with a lower market cap.
The largest detractors from absolute and benchmark-relative returns included Cobalt International (Energy), Methanex (Materials), and Trican Well Service (Energy). Shares of oil-focused exploration and production company Cobalt International declined based on uncertainty surrounding the impact of the United States Securities and Exchange Commission’s notice of a bribery investigation related to the company’s investments in Angola. Additionally, the Organization of the Petroleum Exporting Countries’ (OPEC) decision to keep oil output unchanged sent oil prices tumbling to four-year lows, weighing on Cobalt’s stock price. Shares of Canada-based
3 |
Hartford MidCap Value HLS Fund
Manager Discussion – (continued)
December 31, 2014 (Unaudited)
Methanex, the world's largest producer of methanol, also declined due to the negative impact of falling oil prices on methanol. Trican Well Service supplies pressure pumping services to the oil and gas industry. The stock lagged due to weak utilization and rapid commodity price declines.
Derivatives are not used in a significant manner in the Fund and did not have a material impact on performance during the period.
What is the outlook?
Our overall global economic outlook does not appear very different from market consensus at this time. U.S. economic momentum has surprised positively in 2014 after a difficult start. The biggest changes in recent months have been the dramatic drop in oil prices and the continuing strength of the U.S. dollar. Lower energy costs appear to be a net benefit to the U.S. economy, which is approximately 70% consumer-driven. The outlook for consumer spending appears as good as it has been in many years. Prospects outside the U.S. seem more uncertain, given geopolitical risks and growth concerns in Europe, Japan and China. In our view, lower oil prices should provide even more benefit to these areas (except Russia) as should accommodative monetary policy given an easing of inflationary pressures. We expect global GDP growth of about 3% in 2015, with the dollar continuing to drift higher. Despite a U.S. consumer price index that we believe will likely turn negative in the first half of 2015, we think the Fed will key off of gradually tightening labor market conditions in timing their initial increase in rates. We expect equity markets may remain choppy as there is less forgiveness in valuations to handle investors’ changing moods or any actual deterioration to our initial outlook.
The Russell 2500 Value Index was rebalanced at the end of the second quarter with minor changes in sector weights. The new weightings are slightly less cyclical, due mostly to a drop in Financials and a slight increase to Consumer Staples.
As of the end of the period, the Fund was most overweight the Information Technology, Consumer Discretionary, and Materials sectors and most underweight the Financials, Utilities, and Telecommunication Services sectors relative to the Russell 2500 Value Index.
Diversification by Sector
as of December 31, 2014
Sector | Percentage of Net Assets | |||
Equity Securities | ||||
Consumer Discretionary | 15.2 | % | ||
Consumer Staples | 3.2 | |||
Energy | 4.1 | |||
Financials | 26.5 | |||
Health Care | 7.5 | |||
Industrials | 14.3 | |||
Information Technology | 13.5 | |||
Materials | 8.2 | |||
Utilities | 6.1 | |||
Total | 98.6 | % | ||
Short-Term Investments | 1.4 | |||
Other Assets and Liabilities | 0.0 | |||
Total | 100.0 | % |
A sector may be comprised of several industries. For Fund compliance purposes, the Fund may not use the same classification system and these sector classifications are used for reporting ease.
4 |
Hartford MidCap Value HLS Fund
Schedule of Investments
December 31, 2014
(000’s Omitted)
Shares or Principal Amount | Market Value ╪ | |||||||
Common Stocks - 98.6% | ||||||||
Automobiles and Components - 0.9% | ||||||||
146 | Goodyear (The) Tire & Rubber Co. | $ | 4,166 | |||||
Banks - 7.5% | ||||||||
192 | BankUnited, Inc. | 5,564 | ||||||
94 | CIT Group, Inc. ● | 4,487 | ||||||
164 | Comerica, Inc. | 7,677 | ||||||
117 | EverBank Financial Corp. | 2,227 | ||||||
90 | Iberiabank Corp. | 5,817 | ||||||
293 | Zions Bancorporation | 8,345 | ||||||
34,117 | ||||||||
Capital Goods - 14.3% | ||||||||
231 | Barnes Group, Inc. | 8,539 | ||||||
68 | Curtis-Wright Corp. | 4,772 | ||||||
58 | Esterline Technologies Corp. ● | 6,403 | ||||||
130 | Generac Holdings, Inc. ● | 6,055 | ||||||
71 | Hubbell, Inc. Class B | 7,606 | ||||||
110 | Moog, Inc. Class A ● | 8,114 | ||||||
231 | Orbital Sciences Corp. ● | 6,222 | ||||||
86 | Rexel S.A. | 1,534 | ||||||
117 | Sensata Technologies Holding N.V. ● | 6,116 | ||||||
19 | Teledyne Technologies, Inc. ● | 1,932 | ||||||
107 | WESCO International, Inc. ● | 8,132 | ||||||
65,425 | ||||||||
Consumer Durables and Apparel - 8.4% | ||||||||
144 | D.R. Horton, Inc. | 3,639 | ||||||
171 | Lennar Corp. | 7,640 | ||||||
266 | Newell Rubbermaid, Inc. | 10,132 | ||||||
356 | Performance Sports Group Ltd. ● | 6,406 | ||||||
1,499 | Samsonite International S.A. | 4,444 | ||||||
170 | Toll Brothers, Inc. ● | 5,812 | ||||||
38,073 | ||||||||
Consumer Services - 1.5% | ||||||||
148 | Norwegian Cruise Line Holdings Ltd. ● | 6,925 | ||||||
Diversified Financials - 2.0% | ||||||||
113 | LPL Financial Holdings, Inc. | 5,016 | ||||||
82 | MSCI, Inc. | 3,895 | ||||||
452 | Solar Cayman Ltd. ⌂■●† | 32 | ||||||
8,943 | ||||||||
Energy - 4.1% | ||||||||
448 | Cobalt International Energy, Inc. ● | 3,978 | ||||||
97 | Diamondback Energy, Inc. ● | 5,781 | ||||||
79 | HollyFrontier Corp. | 2,961 | ||||||
23 | Newfield Exploration Co. ● | 627 | ||||||
191 | QEP Resources, Inc. | 3,868 | ||||||
320 | Trican Well Service Ltd. | 1,533 | ||||||
18,748 | ||||||||
Food, Beverage and Tobacco - 3.2% | ||||||||
128 | Ebro Foods S.A. | 2,119 | ||||||
87 | Ingredion, Inc. | 7,372 | ||||||
1,329 | Treasury Wine Estates Ltd. | 5,130 | ||||||
14,621 | ||||||||
Health Care Equipment and Services - 3.2% | ||||||||
236 | Brookdale Senior Living, Inc. ● | 8,648 | ||||||
72 | Wellcare Health Plans, Inc. ● | 5,933 | ||||||
14,581 | ||||||||
Insurance - 8.1% | ||||||||
93 | Argo Group International Holdings Ltd. | 5,175 | ||||||
106 | Hanover Insurance Group, Inc. | 7,574 | ||||||
65 | Reinsurance Group of America, Inc. | 5,705 | ||||||
32 | StanCorp Financial Group, Inc. | 2,250 | ||||||
264 | Unum Group | 9,205 | ||||||
205 | XL Group plc | 7,032 | ||||||
36,941 | ||||||||
Materials - 8.2% | ||||||||
133 | Cabot Corp. | 5,842 | ||||||
106 | Celanese Corp. | 6,338 | ||||||
175 | Huntsman Corp. | 3,987 | ||||||
296 | Louisiana-Pacific Corp. ● | 4,907 | ||||||
208 | Methanex Corp. ADR | 9,555 | ||||||
17 | Owens-Illinois, Inc. ● | 456 | ||||||
31 | Packaging Corp. of America | 2,412 | ||||||
65 | Reliance Steel & Aluminum | 3,976 | ||||||
37,473 | ||||||||
Media - 3.0% | ||||||||
118 | AMC Entertainment Holdings | 3,079 | ||||||
241 | Interpublic Group of Cos., Inc. | 4,999 | ||||||
198 | Quebecor, Inc. | 5,454 | ||||||
13,532 | ||||||||
Pharmaceuticals, Biotechnology and Life Sciences - 4.3% | ||||||||
583 | Almirall S.A. ● | 9,614 | ||||||
75 | Ono Pharmaceutical Co., Ltd. | 6,675 | ||||||
15 | Pra Health Sciences, Inc. ● | 366 | ||||||
37 | UCB S.A. | 2,803 | ||||||
19,458 | ||||||||
Real Estate - 8.9% | ||||||||
158 | American Assets Trust, Inc. REIT | 6,299 | ||||||
209 | Blackstone Mortgage Trust, Inc. REIT | 6,093 | ||||||
156 | Equity Lifestyle Properties, Inc. REIT | 8,047 | ||||||
125 | Extra Space Storage, Inc. REIT | 7,336 | ||||||
229 | Forest City Enterprises, Inc. REIT ● | 4,882 | ||||||
40 | Plum Creek Timber Co., Inc. REIT | 1,695 | ||||||
51 | SL Green Realty Corp. REIT | 6,022 | ||||||
40,374 | ||||||||
Retailing - 1.4% | ||||||||
176 | DSW, Inc. | 6,561 | ||||||
Semiconductors and Semiconductor Equipment - 5.7% | ||||||||
18 | Maxim Integrated Products, Inc. | 564 | ||||||
280 | Microsemi Corp. ● | 7,955 | ||||||
109 | NXP Semiconductors N.V. ● | 8,335 | ||||||
427 | RF Micro Devices, Inc. ● | 7,091 | ||||||
26 | Skyworks Solutions, Inc. | 1,912 | ||||||
25,857 | ||||||||
Software and Services - 4.3% | ||||||||
161 | Booz Allen Hamilton Holding Corp. | 4,274 | ||||||
71 | Check Point Software Technologies Ltd. ADR ● | 5,602 | ||||||
32 | Teradata Corp. ● | 1,402 | ||||||
141 | Verint Systems, Inc. ● | 8,229 | ||||||
19,507 | ||||||||
Technology Hardware and Equipment - 3.5% | ||||||||
228 | Arris Group, Inc. ● | 6,880 | ||||||
160 | Arrow Electronics, Inc. ● | 9,242 | ||||||
16,122 | ||||||||
Utilities - 6.1% | ||||||||
44 | Alliant Energy Corp. | 2,909 | ||||||
159 | Great Plains Energy, Inc. | 4,520 | ||||||
162 | Portland General Electric Co. | 6,113 |
The accompanying notes are an integral part of these financial statements.
5 |
Hartford MidCap Value HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Shares or Principal Amount | Market Value ╪ | |||||||
Common Stocks - 98.6% - (continued) | ||||||||
Utilities - 6.1% - (continued) | ||||||||
241 | UGI Corp. | $ | 9,150 | |||||
125 | Westar Energy, Inc. | 5,139 | ||||||
27,831 | ||||||||
Total Common Stocks | ||||||||
( Cost $347,739) | $ | 449,255 | ||||||
Total Long-Term Investments | ||||||||
(Cost $347,739) | $ | 449,255 | ||||||
Short-Term Investments - 1.4% | ||||||||
Repurchase Agreements - 1.4% | ||||||||
Bank of America Merrill Lynch Repurchase Agreement (maturing on 01/02/2015 in the amount of $6, collateralized by U.S. Treasury Note 0.75%, 2018, value of $6) | ||||||||
$ | 6 | 0.05%, 12/31/2014 | $ | 6 | ||||
Bank of America Merrill Lynch TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $32, collateralized by U.S. Treasury Note 2.50%, 2024, value of $33) | ||||||||
32 | 0.07%, 12/31/2014 | 32 | ||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $843, collateralized by U.S. Treasury Bond 3.88% - 5.25%, 2029 - 2040, U.S. Treasury Note 0.25% - 4.63%, 2015 - 2022, value of $860) | ||||||||
843 | 0.06%, 12/31/2014 | 843 | ||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $367, collateralized by FHLMC 2.00% - 5.50%, 2019 - 2044, FNMA 2.00% - 4.00%, 2024 - 2042, GNMA 3.00%, 2043, U.S. Treasury Bill 0.07%, 2015, value of $375) | ||||||||
367 | 0.07%, 12/31/2014 | 367 | ||||||
Barclays Capital TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $903, collateralized by U.S. Treasury Bond 3.63%, 2043, U.S. Treasury Note 0.88% - 2.00%, 2017 - 2020, value of $921) | ||||||||
903 | 0.05%, 12/31/2014 | 903 | ||||||
Citigroup Global Markets, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $1,613, collateralized by U.S. Treasury Bond 3.63% - 9.88%, 2015 - 2043, U.S. Treasury Note 0.25% - 2.75%, 2015 - 2022, value of $1,646) | ||||||||
1,613 | 0.06%, 12/31/2014 | 1,613 | ||||||
Deutsche Bank Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $262, collateralized by FHLMC 2.00% - 10.50%, 2015 - 2047, FNMA 2.00% - 9.50%, 2015 - 2049, GNMA 2.50% - 10.00%, 2016 - 2055, value of $267) | ||||||||
262 | 0.12%, 12/31/2014 | 262 | ||||||
RBS Securities, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $69, collateralized by U.S. Treasury Note 0.38% - 2.13%, 2015 - 2016, value of $70) | ||||||||
69 | 0.07%, 12/31/2014 | 69 | ||||||
Societe Generale TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $768, collateralized by U.S. Treasury Bond 8.75%, 2020, U.S. Treasury Note 0.25% - 2.88%, 2015 - 2022, value of $783) | ||||||||
768 | 0.07%, 12/31/2014 | 768 | ||||||
TD Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $1,644, collateralized by FHLMC 3.00% - 4.00%, 2026 - 2044, FNMA 2.50% - 5.00%, 2025 - 2044, value of $1,677) | ||||||||
1,644 | 0.08%, 12/31/2014 | 1,644 |
6,507 | ||||||||||||
Total Short-Term Investments | ||||||||||||
(Cost $6,507) | $ | 6,507 | ||||||||||
Total Investments | ||||||||||||
(Cost $354,246) ▲ | 100.0 | % | $ | 455,762 | ||||||||
Other Assets and Liabilities | — | % | 141 | |||||||||
Total Net Assets | 100.0 | % | $ | 455,903 |
The accompanying notes are an integral part of these financial statements.
6 |
Hartford MidCap Value HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Note: | Percentage of investments as shown is the ratio of the total market value to total net assets. Prices of foreign equities that are principally traded on certain foreign markets may be adjusted daily pursuant to a fair value pricing service approved by the Board of Directors in order to reflect an adjustment for factors occurring after the close of certain foreign markets but before the close of the New York Stock Exchange. |
Equity industry classifications used in this report are the Global Industry Classification Standard, which was developed by and is the exclusive property and service mark of MSCI, Inc. and Standard & Poor’s.
For Fund compliance purposes, the Fund may not use the same classification system shown in this report as these classifications are used for reporting ease.
▲ | At December 31, 2014, the cost of securities for federal income tax purposes was $356,541 and the aggregate gross unrealized appreciation and depreciation based on that cost were: |
Unrealized Appreciation | $ | 111,959 | ||
Unrealized Depreciation | (12,738 | ) | ||
Net Unrealized Appreciation | $ | 99,221 |
† | These securities are valued in good faith at fair value as determined under policies and procedures established by and under the supervision of the Board of Directors. At December 31, 2014, the aggregate fair value of these securities was $32, which rounds to zero percent of total net assets. This amount excludes securities that are principally traded in certain foreign markets and whose prices are adjusted pursuant to a third party pricing service methodology approved by the Board of Directors.
|
● | Non-income producing.
|
■ | Securities issued within terms of a private placement memorandum, exempt from registration under Rule 144A under the Securities Act of 1933, as amended, and may be sold only to qualified institutional buyers. Unless otherwise noted, these holdings are determined to be liquid. At December 31, 2014, the aggregate value of these securities was $32, which represents 0.0% of total net assets. |
⌂ | The following securities are considered illiquid. Illiquid securities are often purchased in private placement transactions, are often not registered under the Securities Act of 1933, as amended, and may have contractual restrictions on resale. Illiquid securities may lack a readily available market or their valuation has not changed for a certain period of time. |
Period Acquired | Shares/ Par | Security | Cost Basis | |||||||
03/2007 | 452 | Solar Cayman Ltd. - 144A | $ | 132 |
At December 31, 2014, the aggregate value of these securities was $32, which rounds to zero percent of total net assets.
Foreign Currency Contracts Outstanding at December 31, 2014
Unrealized Appreciation/(Depreciation) | ||||||||||||||||||||||
Currency | Buy / Sell | Delivery Date | Counterparty | Contract Amount | Market Value ╪ | Asset | Liability | |||||||||||||||
EUR | Buy | 01/02/2015 | SSG | $ | 119 | $ | 118 | $ | – | $ | (1 | ) |
╪ | See Significant Accounting Policies of accompanying Notes to Financial Statements regarding valuation of securities. |
GLOSSARY: (abbreviations used in preceding Schedule of Investments) | ||
Counterparty Abbreviations: | ||
SSG | State Street Global Markets LLC | |
Currency Abbreviations: | ||
EUR | EURO | |
Other Abbreviations: | ||
ADR | American Depositary Receipt | |
FHLMC | Federal Home Loan Mortgage Corp. | |
FNMA | Federal National Mortgage Association | |
GNMA | Government National Mortgage Association | |
REIT | Real Estate Investment Trust |
The accompanying notes are an integral part of these financial statements.
7 |
Hartford MidCap Value HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Investment Valuation Hierarchy Level Summary
December 31, 2014
Total | Level 1 ♦ | Level 2 ♦ | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Common Stocks ‡ | $ | 449,255 | $ | 416,904 | $ | 32,319 | $ | 32 | ||||||||
Short-Term Investments | 6,507 | – | 6,507 | – | ||||||||||||
Total | $ | 455,762 | $ | 416,904 | $ | 38,826 | $ | 32 | ||||||||
Liabilities: | ||||||||||||||||
Foreign Currency Contracts * | $ | 1 | $ | – | $ | 1 | $ | – | ||||||||
Total | $ | 1 | $ | – | $ | 1 | $ | – |
♦ | For the year ended December 31, 2014, there were no transfers between Level 1 and Level 2. |
‡ | The Fund has all or primarily all of the equity securities categorized in a particular level. Refer to the Schedule of Investments for further industry breakout. |
* | Derivative instruments (excluding purchased and written options, if applicable) are valued at the unrealized appreciation/depreciation on the investments. |
Following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
Balance as of December 31, 2013 | Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Net Amortization | Purchases | Sales | Transfers Into Level 3 | Transfers Out of Level 3 | Balance as of December 31, 2014 | ||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||
Common Stocks | $ | 32 | $ | — | $ | — | * | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 32 | |||||||||||||||||
Total | $ | 32 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 32 |
* | Change in unrealized appreciation (depreciation) in the current period relating to assets still held at December 31, 2014 was zero. |
Note: | For purposes of reporting transfers between different hierarchy levels, both transfers in and out of each level, as applicable, are shown as if they occurred at the beginning of the period. |
The accompanying notes are an integral part of these financial statements.
8 |
Hartford MidCap Value HLS Fund
Statement of Assets and Liabilities
December 31, 2014
(000’s Omitted)
Assets: | ||||
Investments in securities, at market value (cost $354,246) | $ | 455,762 | ||
Cash | 4 | |||
Receivables: | ||||
Investment securities sold | 338 | |||
Fund shares sold | 31 | |||
Dividends and interest | 538 | |||
Total assets | 456,673 | |||
Liabilities: | ||||
Unrealized depreciation on foreign currency contracts | 1 | |||
Payables: | ||||
Investment securities purchased | 285 | |||
Fund shares redeemed | 360 | |||
Investment management fees | 81 | |||
Distribution fees | 6 | |||
Accrued expenses | 37 | |||
Total liabilities | 770 | |||
Net assets | $ | 455,903 | ||
Summary of Net Assets: | ||||
Capital stock and paid-in-capital | $ | 295,638 | ||
Undistributed net investment income | 1,158 | |||
Accumulated net realized gain | 57,593 | |||
Unrealized appreciation of investments and the translations of assets and liabilities denominated in foreign currency | 101,514 | |||
Net assets | $ | 455,903 | ||
Shares authorized | 1,200,000 | |||
Par value | $ | 0.001 | ||
Class IA: Net asset value per share | $ | 14.60 | ||
Shares outstanding | 23,640 | |||
Net assets | $ | 345,084 | ||
Class IB: Net asset value per share | $ | 14.50 | ||
Shares outstanding | 7,641 | |||
Net assets | $ | 110,819 | ||
The accompanying notes are an integral part of these financial statements.
9 |
Hartford MidCap Value HLS Fund
Statement of Operations
For the Year Ended December 31, 2014
(000’s Omitted)
Investment Income: | ||||
Dividends | $ | 7,064 | ||
Interest | 3 | |||
Less: Foreign tax withheld | (149 | ) | ||
Total investment income, net | 6,918 | |||
Expenses: | ||||
Investment management fees | 3,853 | |||
Transfer agent fees | 5 | |||
Distribution fees - Class IB | 295 | |||
Custodian fees | 8 | |||
Accounting services fees | 48 | |||
Board of Directors' fees | 14 | |||
Audit fees | 24 | |||
Other expenses | 93 | |||
Total expenses (before fees paid indirectly) | 4,340 | |||
Commission recapture | (8 | ) | ||
Total fees paid indirectly | (8 | ) | ||
Total expenses, net | 4,332 | |||
Net Investment Income | 2,586 | |||
Net Realized Gain on Investments and Foreign Currency Transactions: | ||||
Net realized gain on investments | 59,492 | |||
Net realized gain on foreign currency contracts | 8 | |||
Net realized loss on other foreign currency transactions | (15 | ) | ||
Net Realized Gain on Investments and Foreign Currency Transactions | 59,485 | |||
Net Changes in Unrealized Depreciation of Investments and Foreign Currency Transactions: | ||||
Net unrealized depreciation of investments | (24,575 | ) | ||
Net unrealized depreciation of foreign currency contracts | (3 | ) | ||
Net unrealized appreciation on translation of other assets and liabilities in foreign currencies | — | |||
Net Changes in Unrealized Depreciation of Investments and Foreign Currency Transactions | (24,578 | ) | ||
Net Gain on Investments and Foreign Currency Transactions | 34,907 | |||
Net Increase in Net Assets Resulting from Operations | $ | 37,493 |
The accompanying notes are an integral part of these financial statements.
10 |
Hartford MidCap Value HLS Fund
Statement of Changes in Net Assets
(000’s Omitted)
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Operations: | ||||||||
Net investment income | $ | 2,586 | $ | 2,371 | ||||
Net realized gain on investments and foreign currency transactions | 59,485 | 86,309 | ||||||
Net unrealized appreciation (depreciation) of investments and foreign currency transactions | (24,578 | ) | 51,787 | |||||
Net Increase in Net Assets Resulting from Operations | 37,493 | 140,467 | ||||||
Distributions to Shareholders: | ||||||||
From net investment income | ||||||||
Class IA | (2,402 | ) | (4,389 | ) | ||||
Class IB | (480 | ) | (1,173 | ) | ||||
Total from net investment income | (2,882 | ) | (5,562 | ) | ||||
From net realized gain on investments | ||||||||
Class IA | (45,536 | ) | — | |||||
Class IB | (14,756 | ) | — | |||||
Total from net realized gain on investments | (60,292 | ) | — | |||||
Total distributions | (63,174 | ) | (5,562 | ) | ||||
Capital Share Transactions: | ||||||||
Class IA | ||||||||
Sold | 11,363 | 35,081 | ||||||
Issued on reinvestment of distributions | 47,938 | 4,389 | ||||||
Redeemed | (72,059 | ) | (87,130 | ) | ||||
Total capital share transactions | (12,758 | ) | (47,660 | ) | ||||
Class IB | ||||||||
Sold | 3,313 | 13,985 | ||||||
Issued on reinvestment of distributions | 15,236 | 1,173 | ||||||
Redeemed | (25,363 | ) | (38,177 | ) | ||||
Total capital share transactions | (6,814 | ) | (23,019 | ) | ||||
Net decrease from capital share transactions | (19,572 | ) | (70,679 | ) | ||||
Net Increase (Decrease) in Net Assets | (45,253 | ) | 64,226 | |||||
Net Assets: | ||||||||
Beginning of period | 501,156 | 436,930 | ||||||
End of period | $ | 455,903 | $ | 501,156 | ||||
Undistributed (distributions in excess of) net investment income | $ | 1,158 | $ | 1,667 | ||||
Shares: | ||||||||
Class IA | ||||||||
Sold | 730 | 2,657 | ||||||
Issued on reinvestment of distributions | 3,279 | 312 | ||||||
Redeemed | (4,695 | ) | (6,440 | ) | ||||
Total share activity | (686 | ) | (3,471 | ) | ||||
Class IB | ||||||||
Sold | 210 | 1,052 | ||||||
Issued on reinvestment of distributions | 1,048 | 84 | ||||||
Redeemed | (1,651 | ) | (2,853 | ) | ||||
Total share activity | (393 | ) | (1,717 | ) |
The accompanying notes are an integral part of these financial statements.
11 |
Hartford MidCap Value HLS Fund
Notes to Financial Statements
December 31, 2014
(000’s Omitted)
Organization:
Hartford MidCap Value HLS Fund (the "Fund") serves as an underlying investment option for certain variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company (“HLIC”) and its affiliates and certain qualified retirement plans. The Fund may also serve as an underlying investment option for certain variable annuity and variable life separate accounts of other insurance companies. Owners of variable annuity contracts and policyholders of variable life insurance contracts may choose the funds permitted in the variable insurance contract prospectus. In addition, participants in certain qualified retirement plans may choose the Fund if permitted by their plans.
Hartford Series Fund, Inc. (the “Company”) is an open-end registered management investment company comprised of fifteen portfolios. Financial statements for the Fund, a series of the Company, are included in this report.
The Company is organized under the laws of the State of Maryland and is registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (“1940 Act”). The Fund is a diversified open-end management investment company. The Fund is an investment company and applies specialized accounting and reporting under Accounting Standards Codification Topic 946, Financial Services - Investment Companies.
The Fund is divided into Class IA and Class IB shares. Each class is offered at the per share net asset value (“NAV”) without a sales charge and is subject to the same expenses, except that the Class IB shares are subject to distribution and service fees charged pursuant to a Distribution Plan adopted in accordance with Rule 12b-1 under the 1940 Act.
Significant Accounting Policies:
The following is a summary of significant accounting policies of the Fund in the preparation of its financial statements, which are in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The preparation of financial statements in accordance with U.S. GAAP may require 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
Determination of Net Asset Value – The NAV of each class of the Fund's shares is determined as of the close of regular trading (normally 4:00 p.m. Eastern Time) (the “NYSE Close”) on each day that the New York Stock Exchange (the “Exchange”) is open (“Valuation Date”). Information that becomes known to the Fund after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the NAV determined earlier that day.
Investment Valuation and Fair Value Measurements – For purposes of calculating the NAV, portfolio investments and other assets held by the Fund's portfolio for which market quotes are readily available are valued at market value. Market value is generally determined on the basis of last reported sales prices or official close price. If no sales are reported, market value is based on quotes obtained from a quotation reporting system, established market makers, or independent pricing services. If market prices are not readily available or are deemed unreliable, the Fund will use the fair value of the investment as determined in good faith under policies and procedures established by and under the supervision of the Company's Board of Directors. Market quotes are considered not readily available where there is an absence of current or reliable market-based data (e.g., trade information or indicative market quotes), including where events occur after the close of the relevant market, but prior to the NYSE Close, that materially affect the values of the Fund's portfolio investments or assets. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the investments trade do not open for trading for the entire day and no other market prices are available. In addition, prices of foreign equities that are principally traded on certain foreign markets may be adjusted daily pursuant to a fair value pricing service approved by the Board of Directors in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close. Investments that are primarily traded on foreign markets may trade on days that are not business days of the Fund. The value of the foreign investments in which the Fund invests may change on days when a shareholder will not be able to purchase or redeem shares of the Fund. Fair value pricing is subjective in nature and the use of fair value pricing by the Fund may cause the NAV of its shares to differ significantly from the NAV that would have been calculated using market prices at the close of the exchange on which a portfolio investment is primarily
12 |
Hartford MidCap Value HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
traded. There can be no assurance that the Fund could obtain the fair market value assigned to an investment if the Fund were to sell the investment at approximately the time at which the Fund determines its NAV.
Investments valued in currencies other than U.S. dollars are converted to U.S. dollars using exchange rates obtained from independent pricing services for calculation of the NAV. As a result, the NAV of the Fund’s shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of investments traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that the NYSE is closed and the market value may change on days when an investor is not able to purchase, redeem or exchange shares of the Fund.
Foreign currency contracts represent agreements to exchange currencies on specific future dates at predetermined rates. Foreign currency contracts are valued using foreign currency exchange rates and forward rates as provided by an independent pricing service on the Valuation Date.
Financial instruments for which prices are not available from an independent pricing service may be valued using market quotations obtained from one or more dealers that make markets in the respective financial instrument in accordance with procedures established by the Company's Board of Directors.
U.S. GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants. The U.S. GAAP fair value measurement standards require disclosure of a fair value hierarchy for each major category of assets and liabilities. Various inputs are used in determining the fair value of the Fund’s investments. These inputs are summarized into three broad hierarchy levels. This hierarchy is based on whether the valuation inputs are observable or unobservable. These levels are:
Level 1 – Quoted prices in active markets for identical investments. Level 1 may include exchange traded instruments, such as domestic equities, some foreign equities, options, futures, mutual funds, exchange traded funds, rights and warrants.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar investments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 2 may include debt investments that are traded less frequently than exchange traded instruments and which are valued using independent pricing services; foreign equities, which are principally traded on certain foreign markets and are adjusted daily pursuant to a fair value pricing service in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close; senior floating rate interests, which are valued using an aggregate of dealer bids; short-term investments, which are valued at amortized cost; and swaps, which are valued based upon the terms of each swap contract.
Level 3 – Significant unobservable inputs that are supported by limited or no market activity. Level 3 may include financial instruments whose values are determined using indicative market quotes or require significant management judgment or estimation. These unobservable valuation inputs may include estimates for current yields, maturity/duration, prepayment speed, and indicative market quotes for comparable investments along with other assumptions relating to credit quality, collateral value, complexity of the investment structure, general market conditions and liquidity. This category may include investments where trading has been halted or there are certain restrictions on trading. While these investments are priced using unobservable inputs, the valuation of these investments reflects the best available data and management believes the prices are a reasonable representation of exit price.
The Board of Directors of the Company generally reviews and approves the “Procedures for Valuation of Portfolio Securities” at least once a year. These procedures define how investments are to be valued, including the formation and activities of a Valuation Committee. The Valuation Committee is responsible for determining in good faith the fair value of investments when the value cannot be obtained from primary pricing services or alternative sources or if the valuation of an investment as provided by the primary pricing service or alternative source is believed not to reflect the investment’s fair value as of the Valuation Date. Voting members of the Valuation Committee include the Fund's Treasurer or designee and a Vice President of the investment manager or designee. An Assistant Vice President of the Fund with legal expertise or designee is also included on the Valuation Committee as a non-voting advisory member. In addition, the Fund’s Chief Compliance Officer shall designate a member of the compliance group to attend Valuation Committee meetings as a non-voting resource, to monitor for and provide guidance with
13 |
Hartford MidCap Value HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
respect to compliance with these procedures. Two members of the Valuation Committee or their designees, representing different departments, shall constitute a quorum for purposes of permitting the Valuation Committee to take action. The Valuation Committee will consider all relevant factors in determining an investment’s fair value, and may seek the advice of the Fund’s sub-adviser, knowledgeable brokers, and legal counsel in making such determination. The Valuation Committee reports to the Audit Committee of the Company's Board of Directors. The Audit Committee receives quarterly written reports which include details of all fair-valued investments, including the reason for the fair valuation, and an indication, when possible, of the accuracy of the valuation by disclosing the next available reliable public price quotation or the disposition price of such investments (the “look-back” test). The Board of Directors then must consider for ratification all of the fair value determinations made during the previous quarter.
Valuation levels are not necessarily indicative of the risk associated with investing in such investments. Individual investments within any of the above mentioned asset classes may be assigned a different hierarchical level than those presented above, as individual circumstances dictate.
For additional information, refer to the Investment Valuation Hierarchy Level Summary and the Level 3 roll-forward reconciliation, if applicable, which is included in the Schedule of Investments.
Investment Transactions and Investment Income – Investment transactions are recorded as of the trade date (the date the order to buy or sell is executed) for financial reporting purposes. Investments purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Realized gains and losses are determined on the basis of identified cost.
Dividend income from domestic securities is accrued on the ex-dividend date. In general, dividend income from foreign securities is recorded on the ex-date; however, dividend notifications in certain foreign jurisdictions may not be available in a timely manner and as a result, the Fund will record the dividend as soon as the relevant details (i.e., rate per share, payment date, shareholders of record, etc.) are publicly available. Interest income, including amortization of premium, accretion of discounts, inflation adjustments and additional principal received in-kind in lieu of cash, is accrued on a daily basis.
Foreign Currency Transactions – Assets and liabilities denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates in effect on the valuation date. Purchases and sales of investments, income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions.
The Fund does not isolate that portion of portfolio investment valuation resulting from fluctuations in the foreign currency exchange rates from the fluctuations arising from changes in the market prices of investments held. Exchange rate fluctuations are included with the net realized and unrealized gain or loss on investments in the accompanying financial statements.
Net realized foreign exchange gains or losses arise from sales of foreign currencies and the difference between asset and liability amounts initially stated in foreign currencies and the U.S. dollar value of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of other assets and liabilities at the end of the reporting period, resulting from changes in the exchange rates.
Joint Trading Account – The Fund may invest cash balances into a joint trading account that may be invested in one or more repurchase agreements.
Fund Share Valuation and Dividend Distributions to Shareholders – Orders for the Fund’s shares are executed in accordance with the investment instructions of the contract holders and plan participants. The NAV of the Fund’s shares is determined as of the close of business on each business day of the Exchange. The NAV is determined separately for each class of shares of the Fund by dividing the Fund’s net assets attributable to that class by the number of shares of the class outstanding. Each class of shares offered by the Fund has equal rights as to assets and voting privileges (except that shareholders of a class have exclusive voting rights regarding any matter relating solely to that class of shares). Income and non-class specific expenses are allocated daily to each class on the basis of the relative net assets of the class. Realized and unrealized gains and losses are allocated daily based on the relative net assets of each class of shares of the Fund.
14 |
Hartford MidCap Value HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Orders for the purchase of the Fund’s shares received prior to the close of the Exchange on any day the Exchange is open for business are priced at the NAV determined as of the close of the Exchange. Orders received after the close of the Exchange, or on a day on which the Exchange and/or the Fund is not open for business, are priced at the next determined NAV.
Dividends are declared pursuant to a policy adopted by the Company's Board of Directors based upon the investment performance of the Fund. The policy of the Fund is to pay dividends from net investment income and realized gains, if any, at least once a year.
Net investment income, dividends and distributions from net realized gains and capital are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP with respect to character and timing (see Federal Income Taxes: Distributions and Components of Distributable Earnings and Reclassification of Capital Accounts).
Securities and Other Investments:
Repurchase Agreements – A repurchase agreement is an agreement by which a counterparty agrees to sell an investment and agrees to repurchase the investment sold from the buyer at a mutually agreed upon time and price. During the period of the repurchase agreement, the counterparty will deposit cash and or securities in a third party custodial account to serve as collateral. At the time the Fund enters into a repurchase agreement, the value of the underlying collateral, including accrued interest, will be equal to or exceed the value of the repurchase agreement. Repurchase agreements expose the Fund to counterparty risk - that is, the risk that the counterparty will not fulfill its obligations. To minimize counterparty risk, the investments that serve to collateralize the repurchase agreement are held by the Fund’s custodian in book entry or physical form in the custodial account of the Fund or in a third party custodial account. Repurchase agreements are valued at cost plus accrued interest, which approximates fair value. Repurchase agreements have master netting arrangements which allow the Fund to offset amounts owed to a counterparty with amounts owed by the counterparty, including any collateral. Upon an event of default under a master repurchase agreement, the non-defaulting party may close out all transactions traded under such agreement and net amounts owed under each transaction to one net amount payable by one party to the other. Absent an event of default, the master repurchase agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty. The Fund, as shown on the Schedule of Investments, had outstanding repurchase agreements and related collateral as of December 31, 2014.
Illiquid and Restricted Investments – The Fund is permitted to invest up to 15% of its net assets in illiquid investments. Illiquid investments are those that may not be sold or disposed of in the ordinary course of business within seven days, at approximately the price used to determine the Fund’s NAV. The Fund may not be able to sell illiquid investments when its sub-adviser considers it desirable to do so or may have to sell such investments at a price that is lower than the price that could be obtained if the investments were more liquid. A sale of illiquid investments may require more time and may result in higher dealer discounts and other selling expenses than does the sale of those that are liquid. Illiquid investments also may be more difficult to value due to the unavailability of reliable market quotations for such investments, and an investment in them may have an adverse impact on the Fund’s NAV. The Fund may also purchase certain restricted investments that can only be resold to certain qualified investors and may be determined to be liquid pursuant to policies and guidelines established by the Company's Board of Directors. The Fund, as shown on the Schedule of Investments, had illiquid or restricted investments as of December 31, 2014.
Investments Purchased on a When-Issued or Delayed-Delivery Basis – Delivery and payment for investments that have been purchased by the Fund on a forward commitment, or when-issued or delayed-delivery basis, take place beyond the customary settlement period. The Fund may dispose of or renegotiate a delayed-delivery transaction after it is entered into, and may sell delayed-delivery investments before they are delivered, which may result in a realized gain or loss. During this period, such investments are subject to market fluctuations, and the Fund identifies investments segregated in its records with a value at least equal to the amount of the commitment. The Fund had no when-issued or delayed-delivery investments as of December 31, 2014.
Financial Derivative Instruments:
The following disclosures contain information on how and why the Fund uses derivative instruments, the credit-risk-related contingent features in certain derivative instruments and how derivative instruments affect the Fund’s financial position and results of operations. The location and fair value amounts of these instruments on the Statement of Assets and Liabilities and the realized gains and losses and
15 |
Hartford MidCap Value HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
changes in unrealized gains and losses on the Statement of Operations, each categorized by type of derivative contract, are included in the following Additional Derivative Instrument Information footnote. The derivative instruments outstanding as of year-end are disclosed in the notes to the Schedule of Investments, if applicable. The amounts of realized gains and losses and changes in unrealized gains and losses on derivative instruments during the year are disclosed in the Statement of Operations.
Foreign Currency Contracts – The Fund may enter into foreign currency contracts that obligate the Fund to purchase or sell currencies at specified future dates. Foreign currency contracts are used to hedge the currency exposure associated with some or all of the Fund’s investments and/or as part of an investment strategy. Foreign currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. The Fund will record a realized gain or loss when the foreign currency contract is settled.
Foreign currency contracts involve elements of market risk in excess of the amounts reflected in the Statement of Assets and Liabilities. In addition, risks may arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of the contracts and from unanticipated movements in the value of the foreign currencies relative to the U.S. dollar. The Fund, as shown on the Schedule of Investments, had outstanding foreign currency contracts as of December 31, 2014.
Additional Derivative Instrument Information:
Fair Value of Derivative Instruments on the Statement of Assets and Liabilities as of December 31, 2014: |
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts | Foreign Exchange Contracts | Credit Contracts | Equity Contracts | Commodity Contracts | Other Contracts | Total | ||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||
Unrealized depreciation on foreign currency contracts | $ | — | $ | 1 | $ | — | $ | — | $ | — | $ | — | $ | 1 | ||||||||||||||
Total | $ | — | $ | 1 | $ | — | $ | — | $ | — | $ | — | $ | 1 |
The volume of derivatives that is presented in the Schedule of Investments is consistent with the derivative activity during the year ended December 31, 2014.
The Effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2014:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts | Foreign Exchange Contracts | Credit Contracts | Equity Contracts | Commodity Contracts | Other Contracts | Total | ||||||||||||||||||||||
Realized Gain on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net realized gain on foreign currency contracts | $ | — | $ | 8 | $ | — | $ | — | $ | — | $ | — | $ | 8 | ||||||||||||||
Total | $ | — | $ | 8 | $ | — | $ | — | $ | — | $ | — | $ | 8 | ||||||||||||||
Net Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net change in unrealized depreciation of foreign currency contracts | $ | — | $ | (3 | ) | $ | — | $ | — | $ | — | $ | — | $ | (3 | ) | ||||||||||||
Total | $ | — | $ | (3 | ) | $ | — | $ | — | $ | — | $ | — | $ | (3 | ) |
The derivatives held by the Fund as of December 31, 2014 are not subject to a master netting arrangement; therefore, no balance sheet offsetting disclosure is presented.
Principal Risks:
The Fund may be exposed to counterparty risk, or the risk that an institution or other entity with which the Fund has unsettled or open transactions will default.
16 |
Hartford MidCap Value HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
If the Fund invests directly in foreign currencies or in securities that trade in, and receive revenues in, foreign currencies, or in derivatives that provide exposure to foreign currencies, it will be subject to the risk that those currencies will decline in value relative to the base currency (U.S. dollars) of the Fund, or, in the case of hedging positions, that the Fund’s base currency will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities, such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad. As a result, the Fund’s investments in foreign currency denominated securities may reduce the returns of the Fund. The market values of equity securities, such as common stocks and preferred stocks, or equity related investments, such as futures and options, may decline due to general market conditions which are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. The market value of equity securities may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities and equity related investments generally have greater market price volatility than fixed income securities.
Federal Income Taxes:
Federal Income Taxes – For federal income tax purposes, the Fund intends to continue to qualify as a Regulated Investment Company ("RIC") under Subchapter M of the Internal Revenue Code (“IRC”) by distributing substantially all of its taxable net investment income and net realized capital gains to its shareholders and otherwise complying with the requirements of the IRC. The Fund has distributed substantially all of its income and capital gains in prior years, if applicable, and intends to distribute substantially all of its income and capital gains prior to the next fiscal year-end. Accordingly, no provision for federal income or excise taxes has been made in the accompanying financial statements. Distributions from short-term capital gains are treated as ordinary income distributions for federal income tax purposes.
Net Investment Income (Loss), Net Realized Gains (Losses) and Distributions – Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of losses deferred due to wash sale adjustments, foreign currency gains and losses, adjustments related to Passive Foreign Investment Companies ("PFICs"), Real Estate Investment Trusts ("REITs"), RICs, certain derivatives and partnerships. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund.
Distributions and Components of Distributable Earnings – The tax character of distributions paid by the Fund for the periods indicated is as follows (as adjusted for dividends payable, if applicable):
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Ordinary Income | $ | 2,882 | $ | 5,562 | ||||
Long-Term Capital Gains* | 60,292 | — |
* | The Fund designates these distributions as long-term capital gain dividends pursuant to IRC Sec. 852(b)(3)(C). |
17 |
Hartford MidCap Value HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
As of December 31, 2014, the Fund’s components of distributable earnings (deficit) on a tax basis are as follows:
Amount | ||||
Undistributed Ordinary Income | $ | 6,030 | ||
Undistributed Long-Term Capital Gain | 55,016 | |||
Unrealized Appreciation* | 99,219 | |||
Total Accumulated Earnings | $ | 160,265 |
* | Differences between book-basis and tax-basis unrealized appreciation (depreciation) may be attributable to the losses deferred due to wash sale adjustments, foreign currency gains and losses and adjustments related to PFICs, REITs, RICs, certain derivatives and partnerships. |
Reclassification of Capital Accounts – The Fund may record reclassifications in its capital accounts. These reclassifications have no impact on the total net assets of the Fund. The reclassifications are a result of permanent differences between U.S. GAAP and tax accounting for such items as foreign currency, PFICs, expiration or utilization of capital loss carryforwards or net operating losses. Adjustments are made to reflect the impact these items have on current and future distributions to shareholders. Therefore, the source of the Fund’s distributions may be shown in the accompanying Statement of Changes in Net Assets as from undistributed net investment income, from accumulated net realized gains on investments or from capital depending on the type of book and tax differences that exist. For the year ended December 31, 2014, the Fund recorded reclassifications to increase (decrease) the accounts listed below:
Amount | ||||
Undistributed Net Investment Income (Loss) | $ | (213 | ) | |
Accumulated Net Realized Gain (Loss) | 213 |
Capital Loss Carryforward – On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which made changes to the capital loss carryforward rules. The changes are effective for taxable years beginning after the date of enactment. Under the Act, funds are permitted to carry forward capital losses for an unlimited period. Additionally, capital loss carryforwards retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under prior regulation.
The Fund had no capital loss carryforward for U.S. federal income tax purposes as of December 31, 2014.
During the year ended December 31, 2014, the Fund utilized $837 of prior year capital loss carryforwards.
Accounting for Uncertainty in Income Taxes – The Fund has adopted financial reporting rules that require the Fund to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions. Generally, tax authorities can examine all tax returns filed for the last three years. The Fund does not have an examination in progress.
The Fund has reviewed all open tax years and major jurisdictions and concluded that these financial reporting rules had no effect on the Fund’s financial position or results of operations. There is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on the tax return for the fiscal year ended December 31, 2014. The Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Expenses:
Investment Management Agreement – Hartford Funds Management Company, LLC ("HFMC") serves as the Fund’s investment manager pursuant to an Investment Management Agreement with the Company. HFMC is an indirect wholly owned subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford"). The investment manager has overall investment supervisory responsibility for the Fund. In addition, the investment manager provides administrative personnel, services, equipment, facilities and office space for proper operation of the Fund. HFMC has contracted with Wellington Management Company, LLP ("Wellington Management") under a
18 |
Hartford MidCap Value HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
sub-advisory agreement for the provision of day-to-day investment management services to the Fund in accordance with the Fund’s investment objective and policies. The Fund pays a fee to the investment manager, a portion of which may be used to compensate Wellington Management.
The schedule below reflects the rates of compensation paid to the investment manager for investment management services rendered as of December 31, 2014; the rates are accrued daily and paid monthly:
Average Daily Net Assets | Annual Fee |
On first $500 million | 0.8000% |
On next $500 million | 0.7250% |
On next $1.5 billion | 0.6750% |
On next $2.5 billion | 0.6700% |
On next $5 billion | 0.6650% |
Over $10 billion | 0.6600% |
Accounting Services Agreement – Pursuant to the Fund Accounting Agreement between HFMC and the Company, on behalf of the Fund, HFMC provides accounting services to the Fund and receives monthly compensation based on the Fund’s average daily net assets at the rates set forth below. The Fund’s accounting services fees are accrued daily and paid monthly.
Average Daily Net Assets | Annual Fee |
All Assets | 0.010% |
Operating Expenses – Allocable expenses incurred by the Company are allocated to each Fund and allocated to classes within a Fund in proportion to the average daily net assets of the Fund and each class, except where allocation of certain expenses is more fairly made directly to the Fund or to specific classes within a Fund.
Fees Paid Indirectly – The Company, on behalf of the Fund, has entered into agreements with State Street Global Markets, LLC and Russell Implementation Services, Inc. to partially recapture non-discounted trade commissions. Such rebates are used to pay a portion of the Fund's expenses. For the year ended December 31, 2014, this amount, if any, is included in the Statement of Operations.
The ratio of expenses to average net assets in the accompanying financial highlights excludes the reduction in expenses related to fees paid indirectly. The annualized expense ratio after waivers for the period listed below reflecting the reduction for fees paid indirectly is as follows:
Year Ended December 31, 2014 | ||||
Class IA | 0.84% | |||
Class IB | 1.09 |
Distribution Plan for Class IB Shares – Hartford Funds Distributors, LLC (“HFD”), an indirect wholly owned subsidiary of The Hartford, is the principal underwriter and distributor of the Fund. The Company, on behalf of the Fund, has adopted a Distribution Plan pursuant to Rule 12b-1 of the 1940 Act for Class IB shares.
The Distribution Plan provides that the Fund may pay annually up to 0.25% of the average daily net assets of the Fund attributable to its Class IB shares for activities primarily intended to result in the sale of Class IB shares. The Board has the authority to suspend or reduce these payments at any point in time. Under the terms of the Distribution Plan and the principal underwriting agreement, the Fund is authorized to make payments monthly to the distributor that may be used to pay or reimburse entities providing distribution and shareholder servicing with respect to the Class IB shares for such entities’ fees or expenses incurred or paid in that regard. The distribution fees paid during the period can be found on the Statement of Operations. These fees are accrued daily and paid monthly or at such other intervals as the Board of Directors may determine.
19 |
Hartford MidCap Value HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Other Related Party Transactions – Certain officers of the Fund are directors and/or officers of HFMC and/or The Hartford or its subsidiaries. For the year ended December 31, 2014, a portion of the Fund's Chief Compliance Officer's compensation was paid by all the investment companies in the Hartford fund complex. The portion allocated to the Fund, as represented in other expenses on the Statement of Operations, was in the amount of $1. Hartford Administrative Services Company ("HASCO"), an indirect wholly owned subsidiary of The Hartford, provides transfer agent services to the Fund. Effective December 1, 2014, pursuant to a sub-transfer agency agreement between HASCO and Boston Financial Data Services, Inc. (“BFDS”), HASCO delegated certain transfer agent, dividend disbursing agent and shareholder servicing agent functions to BFDS. HASCO is compensated by the Fund based on the number of classes plus out of pocket expenses for providing such services, a portion of which may be used to compensate BFDS. The amount paid to HASCO can be found in the Statement of Operations. These fees are accrued daily and paid monthly.
Investment Transactions:
For the year ended December 31, 2014, the cost of purchases and proceeds from sales of investment securities (excluding short-term investments) were as follows:
Excluding U.S. Government Obligations | U.S. Government Obligations | Total | ||||||||||
Cost of Purchases | $ | 145,406 | $ | — | $ | 145,406 | ||||||
Sales Proceeds | 227,290 | — | 227,290 |
Line of Credit:
The Fund is one of several Hartford Funds that participate in a $500 million committed revolving line of credit facility. The facility is to be used for temporary or emergency purposes. Under the arrangement, the funds are required to own securities having a market value in excess of 300% of the total bank borrowings. The interest rate on borrowings varies depending on the nature of the loan. The facility also requires a fee to be paid based on the amount of the commitment. This commitment fee is allocated to all the funds participating in the line of credit based on the average net assets of the funds. During the year ended December 31, 2014, the Fund did not have any borrowings under this facility.
Indemnifications:
Under the Company's organizational documents, the Company shall indemnify its officers and directors to the full extent required or permitted under Maryland General Corporation Law and the federal securities laws. In addition, the Company, on behalf of the Fund, may enter into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, as of the date of these financial statements, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Pending Legal Proceedings:
On February 25, 2011, Jennifer L. Kasilag, Louis Mellinger, Judith M. Menendez, Jacqueline M. Robinson, and Linda A. Russell filed a derivative lawsuit against Hartford Investment Financial Services, LLC (“HIFSCO”) (now known as HFD) on behalf of six Hartford retail mutual funds in the United States District Court for the District of New Jersey, alleging that HIFSCO received excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the 1940 Act when serving as investment manager and principal underwriter, respectively, to the Hartford retail mutual funds. Although this action was purportedly filed on behalf of certain of the Hartford Funds, none of the Hartford Funds is itself a defendant to the suit. HIFSCO moved to dismiss and, in September 2011, the motion was granted in part and denied in part, with leave to amend the complaint. In November 2011, plaintiffs filed an amended complaint on behalf of certain Hartford retail mutual funds, The Hartford Global Health Fund (now known as The Hartford Healthcare Fund), The Hartford Conservative Allocation Fund, The Hartford Growth Opportunities Fund, The Hartford Inflation Plus Fund, The Hartford Advisers Fund (now known as The Hartford Balanced Fund), and The Hartford Capital Appreciation Fund. Plaintiffs seek to rescind the investment management agreements and distribution plans between HIFSCO and these funds and to recover the total fees charged thereunder or, in the alternative, to recover any improper compensation HIFSCO received, in addition to lost earnings. HIFSCO filed a partial motion to
20 |
Hartford MidCap Value HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
dismiss the amended complaint and, in December 2012, the court dismissed without prejudice the claims regarding distribution fees and denied the motion with respect to the advisory fees claims. HIFSCO disputes the allegations and intends to defend vigorously.
In March 2014, the plaintiffs filed a new complaint that added as new plaintiffs The Hartford Floating Rate Fund and The Hartford Small Company Fund, two Hartford retail mutual funds, and named as a defendant HFMC, which assumed the role as investment manager to the funds as of January 2013. HFMC and HIFSCO dispute the allegations and intend to defend vigorously.
This action concerns the activities of HIFSCO in its capacity as investment manager and principal underwriter to the Hartford retail mutual funds and does not concern HIFSCO’s activities in its capacity as principal underwriter to the HLS funds. For this reason, no accrual for litigation relating to this matter has been recorded in the financial statements of the Fund.
Recent Accounting Pronouncement:
In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, modifying Accounting Standards Codification Topic 860. The amended guidance changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. The guidance also requires new disclosures for certain transfers accounted for as sales and collateral supporting transactions that are accounted for as secured borrowings. ASU 2014-11 is effective for annual and interim periods beginning after December 15, 2014, except for the disclosures related to secured borrowings, which are effective for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The adoption of ASU 2014-11 is not expected to have a material impact on the Fund’s results of operations or financial position, but may impact the Fund’s disclosures.
Subsequent Event:
Effective on or after January 1, 2015, pursuant to an agreement between the Hartford Funds and State Street Bank and Trust Company ("State Street"), State Street replaced, or is scheduled to replace, JP Morgan Chase Bank, N.A. ("JP Morgan Chase") as the Fund's primary custodian. JP Morgan Chase may serve as custodian of certain Fund assets. In addition, on or after the same date, HFMC has delegated, or will delegate, certain accounting and administrative services functions to State Street. The costs and expenses of such delegation will be borne by HFMC, not by the Funds, and HFMC will compensate State Street for its services out of its own resources.
21 |
Hartford MidCap Value HLS Fund
Financial Highlights
─ Selected Per-Share Data(A) ─ | ─ Ratios and Supplemental Data ─ | |||||||||||||||||||||||||||||||||||||||||||||||||||
Class | Net Asset Value at Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Investment Operations | Dividends from Net Investment Income | Distributions from Realized Capital Gains | Total Dividends and Distributions | Net Asset Value at End of Period | Total Return(B) | Net Assets at End of Period (000s) | Ratio of Expenses to Average Net Assets Before Adjust- ments(C) | Ratio of Expenses to Average Net Assets After Adjust- ments(C) | Ratio of Net Investment Income (Loss) to Average Net Assets | |||||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 15.51 | $ | 0.09 | $ | 1.19 | $ | 1.28 | $ | (0.11 | ) | $ | (2.08 | ) | $ | (2.19 | ) | $ | 14.60 | 8.22 | % | $ | 345,084 | 0.84 | % | 0.84 | % | 0.60 | % | |||||||||||||||||||||||
IB | 15.42 | 0.05 | 1.18 | 1.23 | (0.07 | ) | (2.08 | ) | (2.15 | ) | 14.50 | 7.91 | 110,819 | 1.09 | 1.09 | 0.35 | ||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 11.65 | $ | 0.08 | $ | 3.95 | $ | 4.03 | $ | (0.17 | ) | $ | – | $ | (0.17 | ) | $ | 15.51 | 34.71 | % | $ | 377,272 | 0.84 | % | 0.84 | % | 0.56 | % | ||||||||||||||||||||||||
IB | 11.59 | 0.04 | 3.93 | 3.97 | (0.14 | ) | – | (0.14 | ) | 15.42 | 34.37 | 123,884 | 1.09 | 1.09 | 0.31 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2012 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 9.44 | $ | 0.14 | $ | 2.20 | $ | 2.34 | $ | (0.13 | ) | $ | – | $ | (0.13 | ) | $ | 11.65 | 24.95 | % | $ | 323,934 | 0.85 | % | 0.85 | % | 1.03 | % | ||||||||||||||||||||||||
IB | 9.38 | 0.10 | 2.21 | 2.31 | (0.10 | ) | – | (0.10 | ) | 11.59 | 24.64 | 112,996 | 1.10 | 1.10 | 0.79 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2011 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 10.32 | $ | 0.07 | $ | (0.95 | ) | $ | (0.88 | ) | $ | – | $ | – | $ | – | $ | 9.44 | (8.56 | )% | $ | 341,583 | 0.83 | % | 0.83 | % | 0.57 | % | ||||||||||||||||||||||||
IB | 10.29 | 0.04 | (0.95 | ) | (0.91 | ) | – | – | – | 9.38 | (8.79 | ) | 116,563 | 1.08 | 1.08 | 0.32 | ||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2010 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 8.33 | $ | 0.05 | $ | 2.00 | $ | 2.05 | $ | (0.06 | ) | $ | – | $ | (0.06 | ) | $ | 10.32 | 24.67 | % | $ | 462,281 | 0.85 | % | 0.85 | % | 0.57 | % | ||||||||||||||||||||||||
IB | 8.30 | 0.03 | 1.99 | 2.02 | (0.03 | ) | – | (0.03 | ) | 10.29 | 24.36 | 163,498 | 1.10 | 1.10 | 0.30 |
(A) | Information presented relates to a share outstanding throughout the indicated period. Net investment income (loss) per share amounts are calculated based on average shares outstanding unless otherwise noted. |
(B) | The figures do not include sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees would lower the Fund's performance. |
(C) | Adjustments include waivers and reimbursements, if applicable. Ratios do not include fees paid indirectly (see Expenses in the accompanying Notes to Financial Statements). |
(D) | Net investment income (loss) per share amounts have been calculated using the SEC method. |
Portfolio Turnover Rate for All Share Classes | ||||
For the Year Ended December 31, 2014 | 31 | % | ||
For the Year Ended December 31, 2013 | 49 | |||
For the Year Ended December 31, 2012 | 45 | |||
For the Year Ended December 31, 2011 | 43 | |||
For the Year Ended December 31, 2010 | 57 | (A) |
(A) | During the year ended December 31, 2010, the Fund incurred $89.7 million in purchases associated with the transition of assets from Hartford SmallCap Value HLS Fund, which merged into the Fund on July 30, 2010. These purchases were excluded from the portfolio turnover calculation. |
22 |
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Hartford Series Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Hartford MidCap Value HLS Fund (one of the portfolios constituting Hartford Series Fund, Inc. (the Funds)) as of December 31, 2014, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Hartford MidCap Value HLS Fund of the Hartford Series Fund, Inc. at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Minneapolis, Minnesota
February 13, 2015
23 |
Hartford MidCap Value HLS Fund
Directors and Officers (Unaudited)
The Board of Directors of the Company (the "Directors") appoints officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the Directors. Each Director serves until his or her death, resignation, or retirement or until the next annual meeting of shareholders is held or until his or her successor is elected and qualifies.
Directors and officers who are employed by or who have a financial interest in The Hartford Financial Services Group, Inc. ("The Hartford") are considered “interested” persons of the Fund pursuant to the 1940 Act. The "interested" Directors and officers are reflected in the chart below. Each Director serves as a director for The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., Hartford Series Fund, Inc., and Hartford HLS Series Fund II, Inc., and as a trustee for The Hartford Alternative Strategies Fund, which, as of December 31, 2014, collectively consist of 66 funds. Correspondence may be sent to Directors and officers c/o Hartford Funds, 5 Radnor Corporate Center, Suite 300, 100 Matsonford Road, Radnor, Pennsylvania 19087, except that correspondence to Mr. Annoni, Mr. Dressen and Ms. Quade may be sent to 500 Bielenberg Drive, Suite 500, Woodbury, Minnesota 55125.
The table below sets forth, for each Director and officer, his or her name, year of birth, current position with the Company and date first elected or appointed to Hartford Series Fund, Inc. ("HSF") and Hartford HLS Series Fund II, Inc. ("HSF2"), principal occupation, and, for Directors, other directorships held. The Fund’s Statement of Additional Information contains further information on the Directors and is available free of charge by calling 1-888-843-7824 or writing to: Hartford HLS Funds, c/o Hartford Life Insurance Company/Hartford Life and Annuity Insurance Company, P.O. Box 14293, Lexington, KY 40512-4293 for variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates; Hartford Funds, P.O. Box 55022, Boston, MA 02205-5022 for all shareholders except variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates.
Information on the aggregate remuneration paid to the directors of the Company can be found in the Statement of Operations herein. The Fund pays to The Hartford a portion of the Chief Compliance Officer’s compensation, but does not pay salaries or compensation to any of its other officers or Directors who are employed by The Hartford.
Non-Interested Directors
Hilary E. Ackermann (1956) Director since September 23, 2014
Ms. Ackermann served as Chief Risk Officer at Goldman Sachs Bank USA from October 2008 to November 2011 and serves as a Director of Dynegy, Inc., an independent power company, from October 2012 to present.
Lynn S. Birdsong (1946) Director since 2003, Chairman of the Investment Committee since 2014
Mr. Birdsong is a private investor. Mr. Birdsong currently serves as a Director of Aberdeen Global and Aberdeen Global II (investment funds) (September 2014 to present) and as an Independent Director of Nomura Partners Funds, Inc. (formerly, The Japan Fund) (April 2003 to present). Mr. Birdsong served as Director of the Sovereign High Yield Investment Company (April 2010 to September 2014). From 2003 to March 2005, Mr. Birdsong was an Independent Director of the Atlantic Whitehall Funds. From 1979 to 2002, Mr. Birdsong was a Managing Director of Zurich Scudder Investments, an investment management firm. During his employment with Scudder, Mr. Birdsong was an Interested Director of The Japan Fund. Mr. Birdsong served as Co-Chairman of the Investment Committee of The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., HSF, HSF2 and The Hartford Alternative Strategies Fund from 2005 to 2014.
Robert M. Gavin, Jr. (1940) Director since 2002 (HSF) and 1986 (HSF2), Chairman of the Board for each since 2004
Dr. Gavin is an educational consultant. Prior to September 1, 2001, he was President of Cranbrook Education Community and prior to July 1996, he was President of Macalester College, St. Paul, Minnesota.
Duane E. Hill (1945) Director since 2001 (HSF) and 2002 (HSF2), Chairman of the Nominating Committee since 2003
Mr. Hill is a Partner of TSG Ventures L.P., a private equity investment company. Mr. Hill is a former partner of TSG Capital Group, a private equity investment firm that served as sponsor and lead investor in leveraged buyouts of middle market companies.
Sandra S. Jaffee (1941) Director since 2005
Ms. Jaffee is the founder and Chief Executive Officer of a private company, Homeworks Concierge, LLC, which provides residential property management services in Westchester County, New York (January 2012 to present). Ms. Jaffee served as Chairman (2008 to 2009) and Chief Executive Officer of Fortent (formerly Searchspace Group), a leading provider of compliance/regulatory technology to financial institutions from August 2005 to August 2009. From August 2004 to August 2005, Ms. Jaffee served as an Entrepreneur in Residence with Warburg Pincus, a private equity firm. Prior to joining Warburg Pincus, Ms. Jaffee served as Executive Vice President at Citigroup, from September 1995 to July 2004, where she was President and Chief Executive Officer of Citibank’s Global Securities
24 |
Hartford MidCap Value HLS Fund
Directors and Officers (Unaudited) – (continued)
Services (1995 to 2003). Ms. Jaffee served as a member of the Board of Directors of Broadridge Financial Solutions (November 2010 to November 2014). Ms. Jaffee currently serves as a member of the Board of Directors of Global Camps Africa (a non-profit organization) (January 2015 to present) as well as a Trustee of Muhlenberg College (September 2007 to present).
William P. Johnston (1944) Director since 2005, Chairman of the Compliance Committee since 2005
In June 2006, Mr. Johnston was appointed as Senior Advisor to The Carlyle Group, a global private equity and other alternative asset investment firm and currently serves as an Operating Executive. In July 2006, Mr. Johnston was elected to the Board of Directors of MultiPlan, Inc. and served as a Director (July 2006 to August 2010). In August 2007, Mr. Johnston was elected to the Board of Directors of LifeCare Holdings, Inc. and served as a Director (August 2007 to June 2013). In February 2008, Mr. Johnston was elected to the Board of Directors of HCR-ManorCare, Inc. In May 2006, Mr. Johnston was elected to the Supervisory Board of Fresenius Medical Care AG & Co. KGaA, after its acquisition of Renal Care Group, Inc. in March 2006. Mr. Johnston joined Renal Care Group in November 2002 as a member of the Board of Directors and served as Chairman of the Board from March 2003 through March 2006. From 2002 through 2013, Mr. Johnston served as a Board member of the Georgia O’Keefe Museum. From September 1987 to December 2002, Mr. Johnston was with Equitable Securities Corporation (and its successors, SunTrust Equitable Securities and SunTrust Robinson Humphrey) serving in various investment banking and managerial positions, including Managing Director and Head of Investment Banking, Chief Executive Officer and Vice Chairman.
Phillip O. Peterson (1944) Director since 2002 (HSF) and 2000 (HSF2), Chairman of the Audit Committee since 2002
Mr. Peterson is a mutual fund industry consultant. He was a partner of KPMG LLP (an accounting firm) until July 1999. Mr. Peterson joined William Blair Funds in February 2007 as a member of the Board of Trustees. From February 2012 to February 2014, Mr. Peterson served as a Trustee of Symetra Variable Mutual Funds. From January 2004 to April 2005, Mr. Peterson served as Independent President of the Strong Mutual Funds.
Lemma W. Senbet (1946) Director since 2005
Dr. Senbet is the William E. Mayer Chair Professor of Finance at the University of Maryland, Robert H. Smith School of Business. He was chair of the Finance Department of the University of Maryland, Robert H. Smith School of Business from 1998 to 2006. Since June 2013, he has been on leave from the University to serve as Executive Director of African Economic Research Consortium which focuses on economic policy research and training. Previously, he was a chaired professor of finance at the University of Wisconsin-Madison. Also, he was a Director of the Fortis Funds from March 2000 to July 2002. Dr. Senbet served as Director of the American Finance Association and President of the Western Finance Association. In 2006, Dr. Senbet was inducted Fellow of Financial Management Association International for his career-long distinguished scholarship and professional service.
Interested Directors and Officers
James E. Davey (1964) Director since 2012, President and Chief Executive Officer since 2010
Mr. Davey serves as Executive Vice President of Hartford Life Insurance Company (“HLIC”) and The Hartford. Additionally, Mr. Davey serves as Chairman of the Board, Manager and Senior Managing Director of Hartford Funds Distributors, LLC (“HFD”). He also currently serves as Director, Chairman of the Board, President and Senior Managing Director of Hartford Administrative Services Company (“HASCO”). Mr. Davey also serves as Manager, Chairman of the Board and Senior Managing Director for Hartford Funds Management Company, LLC (“HFMC”) and Director, Chairman of the Board and Senior Managing Director for Hartford Funds Management Group, Inc. ("HFMG"). Mr. Davey has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Davey joined The Hartford in 2002.
Lowndes A. Smith* (1939) Director since 1996 (HSF) and 2002 (HSF2), Co-Chairman of the Investment Committee since 2005
Mr. Smith served as Vice Chairman of The Hartford from February 1997 to January 2002, as President and Chief Executive Officer of Hartford Life, Inc. from February 1997 to January 2002, and as President and Chief Operating Officer of The Hartford Life Insurance Companies from January 1989 to January 2002. Mr. Smith serves as a Director of White Mountains Insurance Group Ltd. (October 2003 to current); One Beacon Insurance (October 2006 to current); Symetra Financial (August 2007 to current) and is a Managing Director of Whittington Gray Associates (January 2007 to current).
* Mr. Smith resigned as a Director of Hartford Mutual Funds, Inc., Hartford Mutual Funds II, Inc., HSF and HSF2 and as a Trustee of The Hartford Alternative Strategies Fund effective September 17, 2014.
25 |
Hartford MidCap Value HLS Fund
Directors and Officers (Unaudited) – (continued)
Other Officers
Mark A. Annoni (1964) Vice President, Controller and Treasurer since 2012
Mr. Annoni currently serves as the Assistant Vice President of HLIC (February 2004 to present) and Senior Vice President of HFMG (December 2013 to present). Mr. Annoni has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Annoni joined The Hartford in 2001.
Michael R. Dressen (1963) AML Compliance Officer since 2011
Mr. Dressen currently serves as Assistant Vice President of HLIC. He also serves as Chief Compliance Officer and AML Compliance Officer of HASCO and as AML Officer of HFD. Mr. Dressen has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
Edward P. Macdonald (1967) Vice President, Secretary and Chief Legal Officer since 2005
Mr. Macdonald currently serves as Assistant Secretary, Executive Vice President and Deputy General Counsel of HFD, HASCO, HFMC and HFMG. He also serves as Vice President of HLIC. Mr. Macdonald has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Macdonald joined The Hartford in 2005.
Joseph G. Melcher (1973) Vice President and Chief Compliance Officer since 2013
Mr. Melcher currently serves as Executive Vice President of HFD, HFMG and HASCO. Mr. Melcher also currently serves as Executive Vice President and Chief Compliance Officer of HFMC. Mr. Melcher has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds since joining The Hartford in 2012. Prior to joining The Hartford, Mr. Melcher worked at Touchstone Investments, a member of the Western & Southern Financial Group, where he held the position of Vice President and Chief Compliance Officer from 2010 through 2012 and Assistant Vice President, Compliance from 2005 to 2010.
Vernon J. Meyer (1964) Vice President since 2006
Mr. Meyer currently serves as Senior Vice President of HLIC. He also currently serves as Managing Director and Chief Investment Officer of HFMC and Managing Director of HFMG. Mr. Meyer has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Meyer joined The Hartford in 2004.
Laura S. Quade (1969) Vice President since 2012
Ms. Quade currently serves as Vice President of HASCO, HFD and HFMG. She is the Head of Operations of HASCO and formerly served as Director, Enterprise Operations of HLIC. Ms. Quade has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Ms. Quade joined The Hartford in 2001.
Martin A. Swanson** (1962) Vice President since 2010
Mr. Swanson currently serves as Vice President of HLIC. Mr. Swanson also serves as Managing Director, Chief Marketing Officer and Principal of HFD and Managing Director of HFMG. Mr. Swanson has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
** Mr. Swanson resigned as an officer effective November 6, 2014.
HOW TO OBTAIN A COPY OF THE FUND’S PROXY VOTING POLICIES AND VOTING RECORDS (UNAUDITED)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information about how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov. The Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
26 |
Hartford MidCap Value HLS Fund
Expense Example (Unaudited)
Your Fund's Expenses
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including investment management fees, distribution and/or service (12b-1) fees, if any, and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period of June 30, 2014 through December 31, 2014.
Actual Expenses
The first set of columns of the table below provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second set of columns of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as taxes, sales charges (loads), or fees which may be applied at the variable life insurance, variable annuity, or qualified retirement plan product level. Therefore, the second set of columns of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would be higher. Expenses are equal to the Fund's annualized expense ratios multiplied by average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
Actual return | Hypothetical (5% return before expenses) | |||||||||||||||||||||||||||||||||||
Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Annualized expense ratio | Days in the current 1/2 year | Days in the full year | ||||||||||||||||||||||||||||
Class IA | $ | 1,000.00 | $ | 994.30 | $ | 4.22 | $ | 1,000.00 | $ | 1,020.97 | $ | 4.28 | 0.84 | % | 184 | 365 | ||||||||||||||||||||
Class IB | $ | 1,000.00 | $ | 992.80 | $ | 5.48 | $ | 1,000.00 | $ | 1,019.71 | $ | 5.55 | 1.09 | 184 | 365 |
27 |
Hartford MidCap Value HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited)
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of directors, including a majority of those directors who are not “interested persons” of the mutual fund, as defined in the 1940 Act (the “Independent Directors”), annually review and consider the continuation of the mutual fund’s investment advisory and sub-advisory agreements. At its meeting held on August 5-6, 2014, the Board of Directors (the “Board”) of Hartford Series Fund, Inc., including each of the Independent Directors, unanimously voted to approve the continuation of the investment management agreement for Hartford MidCap Value HLS Fund (the “Fund”) with Hartford Funds Management Company, LLC (“HFMC”) and the continuation of the investment sub-advisory agreement between HFMC and the Fund’s sub-adviser, Wellington Management Company, LLP (the “Sub-adviser,” and together with HFMC, the “Advisers”) (collectively, the “Agreements”).
In the months preceding the August 5-6, 2014 meeting, the Board requested, received and reviewed written responses from the Advisers to questions posed to them on behalf of the Independent Directors and supporting materials relating to those questions and responses. The Board considered information furnished to the Board at its meetings throughout the year, as well as information specifically prepared in connection with the annual approval of the Agreements at the Board’s meetings held on June 17-18, 2014 and August 5-6, 2014. Information provided to the Board at its meetings throughout the year included, among other things, reports on Fund performance, legal and compliance matters, sales and marketing activity, shareholder services, and the other services provided to the Fund by the Advisers and their affiliates. The Board also received in-person presentations by Fund officers and representatives of HFMC at the Board’s meetings on June 17-18, 2014 and August 5-6, 2014 concerning the Agreements.
The Independent Directors, advised by independent legal counsel, engaged service providers to assist them with evaluating the Agreements with respect to the Fund. Lipper Inc. (“Lipper”), an independent provider of investment company data, was retained to provide the Board with reports on how the Fund’s contractual management fees, actual management fees, other non-management fees, overall expense ratios and investment performance compared to those of mutual funds with similar investment objectives. The Independent Directors also engaged an independent financial services consultant (the “Consultant”) to assist them in evaluating the Fund’s management fees, sub-advisory fees, other non-management fees, overall expense ratios and investment performance. In addition, the Consultant reviewed the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement.
In determining whether to continue the Agreements for the Fund, the members of the Board reviewed and evaluated information and factors they believed to be relevant and appropriate in light of the information that the Board deemed necessary and appropriate through the exercise of its reasonable business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination to continue the Agreements was based on a comprehensive consideration of all information provided to the Board throughout the year and specifically with respect to the continuation of the Agreements. A more detailed discussion of the factors the Board considered with respect to its approval of the Agreements is provided below.
Nature, Extent and Quality of Services Provided by the Advisers
The Board requested and considered information concerning the nature, extent and quality of the services provided to the Fund by the Advisers. The Board considered, among other things, the terms of the Agreements and the range of services provided by the Advisers. The Board considered the Advisers’ professional personnel who provide services to the Fund, including each Adviser’s ability and experience in attracting and retaining qualified personnel to service the Fund. The Board considered each Adviser’s reputation and overall financial strength, as well as its willingness to consider and implement organizational and operational changes designed to enhance services to the Hartford Funds. In addition, the Board considered the quality of each Adviser’s communications with the Board and responsiveness to Board inquiries and requests made from time to time with respect to the Fund and other Hartford Funds.
The Board also requested and evaluated information concerning each Adviser’s regulatory and compliance environment. In this regard, the Board requested and reviewed information on each Adviser’s compliance policies and procedures, compliance history, and a report from the Fund’s Chief Compliance Officer on each Adviser’s compliance with applicable laws and regulations, including responses to regulatory developments and compliance issues raised by regulators. The Board also noted the Advisers’ support of the Fund’s compliance control structure, particularly the resources devoted by the Advisers in support of the Fund’s obligations pursuant to Rule 38a-1 under the 1940 Act.
With respect to HFMC, the Board noted that under the Agreements, HFMC is responsible for the management of the Fund, including oversight of fund operations and service providers, as well as investment advisory services in connection with selecting, monitoring and supervising the Sub-adviser. The Board considered HFMC’s ongoing monitoring of people, process and performance, including its quarterly reviews of each of
28 |
Hartford MidCap Value HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
the Hartford Funds, semi-annual meetings with the leaders of each Fund’s portfolio management team, and oversight of the Hartford Funds’ approximately 37 portfolio managers. The Board recognized that HFMC has demonstrated a record of making changes to the management
and/or strategies of the Hartford Funds when warranted. The Board considered HFMC’s oversight of the Sub-adviser’s investment approach and results, process for monitoring best execution of portfolio trades by the Sub-adviser, and approach to risk management with respect to the Fund and the service providers to the Fund. The Board also considered HFMC’s oversight of compliance with the Fund’s objective and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over time led to an increase in the scope of HFMC’s services in this regard.
In addition, the Board considered HFMC’s ongoing commitment to review and rationalize the Hartford Funds product line-up and the expenses that HFMC had incurred in connection with fund combinations in recent years. The Board considered that HFMC or its affiliates are responsible for providing the Fund’s officers. The Board also noted that Hartford Life Insurance Company (“HLIC”) provides administrative services to the Fund. The Board considered its experiences with HFMC and HLIC with respect to each of these services.
With respect to the Sub-adviser, which provides certain day-to-day portfolio management services for the Fund, the Board considered the quality of the Fund’s portfolio manager, the Sub-adviser’s other investment personnel, its investment philosophy and process, investment research capabilities and resources, performance record, trade execution capabilities and experience. The Board considered the experience of the Fund’s portfolio manager, the number of accounts managed by the portfolio manager, and the Sub-adviser’s method for compensating the portfolio manager.
Based on these considerations, the Board concluded that it was satisfied with the nature, extent and quality of the services provided to the Fund by HFMC and the Sub-adviser.
Performance of the Fund and the Advisers
The Board considered the investment performance of the Fund. In this regard, the Board reviewed the performance of the Fund over different time periods presented in the materials and evaluated HFMC’s analysis of the Fund’s performance for these time periods. The Board considered information and materials provided to the Board by the Advisers concerning Fund performance, as well as information from Lipper comparing the investment performance of the Fund to an appropriate benchmark and universe of peer funds. The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1- and 3-year periods and the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was above its benchmark for the 1-, 3- and 5-year periods.
The Board considered the detailed investment analytics reports provided by Hartford Funds’ Investment Advisory Group throughout the year. These reports include, among other things, information on the Fund’s gross and net returns, the Fund’s investment performance relative to an appropriate benchmark and peer group, various statistics concerning the Fund’s portfolio, and a narrative summary of various factors affecting Fund performance. The Board considered the Advisers’ cooperation with the Investment Committee, which assists the Board in evaluating the performance of the Fund at periodic meetings throughout the year. The Board also considered the analysis provided by the Consultant relating to the Fund’s performance track record.
In light of all the considerations noted above, the Board concluded that it had continued confidence in HFMC’s and the Sub-adviser’s overall capabilities to manage the Fund.
Costs of the Services and Profitability of the Advisers
The Board reviewed information regarding HFMC’s cost to provide investment management and related services to the Fund and HFMC’s profitability, both overall and for the Fund, on a pre-tax basis without regard to distribution expenses. The Board also requested and reviewed information about the profitability to HFMC and its affiliates from all services provided to the Fund and all aspects of their relationship with the Fund. The Board also requested and received information relating to the operations and profitability of the Sub-adviser.
The Board considered the Consultant’s review of the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement, noting the Consultant’s view that Hartford Funds’ process for calculating and reporting Fund profitability is reasonable. In this regard, the Board noted that the Consultant performed a full review of this process in light of the recent restructuring of the Hartford Funds business and reported that the approach to analyzing Fund profitability, including the use of common expense allocation methodologies, is reasonable, sound and well within common industry practice.
29 |
Hartford MidCap Value HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
Based on these considerations, the Board concluded that the profits anticipated to be realized by the Advisers and their affiliates from their relationships with the Fund would not be excessive.
Comparison of Fees and Services Provided by the Advisers
The Board considered comparative information with respect to the management fees to be paid by the Fund to HFMC and the total expense ratios of the Fund. The Board also considered comparative information with respect to the sub-advisory fees to be paid by HFMC to the Sub-adviser. In this regard, the Board requested and reviewed information from HFMC and the Sub-adviser relating to the management and sub-advisory fees, including the sub-advisory fee schedule for the Fund, and total operating expenses for the Fund. The Board considered that the management fee for the Fund includes the fee paid to HLIC for providing certain administrative services to the Fund. With respect to the sub-advisory fee schedule, the Board considered representations from HFMC and the Sub-adviser that the Sub-adviser’s fees were negotiated at arm’s length on a fund-by-fund basis and that certain factors were identified by HFMC as having had a potential impact on the negotiation of the Fund’s sub-advisory fee levels. The Board also reviewed information from Lipper comparing the Fund’s contractual management fees, actual management fees and overall expense ratios relative to a group of funds selected by Lipper, in consultation with the Consultant, and a broader universe of funds selected by Lipper. The Board noted that the Fund’s contractual management fee, actual management fee and total expenses (less 12b-1 and shareholder service fees) were in the 3rd quintile of its expense group.
While the Board recognized that comparisons between the Fund and peer funds may be imprecise, given the different service levels and characteristics of mutual funds and the different business models and cost structures of the Advisers, the comparative information provided by Lipper assisted the Board in evaluating the reasonableness of the Fund’s management and sub-advisory fees and total operating expenses. In addition, the Board considered the analysis and recommendations of the Consultant relating to the Fund’s management and sub-advisory fees and total operating expenses.
Based on these considerations, the Board concluded that the Fund’s fees and total operating expenses, in conjunction with the information about quality of services, profitability, economies of scale, and other matters discussed, were reasonable in light of the services provided.
Economies of Scale
The Board requested and considered information regarding the Advisers’ realization of economies of scale with respect to the Fund and whether the fee levels reflect these economies of scale for the benefit of the Fund’s shareholders. The Board reviewed the breakpoints in the management fee schedule for the Fund, which reduce fee rates as Fund assets grow over time. The Board recognized that a fund with assets beyond the highest breakpoint level will continue to benefit from economies of scale because additional assets are charged the lowest breakpoint fee resulting in lower overall effective management fee rates. The Board also recognized that a fee schedule that reaches a lower breakpoint quickly provides shareholders with the benefit of anticipated or potential economies of scale. The Board noted the effect of the sale and run-off of the variable annuity business on the HLS Funds.
The Board reviewed and evaluated materials from Lipper and the Consultant showing how management fee schedules of peer funds reflect economies of scale for the benefit of shareholders as a peer fund’s assets hypothetically increase over time. Based on information provided by HFMC, Lipper, and the Consultant, the Board recognized that there is no uniform methodology for establishing breakpoints or uniform pattern in asset levels that trigger breakpoints or the amounts of breakpoints triggered.
After considering all of the information available to it, the Board concluded that it was satisfied with the extent to which economies of scale would be shared for the benefit of the Fund’s shareholders based on currently available information and the effective advisory fees and expense ratios for the Fund at its current and reasonably anticipated asset levels. The Board noted, however, that it would continue to monitor future growth in Fund assets and the appropriateness of additional breakpoints.
Other Benefits
The Board considered other benefits to the Advisers and their affiliates from their relationships with the Fund, including the role of the Fund in supporting the variable life insurance and variable annuity products offered by The Hartford.
30 |
Hartford MidCap Value HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
The Board noted that HLIC, an affiliate of HFMC, receives fees for providing certain administrative services to the Fund and that HFMC receives fees for fund accounting and related services from the Fund. The Board considered information on profits to HLIC and HFMC for such services.
The Board also considered that Hartford Administrative Services Company (“HASCO”), the Fund’s transfer agent and an affiliate of HFMC, receives transfer agency compensation from the Fund, and the Board reviewed information on the profitability of the Fund’s transfer agency function to HASCO. The Board considered information provided by HASCO indicating that the transfer agent fees charged by HASCO to the Fund were fair and reasonable based on publicly available information.
The Board also considered that Hartford Funds Distributors, LLC (“HFD”), an affiliate of HFMC, serves as principal underwriter of the Fund. As principal underwriter, HFD receives 12b-1 fees from the Fund. The Board also noted that certain affiliates of HFD distribute shares of the Fund and receive compensation in that connection.
The Board considered benefits to the Sub-adviser from its use of the Fund’s brokerage commissions to obtain soft dollar research, and representations from HFMC and the Sub-adviser that the Sub-adviser would not make any revenue-sharing payments or any other type of distribution payments to HFMC or its affiliates.
The Board considered the benefits to shareholders of being part of the Hartford Funds family of funds. The Board considered HFMC’s efforts to provide investors in the family with a broad range of investment styles and asset classes.
* * * *
Based upon its review of these various factors, among others, the Board concluded that it is in the best interests of the Fund and its shareholders for the Board to approve the Agreements for an additional year. In reaching this decision, the Board did not assign relative weights to the factors discussed above or deem any one or group of them to be controlling in and of themselves. In connection with their deliberations, the Independent Directors met separately in executive session on several occasions, with independent legal counsel and the Consultant, to review the relevant materials and consider their responsibilities under relevant laws and regulations.
31 |
Hartford MidCap Value HLS Fund
Main Risks (Unaudited)
The main risks of investing in the Fund are described below.
Market, Selection and Strategy Risk: The Fund’s share price may fluctuate due to market risk and/or security selections that may underperform the market or relevant benchmarks. If the sub-adviser's investment strategy does not perform as expected, the Fund could underperform its peers or lose money. There is no guarantee the Fund will achieve its stated objective.
Mid-Cap Stock Risk: Mid-cap stocks are generally more volatile and risky and may be less liquid than large-cap stocks because they may have limited operating histories, narrow product lines, and focus on niche markets.
Value Investing Risk: Value investments are considered to be undervalued, but they may never attain their potential value. Value-style investing falls in and out of favor, which may result in periods of underperformance.
Foreign Investment Risk: Investments in foreign securities may be riskier than investments in U.S. securities. Potential risks include the risks of illiquidity, increased price volatility, less government regulation, less extensive and less frequent accounting and other reporting requirements, unfavorable changes in currency exchange rates, and economic and political disruptions.
32 |
THIS PRIVACY POLICY IS NOT PART OF THIS REPORT
Privacy Policy and Practices of The Hartford Financial Services Group, Inc. and its Affiliates
(herein called “we, our and us”)
This Privacy Policy applies to our United States Operations
We value your trust. We are committed to the responsible: a) management; b) use; and c) protection; of Personal Information.
This notice describes how we collect, disclose, and protect Personal Information.
We collect Personal Information to: a) service your Transactions with us; and b) support our business functions.
We may obtain Personal Information from: a) You; b) your Transactions with us; and c) third parties such as a consumer-reporting agency.
Based on the type of product or service You apply for or get from us, Personal Information such as: a) your name; b) your address; c) your income; d) your payment; or e) your credit history; may be gathered from sources such as applications, Transactions, and consumer reports.
To serve You and service our business, we may share certain Personal Information. We will share Personal Information, only as allowed by law, with affiliates such as: a) our insurance companies; b) our employee agents; c) our brokerage firms; and d) our administrators.
As allowed by law, we may share Personal Financial Information with our affiliates to: a) market our products; or b) market our services; to You without providing You with an option to prevent these disclosures.
| We may also share Personal Information, only as allowed by law, with unaffiliated third parties including: a) independent agents; b) brokerage firms; c) insurance companies; d) administrators; and e) service providers; who help us serve You and service our business.
When allowed by law, we may share certain Personal Financial Information with other unaffiliated third parties who assist us by performing services or functions such as: a) taking surveys; b) marketing our products or services; or c) offering financial products or services under a joint agreement between us and one or more financial institutions.
We, and third parties we partner with, may track some of the pages You visit through the use of: a) cookies; b) pixel tagging; or c) other technologies; and currently do not process or comply with any web browser’s “do not track” signal or similar mechanism that indicates a request to disable online tracking of individual users who visit our websites or use our services.
We will not sell or share your Personal Financial Information with anyone for purposes unrelated to our business functions without offering You the opportunity to: a) “opt-out;” or b) “opt-in;” as required by law.
We only disclose Personal Health Information with: a) your proper written authorization; or b) as otherwise allowed or required by law.
Our employees have access to Personal Information in the course of doing their jobs, such as: a) underwriting policies; b) paying claims; c) developing new products; or d) advising customers of our products and services.
|
We use manual and electronic security procedures to maintain: a) the confidentiality; and b) the integrity of; Personal Information that we have. We use these procedures to guard against unauthorized access.
Some techniques we use to protect Personal Information include: a) secured files; b) user authentication; c) encryption; d) firewall technology; and e) the use of detection software.
We are responsible for and must: a) identify information to be protected; b) provide an adequate level of protection for that data; c) grant access to protected data only to those people who must use it in the performance of their job-related duties.
Employees who violate our Privacy Policy will be subject to discipline, which may include ending their employment with us.
At the start of our business relationship, we will give You a copy of our current Privacy Policy.
We will also give You a copy of our current Privacy Policy once a year if You maintain a continuing business relationship with us.
We will continue to follow our Privacy Policy regarding Personal Information even when a business relationship no longer exists between us.
| As used in this Privacy Notice:
Application means your request for our product or service.
Personal Financial Information means financial information such as: a) credit history; b) income; c) financial benefits; or d) policy or claim information.
Personal Health Information means health information such as: a) your medical records; or b) information about your illness, disability or injury.
Personal Information means information that identifies You personally and is not otherwise available to the public. It includes: a) Personal Financial Information; and b) Personal Health Information.
Transaction means your business dealings with us, such as: a) your Application; b) your request for us to pay a claim; and c) your request for us to take an action on your account.
You means an individual who has given us Personal Information in conjunction with: a) asking about; b) applying for; or c) obtaining; a financial product or service from us if the product or service is used mainly for personal, family, or household purposes.
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This Privacy Policy is being provided on behalf of the following affiliates of The Hartford Financial Services Group, Inc.:
1stAGChoice, Inc.; Access CoverageCorp, Inc.; Access CoverageCorp Technologies, Inc.; American Maturity Life Insurance Company; Archway 60 R, LLC; Business Management Group, Inc.; DMS R, LLC; First State Insurance Company; Fountain Investors I LLC; Fountain Investors II LLC; Fountain Investors III LLC; Fountain Investors IV LLC; FTC Resolution Company LLC; Hart Re Group L.L.C.; Hartford Accident and Indemnity Company; Hartford Administrative Services Company; Hartford Casualty General Agency, Inc.; Hartford Casualty Insurance Company; Hartford Financial Services, LLC; Hartford Fire General Agency, Inc.; Hartford Fire Insurance Company; Hartford Funds Distributors, LLC; Hartford Funds Management Company, LLC; Hartford Funds Management Group, Inc.; Hartford Holdings, Inc.; Hartford HLS Series Fund II, Inc.; Hartford Insurance Company of Illinois; Hartford Insurance Company of the Midwest; Hartford Insurance Company of the Southeast; Hartford Integrated Technologies, Inc.; Hartford International Life Reassurance Corporation; Hartford Investment Management Company; Hartford Life and Accident Insurance Company; Hartford Life and Annuity Insurance Company; Hartford Life Insurance Company; Hartford Life, Inc.; Hartford Life International Holding Company; Hartford Life Private Placement, LLC; Hartford Lloyd’s Corporation; Hartford Lloyd’s Insurance Company; Hartford of Texas General Agency, Inc.; Hartford Residual Market, L.C.C.; Hartford Securities Distribution Company, Inc.; Hartford Series Fund, Inc.; Hartford Specialty Insurance Services of Texas, LLC; Hartford Strategic Investments, LLC; Hartford Underwriters General Agency, Inc.; Hartford Underwriters Insurance Company; Hartford-Comprehensive Employee Benefit Service Company; HDC R, LLC.; Heritage Holdings, Inc.; HIMCO Distribution Services Company; HIMCO Variable Insurance Trust; HLA LLC; HL Investment Advisors, LLC; Horizon Management Group, LLC; HRA Brokerage Services, Inc.; Lanidex Class B, LLC; New England Insurance Company; New England Reinsurance Corporation; Nutmeg Insurance Agency, Inc.; Nutmeg Insurance Company; Pacific Insurance Company, Limited; Planco, LLC; Property and Casualty Insurance Company of Hartford; Revere R, LLC; RVR R, LLC; Sentinel Insurance Company, Ltd.; Sunstone R, LLC; Symphony R, LLC; The Evergreen Group Incorporated; The Hartford Alternative Strategies Fund; The Hartford Mutual Funds, Inc.; The Hartford Mutual Funds II, Inc.; Trumbull Flood Management, L.L.C.; Trumbull Insurance Company; Twin City Fire Insurance Company.
HPP Revised February 2015
HARTFORD HLS FUNDS
P.O. Box 14293
Lexington, KY 40512-4293
HARTFORDFUNDS
hartfordfunds.com
Hartford HLS Funds are underwritten and distributed by Hartford Funds Distributors, LLC.
Hartford Series Fund, Inc. is not a subsidiary of The Hartford Financial Services Group, Inc. (“The Hartford”) but is underwritten, distributed by and advised by subsidiaries of The Hartford. Investments in Hartford Series Fund, Inc. are not guaranteed by The Hartford or any other entity.
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HLSAR-MCV14 2-15 113548-4 Printed in U.S.A.
HARTFORDFUNDS
![]() | HARTFORD SMALL COMPANY HLS FUND 2014 Annual Report |
A MESSAGE FROM THE PRESIDENT
Dear Fellow Shareholders:
Thank you for investing in Hartford HLS Funds.
Market Review
Nearly six years into a bull market, U.S. equities (as represented by the S&P 500 Index ) notched another positive year in 2014, finishing with a 13.69% gain. Progress was smooth for most of the year, with stocks generally rising amid little volatility. In the fourth quarter, however, the price of oil declined by nearly 40%, returning volatility to the market and paring some of the year’s returns.
As we enter 2015, the price of oil will likely continue playing an important role in market progress, as its effects are widespread. If prices remain low, consumers should benefit by paying less at the gas pump, which increases the amount of money available for discretionary spending. In contrast, low prices may be a detriment to the oil and natural gas industry in the U.S., as well as to the economies of countries that rely more heavily on oil exports.
Central-bank policies will also continue to influence the markets. The U.S. economy has continued to show self-sustaining growth, which has prompted the U.S. Federal Reserve to wind down the quantitative easing programs it initiated after the global financial crisis. In addition, gradual increases in interest rates are expected to begin in 2015, another sign of positive recovery and a return to pre-crisis policy. But in Europe, a slow recovery and fears of deflation have prompted the start of European Central Bank’s own version of quantitative easing to spur growth.
The final weeks of 2014 provided a stark reminder of how unpredictable market movements can be, and how important it is to maintain a diversified portfolio that’s in line with your time horizon and risk tolerance. As we begin 2015, take time to review your portfolio and your overall investment strategy with your financial advisor.
With more than 40 mutual-fund strategies that span a variety of asset classes and investment goals, your financial advisor can work with you to choose options within our fund family that can help you navigate today’s markets with confidence.
Thank you again for investing with Hartford HLS Funds.
James Davey
President
Hartford HLS Funds
1The S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
Hartford Small Company HLS Fund
Table of Contents
This report is prepared for the general information of contract owners and qualified retirement plan participants. It is not an offer of contracts or of qualified retirement plans. It should not be used in connection with any offer, except in conjunction with the appropriate product prospectus which contains all pertinent information including the applicable sales, administrative and other charges.
The views expressed in the Fund’s Manager Discussion under ‘‘Why did the Fund perform this way?’’ and ‘‘What is the outlook?’’ are views of the Fund’s sub-adviser and portfolio management team through the end of the period and are subject to change based on market and other conditions. The Fund’s Manager Discussion is for informational purposes only and does not represent an offer, recommendation or solicitation to buy, hold or sell any security. The specific securities identified and described, if any, do not represent all of the securities purchased or sold and you should not assume that investments in the securities identified and discussed will be profitable.
Hartford Small Company HLS Fund inception 08/09/1996 | |
(sub-advised by Wellington Management Company, LLP) | |
Investment objective – The Fund seeks growth of capital. |
Performance Overview 12/31/04 - 12/31/14
The chart above represents the hypothetical growth of a $10,000 investment in Class IA. Growth results in classes other than Class IA will vary from what is seen above due to differences in the expenses charged to those share classes.
Average Annual Total Returns (as of 12/31/14)
1 Year | 5 Years | 10 Years | |
Small Company IA | 7.07 % | 16.48 % | 10.05 % |
Small Company IB | 6.85 % | 16.19 % | 9.78 % |
Russell 2000 Growth Index | 5.60 % | 16.80 % | 8.54 % |
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of the investment will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain performance data current to the most recent month-end, please visit our website www.hartfordfunds.com.
Total returns presented above were calculated using the Fund’s net asset value available to shareholders for sale or redemption of Fund shares on December 31, 2014, which may exclude investment transactions as of this date. All share class returns assume the reinvestment of all distributions at net asset value and the deduction of all fund expenses.
Russell 2000 Growth Index is an unmanaged index of those Russell 2000 Index growth companies with higher price-to-book ratios and higher forecasted growth values. The Russell 2000 Index is a broad-based unmanaged index comprised of 2,000 of the smallest U.S.-domiciled company common stocks (on the basis of capitalization) that are traded in the United States on the New York Stock Exchange, NYSE MKT LLC and Nasdaq.
The index is unmanaged, and its results include reinvested dividends and/or distributions, but do not reflect the effect of sales charges, commissions, expenses or taxes.
You cannot invest directly in an index.
As shown in the Fund's current prospectus dated May 1, 2014, the total annual operating expense ratios for Class IA and Class IB were 0.71% and 0.96%, respectively. Actual expenses may be higher. Please see the accompanying Financial Highlights for expense ratios for the year ended December 31, 2014.
For additional information regarding the prior performance history of the Fund, please see the section entitled "Performance Notes" in the Fund's prospectus.
The chart and table do not reflect the deductions of taxes, sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees or expenses would lower the contract’s or plan’s performance.
All investments are subject to risk including the possible loss of principal. For a discussion of the Fund’s risks, please see the Main Risks section of this report. For more detailed information on the risks associated with an investment in the Fund, please see the prospectus.
2 |
Hartford Small Company HLS Fund |
Manager Discussion |
December 31, 2014 (Unaudited) |
Portfolio Managers | ||||
Steven C. Angeli, CFA | Stephen Mortimer | Mario E. Abularach, CFA | ||
Senior Managing Director and Equity Portfolio Manager | Senior Managing Director and Equity Portfolio Manager | Senior Managing Director and Equity Research Analyst | ||
Mammen Chally, CFA | Jamie A. Rome, CFA | |||
Senior Managing Director and Equity Portfolio Manager | Senior Managing Director and Equity Portfolio Manager |
How did the Fund perform?
The Class IA shares of the Hartford Small Company HLS Fund returned 7.07% for the twelve-month period ended December 31, 2014, outperforming the Fund’s benchmark, the Russell 2000 Growth Index, which returned 5.60% for the same period. The Fund also outperformed the 1.89% average return of the Lipper Small-Cap Growth Funds peer group, a group of funds with investment strategies similar to those of the Fund.
Why did the Fund perform this way?
U.S. equities surged during the period, despite bouts of significant volatility. After finishing their best year since 1997, U.S. stocks began 2014 with their worst month in nearly two years. Worries about an economic slowdown in China and general angst surrounding emerging markets overshadowed a fairly benign domestic environment. However, robust merger and acquisition activity, an uncontested increase in the debt ceiling from Congress, renewed signs of life in the housing market, and the best payroll gain in more than two years helped stoke investors' risk appetites in the first half of the period. A pullback in July ended a streak of five consecutive monthly gains. Fear gripped the market as heightened geopolitical risks, a potential Portuguese banking crisis, and worries of U.S. Federal Reserve (Fed) tightening took center stage. Stocks rebounded in August based on encouraging economic data, headlined by better-than-expected gross domestic product (GDP) growth and signs that the housing recovery still had legs. However, the reality of quantitative easing ending and the prospect of higher federal funds rates in mid-2015 contributed to increased risk aversion levels. Stocks rebounded again in October, hitting an all-time high on the heels of a positive earnings season and generally solid economic data. The rally continued in November after Republicans took control of the U.S. Senate but stocks pulled back slightly near month-end, led by weakness in the Energy sector associated with the significant decline in oil prices. In December, U.S. equities closed at an all-time high on December 29th but fell 1.4% during the final two trading days of the year. The Fed helped to support riskier assets at the end of the year after it stated it can be "patient" with regards to starting the process of bringing interest rates to normal levels.
Large cap stocks (+14%) outperformed small cap stocks (+5%) during the period, as measured by the S&P 500 and Russell 2000 Indices, respectively. Value (+13%) stocks modestly outperformed Growth (+12%) stocks during the period, as measured by the Russell 3000 Value and Russell 3000 Growth Indices. Six of the ten sectors in the Russell 2000 Growth Index had positive returns during the period. Healthcare (+20%), Consumer Staples (+15%), and Information Technology (+8%) performed best, while Energy (-34%) and Utilities (-8%) lagged the broader index.
Stock selection was the main driver of relative outperformance versus the Russell 2000 Growth Index, primarily due to strong selection within the Consumer Discretionary, Energy, and Industrials sectors. This was partially offset by weaker selection in the Information Technology sector. Sector allocation contributed modestly to relative returns, primarily due to an underweight to the Energy sector which offset the negative impacts of an underweight allocation to the Healthcare sector.
Top contributors to relative performance during the period included Mobileye NV (Information Technology), Athlon Energy (Energy), and WhiteWave Foods (Consumer Staples). Shares of Mobileye NV, a manufacturer of Advanced Driver Assistance System (ADAS) that makes cars safer and easier to drive, rose during the period as investors viewed the company as an exciting investment opportunity in a rapidly growing industry. Shares of Athlon Energy, an exploration and production company within the Permian Basin, rose during the period after the company reported in-line quarterly results and progress in their drilling efforts, which were favorably received by investors. In addition, shares surged after Encana announced it would acquire Athlon Energy for a substantial premium. We exited the stock shortly after the acquisition announcement. Shares of WhiteWave Foods, a leader in the organic foods and plant-based beverage industries, outperformed during the period based on solid trends in revenue and earnings growth. We originally invested in the stock because the company is a key player in a long-term consumer trend of rising preference for organic food; we eliminated the position based on strong performance. DexCom (Healthcare) contributed to absolute returns during the period.
Top detractors from relative returns during the period included Intermune (Healthcare), Web.com Group (Information Technology), and Zulily (Consumer Discretionary). Shares of Intermune, a U.S.-based biotechnology company, rose during the period after it was announced that Roche was buying the company for a reported $8.3 billion. Not owning the strong-performing Russell 2000 Growth Index constituent detracted from returns during the period. Shares of Web.com Group, a global domain name registrar, fell during the
3 |
Hartford Small Company HLS Fund |
Manager Discussion – (continued) |
December 31, 2014 (Unaudited) |
period after Google announced it had entered the domain registration industry, a move investors viewed as detrimental to Web.com’s business. Shares of Zulily, an online retailer, fell during the period due to earnings results that fell below investor expectations. Financial Engines (Financials) and FleetMatics Group (Information Technology) detracted from absolute returns during the period.
Derivatives are not used in a significant manner in the Fund and did not have a material impact on performance during the period.
What is the outlook?
As we enter 2015, the market is full of uncertainties. While we believe that falling energy prices will have the most immediate effect within the Energy sector itself, it remains to be seen how widely the impact will be felt. The termination of quantitative easing programs may ultimately lead to higher interest rates, but the timing and pace of those rises are yet to be determined. In our opinion, Europe continues to be weak, and the outlook for China is mixed. We are working to “peel back the layers” to understand the true risk/reward prospects for each stock in this highly complex market environment subject to policy uncertainty, social issues, and macroeconomic dynamics. With growth that appears to be increasingly elusive, we are placing a premium on stocks in companies that can grow in any environment.
The Fund ended the period most overweight the Industrials, Information Technology, and Financials sectors relative to the Russell 2000 Growth Index. The Fund ended the period most underweight the Healthcare, Consumer Staples, and Energy sectors relative to the Russell 2000 Growth Index.
Diversification by Sector
as of December 31, 2014
Sector | Percentage of Net Assets | |||
Equity Securities | ||||
Consumer Discretionary | 15.7 | % | ||
Consumer Staples | 1.4 | |||
Energy | 1.9 | |||
Financials | 9.9 | |||
Health Care | 17.4 | |||
Industrials | 22.0 | |||
Information Technology | 25.7 | |||
Materials | 3.5 | |||
Services | 0.2 | |||
Utilities | 0.1 | |||
Total | 97.8 | % | ||
Short-Term Investments | 2.0 | |||
Other Assets and Liabilities | 0.2 | |||
Total | 100.0 | % |
A sector may be comprised of several industries. For Fund compliance purposes, the Fund may not use the same classification system and these sector classifications are used for reporting ease.
4 |
Hartford Small Company HLS Fund |
Schedule of Investments |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount | Market Value ╪ | |||||||
Common Stocks - 95.9% | ||||||||
Automobiles and Components - 0.6% | ||||||||
27 | Dana Holding Corp. | $ | 591 | |||||
165 | Gentherm, Inc. ● | 6,054 | ||||||
8 | Standard Motor Products, Inc. | 302 | ||||||
17 | Tenneco Automotive, Inc. ● | 959 | ||||||
1 | Tesla Motors, Inc. ● | 130 | ||||||
8,036 | ||||||||
Banks - 1.6% | ||||||||
5 | Bank of Marin Bancorp | 264 | ||||||
28 | Blue Hills Bancorp, Inc. ● | 382 | ||||||
29 | Clifton Bancorp, Inc. | 400 | ||||||
48 | EverBank Financial Corp. | 922 | ||||||
28 | First Merchants Corp. | 647 | ||||||
27 | Flushing Financial Corp. | 557 | ||||||
12 | Great Western Bancorp, Inc. ● | 282 | ||||||
15 | Heritage Financial Corp. | 256 | ||||||
13 | Home Loan Servicing Solutions Ltd. | 250 | ||||||
52 | MGIC Investment Corp. ● | 483 | ||||||
353 | PacWest Bancorp | 16,055 | ||||||
1 | Sandy Spring Bancorp, Inc. | 24 | ||||||
15 | Trico Bancshares | 373 | ||||||
17 | Wintrust Financial Corp. | 789 | ||||||
3 | WSFS Financial Corp. | 249 | ||||||
21,933 | ||||||||
Capital Goods - 14.2% | ||||||||
10 | A.O. Smith Corp. | 576 | ||||||
23 | AAON, Inc. | 509 | ||||||
14 | Aceto Corp. | 308 | ||||||
148 | Acuity Brands, Inc. | 20,743 | ||||||
435 | AECOM Technology Corp. ● | 13,204 | ||||||
3 | Alamo Group, Inc. | 129 | ||||||
537 | Altra Industrial Motion Corp. | 15,249 | ||||||
343 | Applied Industrial Technologies, Inc. | 15,643 | ||||||
214 | Astronics Corp. ● | 11,855 | ||||||
2 | Astronics Corp. Class B | 136 | ||||||
12 | AZZ, Inc. | 570 | ||||||
12 | CAI International, Inc. ● | 276 | ||||||
2 | Carlisle Cos., Inc. | 199 | ||||||
11 | Chart Industries, Inc. ● | 387 | ||||||
3 | Crane Co. | 196 | ||||||
543 | DigitalGlobe, Inc. ● | 16,816 | ||||||
5 | EMCOR Group, Inc. | 237 | ||||||
5 | Esterline Technologies Corp. ● | 510 | ||||||
342 | Generac Holdings, Inc. ● | 15,991 | ||||||
9 | H & E Equipment Services, Inc. | 239 | ||||||
641 | HD Supply Holdings, Inc. ● | 18,900 | ||||||
11 | Heico Corp. | 693 | ||||||
14 | Insteel Industries, Inc. | 319 | ||||||
9 | Lennox International, Inc. | 820 | ||||||
14 | Luxfer Holdings plc | 208 | ||||||
9 | Lydall, Inc. ● | 286 | ||||||
247 | Masonite International Corp. ● | 15,175 | ||||||
127 | Moog, Inc. Class A ● | 9,387 | ||||||
11 | NN, Inc. | 236 | ||||||
541 | Orbital Sciences Corp. ● | 14,550 | ||||||
5 | Polypore International, Inc. ● | 259 | ||||||
114 | Teledyne Technologies, Inc. ● | 11,755 | ||||||
8 | Textainer Group Holdings Ltd. | 276 | ||||||
30 | Titan International, Inc. | 321 | ||||||
10 | Toro Co. | 620 | ||||||
188 | Watts Water Technologies, Inc. | 11,896 | ||||||
199,474 | ||||||||
Commercial and Professional Services - 2.8% | ||||||||
14 | Deluxe Corp. | 890 | ||||||
10 | Exponent, Inc. | 800 | ||||||
13 | Gategroup Holding AG | 367 | ||||||
19 | GP Strategies Corp. ● | 643 | ||||||
29 | Heritage Crystal Clean, Inc. ● | 354 | ||||||
19 | On Assignment, Inc. ● | 640 | ||||||
530 | Trinet Group, Inc. ● | 16,579 | ||||||
383 | TrueBlue, Inc. ● | 8,525 | ||||||
172 | Wageworks, Inc. ● | 11,097 | ||||||
39,895 | ||||||||
Consumer Durables and Apparel - 3.3% | ||||||||
15 | Arctic Cat, Inc. | 533 | ||||||
8 | iRobot Corp. ● | 282 | ||||||
428 | Kate Spade & Co. ● | 13,697 | ||||||
14 | LGI Homes, Inc. ● | 203 | ||||||
11 | M/I Schottenstein Homes, Inc. ● | 263 | ||||||
24 | New Home (The) Co., Inc. ● | 350 | ||||||
8 | Oxford Industries, Inc. | 414 | ||||||
2,514 | Samsonite International S.A. | 7,450 | ||||||
110 | Skechers USA, Inc. Class A ● | 6,102 | ||||||
813 | Standard-Pacific Corp. ● | 5,929 | ||||||
23 | Steven Madden Ltd. ● | 747 | ||||||
18 | Taylor Morrison Home Corp. ● | 334 | ||||||
364 | Vince Holding Corp. ● | 9,528 | ||||||
45,832 | ||||||||
Consumer Services - 4.9% | ||||||||
298 | Bloomin' Brands, Inc. ● | 7,388 | ||||||
11 | Brinker International, Inc. | 667 | ||||||
59 | Buffalo Wild Wings, Inc. ● | 10,571 | ||||||
34 | Del Frisco's Restaurant Group, Inc. ● | 809 | ||||||
743 | Diamond Resorts International, Inc. ● | 20,741 | ||||||
29 | Ignite Restaurant Group, Inc. ● | 232 | ||||||
11 | Marriott Vacations Worldwide Corp. | 783 | ||||||
95 | Panera Bread Co. Class A ● | 16,575 | ||||||
136 | Red Robin Gourmet Burgers, Inc. ● | 10,466 | ||||||
68,232 | ||||||||
Diversified Financials - 3.8% | ||||||||
9 | Alaris Royalty Corp. | 275 | ||||||
10 | Evercore Partners, Inc. | 500 | ||||||
155 | Financial Engines, Inc. | 5,670 | ||||||
466 | HFF, Inc. | 16,738 | ||||||
5 | Marcus & Millichap, Inc. ● | 167 | ||||||
731 | Platform Specialty Products Corp. ● | 16,966 | ||||||
4 | PRA Group, Inc. ● | 258 | ||||||
22 | Regional Management Corp. ● | 345 | ||||||
504 | Wisdomtree Investment, Inc. ● | 7,902 | ||||||
348 | WL Ross Holding Corp. ● | 3,990 | ||||||
52,811 | ||||||||
Energy - 1.9% | ||||||||
55 | Abraxas Petroleum Corp. ● | 161 | ||||||
12 | C&J Energy Services, Inc. ● | 163 | ||||||
1 | Contango ORE, Inc. ● | 39 | ||||||
168 | Diamondback Energy, Inc. ● | 10,056 | ||||||
14 | Forum Energy Technologies, Inc. ● | 286 | ||||||
21 | Jones Energy, Inc. ● | 238 | ||||||
121 | Karoon Gas Australia Ltd. ● | 237 | ||||||
12 | PBF Energy, Inc. | 312 |
The accompanying notes are an integral part of these financial statements.
5 |
Hartford Small Company HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount | Market Value ╪ | |||||||
Common Stocks - 95.9% - (continued) | ||||||||
Energy - 1.9% - (continued) | ||||||||
12 | Rosetta Resources, Inc. ● | $ | 270 | |||||
194 | RPC, Inc. | 2,528 | ||||||
446 | RSP Permian, Inc. ● | 11,225 | ||||||
52 | Superior Drilling Products I ● | 215 | ||||||
21 | Synergy Resources Corp. ● | 261 | ||||||
25,991 | ||||||||
Food and Staples Retailing - 0.2% | ||||||||
14 | Casey's General Stores, Inc. | 1,284 | ||||||
8 | Diplomat Pharmacy, Inc. ● | 212 | ||||||
25 | Natural Grocers by Vitamin Cottage, Inc. ● | 700 | ||||||
7 | PriceSmart, Inc. | 626 | ||||||
2,822 | ||||||||
Food, Beverage and Tobacco - 0.7% | ||||||||
12 | Darling Ingredients, Inc. ● | 227 | ||||||
23 | Diamond Foods, Inc. ● | 654 | ||||||
14 | Freshpet, Inc. ● | 231 | ||||||
687 | Sunopta, Inc. ● | 8,144 | ||||||
11 | TreeHouse Foods, Inc. ● | 960 | ||||||
10,216 | ||||||||
Health Care Equipment and Services - 9.3% | ||||||||
268 | Acadia Healthcare Co., Inc. ● | 16,411 | ||||||
8 | Anika Therapeutics, Inc. ● | 311 | ||||||
2 | Atrion Corp. | 556 | ||||||
30 | CareTrust REIT, Inc. ● | 372 | ||||||
15 | Corvel Corp. ● | 540 | ||||||
10 | Cyberonics, Inc. ● | 556 | ||||||
402 | Dexcom, Inc. ● | 22,127 | ||||||
459 | Endologix, Inc. ● | 7,018 | ||||||
7 | Ensign Group, Inc. | 304 | ||||||
463 | Envision Healthcare Holdings ● | 16,060 | ||||||
298 | Examworks Group, Inc. ● | 12,375 | ||||||
49 | Globus Medical, Inc. ● | 1,167 | ||||||
26 | HealthSouth Corp. | 1,007 | ||||||
178 | Heartware International, Inc. ● | 13,071 | ||||||
9 | ICU Medical, Inc. ● | 742 | ||||||
359 | Insulet Corp. ● | 16,536 | ||||||
4 | MEDNAX, Inc. ● | 258 | ||||||
8 | Natus Medical, Inc. ● | 305 | ||||||
19 | Omnicell, Inc. ● | 634 | ||||||
17 | Team Health Holdings ● | 992 | ||||||
19 | U.S. Physical Therapy, Inc. | 785 | ||||||
29 | Vascular Solutions, Inc. ● | 774 | ||||||
657 | Veeva Systems, Inc. ● | 17,364 | ||||||
9 | Wellcare Health Plans, Inc. ● | 745 | ||||||
131,010 | ||||||||
Household and Personal Products - 0.5% | ||||||||
23 | Prestige Brands Holdings, Inc. ● | 803 | ||||||
72 | Spectrum Brands Holdings, Inc. | 6,866 | ||||||
7,669 | ||||||||
Insurance - 0.8% | ||||||||
17 | Amerisafe, Inc. | 728 | ||||||
393 | Assured Guaranty Ltd. | 10,203 | ||||||
27 | James River Group Holdings Ltd. ● | 607 | ||||||
4 | Phoenix Cos., Inc. ● | 261 | ||||||
11,799 | ||||||||
Materials - 3.5% | ||||||||
12 | Advanced Emissions Solutions, Inc. ● | 273 | ||||||
11 | Cabot Corp. | 475 | ||||||
82 | Eagle Materials, Inc. | 6,199 | ||||||
1,330 | Graphic Packaging Holding Co. ● | 18,108 | ||||||
3 | Haynes International, Inc. | 136 | ||||||
1,069 | Headwaters, Inc. ● | 16,020 | ||||||
165 | KapStone Paper & Packaging Corp. ● | 4,825 | ||||||
20 | Myers Industries, Inc. | 348 | ||||||
30 | New Gold, Inc. ● | 129 | ||||||
57 | Omnova Solutions, Inc. ● | 464 | ||||||
29 | Orion Engineered Carbons S. A. ● | 492 | ||||||
8 | Philbro Animal Health Corp.-A | 259 | ||||||
24 | PolyOne Corp. | 902 | ||||||
12 | Silgan Holdings, Inc. | 643 | ||||||
49,273 | ||||||||
Media - 2.3% | ||||||||
596 | Imax Corp. ● | 18,401 | ||||||
196 | Shutterstock, Inc. ● | 13,509 | ||||||
104 | Speed Commerce, Inc. ● | 320 | ||||||
32,230 | ||||||||
Pharmaceuticals, Biotechnology and Life Sciences - 8.1% | ||||||||
20 | Acorda Therapeutics, Inc. ● | 815 | ||||||
193 | Aerie Pharmaceuticals, Inc. ● | 5,629 | ||||||
68 | Agios Pharmaceuticals, Inc. ● | 7,613 | ||||||
17 | Albany Molecular Research, Inc. ● | 275 | ||||||
16 | Alkermes plc ● | 947 | ||||||
97 | Alnylam Pharmaceuticals, Inc. ● | 9,457 | ||||||
312 | Anacor Pharmaceuticals, Inc. ● | 10,067 | ||||||
89 | Arena Pharmaceuticals, Inc. ● | 308 | ||||||
— | Bellicum Pharmaceuticals, Inc. ● | 4 | ||||||
712 | BioCryst Pharmaceuticals, Inc. ● | 8,659 | ||||||
32 | Bruker Corp. ● | 629 | ||||||
39 | Cara Therapeutics, Inc. ● | 391 | ||||||
119 | Cepheid, Inc. ● | 6,424 | ||||||
17 | Dicerna Pharmaceuticals, Inc. ● | 275 | ||||||
17 | Five Prime Therapeutics, Inc. ● | 459 | ||||||
17 | Glycomimetics, Inc. ● | 122 | ||||||
16 | Hyperion Therapeutics, Inc. ● | 379 | ||||||
179 | Intersect ENT, Inc. ● | 3,314 | ||||||
412 | Ironwood Pharmaceuticals, Inc. ● | 6,311 | ||||||
26 | Medicines Co. ● | 715 | ||||||
416 | NPS Pharmaceuticals, Inc. ● | 14,885 | ||||||
15 | PAREXEL International Corp. ● | 837 | ||||||
339 | Portola Pharmaceuticals, Inc. ● | 9,603 | ||||||
219 | PTC Therapeutics, Inc. ● | 11,321 | ||||||
3 | Puma Biotechnology, Inc. ● | 614 | ||||||
327 | Tesaro, Inc. ● | 12,168 | ||||||
51 | Trevana, Inc. ● | 305 | ||||||
8 | Ultragenyx Pharmaceutical, Inc. ● | 335 | ||||||
67 | Xenoport, Inc. ● | 588 | ||||||
11 | Zafgen, Inc. ● | 339 | ||||||
113,788 | ||||||||
Real Estate - 3.7% | ||||||||
11 | Altisource Residential Corp. | 217 | ||||||
32 | Arbor Realty Trust | 219 | ||||||
25 | Armada Hoffler Properties, Inc. | 237 | ||||||
14 | Coresite Realty Corp. REIT | 541 | ||||||
570 | Kennedy-Wilson Holdings, Inc. | 14,409 | ||||||
24 | Medical Properties Trust, Inc. REIT | 335 | ||||||
773 | Paramount Group, Inc. | 14,366 | ||||||
226 | Pebblebrook Hotel Trust REIT | 10,326 | ||||||
21 | Ramco-Gershenson Properties Trust REIT | 385 | ||||||
12 | Stag Industrial, Inc. REIT | 303 | ||||||
21 | Summit Hotel Properties, Inc. REIT | 259 |
The accompanying notes are an integral part of these financial statements.
6 |
Hartford Small Company HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount | Market Value ╪ | |||||||
Common Stocks - 95.9% - (continued) | ||||||||
Real Estate - 3.7% - (continued) | ||||||||
44 | Sunstone Hotel Investors, Inc. REIT | $ | 722 | |||||
89 | Zillow, Inc. ● | 9,402 | ||||||
51,721 | ||||||||
Retailing - 4.2% | ||||||||
5,016 | Allstar Co. ⌂●† | 5,183 | ||||||
13 | Core-Mark Holding Co., Inc. | 833 | ||||||
259 | CST Brands, Inc. | 11,299 | ||||||
4 | Destination Maternity Corp. | 58 | ||||||
20 | DSW, Inc. | 736 | ||||||
18 | Express, Inc. ● | 270 | ||||||
10 | Finish Line (The), Inc. | 249 | ||||||
18 | Five Below, Inc. ● | 734 | ||||||
175 | HSN, Inc. | 13,272 | ||||||
51 | Pier 1 Imports, Inc. | 780 | ||||||
14 | Shoe Carnival, Inc. | 371 | ||||||
105 | Tory Burch LLC ⌂●† | 6,209 | ||||||
441 | Tuesday Morning Corp. ● | 9,568 | ||||||
17 | Wayfair, Inc. ● | 329 | ||||||
416 | Zulily, Inc. ● | 9,744 | ||||||
59,635 | ||||||||
Semiconductors and Semiconductor Equipment - 2.7% | ||||||||
32 | Exar Corp. ● | 326 | ||||||
292 | Freescale Semiconductor Holdings Ltd. ● | 7,367 | ||||||
18 | Inphi Corp. ● | 327 | ||||||
15 | Integrated Silicon Solution, Inc. | 256 | ||||||
24 | Nanometrics, Inc. ● | 406 | ||||||
214 | Power Integrations, Inc. | 11,055 | ||||||
23 | Rambus, Inc. ● | 259 | ||||||
15 | SunEdison Semiconductor Ltd. ● | 284 | ||||||
531 | SunEdison, Inc. ● | 10,364 | ||||||
287 | SunPower Corp. ● | 7,410 | ||||||
11 | Ultratech Stepper, Inc. ● | 213 | ||||||
38,267 | ||||||||
Software and Services - 17.0% | ||||||||
19 | Aspen Technology, Inc. ● | 675 | ||||||
22 | Bankrate, Inc. ● | 270 | ||||||
7 | CACI International, Inc. Class A ● | 641 | ||||||
32 | Carbonite, Inc. ● | 458 | ||||||
13 | Cass Information Systems, Inc. | 682 | ||||||
425 | Constant Contact, Inc. ● | 15,590 | ||||||
70 | CoStar Group, Inc. ● | 12,825 | ||||||
10 | CSG Systems International, Inc. | 253 | ||||||
9 | Cvent, Inc. ● | 257 | ||||||
196 | DealerTrack Technologies, Inc. ● | 8,707 | ||||||
170 | Demandware, Inc. ● | 9,806 | ||||||
4 | Digimarc Corp. | 108 | ||||||
28 | Ellie Mae, Inc. ● | 1,138 | ||||||
152 | Envestnet, Inc. ● | 7,447 | ||||||
15 | ePlus, Inc. ● | 1,171 | ||||||
31 | Everyday Health, Inc. ● | 463 | ||||||
35 | Exlservice Holdings, Inc. ● | 995 | ||||||
13 | Fair Isaac, Inc. | 954 | ||||||
64 | Five9, Inc. ● | 285 | ||||||
288 | Fleetmatics Group Ltd. ● | 10,211 | ||||||
52 | Global Cash Access, Inc. ● | 371 | ||||||
254 | Heartland Payment Systems, Inc. | 13,728 | ||||||
143 | Hubspot, Inc. ● | 4,799 | ||||||
21 | j2 Global, Inc. | 1,296 | ||||||
28 | Kofax Ltd. ● | 199 | ||||||
26 | Manhattan Associates, Inc. ● | 1,077 | ||||||
58 | Marchex, Inc. | 268 | ||||||
417 | Marketo, Inc. ● | 13,634 | ||||||
296 | Markit Ltd. ● | 7,826 | ||||||
200 | MAXIMUS, Inc. | 10,991 | ||||||
45 | Model N, Inc. ● | 477 | ||||||
14 | Netscout Systems, Inc. ● | 510 | ||||||
35 | New Relic, Inc. ● | 1,208 | ||||||
14 | Nuance Communications, Inc. ● | 199 | ||||||
21 | Perficient, Inc. ● | 398 | ||||||
25 | PTC, Inc. ● | 926 | ||||||
6 | Q2 Holdings, Inc. ● | 115 | ||||||
14 | Qualys, Inc. ● | 515 | ||||||
39 | Sapient Corp. ● | 960 | ||||||
13 | SeaChange International, Inc. ● | 82 | ||||||
14 | Solera Holdings, Inc. | 733 | ||||||
32 | Tangoe, Inc. �� | 411 | ||||||
7 | Textura Corp. ● | 204 | ||||||
612 | TrueCar, Inc. ● | 14,016 | ||||||
173 | Tyler Corp. ● | 18,979 | ||||||
334 | Verint Systems, Inc. ● | 19,467 | ||||||
397 | Virtusa Corp. ● | 16,524 | ||||||
14 | WebMD Health Corp. ● | 540 | ||||||
112 | WEX, Inc. ● | 11,088 | ||||||
643 | WNS Holdings Ltd. ADR ● | 13,276 | ||||||
180 | Yelp, Inc. ● | 9,877 | ||||||
88 | Zix Corp. ● | 318 | ||||||
237,948 | ||||||||
Technology Hardware and Equipment - 5.1% | ||||||||
107 | Arista Networks, Inc. ● | 6,480 | ||||||
28 | Aruba Networks, Inc. ● | 504 | ||||||
27 | Calix, Inc. ● | 269 | ||||||
20 | CDW Corp. of Delaware | 689 | ||||||
14 | Ciena Corp. ● | 263 | ||||||
401 | Cognex Corp. ● | 16,553 | ||||||
9 | FEI Co. | 774 | ||||||
37 | Mitel Networks Corp. ● | 400 | ||||||
756 | Mobileye N.V. ⌂●† | 30,184 | ||||||
335 | Nimble Storage, Inc. ● | 9,217 | ||||||
140 | ParkerVision, Inc. ● | 127 | ||||||
215 | Ubiquiti Networks, Inc. | 6,386 | ||||||
71,846 | ||||||||
Telecommunication Services - 0.0% | ||||||||
9 | Shenandoah Telecommunications Co. | 272 | ||||||
Transportation - 4.6% | ||||||||
35 | Celadon Group, Inc. | 792 | ||||||
213 | Landstar System, Inc. | 15,423 | ||||||
17 | Marten Transport Ltd. | 368 | ||||||
203 | Old Dominion Freight Line, Inc. ● | 15,783 | ||||||
5 | Park-Ohio Holdings Corp. | 321 | ||||||
151 | Spirit Airlines, Inc. ● | 11,388 | ||||||
686 | Swift Transportation Co. ● | 19,640 | ||||||
1,069 | Telogis, Inc. ⌂●† | 535 | ||||||
64,250 | ||||||||
Utilities - 0.1% | ||||||||
4 | ALLETE, Inc. | 235 | ||||||
9 | Pattern Energy Group, Inc. | 214 |
The accompanying notes are an integral part of these financial statements.
7 |
Hartford Small Company HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount | Market Value ╪ | |||||||||||
Common Stocks - 95.9% - (continued) | ||||||||||||
Utilities - 0.1% - (continued) | ||||||||||||
18 | Spark Energy, Inc. ● | $ | 254 | |||||||||
703 | ||||||||||||
Total Common Stocks | ||||||||||||
( Cost $1,159,561) | $ | 1,345,653 | ||||||||||
Preferred Stocks - 1.9% | ||||||||||||
Consumer Durables and Apparel - 0.4% | ||||||||||||
170 | Cloudera, Inc. ⌂●† | $ | 5,049 | |||||||||
4 | William Lyon Homes, Inc. ● | 408 | ||||||||||
5,457 | ||||||||||||
Pharmaceuticals, Biotechnology and Life Sciences - 0.0% | ||||||||||||
92 | Sancilio & Co., Inc. ⌂●† | 314 | ||||||||||
Software and Services - 0.7% | ||||||||||||
1,394 | Apigee Corp. ⌂●† | 4,600 | ||||||||||
207 | Nutanix, Inc. ⌂●† | 2,494 | ||||||||||
157 | Veracode, Inc. ⌂●† | 3,364 | ||||||||||
10,458 | ||||||||||||
Technology Hardware and Equipment - 0.2% | ||||||||||||
197 | Pure Storage, Inc. ⌂●† | 2,788 | ||||||||||
Telecommunication Services - 0.2% | ||||||||||||
133 | DocuSign, Inc. ⌂●† | 2,170 | ||||||||||
2,170 | ||||||||||||
Transportation - 0.4% | ||||||||||||
1,456 | Telogis, Inc. ⌂●† | 5,840 | ||||||||||
Total Preferred Stocks | ||||||||||||
(Cost $20,989) | $ | 27,027 | ||||||||||
Total Long-Term Investments | ||||||||||||
(Cost $1,180,550) | $ | 1,372,680 | ||||||||||
Short-Term Investments - 2.0% | ||||||||||||
Repurchase Agreements - 2.0% | ||||||||||||
Bank of America Merrill Lynch Repurchase Agreement (maturing on 01/02/2015 in the amount of $27, collateralized by U.S. Treasury Note 0.75%, 2018, value of $27) | ||||||||||||
$ | 27 | 0.05%, 12/31/2014 | $ | 27 | ||||||||
Bank of America Merrill Lynch TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $136, collateralized by U.S. Treasury Note 2.50%, 2024, value of $139) | ||||||||||||
136 | 0.07%, 12/31/2014 | 136 | ||||||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $3,556, collateralized by U.S. Treasury Bond 3.88% - 5.25%, 2029 - 2040, U.S. Treasury Note 0.25% - 4.63%, 2015 - 2022, value of $3,627) | ||||||||||||
3,556 | 0.06%, 12/31/2014 | 3,556 | ||||||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $1,549, collateralized by FHLMC 2.00% - 5.50%, 2019 - 2044, FNMA 2.00% - 4.00%, 2024 - 2042, GNMA 3.00%, 2043, U.S. Treasury Bill 0.07%, 2015, value of $1,580) | ||||||||||||
1,549 | 0.07%, 12/31/2014 | 1,549 | ||||||||||
Barclays Capital TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $3,808, collateralized by U.S. Treasury Bond 3.63%, 2043, U.S. Treasury Note 0.88% - 2.00%, 2017 - 2020, value of $3,884) | ||||||||||||
3,808 | 0.05%, 12/31/2014 | 3,808 | ||||||||||
Citigroup Global Markets, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $6,806, collateralized by U.S. Treasury Bond 3.63% - 9.88%, 2015 - 2043, U.S. Treasury Note 0.25% - 2.75%, 2015 - 2022, value of $6,942) | ||||||||||||
6,806 | 0.06%, 12/31/2014 | 6,806 | ||||||||||
Deutsche Bank Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $1,105, collateralized by FHLMC 2.00% - 10.50%, 2015 - 2047, FNMA 2.00% - 9.50%, 2015 - 2049, GNMA 2.50% - 10.00%, 2016 - 2055, value of $1,127) | ||||||||||||
1,105 | 0.12%, 12/31/2014 | 1,105 | ||||||||||
RBS Securities, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $290, collateralized by U.S. Treasury Note 0.38% - 2.13%, 2015 - 2016, value of $296) | ||||||||||||
290 | 0.07%, 12/31/2014 | 290 | ||||||||||
Societe Generale TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $3,238, collateralized by U.S. Treasury Bond 8.75%, 2020, U.S. Treasury Note 0.25% - 2.88%, 2015 - 2022, value of $3,303) | ||||||||||||
3,238 | 0.07%, 12/31/2014 | 3,238 | ||||||||||
TD Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $6,935, collateralized by FHLMC 3.00% - 4.00%, 2026 - 2044, FNMA 2.50% - 5.00%, 2025 - 2044, value of $7,074) | ||||||||||||
6,935 | 0.08%, 12/31/2014 | 6,935 | ||||||||||
27,450 | ||||||||||||
Total Short-Term Investments | ||||||||||||
(Cost $27,450) | $ | 27,450 | ||||||||||
Total Investments | ||||||||||||
(Cost $1,208,000) ▲ | 99.8 | % | $ | 1,400,130 | ||||||||
Other Assets and Liabilities | 0.2 | % | 3,202 | |||||||||
Total Net Assets | 100.0 | % | $ | 1,403,332 |
The accompanying notes are an integral part of these financial statements.
8 |
Hartford Small Company HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Note: Percentage of investments as shown is the ratio of the total market value to total net assets.
Prices of foreign equities that are principally traded on certain foreign markets may be adjusted daily pursuant to a fair value pricing service approved by the Board of Directors in order to reflect an adjustment for factors occurring after the close of certain foreign markets but before the close of the New York Stock Exchange. | |
Equity industry classifications used in this report are the Global Industry Classification Standard, which was developed by and is the exclusive property and service mark of MSCI, Inc. and Standard & Poor’s. | |
For Fund compliance purposes, the Fund may not use the same classification system shown in this report as these classifications are used for reporting ease. |
▲ | At December 31, 2014, the cost of securities for federal income tax purposes was $1,213,422 and the aggregate gross unrealized appreciation and depreciation based on that cost were: |
Unrealized Appreciation | $ | 229,469 | ||
Unrealized Depreciation | (42,761 | ) | ||
Net Unrealized Appreciation | $ | 186,708 |
† | These securities were valued in good faith at fair value as determined under policies and procedures established by and under the supervision of the Board of Directors. At December 31, 2014, the aggregate fair value of these securities was $68,730, which represents 4.9% of total net assets. This amount excludes securities that are principally traded in certain foreign markets and whose prices are adjusted pursuant to a third party pricing service methodology approved by the Board of Directors. |
● | Non-income producing. |
⌂ | The following securities are considered illiquid. Illiquid securities are often purchased in private placement transactions, are often not registered under the Securities Act of 1933, as amended, and may have contractual restrictions on resale. Illiquid securities may lack a readily available market or their valuation has not changed for a certain period of time. |
Period Acquired | Shares/ Par | Security | Cost Basis | |||||||
08/2011 | 5,016 | Allstar Co. | $ | 2,182 | ||||||
04/2014 | 1,394 | Apigee Corp. Preferred | 4,056 | |||||||
02/2014 | 170 | Cloudera, Inc. Preferred | 2,475 | |||||||
02/2014 | 133 | DocuSign, Inc. Preferred | 1,753 | |||||||
08/2013 | 756 | Mobileye N.V. | 5,273 | |||||||
08/2014 | 207 | Nutanix, Inc. Preferred | 2,772 | |||||||
04/2014 | 197 | Pure Storage, Inc. Preferred | 3,098 | |||||||
05/2014 | 92 | Sancilio & Co., Inc. Preferred | 349 | |||||||
09/2013 | 1,456 | Telogis, Inc. Preferred | 3,206 | |||||||
09/2013 | 1,069 | Telogis, Inc. | 2,119 | |||||||
11/2013 | 105 | Tory Burch LLC | 8,228 | |||||||
08/2014 | 157 | Veracode, Inc. Preferred | 2,900 |
At December 31, 2014, the aggregate value of these securities was $68,730, which represents 4.9% of total net assets. |
Foreign Currency Contracts Outstanding at December 31, 2014
Unrealized Appreciation/(Depreciation) | ||||||||||||||||||||||||
Currency | Buy / Sell | Delivery Date | Counterparty | Contract Amount | Market Value ╪ | Asset | Liability | |||||||||||||||||
CAD | Sell | 01/02/2015 | UBS | $ | 18 | $ | 18 | $ | – | $ | – |
╪ | See Significant Accounting Policies of accompanying Notes to Financial Statements regarding valuation of securities. |
The accompanying notes are an integral part of these financial statements.
9 |
Hartford Small Company HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
GLOSSARY: (abbreviations used in preceding Schedule of Investments) | ||
Counterparty Abbreviations: | ||
UBS | UBS AG | |
Currency Abbreviations: | ||
CAD | Canadian Dollar | |
Other Abbreviations: | ||
ADR | American Depositary Receipt | |
FHLMC | Federal Home Loan Mortgage Corp. | |
FNMA | Federal National Mortgage Association | |
GNMA | Government National Mortgage Association | |
REIT | Real Estate Investment Trust |
The accompanying notes are an integral part of these financial statements.
10 |
Hartford Small Company HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Investment Valuation Hierarchy Level Summary
December 31, 2014
Total | Level 1 ♦ | Level 2 ♦ | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Common Stocks ‡ | $ | 1,345,653 | $ | 1,295,488 | $ | 8,054 | $ | 42,111 | ||||||||
Preferred Stocks | 27,027 | 408 | – | 26,619 | ||||||||||||
Short-Term Investments | 27,450 | – | 27,450 | �� | ||||||||||||
Total | $ | 1,400,130 | $ | 1,295,896 | $ | 35,504 | $ | 68,730 | ||||||||
Liabilities: | ||||||||||||||||
Foreign Currency Contracts * | $ | – | $ | – | $ | – | $ | – | ||||||||
Total | $ | – | $ | – | $ | – | $ | – |
♦ | For the year ended December 31, 2014, investments valued at $475 were transferred from Level 1 to Level 2, and investments valued at $208 were transferred from Level 2 to Level 1. Investments are transferred between Level 1 and Level 2 for a variety of reasons including, but not limited to: |
1) | Foreign equities for which a fair value price is more representative of exit value than the local market close (transfer into Level 2). Foreign equities for which the local market close is more representative of exit value (transfer into Level 1). | |
2) | U.S. Treasury securities that no longer represent the most recent issue (transfer into Level 2). | |
3) | Equity investments with no observable trading but a bid or mean price is used (transfer into Level 2). Equity investments using observable quoted prices in an active market (transfer into Level 1). |
‡ | The Fund has all or primarily all of the equity securities categorized in a particular level. Refer to the Schedule of Investments for further industry breakout. |
* | Derivative instruments (excluding purchased and written options, if applicable) are valued at the unrealized appreciation/depreciation on the investments. |
Following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
Balance as of December 31, 2013 | Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Net Amortization | Purchases | Sales | Transfers Into Level 3 * | Transfers Out of Level 3 * | Balance as of December 31, 2014 | ||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||
Common Stocks | $ | 26,780 | $ | 767 | $ | 15,966 | † | $ | — | $ | — | $ | (2,536 | ) | $ | 1,134 | $ | — | $ | 42,111 | ||||||||||||||||
Preferred Stocks | 2,885 | — | 6,331 | ‡ | — | 17,403 | — | — | — | 26,619 | ||||||||||||||||||||||||||
Total | $ | 29,665 | $ | 767 | $ | 22,297 | $ | — | $ | 17,403 | $ | (2,536 | ) | $ | 1,134 | $ | — | $ | 68,730 |
* | Investments are transferred into and out of Level 3 for a variety of reasons including, but not limited to: |
1) | Investments where trading has been halted (transfer into Level 3) or investments where trading has resumed (transfer out of Level 3). | |
2) | Broker quoted investments (transfer into Level 3) or quoted prices in active markets (transfer out of Level 3). | |
3) | Investments that have certain restrictions on trading (transfer into Level 3) or investments where trading restrictions have expired (transfer out of Level 3). |
† | Change in unrealized appreciation (depreciation) in the current period relating to assets still held at December 31, 2014 was $16,113. |
‡ | Change in unrealized appreciation (depreciation) in the current period relating to assets still held at December 31, 2014 was $6,331. |
Note: | For purposes of reporting transfers between different hierarchy levels, both transfers in and out of each level, as applicable, are shown as if they occurred at the beginning of the period. |
The accompanying notes are an integral part of these financial statements.
11 |
Hartford Small Company HLS Fund |
Statement of Assets and Liabilities |
December 31, 2014 |
(000’s Omitted) |
Assets: | ||||
Investments in securities, at market value (cost $1,208,000) | $ | 1,400,130 | ||
Cash | 265 | |||
Receivables: | ||||
Investment securities sold | 18,732 | |||
Fund shares sold | 2,598 | |||
Dividends and interest | 283 | |||
Other assets | — | |||
Total assets | 1,422,008 | |||
Liabilities: | ||||
Unrealized depreciation on foreign currency contracts | — | |||
Payables: | ||||
Investment securities purchased | 5,267 | |||
Fund shares redeemed | 13,122 | |||
Investment management fees | 212 | |||
Distribution fees | 7 | |||
Accrued expenses | 68 | |||
Total liabilities | 18,676 | |||
Net assets | $ | 1,403,332 | ||
Summary of Net Assets: | ||||
Capital stock and paid-in-capital | $ | 959,524 | ||
Undistributed net investment income | — | |||
Accumulated net realized gain | 251,678 | |||
Unrealized appreciation of investments and the translations of assets and liabilities denominated in foreign currency | 192,130 | |||
Net assets | $ | 1,403,332 | ||
Shares authorized | 1,500,000 | |||
Par value | $ | 0.001 | ||
Class IA: Net asset value per share | $ | 23.33 | ||
Shares outstanding | 54,843 | |||
Net assets | $ | 1,279,533 | ||
Class IB: Net asset value per share | $ | 22.24 | �� | |
Shares outstanding | 5,566 | |||
Net assets | $ | 123,799 |
The accompanying notes are an integral part of these financial statements.
12 |
Hartford Small Company HLS Fund |
Statement of Operations |
For the Year Ended December 31, 2014 |
(000’s Omitted) |
Investment Income: | ||||
Dividends | $ | 5,036 | ||
Interest | 11 | |||
Less: Foreign tax withheld | (31 | ) | ||
Total investment income, net | 5,016 | |||
Expenses: | ||||
Investment management fees | 9,756 | |||
Transfer agent fees | 7 | |||
Distribution fees - Class IB | 330 | |||
Custodian fees | 14 | |||
Accounting services fees | 173 | |||
Board of Directors' fees | 37 | |||
Audit fees | 23 | |||
Other expenses | 189 | |||
Total expenses (before fees paid indirectly) | 10,529 | |||
Commission recapture | (79 | ) | ||
Custodian fee offset | — | |||
Total fees paid indirectly | (79 | ) | ||
Total expenses, net | 10,450 | |||
Net Investment Loss | (5,434 | ) | ||
Net Realized Gain on Investments, Other Financial Instruments and Foreign Currency Transactions: | ||||
Net realized gain on investments | 260,702 | |||
Net realized gain on futures contracts | 8 | |||
Net realized gain on foreign currency contracts | 51 | |||
Net realized loss on other foreign currency transactions | (48 | ) | ||
Net Realized Gain on Investments, Other Financial Instruments and Foreign Currency Transactions | 260,713 | |||
Net Changes in Unrealized Depreciation of Investments and Foreign Currency Transactions: | ||||
Net unrealized depreciation of investments | (161,617 | ) | ||
Net unrealized depreciation of foreign currency contracts | (1 | ) | ||
Net unrealized appreciation on translation of other assets and liabilities in foreign currencies | 1 | |||
Net Changes in Unrealized Depreciation of Investments and Foreign Currency Transactions | (161,617 | ) | ||
Net Gain on Investments, Other Financial Instruments and Foreign Currency Transactions | 99,096 | |||
Net Increase in Net Assets Resulting from Operations | $ | 93,662 |
The accompanying notes are an integral part of these financial statements.
13 |
Hartford Small Company HLS Fund |
Statement of Changes in Net Assets |
(000’s Omitted) |
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Operations: | ||||||||
Net investment loss | $ | (5,434 | ) | $ | (4,239 | ) | ||
Net realized gain on investments, other financial instruments and foreign currency transactions | 260,713 | 258,213 | ||||||
Net unrealized appreciation (depreciation) of investments | (161,617 | ) | 244,341 | |||||
Net Increase in Net Assets Resulting from Operations | 93,662 | 498,315 | ||||||
Distributions to Shareholders: | ||||||||
From net investment income | ||||||||
Class IA | — | (1,038 | ) | |||||
Total from net investment income | — | (1,038 | ) | |||||
From net realized gain on investments | ||||||||
Class IA | (226,747 | ) | (89,056 | ) | ||||
Class IB | (23,621 | ) | (9,991 | ) | ||||
Total from net realized gain on investments | (250,368 | ) | (99,047 | ) | ||||
Total distributions | (250,368 | ) | (100,085 | ) | ||||
Capital Share Transactions: | ||||||||
Class IA | ||||||||
Sold | 174,343 | 161,148 | ||||||
Issued on reinvestment of distributions | 226,747 | 90,094 | ||||||
Redeemed | (335,078 | ) | (383,841 | ) | ||||
Total capital share transactions | 66,012 | (132,599 | ) | |||||
Class IB | ||||||||
Sold | 16,295 | 27,421 | ||||||
Issued on reinvestment of distributions | 23,621 | 9,991 | ||||||
Redeemed | (42,502 | ) | (49,914 | ) | ||||
Total capital share transactions | (2,586 | ) | (12,502 | ) | ||||
Net increase (decrease) from capital share transactions | 63,426 | (145,101 | ) | |||||
Net Increase (Decrease) in Net Assets | (93,280 | ) | 253,129 | |||||
Net Assets: | ||||||||
Beginning of period | 1,496,612 | 1,243,483 | ||||||
End of period | $ | 1,403,332 | $ | 1,496,612 | ||||
Undistributed (distributions in excess of) net investment income | $ | — | $ | (134 | ) | |||
Shares: | ||||||||
Class IA | ||||||||
Sold | 6,961 | 6,827 | ||||||
Issued on reinvestment of distributions | 10,087 | 3,820 | ||||||
Redeemed | (13,472 | ) | (16,433 | ) | ||||
Total share activity | 3,576 | (5,786 | ) | |||||
Class IB | ||||||||
Sold | 674 | 1,220 | ||||||
Issued on reinvestment of distributions | 1,101 | 439 | ||||||
Redeemed | (1,777 | ) | (2,236 | ) | ||||
Total share activity | (2 | ) | (577 | ) |
The accompanying notes are an integral part of these financial statements.
14 |
Hartford Small Company HLS Fund |
Notes to Financial Statements |
December 31, 2014 |
(000’s Omitted) |
Organization:
Hartford Small Company HLS Fund (the "Fund") serves as an underlying investment option for certain variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company (“HLIC”) and its affiliates and certain qualified retirement plans. The Fund may also serve as an underlying investment option for certain variable annuity and variable life separate accounts of other insurance companies. Owners of variable annuity contracts and policyholders of variable life insurance contracts may choose the funds permitted in the variable insurance contract prospectus. In addition, participants in certain qualified retirement plans may choose the Fund if permitted by their plans.
Hartford Series Fund, Inc. (the “Company”) is an open-end registered management investment company comprised of fifteen portfolios. Financial statements for the Fund, a series of the Company, are included in this report.
The Company is organized under the laws of the State of Maryland and is registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (“1940 Act”). The Fund's portfolio managers are Steven C. Angeli (91%), Mammen Chally (7%) and Jamie A. Rome (2%). The portfolio management team also includes Mario E. Abularach and Stephen Mortimer. The Fund is a diversified open-end management investment company. The Fund is an investment company and applies specialized accounting and reporting under Accounting Standards Codification Topic 946, Financial Services - Investment Companies.
The Fund is divided into Class IA and Class IB shares. Each class is offered at the per share net asset value (“NAV”) without a sales charge and is subject to the same expenses, except that the Class IB shares are subject to distribution and service fees charged pursuant to a Distribution Plan adopted in accordance with Rule 12b-1 under the 1940 Act.
Significant Accounting Policies:
The following is a summary of significant accounting policies of the Fund in the preparation of its financial statements, which are in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The preparation of financial statements in accordance with U.S. GAAP may require 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
Determination of Net Asset Value – The NAV of each class of the Fund's shares is determined as of the close of regular trading (normally 4:00 p.m. Eastern Time) (the “NYSE Close”) on each day that the New York Stock Exchange (the “Exchange”) is open (“Valuation Date”). Information that becomes known to the Fund after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the NAV determined earlier that day.
Investment Valuation and Fair Value Measurements – For purposes of calculating the NAV, portfolio investments and other assets held by the Fund's portfolio for which market quotes are readily available are valued at market value. Market value is generally determined on the basis of last reported sales prices or official close price. If no sales are reported, market value is based on quotes obtained from a quotation reporting system, established market makers, or independent pricing services. If market prices are not readily available or are deemed unreliable, the Fund will use the fair value of the investment as determined in good faith under policies and procedures established by and under the supervision of the Company's Board of Directors. Market quotes are considered not readily available where there is an absence of current or reliable market-based data (e.g., trade information or indicative market quotes), including where events occur after the close of the relevant market, but prior to the NYSE Close, that materially affect the values of the Fund's portfolio investments or assets. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the investments trade do not open for trading for the entire day and no other market prices are available. In addition, prices of foreign equities that are principally traded on certain foreign markets may be adjusted daily pursuant to a fair value pricing service approved by the Board of Directors in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close. Investments that are primarily traded on foreign markets may trade on days that are not business days of the Fund. The value of the foreign investments in which the Fund invests may change on days when a shareholder will not be able to purchase or redeem shares of the Fund. Fair value pricing is subjective in nature and the use of fair value pricing by the Fund may cause the NAV of its shares to differ significantly from the NAV that would have been calculated using market prices at the close of the exchange on which a portfolio investment is primarily
15 |
Hartford Small Company HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
traded. There can be no assurance that the Fund could obtain the fair market value assigned to an investment if the Fund were to sell the investment at approximately the time at which the Fund determines its NAV.
Exchange traded options, futures and options on futures are valued at the settlement price or last trade price determined by the relevant exchange as of the NYSE Close. If the last trade price for exchange traded options does not fall between the bid and ask prices, the value will be the mean of the bid and ask prices as of the NYSE Close. If a last trade price is not available, the value will be the mean of the bid and ask prices as of the NYSE Close. If a mean of the bid and ask prices cannot be calculated for the day, the value will be the bid price as of the NYSE Close. In the case of over-the-counter ("OTC") options and such instruments that do not trade on an exchange, values may be supplied by a pricing service using a formula or other objective method that may take into consideration the style, direction, expiration, strike price, notional value and volatility or other special adjustments.
Investments valued in currencies other than U.S. dollars are converted to U.S. dollars using exchange rates obtained from independent pricing services for calculation of the NAV. As a result, the NAV of the Fund’s shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of investments traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that the NYSE is closed and the market value may change on days when an investor is not able to purchase, redeem or exchange shares of the Fund.
Foreign currency contracts represent agreements to exchange currencies on specific future dates at predetermined rates. Foreign currency contracts are valued using foreign currency exchange rates and forward rates as provided by an independent pricing service on the Valuation Date.
Financial instruments for which prices are not available from an independent pricing service may be valued using market quotations obtained from one or more dealers that make markets in the respective financial instrument in accordance with procedures established by the Company's Board of Directors.
U.S. GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants. The U.S. GAAP fair value measurement standards require disclosure of a fair value hierarchy for each major category of assets and liabilities. Various inputs are used in determining the fair value of the Fund’s investments. These inputs are summarized into three broad hierarchy levels. This hierarchy is based on whether the valuation inputs are observable or unobservable. These levels are:
Level 1 – Quoted prices in active markets for identical investments. Level 1 may include exchange traded instruments, such as domestic equities, some foreign equities, options, futures, mutual funds, exchange traded funds, rights and warrants.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar investments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 2 may include debt investments that are traded less frequently than exchange traded instruments and which are valued using independent pricing services; foreign equities, which are principally traded on certain foreign markets and are adjusted daily pursuant to a fair value pricing service in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close; senior floating rate interests, which are valued using an aggregate of dealer bids; short-term investments, which are valued at amortized cost; and swaps, which are valued based upon the terms of each swap contract.
Level 3 – Significant unobservable inputs that are supported by limited or no market activity. Level 3 may include financial instruments whose values are determined using indicative market quotes or require significant management judgment or estimation. These unobservable valuation inputs may include estimates for current yields, maturity/duration, prepayment speed, and indicative market quotes for comparable investments along with other assumptions relating to credit quality, collateral value, complexity of the investment structure, general market conditions and liquidity. This category may include investments where trading has been halted or there are certain restrictions on trading. While these investments are priced using unobservable inputs, the valuation of these investments reflects the best available data and management believes the prices are a reasonable representation of exit price. For more information on specific valuation techniques and unobservable inputs, please see the following table titled "Quantitative Information about Level 3 Fair Value Measurements."
16 |
Hartford Small Company HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
The Board of Directors of the Company generally reviews and approves the “Procedures for Valuation of Portfolio Securities” at least once a year. These procedures define how investments are to be valued, including the formation and activities of a Valuation Committee. The Valuation Committee is responsible for determining in good faith the fair value of investments when the value cannot be obtained from primary pricing services or alternative sources or if the valuation of an investment as provided by the primary pricing service or alternative source is believed not to reflect the investment’s fair value as of the Valuation Date. Voting members of the Valuation Committee include the Fund’s Treasurer or designee and a Vice President of the investment manager or designee. An Assistant Vice President of the Fund with legal expertise or designee is also included on the Valuation Committee as a non-voting advisory member. In addition, the Fund’s Chief Compliance Officer shall designate a member of the compliance group to attend Valuation Committee meetings as a non-voting resource, to monitor for and provide guidance with respect to compliance with these procedures. Two members of the Valuation Committee or their designees, representing different departments, shall constitute a quorum for purposes of permitting the Valuation Committee to take action. The Valuation Committee will consider all relevant factors in determining an investment’s fair value, and may seek the advice of the Fund’s sub-adviser, knowledgeable brokers, and legal counsel in making such determination. The Valuation Committee reports to the Audit Committee of the Company’s Board of Directors. The Audit Committee receives quarterly written reports which include details of all fair-valued investments, including the reason for the fair valuation, and an indication, when possible, of the accuracy of the valuation by disclosing the next available reliable public price quotation or the disposition price of such investments (the “look-back” test). The Board of Directors then must consider for ratification all of the fair value determinations made during the previous quarter.
Valuation levels are not necessarily indicative of the risk associated with investing in such investments. Individual investments within any of the above mentioned asset classes may be assigned a different hierarchical level than those presented above, as individual circumstances dictate.
For additional information, refer to the Investment Valuation Hierarchy Level Summary and the Level 3 roll-forward reconciliation, if applicable, which is included in the Schedule of Investments.
Quantitative Information about Level 3 Fair Value Measurements:
Security Type/Valuation Technique | Unobservable Input * | Input Value(s) Range (Weighted Average) ‡ | Fair Value at December 31, 2014 | |||||
Assets: | ||||||||
Common Stocks | ||||||||
Intrinsic value Δ | Parity to underlying security Э | $39.95 | $ | 30,184 | ||||
Model Δ | Enterprise Value/ Last Twelve Months EBITDA | 7.32x to 8.86x | 5,183 | |||||
Model Δ | Enterprise Value/Estimated 2014 Revenue ♠ Э | 1.20x to 5.20x | 535 | |||||
Target Event Δ | Recent private transaction price Э | $59.14 | 6,209 | |||||
Date | 12/22/2014 | |||||||
Preferred Stocks | ||||||||
Cost Δ | Recent trade price | $3.40 - $14.15 ($12.62) | 5,596 | |||||
Date | 4/16/2014 - 8/25/2014 | |||||||
Model Δ | Enterprise Value/Estimated 2014 Revenue ♠ Э | 1.20x to 5.20x | 5,840 | |||||
Model Δ | Enterprise Value/Estimated 2014 Revenue | 8.20x to 14.30x | 7,964 | |||||
Model Δ | Enterprise Value/Estimated 2015 Revenue | 6.59x to 12.30x | 2,170 | |||||
Target Event Δ | Recent private transaction price | $29.70 | 5,049 | |||||
Date | 12/31/2014 | |||||||
Total | $ | 68,730 |
* | Significant changes to any unobservable inputs may result in a significant change to the fair value. | |
‡ | Unless otherwise noted, inputs were weighted based on the fair value of the investments included in the range. | |
Δ | Includes illiquidity discount of 10%. | |
♠ | The Option Pricing Method ("OPM") is used to allocate enterprise value between multiple tiers of equity. Inputs for the OPM include: | |
Volatility - 55.0% | ||
Term to Liquidity Event - 1.0 years | ||
Risk-free rate - 0.23% | ||
Э | This represents a change in methodology from prior year for this investment. |
17 |
Hartford Small Company HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Investment Transactions and Investment Income – Investment transactions are recorded as of the trade date (the date the order to buy or sell is executed) for financial reporting purposes. Investments purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Realized gains and losses are determined on the basis of identified cost.
Dividend income from domestic securities is accrued on the ex-dividend date. In general, dividend income from foreign securities is recorded on the ex-date; however, dividend notifications in certain foreign jurisdictions may not be available in a timely manner and as a result, the Fund will record the dividend as soon as the relevant details (i.e., rate per share, payment date, shareholders of record, etc.) are publicly available. Interest income, including amortization of premium, accretion of discounts, inflation adjustments and additional principal received in-kind in lieu of cash, is accrued on a daily basis.
Foreign Currency Transactions – Assets and liabilities denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates in effect on the valuation date. Purchases and sales of investments, income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions.
The Fund does not isolate that portion of portfolio investment valuation resulting from fluctuations in the foreign currency exchange rates from the fluctuations arising from changes in the market prices of investments held. Exchange rate fluctuations are included with the net realized and unrealized gain or loss on investments in the accompanying financial statements.
Net realized foreign exchange gains or losses arise from sales of foreign currencies and the difference between asset and liability amounts initially stated in foreign currencies and the U.S. dollar value of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of other assets and liabilities at the end of the reporting period, resulting from changes in the exchange rates.
Joint Trading Account – The Fund may invest cash balances into a joint trading account that may be invested in one or more repurchase agreements.
Fund Share Valuation and Dividend Distributions to Shareholders – Orders for the Fund’s shares are executed in accordance with the investment instructions of the contract holders and plan participants. The NAV of the Fund’s shares is determined as of the close of business on each business day of the Exchange. The NAV is determined separately for each class of shares of the Fund by dividing the Fund’s net assets attributable to that class by the number of shares of the class outstanding. Each class of shares offered by the Fund has equal rights as to assets and voting privileges (except that shareholders of a class have exclusive voting rights regarding any matter relating solely to that class of shares). Income and non-class specific expenses are allocated daily to each class on the basis of the relative net assets of the class. Realized and unrealized gains and losses are allocated daily based on the relative net assets of each class of shares of the Fund.
Orders for the purchase of the Fund’s shares received prior to the close of the Exchange on any day the Exchange is open for business are priced at the NAV determined as of the close of the Exchange. Orders received after the close of the Exchange, or on a day on which the Exchange and/or the Fund is not open for business, are priced at the next determined NAV.
Dividends are declared pursuant to a policy adopted by the Company's Board of Directors based upon the investment performance of the Fund. The policy of the Fund is to pay dividends from net investment income and realized gains, if any, at least once a year.
Net investment income, dividends and distributions from net realized gains and capital are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP with respect to character and timing (see Federal Income Taxes: Distributions and Components of Distributable Earnings and Reclassification of Capital Accounts).
Securities and Other Investments:
Repurchase Agreements – A repurchase agreement is an agreement by which a counterparty agrees to sell an investment and agrees to repurchase the investment sold from the buyer at a mutually agreed upon time and price. During the period of the repurchase agreement, the counterparty will deposit cash and or securities in a third party custodial account to serve as collateral. At the time the Fund enters into a repurchase agreement, the value of the underlying collateral, including accrued interest, will be equal
18 |
Hartford Small Company HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
to or exceed the value of the repurchase agreement. Repurchase agreements expose the Fund to counterparty risk - that is, the risk that the counterparty will not fulfill its obligations. To minimize counterparty risk, the investments that serve to collateralize the repurchase agreement are held by the Fund’s custodian in book entry or physical form in the custodial account of the Fund or in a third party custodial account. Repurchase agreements are valued at cost plus accrued interest, which approximates fair value. Repurchase agreements have master netting arrangements which allow the Fund to offset amounts owed to a counterparty with amounts owed by the counterparty, including any collateral. Upon an event of default under a master repurchase agreement, the non-defaulting party may close out all transactions traded under such agreement and net amounts owed under each transaction to one net amount payable by one party to the other. Absent an event of default, the master repurchase agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty. The Fund, as shown on the Schedule of Investments, had outstanding repurchase agreements and related collateral as of December 31, 2014.
Illiquid and Restricted Investments – The Fund is permitted to invest up to 15% of its net assets in illiquid investments. Illiquid investments are those that may not be sold or disposed of in the ordinary course of business within seven days, at approximately the price used to determine the Fund’s NAV. The Fund may not be able to sell illiquid investments when its sub-adviser considers it desirable to do so or may have to sell such investments at a price that is lower than the price that could be obtained if the investments were more liquid. A sale of illiquid investments may require more time and may result in higher dealer discounts and other selling expenses than does the sale of those that are liquid. Illiquid investments also may be more difficult to value due to the unavailability of reliable market quotations for such investments, and an investment in them may have an adverse impact on the Fund’s NAV. The Fund may also purchase certain restricted investments that can only be resold to certain qualified investors and may be determined to be liquid pursuant to policies and guidelines established by the Company's Board of Directors. The Fund, as shown on the Schedule of Investments, had illiquid or restricted investments as of December 31, 2014.
Investments Purchased on a When-Issued or Delayed-Delivery Basis – Delivery and payment for investments that have been purchased by the Fund on a forward commitment, or when-issued or delayed-delivery basis, take place beyond the customary settlement period. The Fund may dispose of or renegotiate a delayed-delivery transaction after it is entered into, and may sell delayed-delivery investments before they are delivered, which may result in a realized gain or loss. During this period, such investments are subject to market fluctuations, and the Fund identifies investments segregated in its records with a value at least equal to the amount of the commitment. The Fund had no when-issued or delayed-delivery investments as of December 31, 2014.
Financial Derivative Instruments:
The following disclosures contain information on how and why the Fund uses derivative instruments, the credit-risk-related contingent features in certain derivative instruments and how derivative instruments affect the Fund’s financial position and results of operations. The location and fair value amounts of these instruments on the Statement of Assets and Liabilities and the realized gains and losses and changes in unrealized gains and losses on the Statement of Operations, each categorized by type of derivative contract, are included in the following Additional Derivative Instrument Information footnote. The derivative instruments outstanding as of year-end are disclosed in the notes to the Schedule of Investments, if applicable. The amounts of realized gains and losses and changes in unrealized gains and losses on derivative instruments during the year are disclosed in the Statement of Operations.
Foreign Currency Contracts – The Fund may enter into foreign currency contracts that obligate the Fund to purchase or sell currencies at specified future dates. Foreign currency contracts are used to hedge the currency exposure associated with some or all of the Fund’s investments and/or as part of an investment strategy. Foreign currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. The Fund will record a realized gain or loss when the foreign currency contract is settled.
Foreign currency contracts involve elements of market risk in excess of the amounts reflected in the Statement of Assets and Liabilities. In addition, risks may arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of the contracts and from unanticipated movements in the value of the foreign currencies relative to the U.S. dollar. The Fund, as shown on the Schedule of Investments, had outstanding foreign currency contracts as of December 31, 2014.
19 |
Hartford Small Company HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Futures Contracts – The Fund may enter into futures contracts. A futures contract is an agreement between two parties to buy or sell an asset at a set price on a future date. The Fund uses futures contracts to manage or obtain exposure to the investment markets, commodities, or movements in interest rates and currency values. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the investments held by the Fund and the prices of futures contracts and the possibility of an illiquid market. Upon entering into a futures contract, the Fund is required to deposit with a futures commission merchant (“FCM”) an amount of cash or U.S. Government or Agency Obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily at the most recent settlement price reported by an exchange on which, over time, they are traded most extensively, and an appropriate payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed on the Statement of Assets and Liabilities; however, the Fund seeks to reduce this risk through the use of an FCM. The Fund had no outstanding futures contracts as of December 31, 2014.
Additional Derivative Instrument Information:
Fair Value of Derivative Instruments on the Statement of Assets and Liabilities as of December 31, 2014:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts | Foreign Exchange Contracts | Credit Contracts | Equity Contracts | Commodity Contracts | Other Contracts | Total | ||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||
Unrealized depreciation on foreign currency contracts | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
Total | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
The volume of derivatives that is presented in the Schedule of Investments is consistent with the derivative activity during the year ended December 31, 2014.
The Effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2014:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts | Foreign Exchange Contracts | Credit Contracts | Equity Contracts | Commodity Contracts | Other Contracts | Total | ||||||||||||||||||||||
Realized Gain on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net realized gain on futures contracts | $ | — | $ | — | $ | — | $ | 8 | $ | — | $ | — | $ | 8 | ||||||||||||||
Net realized gain on foreign currency contracts | — | 51 | — | — | — | — | 51 | |||||||||||||||||||||
Total | $ | — | $ | 51 | $ | — | $ | 8 | $ | — | $ | — | $ | 59 | ||||||||||||||
Net Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net change in unrealized depreciation of foreign currency contracts | $ | — | $ | (1 | ) | $ | — | $ | — | $ | — | $ | — | $ | (1 | ) | ||||||||||||
Total | $ | — | $ | (1 | ) | $ | — | $ | — | $ | — | $ | — | $ | (1 | ) |
The derivatives held by the Fund as of December 31, 2014 are not subject to a master netting arrangement; therefore, no balance sheet offsetting disclosure is presented.
Principal Risks:
The Fund may be exposed to counterparty risk, or the risk that an institution or other entity with which the Fund has unsettled or open transactions will default.
If the Fund invests directly in foreign currencies or in securities that trade in, and receive revenues in, foreign currencies, or in derivatives that provide exposure to foreign currencies, it will be subject to the risk that those currencies will decline in value relative to the base currency (U.S. dollars) of the Fund, or, in the case of hedging positions, that the Fund’s base currency will decline in value
20 |
Hartford Small Company HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities, such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad. As a result, the Fund’s investments in foreign currency denominated securities may reduce the returns of the Fund. The market values of equity securities, such as common stocks and preferred stocks, or equity related investments, such as futures and options, may decline due to general market conditions which are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. The market value of equity securities may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities and equity related investments generally have greater market price volatility than fixed income securities.
Federal Income Taxes:
Federal Income Taxes – For federal income tax purposes, the Fund intends to continue to qualify as a Regulated Investment Company ("RIC") under Subchapter M of the Internal Revenue Code (“IRC”) by distributing substantially all of its taxable net investment income and net realized capital gains to its shareholders and otherwise complying with the requirements of the IRC. The Fund has distributed substantially all of its income and capital gains in prior years, if applicable, and intends to distribute substantially all of its income and capital gains prior to the next fiscal year-end. Accordingly, no provision for federal income or excise taxes has been made in the accompanying financial statements. Distributions from short-term capital gains are treated as ordinary income distributions for federal income tax purposes.
Net Investment Income (Loss), Net Realized Gains (Losses) and Distributions – Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of losses deferred due to wash sale adjustments, foreign currency gains and losses, adjustments related to Passive Foreign Investment Companies ("PFICs"), Real Estate Investment Trusts ("REITs"), RICs, certain derivatives and partnerships. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund.
Distributions and Components of Distributable Earnings – The tax character of distributions paid by the Fund for the periods indicated is as follows (as adjusted for dividends payable, if applicable):
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Ordinary Income | $ | 92,815 | $ | 1,351 | ||||
Long-Term Capital Gains* | 157,553 | 98,734 |
* | The Fund designates these distributions as long-term capital gain dividends pursuant to IRC Sec. 852(b)(3)(C). |
As of December 31, 2014, the Fund’s components of distributable earnings (deficit) on a tax basis are as follows:
Amount | ||||
Undistributed Ordinary Income | $ | 48,169 | ||
Undistributed Long-Term Capital Gain | 208,931 | |||
Unrealized Appreciation* | 186,708 | |||
Total Accumulated Earnings | $ | 443,808 |
* | Differences between book-basis and tax-basis unrealized appreciation (depreciation) may be attributable to the losses deferred due to wash sale adjustments, foreign currency gains and losses and adjustments related to PFICs, REITs, RICs, certain derivatives and partnerships. |
21 |
Hartford Small Company HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Reclassification of Capital Accounts – The Fund may record reclassifications in its capital accounts. These reclassifications have no impact on the total net assets of the Fund. The reclassifications are a result of permanent differences between U.S. GAAP and tax accounting for such items as foreign currency, PFICs, expiration or utilization of capital loss carryforwards or net operating losses. Adjustments are made to reflect the impact these items have on current and future distributions to shareholders. Therefore, the source of the Fund’s distributions may be shown in the accompanying Statement of Changes in Net Assets as from undistributed net investment income, from accumulated net realized gains on investments or from capital depending on the type of book and tax differences that exist. For the year ended December 31, 2014, the Fund recorded reclassifications to increase (decrease) the accounts listed below:
Amount | ||||
Undistributed Net Investment Income (Loss) | $ | 5,568 | ||
Accumulated Net Realized Gain (Loss) | (5,568 | ) |
Capital Loss Carryforward – On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which made changes to the capital loss carryforward rules. The changes are effective for taxable years beginning after the date of enactment. Under the Act, funds are permitted to carry forward capital losses for an unlimited period. Additionally, capital loss carryforwards retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under prior regulation.
The Fund had no capital loss carryforward for U.S. federal income tax purposes as of December 31, 2014.
Accounting for Uncertainty in Income Taxes – The Fund has adopted financial reporting rules that require the Fund to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions. Generally, tax authorities can examine all tax returns filed for the last three years. The Fund does not have an examination in progress.
The Fund has reviewed all open tax years and major jurisdictions and concluded that these financial reporting rules had no effect on the Fund’s financial position or results of operations. There is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on the tax return for the fiscal year ended December 31, 2014. The Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Expenses:
Investment Management Agreement – Hartford Funds Management Company, LLC ("HFMC") serves as the Fund’s investment manager pursuant to an Investment Management Agreement with the Company. HFMC is an indirect wholly owned subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford"). The investment manager has overall investment supervisory responsibility for the Fund. In addition, the investment manager provides administrative personnel, services, equipment, facilities and office space for proper operation of the Fund. HFMC has contracted with Wellington Management Company, LLP ("Wellington Management") under a sub-advisory agreement for the provision of day-to-day investment management services to the Fund in accordance with the Fund’s investment objective and policies. The Fund pays a fee to the investment manager, a portion of which may be used to compensate Wellington Management.
22 |
Hartford Small Company HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
The schedule below reflects the rates of compensation paid to the investment manager for investment management services rendered as of December 31, 2014; the rates are accrued daily and paid monthly:
Average Daily Net Assets | Annual Fee |
On first $250 million | 0.7750% |
On next $250 million | 0.7250% |
On next $500 million | 0.6750% |
On next $500 million | 0.6000% |
On next $3.5 billion | 0.5500% |
On next $5 billion | 0.5300% |
Over $10 billion | 0.5200% |
��
Accounting Services Agreement – Pursuant to the Fund Accounting Agreement between HFMC and the Company, on behalf of the Fund, HFMC provides accounting services to the Fund and receives monthly compensation based on the Fund’s average daily net assets at the rates set forth below. The Fund’s accounting services fees are accrued daily and paid monthly.
Average Daily Net Assets | Annual Fee |
On first $5 billion | 0.012% |
Over $5 billion | 0.010% |
Operating Expenses – Allocable expenses incurred by the Company are allocated to each Fund and allocated to classes within a Fund in proportion to the average daily net assets of the Fund and each class, except where allocation of certain expenses is more fairly made directly to the Fund or to specific classes within a Fund.
Fees Paid Indirectly – The Company, on behalf of the Fund, has entered into agreements with State Street Global Markets, LLC and Russell Implementation Services, Inc. to partially recapture non-discounted trade commissions. Such rebates are used to pay a portion of the Fund’s expenses. In addition, the Fund's custodian has agreed to reduce its fees when the Fund maintains cash on deposit in a non-interest-bearing custody account. For the year ended December 31, 2014, these amounts, if any, are included in the Statement of Operations.
The ratio of expenses to average net assets in the accompanying financial highlights excludes the reduction in expenses related to fees paid indirectly. The annualized expense ratio after waivers for the period listed below reflecting the reduction for fees paid indirectly is as follows:
Year Ended December 31, 2014 | ||||
Class IA | 0.70% | |||
Class IB | 0.95 |
Distribution Plan for Class IB Shares – Hartford Funds Distributors, LLC (“HFD”), an indirect wholly owned subsidiary of The Hartford, is the principal underwriter and distributor of the Fund. The Company, on behalf of the Fund, has adopted a Distribution Plan pursuant to Rule 12b-1 of the 1940 Act for Class IB shares.
The Distribution Plan provides that the Fund may pay annually up to 0.25% of the average daily net assets of the Fund attributable to its Class IB shares for activities primarily intended to result in the sale of Class IB shares. The Board has the authority to suspend or reduce these payments at any point in time. Under the terms of the Distribution Plan and the principal underwriting agreement, the Fund is authorized to make payments monthly to the distributor that may be used to pay or reimburse entities providing distribution and shareholder servicing with respect to the Class IB shares for such entities’ fees or expenses incurred or paid in that regard. The distribution fees paid during the period can be found on the Statement of Operations. These fees are accrued daily and paid monthly or at such other intervals as the Board of Directors may determine.
23 |
Hartford Small Company HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Other Related Party Transactions – Certain officers of the Fund are directors and/or officers of HFMC and/or The Hartford or its subsidiaries. For the year ended December 31, 2014, a portion of the Fund's Chief Compliance Officer's compensation was paid by all the investment companies in the Hartford fund complex. The portion allocated to the Fund, as represented in other expenses on the Statement of Operations, was in the amount of $2. Hartford Administrative Services Company ("HASCO"), an indirect wholly owned subsidiary of The Hartford, provides transfer agent services to the Fund. Effective December 1, 2014, pursuant to a sub-transfer agency agreement between HASCO and Boston Financial Data Services, Inc. (“BFDS”), HASCO delegated certain transfer agent, dividend disbursing agent and shareholder servicing agent functions to BFDS. HASCO is compensated by the Fund based on the number of classes plus out of pocket expenses for providing such services, a portion of which may be used to compensate BFDS. The amount paid to HASCO can be found in the Statement of Operations. These fees are accrued daily and paid monthly.
Investment Transactions:
For the year ended December 31, 2014, the cost of purchases and proceeds from sales of investment securities (excluding short-term investments) were as follows:
Excluding U.S. Government Obligations | U.S. Government Obligations | Total | ||||||||||
Cost of Purchases | $ | 1,290,636 | $ | — | $ | 1,290,636 | ||||||
Sales Proceeds | 1,500,858 | — | 1,500,858 |
Line of Credit:
The Fund is one of several Hartford Funds that participate in a $500 million committed revolving line of credit facility. The facility is to be used for temporary or emergency purposes. Under the arrangement, the funds are required to own securities having a market value in excess of 300% of the total bank borrowings. The interest rate on borrowings varies depending on the nature of the loan. The facility also requires a fee to be paid based on the amount of the commitment. This commitment fee is allocated to all the funds participating in the line of credit based on the average net assets of the funds. During the year ended December 31, 2014, the Fund did not have any borrowings under this facility.
Indemnifications:
Under the Company's organizational documents, the Company shall indemnify its officers and directors to the full extent required or permitted under Maryland General Corporation Law and the federal securities laws. In addition, the Company, on behalf of the Fund, may enter into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, as of the date of these financial statements, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Pending Legal Proceedings:
On February 25, 2011, Jennifer L. Kasilag, Louis Mellinger, Judith M. Menendez, Jacqueline M. Robinson, and Linda A. Russell filed a derivative lawsuit against Hartford Investment Financial Services, LLC (“HIFSCO”) (now known as HFD) on behalf of six Hartford retail mutual funds in the United States District Court for the District of New Jersey, alleging that HIFSCO received excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the 1940 Act when serving as investment manager and principal underwriter, respectively, to the Hartford retail mutual funds. Although this action was purportedly filed on behalf of certain of the Hartford Funds, none of the Hartford Funds is itself a defendant to the suit. HIFSCO moved to dismiss and, in September 2011, the motion was granted in part and denied in part, with leave to amend the complaint. In November 2011, plaintiffs filed an amended complaint on behalf of certain Hartford retail mutual funds, The Hartford Global Health Fund (now known as The Hartford Healthcare Fund), The Hartford Conservative Allocation Fund, The Hartford Growth Opportunities Fund, The Hartford Inflation Plus Fund, The Hartford Advisers Fund (now known as The Hartford Balanced Fund), and The Hartford Capital Appreciation Fund. Plaintiffs seek to rescind the investment management agreements and distribution plans between HIFSCO and these funds and to recover the total fees charged thereunder or, in the alternative, to recover any improper compensation HIFSCO received, in addition to lost earnings. HIFSCO filed a partial motion to
24 |
Hartford Small Company HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
dismiss the amended complaint and, in December 2012, the court dismissed without prejudice the claims regarding distribution fees and denied the motion with respect to the advisory fees claims. HIFSCO disputes the allegations and intends to defend vigorously.
In March 2014, the plaintiffs filed a new complaint that added as new plaintiffs The Hartford Floating Rate Fund and The Hartford Small Company Fund, two Hartford retail mutual funds, and named as a defendant HFMC, which assumed the role as investment manager to the funds as of January 2013. HFMC and HIFSCO dispute the allegations and intend to defend vigorously.
This action concerns the activities of HIFSCO in its capacity as investment manager and principal underwriter to the Hartford retail mutual funds and does not concern HIFSCO’s activities in its capacity as principal underwriter to the HLS funds. For this reason, no accrual for litigation relating to this matter has been recorded in the financial statements of the Fund.
Recent Accounting Pronouncement:
In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, modifying Accounting Standards Codification Topic 860. The amended guidance changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. The guidance also requires new disclosures for certain transfers accounted for as sales and collateral supporting transactions that are accounted for as secured borrowings. ASU 2014-11 is effective for annual and interim periods beginning after December 15, 2014, except for the disclosures related to secured borrowings, which are effective for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The adoption of ASU 2014-11 is not expected to have a material impact on the Fund’s results of operations or financial position, but may impact the Fund’s disclosures.
Subsequent Event:
Effective on or after January 1, 2015, pursuant to an agreement between the Hartford Funds and State Street Bank and Trust Company ("State Street"), State Street replaced, or is scheduled to replace, JP Morgan Chase Bank, N.A. ("JP Morgan Chase") as the Fund's primary custodian. JP Morgan Chase may serve as custodian of certain Fund assets. In addition, on or after the same date, HFMC has delegated, or will delegate, certain accounting and administrative services functions to State Street. The costs and expenses of such delegation will be borne by HFMC, not by the Funds, and HFMC will compensate State Street for its services out of its own resources.
25 |
Hartford Small Company HLS Fund |
Financial Highlights |
─ Selected Per-Share Data(A) ─ | ─ Ratios and Supplemental Data ─ | |||||||||||||||||||||||||||||||||||||||||||||||||||
Class | Net Asset Value at Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Investment Operations | Dividends from Net Investment Income | Distributions from Realized Capital Gains | Total Dividends and Distributions | Net Asset Value at End of Period | Total Return(B) | Net Assets at End of Period (000s) | Ratio of Expenses to Average Net Assets Before Adjust- ments(C) | Ratio of Expenses to Average Net Assets After Adjust- ments(C) | Ratio of Net Investment Income (Loss) to Average Net Assets | |||||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 26.43 | $ | (0.09 | ) | $ | 1.78 | $ | 1.69 | $ | – | $ | (4.79 | ) | $ | (4.79 | ) | $ | 23.33 | 7.07 | % | $ | 1,279,533 | 0.71 | % | 0.71 | % | (0.35 | )% | |||||||||||||||||||||||
IB | 25.46 | (0.15 | ) | 1.72 | 1.57 | – | (4.79 | ) | (4.79 | ) | 22.24 | 6.85 | 123,799 | 0.96 | 0.96 | (0.60 | ) | |||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 19.74 | $ | (0.07 | ) | $ | 8.60 | $ | 8.53 | $ | (0.02 | ) | $ | (1.82 | ) | $ | (1.84 | ) | $ | 26.43 | 44.38 | % | $ | 1,354,821 | 0.71 | % | 0.71 | % | (0.29 | )% | ||||||||||||||||||||||
IB | 19.06 | (0.12 | ) | 8.34 | 8.22 | – | (1.82 | ) | (1.82 | ) | 25.46 | 44.28 | 141,791 | 0.96 | 0.96 | (0.54 | ) | |||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2012 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 17.07 | $ | 0.03 | $ | 2.64 | $ | 2.67 | $ | – | $ | – | $ | – | $ | 19.74 | 15.64 | % | $ | 1,126,350 | 0.72 | % | 0.72 | % | 0.16 | % | ||||||||||||||||||||||||||
IB | 16.56 | (0.03 | ) | 2.53 | 2.50 | – | – | – | 19.06 | 15.10 | 117,133 | 0.97 | 0.97 | (0.13 | ) | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2011 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 17.66 | $ | (0.02 | ) | $ | (0.57 | ) | $ | (0.59 | ) | $ | – | $ | – | $ | – | $ | 17.07 | (3.36 | )% | $ | 1,090,883 | 0.71 | % | 0.71 | % | (0.13 | )% | |||||||||||||||||||||||
IB | 17.18 | (0.09 | ) | (0.53 | ) | (0.62 | ) | – | – | – | 16.56 | (3.62 | ) | 155,970 | 0.96 | 0.96 | (0.38 | ) | ||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2010 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 14.23 | $ | (0.01 | ) | $ | 3.44 | $ | 3.43 | $ | – | $ | – | $ | – | $ | 17.66 | 24.13 | % | $ | 1,180,045 | 0.73 | % | 0.73 | % | (0.08 | )% | |||||||||||||||||||||||||
IB | 13.88 | (0.06 | ) | 3.36 | 3.30 | – | – | – | 17.18 | 23.83 | 212,281 | 0.98 | 0.98 | (0.33 | ) |
(A) | Information presented relates to a share outstanding throughout the indicated period. Net investment income (loss) per share amounts are calculated based on average shares outstanding unless otherwise noted. |
(B) | The figures do not include sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees would lower the Fund's performance. |
(C) | Adjustments include waivers and reimbursements, if applicable. Ratios do not include fees paid indirectly (see Expenses in the accompanying Notes to Financial Statements). |
(D) | Net investment income (loss) per share amounts have been calculated using the SEC method. |
Portfolio Turnover Rate for All Share Classes | ||||
For the Year Ended December 31, 2014 | 90% | |||
For the Year Ended December 31, 2013 | 96 | |||
For the Year Ended December 31, 2012 | 110 | |||
For the Year Ended December 31, 2011 | 99 | |||
For the Year Ended December 31, 2010 | 171 |
26 |
Report of Independent Registered Public Accounting Firm |
The Board of Directors and Shareholders of Hartford Series Fund, Inc. |
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Hartford Small Company HLS Fund (one of the portfolios constituting Hartford Series Fund, Inc. (the Funds)) as of December 31, 2014, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Hartford Small Company HLS Fund of the Hartford Series Fund, Inc. at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
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Minneapolis, Minnesota
February 13, 2015
27 |
Hartford Small Company HLS Fund |
Directors and Officers (Unaudited) |
The Board of Directors of the Company (the "Directors") appoints officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the Directors. Each Director serves until his or her death, resignation, or retirement or until the next annual meeting of shareholders is held or until his or her successor is elected and qualifies.
Directors and officers who are employed by or who have a financial interest in The Hartford Financial Services Group, Inc. ("The Hartford") are considered “interested” persons of the Fund pursuant to the 1940 Act. The "interested" Directors and officers are reflected in the chart below. Each Director serves as a director for The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., Hartford Series Fund, Inc., and Hartford HLS Series Fund II, Inc., and as a trustee for The Hartford Alternative Strategies Fund, which, as of December 31, 2014, collectively consist of 66 funds. Correspondence may be sent to Directors and officers c/o Hartford Funds, 5 Radnor Corporate Center, Suite 300, 100 Matsonford Road, Radnor, Pennsylvania 19087, except that correspondence to Mr. Annoni, Mr. Dressen and Ms. Quade may be sent to 500 Bielenberg Drive, Suite 500, Woodbury, Minnesota 55125.
The table below sets forth, for each Director and officer, his or her name, year of birth, current position with the Company and date first elected or appointed to Hartford Series Fund, Inc. ("HSF") and Hartford HLS Series Fund II, Inc. ("HSF2"), principal occupation, and, for Directors, other directorships held. The Fund’s Statement of Additional Information contains further information on the Directors and is available free of charge by calling 1-888-843-7824 or writing to: Hartford HLS Funds, c/o Hartford Life Insurance Company/Hartford Life and Annuity Insurance Company, P.O. Box 14293, Lexington, KY 40512-4293 for variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates; Hartford Funds, P.O. Box 55022, Boston, MA 02205-5022 for all shareholders except variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates.
Information on the aggregate remuneration paid to the directors of the Company can be found in the Statement of Operations herein. The Fund pays to The Hartford a portion of the Chief Compliance Officer’s compensation, but does not pay salaries or compensation to any of its other officers or Directors who are employed by The Hartford.
Non-Interested Directors
Hilary E. Ackermann (1956) Director since September 23, 2014
Ms. Ackermann served as Chief Risk Officer at Goldman Sachs Bank USA from October 2008 to November 2011 and serves as a Director of Dynegy, Inc., an independent power company, from October 2012 to present.
Lynn S. Birdsong (1946) Director since 2003, Chairman of the Investment Committee since 2014
Mr. Birdsong is a private investor. Mr. Birdsong currently serves as a Director of Aberdeen Global and Aberdeen Global II (investment funds) (September 2014 to present) and as an Independent Director of Nomura Partners Funds, Inc. (formerly, The Japan Fund) (April 2003 to present). Mr. Birdsong served as Director of the Sovereign High Yield Investment Company (April 2010 to September 2014). From 2003 to March 2005, Mr. Birdsong was an Independent Director of the Atlantic Whitehall Funds. From 1979 to 2002, Mr. Birdsong was a Managing Director of Zurich Scudder Investments, an investment management firm. During his employment with Scudder, Mr. Birdsong was an Interested Director of The Japan Fund. Mr. Birdsong served as Co-Chairman of the Investment Committee of The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., HSF, HSF2 and The Hartford Alternative Strategies Fund from 2005 to 2014.
Robert M. Gavin, Jr. (1940) Director since 2002 (HSF) and 1986 (HSF2), Chairman of the Board for each since 2004
Dr. Gavin is an educational consultant. Prior to September 1, 2001, he was President of Cranbrook Education Community and prior to July 1996, he was President of Macalester College, St. Paul, Minnesota.
Duane E. Hill (1945) Director since 2001 (HSF) and 2002 (HSF2), Chairman of the Nominating Committee since 2003
Mr. Hill is a Partner of TSG Ventures L.P., a private equity investment company. Mr. Hill is a former partner of TSG Capital Group, a private equity investment firm that served as sponsor and lead investor in leveraged buyouts of middle market companies.
Sandra S. Jaffee (1941) Director since 2005
Ms. Jaffee is the founder and Chief Executive Officer of a private company, Homeworks Concierge, LLC, which provides residential property management services in Westchester County, New York (January 2012 to present). Ms. Jaffee served as Chairman (2008 to 2009) and Chief Executive Officer of Fortent (formerly Searchspace Group), a leading provider of compliance/regulatory technology to financial institutions from August 2005 to August 2009. From August 2004 to August 2005, Ms. Jaffee served as an Entrepreneur in Residence with Warburg Pincus, a private equity firm. Prior to joining Warburg Pincus, Ms. Jaffee served as Executive Vice President at Citigroup, from September 1995 to July 2004, where she was President and Chief Executive Officer of Citibank’s Global Securities
28 |
Hartford Small Company HLS Fund |
Directors and Officers (Unaudited) – (continued) |
Services (1995 to 2003). Ms. Jaffee served as a member of the Board of Directors of Broadridge Financial Solutions (November 2010 to November 2014). Ms. Jaffee currently serves as a member of the Board of Directors of Global Camps Africa (a non-profit organization) (January 2015 to present) as well as a Trustee of Muhlenberg College (September 2007 to present).
William P. Johnston (1944) Director since 2005, Chairman of the Compliance Committee since 2005
In June 2006, Mr. Johnston was appointed as Senior Advisor to The Carlyle Group, a global private equity and other alternative asset investment firm and currently serves as an Operating Executive. In July 2006, Mr. Johnston was elected to the Board of Directors of MultiPlan, Inc. and served as a Director (July 2006 to August 2010). In August 2007, Mr. Johnston was elected to the Board of Directors of LifeCare Holdings, Inc. and served as a Director (August 2007 to June 2013). In February 2008, Mr. Johnston was elected to the Board of Directors of HCR-ManorCare, Inc. In May 2006, Mr. Johnston was elected to the Supervisory Board of Fresenius Medical Care AG & Co. KGaA, after its acquisition of Renal Care Group, Inc. in March 2006. Mr. Johnston joined Renal Care Group in November 2002 as a member of the Board of Directors and served as Chairman of the Board from March 2003 through March 2006. From 2002 through 2013, Mr. Johnston served as a Board member of the Georgia O’Keefe Museum. From September 1987 to December 2002, Mr. Johnston was with Equitable Securities Corporation (and its successors, SunTrust Equitable Securities and SunTrust Robinson Humphrey) serving in various investment banking and managerial positions, including Managing Director and Head of Investment Banking, Chief Executive Officer and Vice Chairman.
Phillip O. Peterson (1944) Director since 2002 (HSF) and 2000 (HSF2), Chairman of the Audit Committee since 2002
Mr. Peterson is a mutual fund industry consultant. He was a partner of KPMG LLP (an accounting firm) until July 1999. Mr. Peterson joined William Blair Funds in February 2007 as a member of the Board of Trustees. From February 2012 to February 2014, Mr. Peterson served as a Trustee of Symetra Variable Mutual Funds. From January 2004 to April 2005, Mr. Peterson served as Independent President of the Strong Mutual Funds.
Lemma W. Senbet (1946) Director since 2005
Dr. Senbet is the William E. Mayer Chair Professor of Finance at the University of Maryland, Robert H. Smith School of Business. He was chair of the Finance Department of the University of Maryland, Robert H. Smith School of Business from 1998 to 2006. Since June 2013, he has been on leave from the University to serve as Executive Director of African Economic Research Consortium which focuses on economic policy research and training. Previously, he was a chaired professor of finance at the University of Wisconsin-Madison. Also, he was a Director of the Fortis Funds from March 2000 to July 2002. Dr. Senbet served as Director of the American Finance Association and President of the Western Finance Association. In 2006, Dr. Senbet was inducted Fellow of Financial Management Association International for his career-long distinguished scholarship and professional service.
Interested Directors and Officers
James E. Davey (1964) Director since 2012, President and Chief Executive Officer since 2010
Mr. Davey serves as Executive Vice President of Hartford Life Insurance Company (“HLIC”) and The Hartford. Additionally, Mr. Davey serves as Chairman of the Board, Manager and Senior Managing Director of Hartford Funds Distributors, LLC (“HFD”). He also currently serves as Director, Chairman of the Board, President and Senior Managing Director of Hartford Administrative Services Company (“HASCO”). Mr. Davey also serves as Manager, Chairman of the Board and Senior Managing Director for Hartford Funds Management Company, LLC (“HFMC”) and Director, Chairman of the Board and Senior Managing Director for Hartford Funds Management Group, Inc. ("HFMG"). Mr. Davey has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Davey joined The Hartford in 2002.
Lowndes A. Smith* (1939) Director since 1996 (HSF) and 2002 (HSF2), Co-Chairman of the Investment Committee since 2005
Mr. Smith served as Vice Chairman of The Hartford from February 1997 to January 2002, as President and Chief Executive Officer of Hartford Life, Inc. from February 1997 to January 2002, and as President and Chief Operating Officer of The Hartford Life Insurance Companies from January 1989 to January 2002. Mr. Smith serves as a Director of White Mountains Insurance Group Ltd. (October 2003 to current); One Beacon Insurance (October 2006 to current); Symetra Financial (August 2007 to current) and is a Managing Director of Whittington Gray Associates (January 2007 to current).
* Mr. Smith resigned as a Director of Hartford Mutual Funds, Inc., Hartford Mutual Funds II, Inc., HSF and HSF2 and as a Trustee of The Hartford Alternative Strategies Fund effective September 17, 2014.
29 |
Hartford Small Company HLS Fund |
Directors and Officers (Unaudited) – (continued) |
Other Officers
Mark A. Annoni (1964) Vice President, Controller and Treasurer since 2012
Mr. Annoni currently serves as the Assistant Vice President of HLIC (February 2004 to present) and Senior Vice President of HFMG (December 2013 to present). Mr. Annoni has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Annoni joined The Hartford in 2001.
Michael R. Dressen (1963) AML Compliance Officer since 2011
Mr. Dressen currently serves as Assistant Vice President of HLIC. He also serves as Chief Compliance Officer and AML Compliance Officer of HASCO and as AML Officer of HFD. Mr. Dressen has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
Edward P. Macdonald (1967) Vice President, Secretary and Chief Legal Officer since 2005
Mr. Macdonald currently serves as Assistant Secretary, Executive Vice President and Deputy General Counsel of HFD, HASCO, HFMC and HFMG. He also serves as Vice President of HLIC. Mr. Macdonald has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Macdonald joined The Hartford in 2005.
Joseph G. Melcher (1973) Vice President and Chief Compliance Officer since 2013
Mr. Melcher currently serves as Executive Vice President of HFD, HFMG and HASCO. Mr. Melcher also currently serves as Executive Vice President and Chief Compliance Officer of HFMC. Mr. Melcher has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds since joining The Hartford in 2012. Prior to joining The Hartford, Mr. Melcher worked at Touchstone Investments, a member of the Western & Southern Financial Group, where he held the position of Vice President and Chief Compliance Officer from 2010 through 2012 and Assistant Vice President, Compliance from 2005 to 2010.
Vernon J. Meyer (1964) Vice President since 2006
Mr. Meyer currently serves as Senior Vice President of HLIC. He also currently serves as Managing Director and Chief Investment Officer of HFMC and Managing Director of HFMG. Mr. Meyer has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Meyer joined The Hartford in 2004.
Laura S. Quade (1969) Vice President since 2012
Ms. Quade currently serves as Vice President of HASCO, HFD and HFMG. She is the Head of Operations of HASCO and formerly served as Director, Enterprise Operations of HLIC. Ms. Quade has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Ms. Quade joined The Hartford in 2001.
Martin A. Swanson** (1962) Vice President since 2010
Mr. Swanson currently serves as Vice President of HLIC. Mr. Swanson also serves as Managing Director, Chief Marketing Officer and Principal of HFD and Managing Director of HFMG. Mr. Swanson has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
** Mr. Swanson resigned as an officer effective November 6, 2014.
HOW TO OBTAIN A COPY OF THE FUND’S PROXY VOTING POLICIES AND VOTING RECORDS (UNAUDITED)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information about how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov. The Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
30 |
Hartford Small Company HLS Fund |
Expense Example (Unaudited) |
Your Fund's Expenses
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including investment management fees, distribution and/or service (12b-1) fees, if any, and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period of June 30, 2014 through December 31, 2014.
Actual Expenses
The first set of columns of the table below provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second set of columns of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as taxes, sales charges (loads), or fees which may be applied at the variable life insurance, variable annuity, or qualified retirement plan product level. Therefore, the second set of columns of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would be higher. Expenses are equal to the Fund's annualized expense ratios multiplied by average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
Actual return | Hypothetical (5% return before expenses) | |||||||||||||||||||||||||||||||||||
Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Annualized expense ratio | Days in the current 1/2 year | Days in the full year | ||||||||||||||||||||||||||||
Class IA | $ | 1,000.00 | $ | 1,023.80 | $ | 3.62 | $ | 1,000.00 | $ | 1,021.63 | $ | 3.62 | 0.71 | % | 184 | 365 | ||||||||||||||||||||
Class IB | $ | 1,000.00 | $ | 1,022.70 | $ | 4.89 | $ | 1,000.00 | $ | 1,020.37 | $ | 4.89 | 0.96 | 184 | 365 |
31 |
Hartford Small Company HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) |
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of directors, including a majority of those directors who are not “interested persons” of the mutual fund, as defined in the 1940 Act (the “Independent Directors”), annually review and consider the continuation of the mutual fund’s investment advisory and sub-advisory agreements. At its meeting held on August 5-6, 2014, the Board of Directors (the “Board”) of Hartford Series Fund, Inc., including each of the Independent Directors, unanimously voted to approve the continuation of the investment management agreement for Hartford Small Company HLS Fund (the “Fund”) with Hartford Funds Management Company, LLC (“HFMC”) and the continuation of the investment sub-advisory agreement between HFMC and the Fund’s sub-adviser, Wellington Management Company, LLP (the “Sub-adviser,” and together with HFMC, the “Advisers”) (collectively, the “Agreements”).
In the months preceding the August 5-6, 2014 meeting, the Board requested, received and reviewed written responses from the Advisers to questions posed to them on behalf of the Independent Directors and supporting materials relating to those questions and responses. The Board considered information furnished to the Board at its meetings throughout the year, as well as information specifically prepared in connection with the annual approval of the Agreements at the Board’s meetings held on June 17-18, 2014 and August 5-6, 2014. Information provided to the Board at its meetings throughout the year included, among other things, reports on Fund performance, legal and compliance matters, sales and marketing activity, shareholder services, and the other services provided to the Fund by the Advisers and their affiliates. The Board also received in-person presentations by Fund officers and representatives of HFMC at the Board’s meetings on June 17-18, 2014 and August 5-6, 2014 concerning the Agreements.
The Independent Directors, advised by independent legal counsel, engaged service providers to assist them with evaluating the Agreements with respect to the Fund. Lipper Inc. (“Lipper”), an independent provider of investment company data, was retained to provide the Board with reports on how the Fund’s contractual management fees, actual management fees, other non-management fees, overall expense ratios and investment performance compared to those of mutual funds with similar investment objectives. The Independent Directors also engaged an independent financial services consultant (the “Consultant”) to assist them in evaluating the Fund’s management fees, sub-advisory fees, other non-management fees, overall expense ratios and investment performance. In addition, the Consultant reviewed the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement.
In determining whether to continue the Agreements for the Fund, the members of the Board reviewed and evaluated information and factors they believed to be relevant and appropriate in light of the information that the Board deemed necessary and appropriate through the exercise of its reasonable business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination to continue the Agreements was based on a comprehensive consideration of all information provided to the Board throughout the year and specifically with respect to the continuation of the Agreements. A more detailed discussion of the factors the Board considered with respect to its approval of the Agreements is provided below.
Nature, Extent and Quality of Services Provided by the Advisers
The Board requested and considered information concerning the nature, extent and quality of the services provided to the Fund by the Advisers. The Board considered, among other things, the terms of the Agreements and the range of services provided by the Advisers. The Board considered the Advisers’ professional personnel who provide services to the Fund, including each Adviser’s ability and experience in attracting and retaining qualified personnel to service the Fund. The Board considered each Adviser’s reputation and overall financial strength, as well as its willingness to consider and implement organizational and operational changes designed to enhance services to the Hartford Funds. In addition, the Board considered the quality of each Adviser’s communications with the Board and responsiveness to Board inquiries and requests made from time to time with respect to the Fund and other Hartford Funds.
The Board also requested and evaluated information concerning each Adviser’s regulatory and compliance environment. In this regard, the Board requested and reviewed information on each Adviser’s compliance policies and procedures, compliance history, and a report from the Fund’s Chief Compliance Officer on each Adviser’s compliance with applicable laws and regulations, including responses to regulatory developments and compliance issues raised by regulators. The Board also noted the Advisers’ support of the Fund’s compliance control structure, particularly the resources devoted by the Advisers in support of the Fund’s obligations pursuant to Rule 38a-1 under the 1940 Act.
With respect to HFMC, the Board noted that under the Agreements, HFMC is responsible for the management of the Fund, including oversight of fund operations and service providers, as well as investment advisory services in connection with selecting, monitoring and supervising the Sub-adviser. The Board considered HFMC’s ongoing monitoring of people, process and performance, including its quarterly reviews of each of
32 |
Hartford Small Company HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued) |
the Hartford Funds, semi-annual meetings with the leaders of each Fund’s portfolio management team, and oversight of the Hartford Funds’ approximately 37 portfolio managers. The Board recognized that HFMC has demonstrated a record of making changes to the management
and/or strategies of the Hartford Funds when warranted. The Board considered HFMC’s oversight of the Sub-adviser’s investment approach and results, process for monitoring best execution of portfolio trades by the Sub-adviser, and approach to risk management with respect to the Fund and the service providers to the Fund. The Board also considered HFMC’s oversight of compliance with the Fund’s objective and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over time led to an increase in the scope of HFMC’s services in this regard.
In addition, the Board considered HFMC’s ongoing commitment to review and rationalize the Hartford Funds product line-up and the expenses that HFMC had incurred in connection with fund combinations in recent years. The Board considered that HFMC or its affiliates are responsible for providing the Fund’s officers. The Board also noted that Hartford Life Insurance Company (“HLIC”) provides administrative services to the Fund. The Board considered its experiences with HFMC and HLIC with respect to each of these services.
With respect to the Sub-adviser, which provides certain day-to-day portfolio management services for the Fund, the Board considered the quality of the Fund’s portfolio managers, the Sub-adviser’s other investment personnel, its investment philosophy and process, investment research capabilities and resources, performance record, trade execution capabilities and experience. The Board considered the experience of the Fund’s portfolio managers, the number of accounts managed by the portfolio managers, and the Sub-adviser’s method for compensating the portfolio managers.
Based on these considerations, the Board concluded that it was satisfied with the nature, extent and quality of the services provided to the Fund by HFMC and the Sub-adviser.
Performance of the Fund and the Advisers
The Board considered the investment performance of the Fund. In this regard, the Board reviewed the performance of the Fund over different time periods presented in the materials and evaluated HFMC’s analysis of the Fund’s performance for these time periods. The Board considered information and materials provided to the Board by the Advisers concerning Fund performance, as well as information from Lipper comparing the investment performance of the Fund to an appropriate benchmark and universe of peer funds. The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, the 3rd quintile for the 3-year period and the 4th quintile for the 5-year period. The Board also noted that the Fund’s performance was above its benchmark for the 1-year period and in line with its benchmark for the 3- and 5-year periods.
The Board considered the detailed investment analytics reports provided by Hartford Funds’ Investment Advisory Group throughout the year. These reports include, among other things, information on the Fund’s gross and net returns, the Fund’s investment performance relative to an appropriate benchmark and peer group, various statistics concerning the Fund’s portfolio, and a narrative summary of various factors affecting Fund performance. The Board considered the Advisers’ cooperation with the Investment Committee, which assists the Board in evaluating the performance of the Fund at periodic meetings throughout the year. The Board also considered the analysis provided by the Consultant relating to the Fund’s performance track record.
In light of all the considerations noted above, the Board concluded that it had continued confidence in HFMC’s and the Sub-adviser’s overall capabilities to manage the Fund.
Costs of the Services and Profitability of the Advisers
The Board reviewed information regarding HFMC’s cost to provide investment management and related services to the Fund and HFMC’s profitability, both overall and for the Fund, on a pre-tax basis without regard to distribution expenses. The Board also requested and reviewed information about the profitability to HFMC and its affiliates from all services provided to the Fund and all aspects of their relationship with the Fund. The Board also requested and received information relating to the operations and profitability of the Sub-adviser.
The Board considered the Consultant’s review of the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement, noting the Consultant’s view that Hartford Funds’ process for calculating and reporting Fund profitability is reasonable. In this regard, the Board noted that the Consultant performed a full review of this process in light of the recent restructuring of the
33 |
Hartford Small Company HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued) |
Hartford Funds business and reported that the approach to analyzing Fund profitability, including the use of common expense allocation methodologies, is reasonable, sound and well within common industry practice.
Based on these considerations, the Board concluded that the profits anticipated to be realized by the Advisers and their affiliates from their relationships with the Fund would not be excessive.
Comparison of Fees and Services Provided by the Advisers
The Board considered comparative information with respect to the management fees to be paid by the Fund to HFMC and the total expense ratios of the Fund. The Board also considered comparative information with respect to the sub-advisory fees to be paid by HFMC to the Sub-adviser. In this regard, the Board requested and reviewed information from HFMC and the Sub-adviser relating to the management and sub-advisory fees, including the sub-advisory fee schedule for the Fund, and total operating expenses for the Fund. The Board considered that the management fee for the Fund includes the fee paid to HLIC for providing certain administrative services to the Fund. With respect to the sub-advisory fee schedule, the Board considered representations from HFMC and the Sub-adviser that the Sub-adviser’s fees were negotiated at arm’s length on a fund-by-fund basis. The Board also reviewed information from Lipper comparing the Fund’s contractual management fees, actual management fees and overall expense ratios relative to a group of funds selected by Lipper, in consultation with the Consultant, and a broader universe of funds selected by Lipper. The Board noted that the Fund’s contractual management fee, actual management fee and total expenses (less 12b-1 and shareholder service fees) were in the 1st quintile of its expense group.
While the Board recognized that comparisons between the Fund and peer funds may be imprecise, given the different service levels and characteristics of mutual funds and the different business models and cost structures of the Advisers, the comparative information provided by Lipper assisted the Board in evaluating the reasonableness of the Fund’s management and sub-advisory fees and total operating expenses. In addition, the Board considered the analysis and recommendations of the Consultant relating to the Fund’s management and sub-advisory fees and total operating expenses.
Based on these considerations, the Board concluded that the Fund’s fees and total operating expenses, in conjunction with the information about quality of services, profitability, economies of scale, and other matters discussed, were reasonable in light of the services provided.
Economies of Scale
The Board requested and considered information regarding the Advisers’ realization of economies of scale with respect to the Fund and whether the fee levels reflect these economies of scale for the benefit of the Fund’s shareholders. The Board reviewed the breakpoints in the management fee schedule for the Fund, which reduce fee rates as Fund assets grow over time. The Board recognized that a fund with assets beyond the highest breakpoint level will continue to benefit from economies of scale because additional assets are charged the lowest breakpoint fee resulting in lower overall effective management fee rates. The Board also recognized that a fee schedule that reaches a lower breakpoint quickly provides shareholders with the benefit of anticipated or potential economies of scale. The Board noted the effect of the sale and run-off of the variable annuity business on the HLS Funds.
The Board reviewed and evaluated materials from Lipper and the Consultant showing how management fee schedules of peer funds reflect economies of scale for the benefit of shareholders as a peer fund’s assets hypothetically increase over time. Based on information provided by HFMC, Lipper, and the Consultant, the Board recognized that there is no uniform methodology for establishing breakpoints or uniform pattern in asset levels that trigger breakpoints or the amounts of breakpoints triggered.
After considering all of the information available to it, the Board concluded that it was satisfied with the extent to which economies of scale would be shared for the benefit of the Fund’s shareholders based on currently available information and the effective advisory fees and expense ratios for the Fund at its current and reasonably anticipated asset levels. The Board noted, however, that it would continue to monitor future growth in Fund assets and the appropriateness of additional breakpoints.
Other Benefits
The Board considered other benefits to the Advisers and their affiliates from their relationships with the Fund, including the role of the Fund in supporting the variable life insurance and variable annuity products offered by The Hartford.
34 |
Hartford Small Company HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued) |
The Board noted that HLIC, an affiliate of HFMC, receives fees for providing certain administrative services to the Fund and that HFMC receives fees for fund accounting and related services from the Fund. The Board considered information on profits to HLIC and HFMC for such services. The Board also considered that Hartford Administrative Services Company (“HASCO”), the Fund’s transfer agent and an affiliate of HFMC,
receives transfer agency compensation from the Fund, and the Board reviewed information on the profitability of the Fund’s transfer agency function to HASCO. The Board considered information provided by HASCO indicating that the transfer agent fees charged by HASCO to the Fund were fair and reasonable based on publicly available information.
The Board also considered that Hartford Funds Distributors, LLC (“HFD”), an affiliate of HFMC, serves as principal underwriter of the Fund. As principal underwriter, HFD receives 12b-1 fees from the Fund. The Board also noted that certain affiliates of HFD distribute shares of the Fund and receive compensation in that connection.
The Board considered benefits to the Sub-adviser from its use of the Fund’s brokerage commissions to obtain soft dollar research, and representations from HFMC and the Sub-adviser that the Sub-adviser would not make any revenue-sharing payments or any other type of distribution payments to HFMC or its affiliates.
The Board considered the benefits to shareholders of being part of the Hartford Funds family of funds. The Board considered HFMC’s efforts to provide investors in the family with a broad range of investment styles and asset classes.
* * * *
Based upon its review of these various factors, among others, the Board concluded that it is in the best interests of the Fund and its shareholders for the Board to approve the Agreements for an additional year. In reaching this decision, the Board did not assign relative weights to the factors discussed above or deem any one or group of them to be controlling in and of themselves. In connection with their deliberations, the Independent Directors met separately in executive session on several occasions, with independent legal counsel and the Consultant, to review the relevant materials and consider their responsibilities under relevant laws and regulations.
35 |
Hartford Small Company HLS Fund |
Main Risks (Unaudited) |
The main risks of investing in the Fund are described below.
Market, Selection and Strategy Risk: The Fund’s share price may fluctuate due to market risk and/or security selections that may underperform the market or relevant benchmarks. If the sub-adviser's investment strategy does not perform as expected, the Fund could underperform its peers or lose money. There is no guarantee the Fund will achieve its stated objective.
Small-Cap Stock Risk: Small-cap stocks are generally more volatile and risky and may be less liquid than large-cap stocks because they may have limited operating histories, narrow product lines, and focus on niche markets.
Foreign Investment Risk: Investments in foreign securities may be riskier than investments in U.S. securities. Potential risks include the risks of illiquidity, increased price volatility, less government regulation, less extensive and less frequent accounting and other reporting requirements, unfavorable changes in currency exchange rates, and economic and political disruptions.
Active Trading Risk: Actively trading investments may result in higher costs (thus affecting performance).
36 |
THIS PRIVACY POLICY IS NOT PART OF THIS REPORT
Privacy Policy and Practices of The Hartford Financial Services Group, Inc. and its Affiliates
(herein called “we, our and us”)
This Privacy Policy applies to our United States Operations
We value your trust. We are committed to the responsible: a) management; b) use; and c) protection; of Personal Information. This notice describes how we collect, disclose, and protect Personal Information. We collect Personal Information to: a) service your Transactions with us; and b) support our business functions. We may obtain Personal Information from: a) You; b) your Transactions with us; and c) third parties such as a consumer-reporting agency. Based on the type of product or service You apply for or get from us, Personal Information such as: a) your name; b) your address; c) your income; d) your payment; or e) your credit history; may be gathered from sources such as applications, Transactions, and consumer reports. To serve You and service our business, we may share certain Personal Information. We will share Personal Information, only as allowed by law, with affiliates such as: a) our insurance companies; b) our employee agents; c) our brokerage firms; and d) our administrators. As allowed by law, we may share Personal Financial Information with our affiliates to: a) market our products; or b) market our services; to You without providing You with an option to prevent these disclosures. | We may also share Personal Information, only as allowed by law, with unaffiliated third parties including: a) independent agents; b) brokerage firms; c) insurance companies; d) administrators; and e) service providers; who help us serve You and service our business. When allowed by law, we may share certain Personal Financial Information with other unaffiliated third parties who assist us by performing services or functions such as: a) taking surveys; b) marketing our products or services; or c) offering financial products or services under a joint agreement between us and one or more financial institutions. We, and third parties we partner with, may track some of the pages You visit through the use of: a) cookies; b) pixel tagging; or c) other technologies; and currently do not process or comply with any web browser’s “do not track” signal or similar mechanism that indicates a request to disable online tracking of individual users who visit our websites or use our services. We will not sell or share your Personal Financial Information with anyone for purposes unrelated to our business functions without offering You the opportunity to: a) “opt-out;” or b) “opt-in;” as required by law. We only disclose Personal Health Information with: a) your proper written authorization; or b) as otherwise allowed or required by law. Our employees have access to Personal Information in the course of doing their jobs, such as: a) underwriting policies; b) paying claims; c) developing new products; or d) advising customers of our products and services. |
We use manual and electronic security procedures to maintain: a) the confidentiality; and b) the integrity of; Personal Information that we have. We use these procedures to guard against unauthorized access. Some techniques we use to protect Personal Information include: a) secured files; b) user authentication; c) encryption; d) firewall technology; and e) the use of detection software. We are responsible for and must: a) identify information to be protected; b) provide an adequate level of protection for that data; c) grant access to protected data only to those people who must use it in the performance of their job-related duties. Employees who violate our Privacy Policy will be subject to discipline, which may include ending their employment with us. At the start of our business relationship, we will give You a copy of our current Privacy Policy. We will also give You a copy of our current Privacy Policy once a year if You maintain a continuing business relationship with us. We will continue to follow our Privacy Policy regarding Personal Information even when a business relationship no longer exists between us. | As used in this Privacy Notice: Application means your request for our product or service. Personal Financial Information means financial information such as: a) credit history; b) income; c) financial benefits; or d) policy or claim information. Personal Health Information means health information such as: a) your medical records; or b) information about your illness, disability or injury. Personal Information means information that identifies You personally and is not otherwise available to the public. It includes: a) Personal Financial Information; and b) Personal Health Information. Transaction means your business dealings with us, such as: a) your Application; b) your request for us to pay a claim; and c) your request for us to take an action on your account. You means an individual who has given us Personal Information in conjunction with: a) asking about; b) applying for; or c) obtaining; a financial product or service from us if the product or service is used mainly for personal, family, or household purposes. |
This Privacy Policy is being provided on behalf of the following affiliates of The Hartford Financial Services Group, Inc.:
1stAGChoice, Inc.; Access CoverageCorp, Inc.; Access CoverageCorp Technologies, Inc.; American Maturity Life Insurance Company; Archway 60 R, LLC; Business Management Group, Inc.; DMS R, LLC; First State Insurance Company; Fountain Investors I LLC; Fountain Investors II LLC; Fountain Investors III LLC; Fountain Investors IV LLC; FTC Resolution Company LLC; Hart Re Group L.L.C.; Hartford Accident and Indemnity Company; Hartford Administrative Services Company; Hartford Casualty General Agency, Inc.; Hartford Casualty Insurance Company; Hartford Financial Services, LLC; Hartford Fire General Agency, Inc.; Hartford Fire Insurance Company; Hartford Funds Distributors, LLC; Hartford Funds Management Company, LLC; Hartford Funds Management Group, Inc.; Hartford Holdings, Inc.; Hartford HLS Series Fund II, Inc.; Hartford Insurance Company of Illinois; Hartford Insurance Company of the Midwest; Hartford Insurance Company of the Southeast; Hartford Integrated Technologies, Inc.; Hartford International Life Reassurance Corporation; Hartford Investment Management Company; Hartford Life and Accident Insurance Company; Hartford Life and Annuity Insurance Company; Hartford Life Insurance Company; Hartford Life, Inc.; Hartford Life International Holding Company; Hartford Life Private Placement, LLC; Hartford Lloyd’s Corporation; Hartford Lloyd’s Insurance Company; Hartford of Texas General Agency, Inc.; Hartford Residual Market, L.C.C.; Hartford Securities Distribution Company, Inc.; Hartford Series Fund, Inc.; Hartford Specialty Insurance Services of Texas, LLC; Hartford Strategic Investments, LLC; Hartford Underwriters General Agency, Inc.; Hartford Underwriters Insurance Company; Hartford-Comprehensive Employee Benefit Service Company; HDC R, LLC.; Heritage Holdings, Inc.; HIMCO Distribution Services Company; HIMCO Variable Insurance Trust; HLA LLC; HL Investment Advisors, LLC; Horizon Management Group, LLC; HRA Brokerage Services, Inc.; Lanidex Class B, LLC; New England Insurance Company; New England Reinsurance Corporation; Nutmeg Insurance Agency, Inc.; Nutmeg Insurance Company; Pacific Insurance Company, Limited; Planco, LLC; Property and Casualty Insurance Company of Hartford; Revere R, LLC; RVR R, LLC; Sentinel Insurance Company, Ltd.; Sunstone R, LLC; Symphony R, LLC; The Evergreen Group Incorporated; The Hartford Alternative Strategies Fund; The Hartford Mutual Funds, Inc.; The Hartford Mutual Funds II, Inc.; Trumbull Flood Management, L.L.C.; Trumbull Insurance Company; Twin City Fire Insurance Company.
HPP Revised February 2015
HARTFORD HLS FUNDS
P.O. Box 14293
Lexington, KY 40512-4293
HARTFORDFUNDS
hartfordfunds.com
Hartford HLS Funds are underwritten and distributed by Hartford Funds Distributors, LLC.
Hartford Series Fund, Inc. is not a subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford") but is underwritten, distributed by and advised by subsidiaries of The Hartford. Investments in Hartford Series Fund, Inc. are not guaranteed by The Hartford or any other entity.
This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution unless preceded or accompanied by a current prospectus for the Fund.
Investors should carefully consider the investment objectives, risks, charges, and expenses of Hartford Funds before investing. This and other information can be found in the prospectus and summary prospectus, which can be obtained by calling 888-843-7824 (or 800-279-1541 for institutional investors). Investors should read them carefully before they invest.
HLSAR-SC14 2-15 113551-4 Printed in U.S.A.
HARTFORDFUNDS
![]() | HARTFORD STOCK HLS FUND
2014 Annual Report |
A MESSAGE FROM THE PRESIDENT
Dear Fellow Shareholders:
Thank you for investing in Hartford HLS Funds.
Market Review
Nearly six years into a bull market, U.S. equities (as represented by the S&P 500 Index ) notched another positive year in 2014, finishing with a 13.69% gain. Progress was smooth for most of the year, with stocks generally rising amid little volatility. In the fourth quarter, however, the price of oil declined by nearly 40%, returning volatility to the market and paring some of the year’s returns.
As we enter 2015, the price of oil will likely continue playing an important role in market progress, as its effects are widespread. If prices remain low, consumers should benefit by paying less at the gas pump, which increases the amount of money available for discretionary spending. In contrast, low prices may be a detriment to the oil and natural gas industry in the U.S., as well as to the economies of countries that rely more heavily on oil exports.
Central-bank policies will also continue to influence the markets. The U.S. economy has continued to show self-sustaining growth, which has prompted the U.S. Federal Reserve to wind down the quantitative easing programs it initiated after the global financial crisis. In addition, gradual increases in interest rates are expected to begin in 2015, another sign of positive recovery and a return to pre-crisis policy. But in Europe, a slow recovery and fears of deflation have prompted the start of European Central Bank’s own version of quantitative easing to spur growth.
The final weeks of 2014 provided a stark reminder of how unpredictable market movements can be, and how important it is to maintain a diversified portfolio that’s in line with your time horizon and risk tolerance. As we begin 2015, take time to review your portfolio and your overall investment strategy with your financial advisor.
With more than 40 mutual-fund strategies that span a variety of asset classes and investment goals, your financial advisor can work with you to choose options within our fund family that can help you navigate today’s markets with confidence.
Thank you again for investing with Hartford HLS Funds.
James Davey
President
Hartford HLS Funds
1The S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
Table of Contents
This report is prepared for the general information of contract owners and qualified retirement plan participants. It is not an offer of contracts or of qualified retirement plans. It should not be used in connection with any offer, except in conjunction with the appropriate product prospectus which contains all pertinent information including the applicable sales, administrative and other charges.
The views expressed in the Fund’s Manager Discussion under ‘‘Why did the Fund perform this way?’’ and ‘‘What is the outlook?’’ are views of the Fund’s sub-adviser and portfolio management team through the end of the period and are subject to change based on market and other conditions. The Fund’s Manager Discussion is for informational purposes only and does not represent an offer, recommendation or solicitation to buy, hold or sell any security. The specific securities identified and described, if any, do not represent all of the securities purchased or sold and you should not assume that investments in the securities identified and discussed will be profitable.
Hartford Stock HLS Fund inception 08/31/1977
(sub-advised by Wellington Management Company, LLP)
Investment objective – The Fund seeks long-term growth of capital.
Performance Overview 12/31/04 - 12/31/14
The chart above represents the hypothetical growth of a $10,000 investment in Class IA. Growth results in classes other than Class IA will vary from what is seen above due to differences in the expenses charged to those share classes.
Average Annual Total Returns (as of 12/31/14) (1) (2)
1 Year | 5 Years | 10 Years | |
Stock IA | 11.31% | 13.84% | 7.43% |
Stock IB | 11.04% | 13.56% | 7.17% |
Russell 1000 Index | 13.24% | 15.64% | 7.96% |
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of the investment will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain performance data current to the most recent month-end, please visit our website www.hartfordfunds.com.
Total returns presented above were calculated using the Fund’s net asset value available to shareholders for sale or redemption of Fund shares on December 31, 2014, which may exclude investment transactions as of this date. All share class returns assume the reinvestment of all distributions at net asset value and the deduction of all fund expenses.
Russell 1000 Index is an unmanaged index that measures the performance of the 1,000 largest companies in the Russell 3000 Index, which measures the performance of the 3,000 largest U.S. companies, based on total market capitalizations.
The index is unmanaged, and its results include reinvested dividends and/or distributions, but do not reflect the effect of sales charges, commissions, expenses or taxes.
You cannot invest directly in an index.
As shown in the Fund's current prospectus dated May 1, 2014, the total annual operating expense ratios for Class IA and Class IB were 0.51% and 0.76%, respectively. Actual expenses may be higher. Please see the accompanying Financial Highlights for expense ratios for the year ended December 31, 2014.
The chart and table do not reflect the deductions of taxes, sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees or expenses would lower the contract’s or plan’s performance.
All investments are subject to risk including the possible loss of principal. For a discussion of the Fund’s risks, please see the Main Risks section of this report. For more detailed information on the risks associated with an investment in the Fund, please see the prospectus.
2 |
Hartford Stock HLS Fund |
Manager Discussion
December 31, 2014 (Unaudited)
Portfolio Manager
Donald J. Kilbride
Senior Managing Director and Equity Portfolio Manager
How did the Fund perform?
The Class IA shares of the Hartford Stock HLS Fund returned 11.31% for the twelve-month period ended December 31, 2014, underperforming the Fund’s benchmark, the Russell 1000 Index, which returned 13.24% for the same period. The Fund also underperformed the 11.48% average return of the Lipper Large-Cap Core Funds peer group, a group of funds with investment strategies similar to those of the Fund.
Why did the Fund perform this way?
U.S. equities surged during the period, despite bouts of significant volatility. After finishing their best year since 1997, U.S. stocks began 2014 with their worst month in nearly two years. Worries about an economic slowdown in China and general angst surrounding emerging markets overshadowed a fairly benign domestic environment. However, robust merger and acquisition activity, an uncontested increase in the debt ceiling from Congress, renewed signs of life in the housing market, and the best payroll gain in more than two years helped stoke investors' risk appetites in the first half of the period. A pullback in July ended a streak of five consecutive monthly gains. Fear gripped the market as heightened geopolitical risks, a potential Portuguese banking crisis, and worries of U.S. Federal Reserve (Fed) tightening took center stage. Stocks rebounded in August based on encouraging economic data, headlined by better-than-expected gross domestic product (GDP) growth and signs that the housing recovery still had legs. However, the reality of quantitative easing ending and the prospect of higher federal funds rates in mid-2015 contributed to increased risk aversion levels. Stocks rebounded again in October, hitting an all-time high on the heels of a positive earnings season and generally solid economic data. The rally continued in November after Republicans took control of the U.S. Senate but stocks pulled back slightly near month-end, led by weakness in the energy sector associated with the significant decline in oil prices. In December, U.S. equities closed at an all-time high on December 29th but fell 1.4% during the final two trading days of the year. The Fed helped to support riskier assets at the end of the year after it stated it can be "patient" with regards to starting the process of bringing interest rates to normal levels. Returns also varied noticeably by market-cap, as small- and mid-cap stocks underperformed large-cap stocks.
Overall equity market performance was positive for the period across all market capitalizations: large cap (+13%), mid cap (+10%), and small cap equities (+5%) all rose, as represented by the Russell 1000, S&P 400 MidCap, and Russell 2000 Indices, respectively. During the twelve-month period, nine of the ten sectors rose within the Russell 1000 Index, led by Utilities (+28%), Healthcare (+26%), and Information Technology (+19%). Energy (-9%) and Telecommunication Services (+2%) lagged on a relative basis.
The Fund’s underperformance versus the Russell 1000 Index was primarily driven by weak security selection within Consumer Staples, Consumer Discretionary, and Healthcare, which offset stronger selection within Industrials and Financials. Sector allocation also detracted from relative returns due primarily to underweight allocations to the Information Technology and Utilities sectors and an overweight allocation to the Energy sector. A modest cash position also detracted in an upward trending market environment.
Stocks that detracted the most from benchmark relative returns during the period were BG Group (Energy), Mattel (Consumer Discretionary), and Apple (Information Technology). Shares of BG Group, a U.K.-based natural gas-focused oil and gas exploration company, fell during the period after the company’s third quarter results fell short of consensus expectation. Shares of Mattel, a worldwide leader in the design, manufacture, and marketing of toys and family products, underperformed during the period as the company recently suffered from deteriorating fundamentals. Shares of Apple, a designer and manufacturer of consumer electronics, software, and computers, hit record-high levels during the period driven by strong demand for iPhone 6 and 6 Plus. Not owning the strong performing Russell 1000 Index constituent detracted from relative returns during the period. Academy CoInvest (Consumer Discretionary) also detracted from performance on an absolute basis.
Top contributors to both absolute and benchmark relative performance during the period included UnitedHealth Group (Healthcare), Lowe’s (Consumer Discretionary), and Lockheed Martin (Industrials). Shares of UnitedHealth Group, a U.S.-based health care benefits and services provider, rose during the period as the company continues to benefit from the Affordable Care Act (ACA). Healthcare reform will mean greater volumes (more people with insurance), which should benefit UnitedHealth as their customer base grows. Reform will also mean that more healthcare policy will focus on value-based evidence of success, which is one of the many areas the technology and services business is focused on. Shares of Lowe’s, a U.S.-based home improvement retailer, rose during the period after the company reported better-than-expected third-quarter earnings results and raised full-year guidance, sending the stock price higher. Shares of Lockheed Martin, a global security and aerospace company, rose during the period after investors continued to show confidence in the company’s F-35 program which some believe is one of the most powerful weapons programs in history.
3 |
Hartford Stock HLS Fund |
Manager Discussion – (continued)
December 31, 2014 (Unaudited)
Derivatives are not used in a significant manner in the Fund and did not have a material impact on performance during the period.
What is the outlook?
As we look into 2015, our expectation for the year is for more of the same. The global backdrop we have been using for much of the last three years seems intact. In our view, that backdrop includes a relatively healthy U.S., a very messy Europe and a very uncertain China. The difference now is that we believe it’s possible to see how all three of those could change. Or said another way, how all three could be overly discounted in the markets. For example, conditions in the U.S. seem very good (at least relatively), but the U.S. market seems to have more than adequately priced for it. Should the Fed act decisively on either rates or its balance sheet, the market might react strongly as underlying economic performance doesn’t seem sufficiently strong to fight through. The consensus view is that Europe is trouble. While we believe that seems likely true, aggressive action by the European Central Bank might provide enough liquidity to turn the tide and markets. Finally, China is fighting a variety of challenges, the most profound of which, in our view, is a certain slowing of the economy. We believe how that is managed by the Chinese government will be critical.
At the end of the period, our bottom-up investment approach resulted in overweight exposures in Consumer Staples, Industrials, and Healthcare as we continued to find attractive investment opportunities in these sectors. The Fund’s largest underweights relative to the Russell 1000 Index were in Information Technology, Financials, and Utilities.
Diversification by Sector
as of December 31, 2014
Sector | Percentage of Net Assets | |||
Equity Securities | ||||
Consumer Discretionary | 12.8 | % | ||
Consumer Staples | 14.5 | |||
Energy | 9.2 | |||
Financials | 12.9 | |||
Health Care | 17.8 | |||
Industrials | 16.3 | |||
Information Technology | 10.5 | |||
Materials | 4.2 | |||
Utilities | 1.1 | |||
Total | 99.3 | % | ||
Short-Term Investments | 1.1 | |||
Other Assets and Liabilities | (0.4 | ) | ||
Total | 100.0 | % |
A sector may be comprised of several industries. For Fund compliance purposes, the Fund may not use the same classification system and these sector classifications are used for reporting ease.
4 |
Hartford Stock HLS Fund |
Schedule of Investments
December 31, 2014
(000’s Omitted)
Shares or Principal Amount | Market Value ╪ | |||||||
Common Stocks - 99.3% | ||||||||
Banks - 3.2% | ||||||||
307 | PNC Financial Services Group, Inc. | $ | 27,993 | |||||
495 | Wells Fargo & Co. | 27,150 | ||||||
55,143 | ||||||||
Capital Goods - 11.2% | ||||||||
329 | Emerson Electric Co. | 20,301 | ||||||
154 | General Dynamics Corp. | 21,237 | ||||||
329 | Honeywell International, Inc. | 32,846 | ||||||
232 | Lockheed Martin Corp. | 44,626 | ||||||
220 | Northrop Grumman Corp. | 32,441 | ||||||
371 | United Technologies Corp. | 42,703 | ||||||
194,154 | ||||||||
Consumer Durables and Apparel - 3.4% | ||||||||
551 | Mattel, Inc. | 17,052 | ||||||
440 | NIKE, Inc. Class B | 42,319 | ||||||
59,371 | ||||||||
Consumer Services - 2.2% | ||||||||
416 | McDonald's Corp. | 38,999 | ||||||
Diversified Financials - 1.8% | ||||||||
86 | BlackRock, Inc. | 30,905 | ||||||
Energy - 9.2% | ||||||||
2,072 | BG Group plc | 27,724 | ||||||
378 | Chevron Corp. | 42,442 | ||||||
496 | Enbridge, Inc. | 25,500 | ||||||
436 | Exxon Mobil Corp. | 40,300 | ||||||
274 | Schlumberger Ltd. | 23,385 | ||||||
159,351 | ||||||||
Food and Staples Retailing - 4.5% | ||||||||
349 | CVS Health Corp. | 33,588 | ||||||
517 | Wal-Mart Stores, Inc. | 44,381 | ||||||
77,969 | ||||||||
Food, Beverage and Tobacco - 6.1% | ||||||||
282 | Anheuser-Busch InBev N.V. | 31,742 | ||||||
1,039 | Coca-Cola Co. | 43,860 | ||||||
1,028 | Diageo Capital plc | 29,443 | ||||||
105,045 | ||||||||
Health Care Equipment and Services - 7.7% | ||||||||
549 | Cardinal Health, Inc. | 44,334 | ||||||
542 | Medtronic, Inc. | 39,166 | ||||||
498 | UnitedHealth Group, Inc. | 50,351 | ||||||
133,851 | ||||||||
Household and Personal Products - 3.9% | ||||||||
458 | Colgate-Palmolive Co. | 31,678 | ||||||
396 | Procter & Gamble Co. | 36,105 | ||||||
67,783 | ||||||||
Insurance - 6.7% | ||||||||
388 | ACE Ltd. | 44,563 | ||||||
305 | Chubb Corp. | 31,536 | ||||||
699 | Marsh & McLennan Cos., Inc. | 40,015 | ||||||
116,114 | ||||||||
Materials - 4.2% | ||||||||
274 | Ecolab, Inc. | 28,652 | ||||||
339 | Praxair, Inc. | 43,959 | ||||||
72,611 | ||||||||
Media - 1.5% | ||||||||
270 | Walt Disney Co. | 25,447 | ||||||
Pharmaceuticals, Biotechnology and Life Sciences - 10.1% | ||||||||
190 | Amgen, Inc. | 30,313 | ||||||
411 | Johnson & Johnson | 42,936 | ||||||
738 | Merck & Co., Inc. | 41,889 | ||||||
732 | Pfizer, Inc. | 22,801 | ||||||
140 | Roche Holding AG | 38,014 | ||||||
175,953 | ||||||||
Real Estate - 1.2% | ||||||||
118 | Public Storage REIT | 21,751 | ||||||
Retailing - 5.7% | ||||||||
9,440 | Allstar Co. ⌂●† | 9,754 | ||||||
556 | Lowe's Cos., Inc. | 38,254 | ||||||
750 | TJX Cos., Inc. | 51,405 | ||||||
99,413 | ||||||||
Software and Services - 10.5% | ||||||||
484 | Accenture plc | 43,232 | ||||||
498 | Automatic Data Processing, Inc. | 41,513 | ||||||
105 | IBM Corp. | 16,913 | ||||||
926 | Microsoft Corp. | 43,009 | ||||||
847 | Oracle Corp. | 38,111 | ||||||
182,778 | ||||||||
Transportation - 5.1% | ||||||||
481 | Canadian National Railway Co. | 33,108 | ||||||
494 | United Parcel Service, Inc. Class B | 54,875 | ||||||
87,983 | ||||||||
Utilities - 1.1% | ||||||||
248 | Dominion Resources, Inc. | 19,047 | ||||||
Total Common Stocks | ||||||||
( Cost $1,290,311) | $ | 1,723,668 | ||||||
Total Long-Term Investments | ||||||||
(Cost $1,290,311) | $ | 1,723,668 | ||||||
Short-Term Investments - 1.1% | ||||||||
Repurchase Agreements - 1.1% | ||||||||
Bank of America Merrill Lynch Repurchase Agreement (maturing on 01/02/2015 in the amount of $18, collateralized by U.S. Treasury Note 0.75%, 2018, value of $18) | ||||||||
$ | 18 | 0.05%, 12/31/2014 | $ | 18 | ||||
Bank of America Merrill Lynch TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $92, collateralized by U.S. Treasury Note 2.50%, 2024, value of $94) | ||||||||
92 | 0.07%, 12/31/2014 | 92 | ||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $2,393, collateralized by U.S. Treasury Bond 3.88% - 5.25%, 2029 - 2040, U.S. Treasury Note 0.25% - 4.63%, 2015 - 2022, value of $2,441) | ||||||||
2,393 | 0.06%, 12/31/2014 | 2,393 |
The accompanying notes are an integral part of these financial statements.
5 |
Hartford Stock HLS Fund |
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Shares or Principal Amount | Market Value ╪ | |||||||||||
Short-Term Investments - 1.1% - (continued) | ||||||||||||
Repurchase Agreements - 1.1% - (continued) | ||||||||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $1,043, collateralized by FHLMC 2.00% - 5.50%, 2019 - 2044, FNMA 2.00% - 4.00%, 2024 - 2042, GNMA 3.00%, 2043, U.S. Treasury Bill 0.07%, 2015, value of $1,064) | ||||||||||||
$ | 1,043 | 0.07%, 12/31/2014 | $ | 1,043 | ||||||||
Barclays Capital TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $2,563, collateralized by U.S. Treasury Bond 3.63%, 2043, U.S. Treasury Note 0.88% - 2.00%, 2017 - 2020, value of $2,614) | ||||||||||||
2,563 | 0.05%, 12/31/2014 | 2,563 | ||||||||||
Citigroup Global Markets, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $4,581, collateralized by U.S. Treasury Bond 3.63% - 9.88%, 2015 - 2043, U.S. Treasury Note 0.25% - 2.75%, 2015 - 2022, value of $4,672) | ||||||||||||
4,581 | 0.06%, 12/31/2014 | 4,581 | ||||||||||
Deutsche Bank Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $743, collateralized by FHLMC 2.00% - 10.50%, 2015 - 2047, FNMA 2.00% - 9.50%, 2015 - 2049, GNMA 2.50% - 10.00%, 2016 - 2055, value of $758) | ||||||||||||
743 | 0.12%, 12/31/2014 | 743 | ||||||||||
RBS Securities, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $195, collateralized by U.S. Treasury Note 0.38% - 2.13%, 2015 - 2016, value of $199) | ||||||||||||
195 | 0.07%, 12/31/2014 | 195 | ||||||||||
Societe Generale TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $2,179, collateralized by U.S. Treasury Bond 8.75%, 2020, U.S. Treasury Note 0.25% - 2.88%, 2015 - 2022, value of $2,223) | ||||||||||||
2,179 | 0.07%, 12/31/2014 | 2,179 | ||||||||||
TD Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $4,667, collateralized by FHLMC 3.00% - 4.00%, 2026 - 2044, FNMA 2.50% - 5.00%, 2025 - 2044, value of $4,761) | ||||||||||||
4,667 | 0.08%, 12/31/2014 | 4,667 | ||||||||||
18,474 | ||||||||||||
Total Short-Term Investments | ||||||||||||
(Cost $18,474) | $ | 18,474 | ||||||||||
Total Investments | ||||||||||||
(Cost $1,308,785) ▲ | 100.4 | % | $ | 1,742,142 | ||||||||
Other Assets and Liabilities | (0.4 | )% | (7,253 | ) | ||||||||
Total Net Assets | 100.0 | % | $ | 1,734,889 |
The accompanying notes are an integral part of these financial statements.
6 |
Hartford Stock HLS Fund |
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Note: Percentage of investments as shown is the ratio of the total market value to total net assets.
Prices of foreign equities that are principally traded on certain foreign markets may be adjusted daily pursuant to a fair value pricing service approved by the Board of Directors in order to reflect an adjustment for factors occurring after the close of certain foreign markets but before the close of the New York Stock Exchange.
Equity industry classifications used in this report are the Global Industry Classification Standard, which was developed by and is the exclusive property and service mark of MSCI, Inc. and Standard & Poor’s.
For Fund compliance purposes, the Fund may not use the same classification system shown in this report as these classifications are used for reporting ease.
▲ | At December 31, 2014, the cost of securities for federal income tax purposes was $1,311,150 and the aggregate gross unrealized appreciation and depreciation based on that cost were: |
Unrealized Appreciation | $ | 461,467 | ||
Unrealized Depreciation | (30,475 | ) | ||
Net Unrealized Appreciation | $ | 430,992 |
† | These securities are valued in good faith at fair value as determined under policies and procedures established by and under the supervision of the Board of Directors. At December 31, 2014, the aggregate fair value of these securities was $9,754, which represents 0.6% of total net assets. This amount excludes securities that are principally traded in certain foreign markets and whose prices are adjusted pursuant to a third party pricing service methodology approved by the Board of Directors. |
● | Non-income producing. |
⌂ | The following securities are considered illiquid. Illiquid securities are often purchased in private placement transactions, are often not registered under the Securities Act of 1933, as amended, and may have contractual restrictions on resale. Illiquid securities may lack a readily available market or their valuation has not changed for a certain period of time. |
Period Acquired | Shares/ Par | Security | Cost Basis | |||||||
08/2011 | 9,440 | Allstar Co. | $ | 4,107 |
At December 31, 2014, the aggregate value of these securities was $9,754, which represents 0.6% of total net assets.
╪ | See Significant Accounting Policies of accompanying Notes to Financial Statements regarding valuation of securities. |
GLOSSARY: (abbreviations used in preceding Schedule of Investments) | |
Other Abbreviations: | |
FHLMC | Federal Home Loan Mortgage Corp. |
FNMA | Federal National Mortgage Association |
GNMA | Government National Mortgage Association |
REIT | Real Estate Investment Trust |
The accompanying notes are an integral part of these financial statements.
7 |
Hartford Stock HLS Fund |
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Investment Valuation Hierarchy Level Summary
December 31, 2014
Total | Level 1 ♦ | Level 2 ♦ | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Common Stocks ‡ | $ | 1,723,668 | $ | 1,586,991 | $ | 126,923 | $ | 9,754 | ||||||||
Short-Term Investments | 18,474 | – | 18,474 | – | ||||||||||||
Total | $ | 1,742,142 | $ | 1,586,991 | $ | 145,397 | $ | 9,754 |
♦ | For the year ended December 31, 2014, there were no transfers between Level 1 and Level 2. |
‡ | The Fund has all or primarily all of the equity securities categorized in a particular level. Refer to the Schedule of Investments for further industry breakout. |
Following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
Balance as | Realized | Change in | Net | Purchases | Sales | Transfers | Transfers | Balance as | ||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||
Common Stocks | $ | 20,482 | $ | — | $ | (9,256 | )* | $ | — | $ | — | $ | (1,472 | ) | $ | — | $ | — | $ | 9,754 | ||||||||||||||||
Total | $ | 20,482 | $ | — | $ | (9,256 | ) | $ | — | $ | — | $ | (1,472 | ) | $ | — | $ | — | $ | 9,754 |
* | Change in unrealized appreciation (depreciation) in the current period relating to assets still held at December 31, 2014 was $(9,256). |
Note: | For purposes of reporting transfers between different hierarchy levels, both transfers in and out of each level, as applicable, are shown as if they occurred at the beginning of the period. |
The accompanying notes are an integral part of these financial statements.
8 |
Hartford Stock HLS Fund |
Statement of Assets and Liabilities
December 31, 2014
(000’s Omitted)
Assets: | ||||
Investments in securities, at market value (cost $1,308,785) | $ | 1,742,142 | ||
Cash | — | |||
Receivables: | ||||
Fund shares sold | 375 | |||
Dividends and interest | 2,897 | |||
Total assets | 1,745,414 | |||
Liabilities: | ||||
Payables: | ||||
Fund shares redeemed | 10,238 | |||
Investment management fees | 184 | |||
Distribution fees | 10 | |||
Accrued expenses | 93 | |||
Total liabilities | 10,525 | |||
Net assets | $ | 1,734,889 | ||
Summary of Net Assets: | ||||
Capital stock and paid-in-capital | $ | 1,718,705 | ||
Undistributed net investment income | 1,120 | |||
Accumulated net realized loss | (418,233 | ) | ||
Unrealized appreciation of investments and the translations of assets and liabilities denominated in foreign currency | 433,297 | |||
Net assets | $ | 1,734,889 | ||
Shares authorized | 4,200,000 | |||
Par value | $ | 0.001 | ||
Class IA: Net asset value per share | $ | 63.49 | ||
Shares outstanding | 24,455 | |||
Net assets | $ | 1,552,777 | ||
Class IB: Net asset value per share | $ | 63.46 | ||
Shares outstanding | 2,870 | |||
Net assets | $ | 182,112 |
The accompanying notes are an integral part of these financial statements.
9 |
Hartford Stock HLS Fund |
Statement of Operations
For the Year Ended December 31, 2014
(000’s Omitted)
Investment Income: | ||||
Dividends | $ | 41,215 | ||
Interest | 13 | |||
Less: Foreign tax withheld | (704 | ) | ||
Total investment income, net | 40,524 | |||
Expenses: | ||||
Investment management fees | 8,387 | |||
Transfer agent fees | 5 | |||
Distribution fees - Class IB | 472 | |||
Custodian fees | 16 | |||
Accounting services fees | 177 | |||
Board of Directors' fees | 46 | |||
Audit fees | 37 | |||
Other expenses | 222 | |||
Total expenses (before fees paid indirectly) | 9,362 | |||
Commission recapture | (3 | ) | ||
Total fees paid indirectly | (3 | ) | ||
Total expenses, net | 9,359 | |||
Net Investment Income | 31,165 | |||
Net Realized Gain on Investments and Foreign Currency Transactions: | ||||
Net realized gain on investments | 146,032 | |||
Net realized gain on foreign currency contracts | 29 | |||
Net realized loss on other foreign currency transactions | (71 | ) | ||
Net Realized Gain on Investments and Foreign Currency Transactions | 145,990 | |||
Net Changes in Unrealized Appreciation of Investments and Foreign Currency Transactions: | 8,836 | |||
Net unrealized appreciation of investments | 8,918 | |||
Net unrealized depreciation on translation of other assets and liabilities in foreign currencies | (82 | ) | ||
Net Changes in Unrealized Appreciation of Investments and Foreign Currency Transactions | 8,836 | |||
Net Gain on Investments and Foreign Currency Transactions | 154,826 | |||
Net Increase in Net Assets Resulting from Operations | $ | 185,991 |
The accompanying notes are an integral part of these financial statements.
10 |
Hartford Stock HLS Fund |
Statement of Changes in Net Assets
(000’s Omitted)
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Operations: | ||||||||
Net investment income | $ | 31,165 | $ | 33,934 | ||||
Net realized gain on investments and foreign currency transactions | 145,990 | 160,508 | ||||||
Net unrealized appreciation of investments and foreign currency transactions | 8,836 | 313,072 | ||||||
Net Increase in Net Assets Resulting from Operations | 185,991 | 507,514 | ||||||
Distributions to Shareholders: | ||||||||
From net investment income | ||||||||
Class IA | (28,166 | ) | (30,025 | ) | ||||
Class IB | (2,832 | ) | (3,209 | ) | ||||
Total distributions | (30,998 | ) | (33,234 | ) | ||||
Capital Share Transactions: | ||||||||
Class IA | ||||||||
Sold | 22,944 | 30,364 | ||||||
Issued on reinvestment of distributions | 28,166 | 30,025 | ||||||
Redeemed | (304,218 | ) | (345,934 | ) | ||||
Total capital share transactions | (253,108 | ) | (285,545 | ) | ||||
Class IB | ||||||||
Sold | 1,411 | 11,893 | ||||||
Issued on reinvestment of distributions | 2,832 | 3,209 | ||||||
Redeemed | (42,954 | ) | (64,391 | ) | ||||
Total capital share transactions | (38,711 | ) | (49,289 | ) | ||||
Net decrease from capital share transactions | (291,819 | ) | (334,834 | ) | ||||
Net Increase (Decrease) in Net Assets | (136,826 | ) | 139,446 | |||||
Net Assets: | ||||||||
Beginning of period | 1,871,715 | 1,732,269 | ||||||
End of period | $ | 1,734,889 | $ | 1,871,715 | ||||
Undistributed (distributions in excess of) net investment income | $ | 1,120 | $ | 927 | ||||
Shares: | ||||||||
Class IA | ||||||||
Sold | 382 | 588 | ||||||
Issued on reinvestment of distributions | 439 | 528 | ||||||
Redeemed | (5,075 | ) | (6,660 | ) | ||||
Total share activity | (4,254 | ) | (5,544 | ) | ||||
Class IB | ||||||||
Sold | 23 | 231 | ||||||
Issued on reinvestment of distributions | 44 | 56 | ||||||
Redeemed | (719 | ) | (1,242 | ) | ||||
Total share activity | (652 | ) | (955 | ) |
The accompanying notes are an integral part of these financial statements.
11 |
Hartford Stock HLS Fund |
Notes to Financial Statements
December 31, 2014
(000’s Omitted)
Organization:
Hartford Stock HLS Fund (the "Fund") serves as an underlying investment option for certain variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company (“HLIC”) and its affiliates and certain qualified retirement plans. The Fund may also serve as an underlying investment option for certain variable annuity and variable life separate accounts of other insurance companies. Owners of variable annuity contracts and policyholders of variable life insurance contracts may choose the funds permitted in the variable insurance contract prospectus. In addition, participants in certain qualified retirement plans may choose the Fund if permitted by their plans.
Hartford Series Fund, Inc. (the “Company”) is an open-end registered management investment company comprised of fifteen portfolios. Financial statements for the Fund, a series of the Company, are included in this report.
The Company is organized under the laws of the State of Maryland and is registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (“1940 Act”). The Fund is a diversified open-end management investment company. The Fund is an investment company and applies specialized accounting and reporting under Accounting Standards Codification Topic 946, Financial Services - Investment Companies.
The Fund is divided into Class IA, Class IB and Class IC shares. Each class is offered at the per share net asset value (“NAV”) without a sales charge and is subject to the same expenses, except that the Class IB and Class IC shares are subject to distribution and service fees charged pursuant to a Distribution Plan adopted in accordance with Rule 12b-1 under the 1940 Act and Class IC shares are also subject to an administrative service fee. Class IC shares have not commenced operations as of the date of this report.
Significant Accounting Policies:
The following is a summary of significant accounting policies of the Fund in the preparation of its financial statements, which are in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The preparation of financial statements in accordance with U.S. GAAP may require 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
Determination of Net Asset Value – The NAV of each class of the Fund's shares is determined as of the close of regular trading (normally 4:00 p.m. Eastern Time) (the “NYSE Close”) on each day that the New York Stock Exchange (the “Exchange”) is open (“Valuation Date”). Information that becomes known to the Fund after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the NAV determined earlier that day.
Investment Valuation and Fair Value Measurements – For purposes of calculating the NAV, portfolio investments and other assets held by the Fund's portfolio for which market quotes are readily available are valued at market value. Market value is generally determined on the basis of last reported sales prices or official close price. If no sales are reported, market value is based on quotes obtained from a quotation reporting system, established market makers, or independent pricing services. If market prices are not readily available or are deemed unreliable, the Fund will use the fair value of the investment as determined in good faith under policies and procedures established by and under the supervision of the Company's Board of Directors. Market quotes are considered not readily available where there is an absence of current or reliable market-based data (e.g., trade information or indicative market quotes), including where events occur after the close of the relevant market, but prior to the NYSE Close, that materially affect the values of the Fund's portfolio investments or assets. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the investments trade do not open for trading for the entire day and no other market prices are available. In addition, prices of foreign equities that are principally traded on certain foreign markets may be adjusted daily pursuant to a fair value pricing service approved by the Board of Directors in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close. Investments that are primarily traded on foreign markets may trade on days that are not business days of the Fund. The value of the foreign investments in which the Fund invests may change on days when a shareholder will not be able to purchase or redeem shares of the Fund. Fair value pricing is subjective in nature and the use of fair value pricing by the Fund may cause the NAV of its shares to differ significantly from the NAV that would have been calculated using market prices at the close of the exchange on which a portfolio investment is primarily
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Hartford Stock HLS Fund |
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
traded. There can be no assurance that the Fund could obtain the fair market value assigned to an investment if the Fund were to sell the investment at approximately the time at which the Fund determines its NAV.
Investments valued in currencies other than U.S. dollars are converted to U.S. dollars using exchange rates obtained from independent pricing services for calculation of the NAV. As a result, the NAV of the Fund’s shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of investments traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that the NYSE is closed and the market value may change on days when an investor is not able to purchase, redeem or exchange shares of the Fund.
Foreign currency contracts represent agreements to exchange currencies on specific future dates at predetermined rates. Foreign currency contracts are valued using foreign currency exchange rates and forward rates as provided by an independent pricing service on the Valuation Date.
Financial instruments for which prices are not available from an independent pricing service may be valued using market quotations obtained from one or more dealers that make markets in the respective financial instrument in accordance with procedures established by the Company's Board of Directors.
U.S. GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants. The U.S. GAAP fair value measurement standards require disclosure of a fair value hierarchy for each major category of assets and liabilities. Various inputs are used in determining the fair value of the Fund’s investments. These inputs are summarized into three broad hierarchy levels. This hierarchy is based on whether the valuation inputs are observable or unobservable. These levels are:
Level 1 – Quoted prices in active markets for identical investments. Level 1 may include exchange traded instruments, such as domestic equities, some foreign equities, options, futures, mutual funds, exchange traded funds, rights and warrants.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar investments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 2 may include debt investments that are traded less frequently than exchange traded instruments and which are valued using independent pricing services; foreign equities, which are principally traded on certain foreign markets and are adjusted daily pursuant to a fair value pricing service in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close; senior floating rate interests, which are valued using an aggregate of dealer bids; short-term investments, which are valued at amortized cost; and swaps, which are valued based upon the terms of each swap contract.
Level 3 – Significant unobservable inputs that are supported by limited or no market activity. Level 3 may include financial instruments whose values are determined using indicative market quotes or require significant management judgment or estimation. These unobservable valuation inputs may include estimates for current yields, maturity/duration, prepayment speed, and indicative market quotes for comparable investments along with other assumptions relating to credit quality, collateral value, complexity of the investment structure, general market conditions and liquidity. This category may include investments where trading has been halted or there are certain restrictions on trading. While these investments are priced using unobservable inputs, the valuation of these investments reflects the best available data and management believes the prices are a reasonable representation of exit price.
The Board of Directors of the Company generally reviews and approves the “Procedures for Valuation of Portfolio Securities” at least once a year. These procedures define how investments are to be valued, including the formation and activities of a Valuation Committee. The Valuation Committee is responsible for determining in good faith the fair value of investments when the value cannot be obtained from primary pricing services or alternative sources or if the valuation of an investment as provided by the primary pricing service or alternative source is believed not to reflect the investment’s fair value as of the Valuation Date. Voting members of the Valuation Committee include the Fund's Treasurer or designee and a Vice President of the investment manager or designee. An Assistant Vice President of the Fund with legal expertise or designee is also included on the Valuation Committee as a non-voting advisory member. In addition, the Fund’s Chief Compliance Officer shall designate a member of the compliance group to attend Valuation Committee meetings as a non-voting resource, to monitor for and provide guidance with
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Hartford Stock HLS Fund |
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
respect to compliance with these procedures. Two members of the Valuation Committee or their designees, representing different departments, shall constitute a quorum for purposes of permitting the Valuation Committee to take action. The Valuation Committee will consider all relevant factors in determining an investment’s fair value, and may seek the advice of the Fund’s sub-adviser, knowledgeable brokers, and legal counsel in making such determination. The Valuation Committee reports to the Audit Committee of the Company's Board of Directors. The Audit Committee receives quarterly written reports which include details of all fair-valued investments, including the reason for the fair valuation, and an indication, when possible, of the accuracy of the valuation by disclosing the next available reliable public price quotation or the disposition price of such investments (the “look-back” test). The Board of Directors then must consider for ratification all of the fair value determinations made during the previous quarter.
Valuation levels are not necessarily indicative of the risk associated with investing in such investments. Individual investments within any of the above mentioned asset classes may be assigned a different hierarchical level than those presented above, as individual circumstances dictate.
For additional information, refer to the Investment Valuation Hierarchy Level Summary and the Level 3 roll-forward reconciliation, if applicable, which is included in the Schedule of Investments.
Investment Transactions and Investment Income – Investment transactions are recorded as of the trade date (the date the order to buy or sell is executed) for financial reporting purposes. Investments purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Realized gains and losses are determined on the basis of identified cost.
Dividend income from domestic securities is accrued on the ex-dividend date. In general, dividend income from foreign securities is recorded on the ex-date; however, dividend notifications in certain foreign jurisdictions may not be available in a timely manner and as a result, the Fund will record the dividend as soon as the relevant details (i.e., rate per share, payment date, shareholders of record, etc.) are publicly available. Interest income, including amortization of premium, accretion of discounts, inflation adjustments and additional principal received in-kind in lieu of cash, is accrued on a daily basis.
Foreign Currency Transactions – Assets and liabilities denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates in effect on the valuation date. Purchases and sales of investments, income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions.
The Fund does not isolate that portion of portfolio investment valuation resulting from fluctuations in the foreign currency exchange rates from the fluctuations arising from changes in the market prices of investments held. Exchange rate fluctuations are included with the net realized and unrealized gain or loss on investments in the accompanying financial statements.
Net realized foreign exchange gains or losses arise from sales of foreign currencies and the difference between asset and liability amounts initially stated in foreign currencies and the U.S. dollar value of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of other assets and liabilities at the end of the reporting period, resulting from changes in the exchange rates.
Joint Trading Account – The Fund may invest cash balances into a joint trading account that may be invested in one or more repurchase agreements.
Fund Share Valuation and Dividend Distributions to Shareholders – Orders for the Fund’s shares are executed in accordance with the investment instructions of the contract holders and plan participants. The NAV of the Fund’s shares is determined as of the close of business on each business day of the Exchange. The NAV is determined separately for each class of shares of the Fund by dividing the Fund’s net assets attributable to that class by the number of shares of the class outstanding. Each class of shares offered by the Fund has equal rights as to assets and voting privileges (except that shareholders of a class have exclusive voting rights regarding any matter relating solely to that class of shares). Income and non-class specific expenses are allocated daily to each class on the basis of the relative net assets of the class. Realized and unrealized gains and losses are allocated daily based on the relative net assets of each class of shares of the Fund.
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Hartford Stock HLS Fund |
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Orders for the purchase of the Fund’s shares received prior to the close of the Exchange on any day the Exchange is open for business are priced at the NAV determined as of the close of the Exchange. Orders received after the close of the Exchange, or on a day on which the Exchange and/or the Fund is not open for business, are priced at the next determined NAV.
Dividends are declared pursuant to a policy adopted by the Company's Board of Directors based upon the investment performance of the Fund. The policy of the Fund is to pay dividends from net investment income and realized gains, if any, at least once a year.
Net investment income, dividends and distributions from net realized gains and capital are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP with respect to character and timing (see Federal Income Taxes: Distributions and Components of Distributable Earnings and Reclassification of Capital Accounts).
Securities and Other Investments:
Repurchase Agreements – A repurchase agreement is an agreement by which a counterparty agrees to sell an investment and agrees to repurchase the investment sold from the buyer at a mutually agreed upon time and price. During the period of the repurchase agreement, the counterparty will deposit cash and or securities in a third party custodial account to serve as collateral. At the time the Fund enters into a repurchase agreement, the value of the underlying collateral, including accrued interest, will be equal to or exceed the value of the repurchase agreement. Repurchase agreements expose the Fund to counterparty risk - that is, the risk that the counterparty will not fulfill its obligations. To minimize counterparty risk, the investments that serve to collateralize the repurchase agreement are held by the Fund’s custodian in book entry or physical form in the custodial account of the Fund or in a third party custodial account. Repurchase agreements are valued at cost plus accrued interest, which approximates fair value. Repurchase agreements have master netting arrangements which allow the Fund to offset amounts owed to a counterparty with amounts owed by the counterparty, including any collateral. Upon an event of default under a master repurchase agreement, the non-defaulting party may close out all transactions traded under such agreement and net amounts owed under each transaction to one net amount payable by one party to the other. Absent an event of default, the master repurchase agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty. The Fund, as shown on the Schedule of Investments, had outstanding repurchase agreements and related collateral as of December 31, 2014.
Illiquid and Restricted Investments – The Fund is permitted to invest up to 15% of its net assets in illiquid investments. Illiquid investments are those that may not be sold or disposed of in the ordinary course of business within seven days, at approximately the price used to determine the Fund’s NAV. The Fund may not be able to sell illiquid investments when its sub-adviser considers it desirable to do so or may have to sell such investments at a price that is lower than the price that could be obtained if the investments were more liquid. A sale of illiquid investments may require more time and may result in higher dealer discounts and other selling expenses than does the sale of those that are liquid. Illiquid investments also may be more difficult to value due to the unavailability of reliable market quotations for such investments, and an investment in them may have an adverse impact on the Fund’s NAV. The Fund may also purchase certain restricted investments that can only be resold to certain qualified investors and may be determined to be liquid pursuant to policies and guidelines established by the Company's Board of Directors. The Fund, as shown on the Schedule of Investments, had illiquid or restricted investments as of December 31, 2014.
Investments Purchased on a When-Issued or Delayed-Delivery Basis – Delivery and payment for investments that have been purchased by the Fund on a forward commitment, or when-issued or delayed-delivery basis, take place beyond the customary settlement period. The Fund may dispose of or renegotiate a delayed-delivery transaction after it is entered into, and may sell delayed-delivery investments before they are delivered, which may result in a realized gain or loss. During this period, such investments are subject to market fluctuations, and the Fund identifies investments segregated in its records with a value at least equal to the amount of the commitment. The Fund had no when-issued or delayed-delivery investments as of December 31, 2014.
Financial Derivative Instruments:
The following disclosures contain information on how and why the Fund uses derivative instruments, the credit-risk-related contingent features in certain derivative instruments and how derivative instruments affect the Fund’s financial position and results of operations. The location and fair value amounts of these instruments on the Statement of Assets and Liabilities and the realized gains and losses and
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Hartford Stock HLS Fund |
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
changes in unrealized gains and losses on the Statement of Operations, each categorized by type of derivative contract, are included in the following Additional Derivative Instrument Information footnote. The derivative instruments outstanding as of year-end are disclosed in the notes to the Schedule of Investments, if applicable. The amounts of realized gains and losses and changes in unrealized gains and losses on derivative instruments during the year are disclosed in the Statement of Operations.
Foreign Currency Contracts – The Fund may enter into foreign currency contracts that obligate the Fund to purchase or sell currencies at specified future dates. Foreign currency contracts are used to hedge the currency exposure associated with some or all of the Fund’s investments and/or as part of an investment strategy. Foreign currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. The Fund will record a realized gain or loss when the foreign currency contract is settled.
Foreign currency contracts involve elements of market risk in excess of the amounts reflected in the Statement of Assets and Liabilities. In addition, risks may arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of the contracts and from unanticipated movements in the value of the foreign currencies relative to the U.S. dollar. The Fund had no outstanding foreign currency contracts as of December 31, 2014.
Additional Derivative Instrument Information:
The volume of derivative activity was minimal during the year ended December 31, 2014.
The Effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2014:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate | Foreign | Credit | Equity | Commodity | Other | Total | ||||||||||||||||||||||
Realized Gain on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net realized gain on foreign currency contracts | $ | — | $ | 29 | $ | — | $ | — | $ | — | $ | — | $ | 29 | ||||||||||||||
Total | $ | — | $ | 29 | $ | — | $ | — | $ | — | $ | — | $ | 29 |
Principal Risks:
The Fund may be exposed to counterparty risk, or the risk that an institution or other entity with which the Fund has unsettled or open transactions will default.
If the Fund invests directly in foreign currencies or in securities that trade in, and receive revenues in, foreign currencies, or in derivatives that provide exposure to foreign currencies, it will be subject to the risk that those currencies will decline in value relative to the base currency (U.S. dollars) of the Fund, or, in the case of hedging positions, that the Fund’s base currency will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities, such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad. As a result, the Fund’s investments in foreign currency denominated securities may reduce the returns of the Fund. The market values of equity securities, such as common stocks and preferred stocks, or equity related investments, such as futures and options, may decline due to general market conditions which are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. The market value of equity securities may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities and equity related investments generally have greater market price volatility than fixed income securities.
Federal Income Taxes:
Federal Income Taxes – For federal income tax purposes, the Fund intends to continue to qualify as a Regulated Investment Company ("RIC") under Subchapter M of the Internal Revenue Code (“IRC”) by distributing substantially all of its taxable net
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Hartford Stock HLS Fund |
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
investment income and net realized capital gains to its shareholders and otherwise complying with the requirements of the IRC. The Fund has distributed substantially all of its income and capital gains in prior years, if applicable, and intends to distribute substantially all of its income and capital gains prior to the next fiscal year-end. Accordingly, no provision for federal income or excise taxes has been made in the accompanying financial statements. Distributions from short-term capital gains are treated as ordinary income distributions for federal income tax purposes.
Net Investment Income (Loss), Net Realized Gains (Losses) and Distributions – Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of losses deferred due to wash sale adjustments, foreign currency gains and losses, adjustments related to Passive Foreign Investment Companies ("PFICs"), Real Estate Investment Trusts ("REITs"), RICs, certain derivatives and partnerships. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund.
Distributions and Components of Distributable Earnings – The tax character of distributions paid by the Fund for the periods indicated is as follows (as adjusted for dividends payable, if applicable):
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Ordinary Income | $ | 30,998 | $ | 33,234 |
As of December 31, 2014, the Fund’s components of distributable earnings (deficit) on a tax basis are as follows:
Amount | ||||
Undistributed Ordinary Income | $ | 1,120 | ||
Accumulated Capital and Other Losses* | (415,868 | ) | ||
Unrealized Appreciation† | 430,932 | |||
Total Accumulated Earnings | $ | 16,184 |
* | The Fund has capital loss carryforwards that are identified in the Capital Loss Carryforward note that follows. |
† | Differences between book-basis and tax-basis unrealized appreciation (depreciation) may be attributable to the losses deferred due to wash sale adjustments, foreign currency gains and losses and adjustments related to PFICs, REITs, RICs, certain derivatives and partnerships. |
Reclassification of Capital Accounts – The Fund may record reclassifications in its capital accounts. These reclassifications have no impact on the total net assets of the Fund. The reclassifications are a result of permanent differences between U.S. GAAP and tax accounting for such items as foreign currency, PFICs, expiration or utilization of capital loss carryforwards or net operating losses. Adjustments are made to reflect the impact these items have on current and future distributions to shareholders. Therefore, the source of the Fund’s distributions may be shown in the accompanying Statement of Changes in Net Assets as from undistributed net investment income, from accumulated net realized gains on investments or from capital depending on the type of book and tax differences that exist. For the year ended December 31, 2014, the Fund recorded reclassifications to increase (decrease) the accounts listed below:
Amount | ||||
Undistributed Net Investment Income (Loss) | $ | 26 | ||
Accumulated Net Realized Gain (Loss) | (26 | ) |
Capital Loss Carryforward – On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which made changes to the capital loss carryforward rules. The changes are effective for taxable years beginning after the date of enactment. Under the Act, funds are permitted to carry forward capital losses for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire
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Hartford Stock HLS Fund |
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
unused. Additionally, post-enactment capital loss carryforwards retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under prior regulation.
At December 31, 2014 (tax year end), the Fund had capital loss carryforwards for U.S. federal income tax purposes as follows:
Year of Expiration | Amount | |||
2017 | $ | 415,868 | ||
Total | $ | 415,868 |
During the year ended December 31, 2014, the Fund utilized $145,787 of prior year capital loss carryforwards.
Accounting for Uncertainty in Income Taxes – The Fund has adopted financial reporting rules that require the Fund to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions. Generally, tax authorities can examine all tax returns filed for the last three years. The Fund does not have an examination in progress.
The Fund has reviewed all open tax years and major jurisdictions and concluded that these financial reporting rules had no effect on the Fund’s financial position or results of operations. There is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on the tax return for the fiscal year ended December 31, 2014. The Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Expenses:
Investment Management Agreement – Hartford Funds Management Company, LLC ("HFMC") serves as the Fund’s investment manager pursuant to an Investment Management Agreement with the Company. HFMC is an indirect wholly owned subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford"). The investment manager has overall investment supervisory responsibility for the Fund. In addition, the investment manager provides administrative personnel, services, equipment, facilities and office space for proper operation of the Fund. HFMC has contracted with Wellington Management Company, LLP ("Wellington Management") under a sub-advisory agreement for the provision of day-to-day investment management services to the Fund in accordance with the Fund’s investment objective and policies. The Fund pays a fee to the investment manager, a portion of which may be used to compensate Wellington Management.
The schedule below reflects the rates of compensation paid to the investment manager for investment management services rendered as of December 31, 2014; the rates are accrued daily and paid monthly:
Average Daily Net Assets | Annual Fee |
On first $250 million | 0.5250% |
On next $250 million | 0.5000% |
On next $500 million | 0.4750% |
On next $4 billion | 0.4500% |
On next $5 billion | 0.4475% |
Over $10 billion | 0.4450% |
Accounting Services Agreement – Pursuant to the Fund Accounting Agreement between HFMC and the Company, on behalf of the Fund, HFMC provides accounting services to the Fund and receives monthly compensation based on the Fund’s average daily net assets at the rates set forth below. The Fund’s accounting services fees are accrued daily and paid monthly.
Average Daily Net Assets | Annual Fee |
All Assets | 0.010% |
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Hartford Stock HLS Fund |
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Operating Expenses – Allocable expenses incurred by the Company are allocated to each Fund and allocated to classes within a Fund in proportion to the average daily net assets of the Fund and each class, except where allocation of certain expenses is more fairly made directly to the Fund or to specific classes within a Fund.
Fees Paid Indirectly – The Company, on behalf of the Fund, has entered into agreements with State Street Global Markets, LLC and Russell Implementation Services, Inc. to partially recapture non-discounted trade commissions. Such rebates are used to pay a portion of the Fund's expenses. For the year ended December 31, 2014, this amount, if any, is included in the Statement of Operations.
The ratio of expenses to average net assets in the accompanying financial highlights excludes the reduction in expenses related to fees paid indirectly. The annualized expense ratio after waivers for the period listed below reflecting the reduction for fees paid indirectly is as follows:
Year Ended December 31, 2014 | ||||
Class IA | 0.50% | |||
Class IB | 0.75 | |||
Distribution Plan for Class IB Shares – Hartford Funds Distributors, LLC (“HFD”), an indirect wholly owned subsidiary of The Hartford, is the principal underwriter and distributor of the Fund. The Company, on behalf of the Fund, has adopted a Distribution Plan pursuant to Rule 12b-1 of the 1940 Act for Class IB shares.
The Distribution Plan provides that the Fund may pay annually up to 0.25% of the average daily net assets of the Fund attributable to its Class IB shares for activities primarily intended to result in the sale of Class IB shares. The Board has the authority to suspend or reduce these payments at any point in time. Under the terms of the Distribution Plan and the principal underwriting agreement, the Fund is authorized to make payments monthly to the distributor that may be used to pay or reimburse entities providing distribution and shareholder servicing with respect to the Class IB shares for such entities’ fees or expenses incurred or paid in that regard. The distribution fees paid during the period can be found on the Statement of Operations. These fees are accrued daily and paid monthly or at such other intervals as the Board of Directors may determine.
Other Related Party Transactions – Certain officers of the Fund are directors and/or officers of HFMC and/or The Hartford or its subsidiaries. For the year ended December 31, 2014, a portion of the Fund's Chief Compliance Officer's compensation was paid by all the investment companies in the Hartford fund complex. The portion allocated to the Fund, as represented in other expenses on the Statement of Operations, was in the amount of $2. Hartford Administrative Services Company ("HASCO"), an indirect wholly owned subsidiary of The Hartford, provides transfer agent services to the Fund. Effective December 1, 2014, pursuant to a sub-transfer agency agreement between HASCO and Boston Financial Data Services, Inc. (“BFDS”), HASCO delegated certain transfer agent, dividend disbursing agent and shareholder servicing agent functions to BFDS. HASCO is compensated by the Fund based on the number of classes plus out of pocket expenses for providing such services, a portion of which may be used to compensate BFDS. The amount paid to HASCO can be found in the Statement of Operations. These fees are accrued daily and paid monthly.
Investment Transactions:
For the year ended December 31, 2014, the cost of purchases and proceeds from sales of investment securities (excluding short-term investments) were as follows:
Excluding U.S. Government Obligations | U.S. Government Obligations | Total | ||||||||||
Cost of Purchases | $ | 355,036 | $ | — | $ | 355,036 | ||||||
Sales Proceeds | 614,291 | — | 614,291 |
19 |
Hartford Stock HLS Fund |
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Line of Credit:
The Fund is one of several Hartford Funds that participate in a $500 million committed revolving line of credit facility. The facility is to be used for temporary or emergency purposes. Under the arrangement, the funds are required to own securities having a market value in excess of 300% of the total bank borrowings. The interest rate on borrowings varies depending on the nature of the loan. The facility also requires a fee to be paid based on the amount of the commitment. This commitment fee is allocated to all the funds participating in the line of credit based on the average net assets of the funds. During the year ended December 31, 2014, the Fund did not have any borrowings under this facility.
Indemnifications:
Under the Company's organizational documents, the Company shall indemnify its officers and directors to the full extent required or permitted under Maryland General Corporation Law and the federal securities laws. In addition, the Company, on behalf of the Fund, may enter into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, as of the date of these financial statements, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Pending Legal Proceedings:
On February 25, 2011, Jennifer L. Kasilag, Louis Mellinger, Judith M. Menendez, Jacqueline M. Robinson, and Linda A. Russell filed a derivative lawsuit against Hartford Investment Financial Services, LLC (“HIFSCO”) (now known as HFD) on behalf of six Hartford retail mutual funds in the United States District Court for the District of New Jersey, alleging that HIFSCO received excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the 1940 Act when serving as investment manager and principal underwriter, respectively, to the Hartford retail mutual funds. Although this action was purportedly filed on behalf of certain of the Hartford Funds, none of the Hartford Funds is itself a defendant to the suit. HIFSCO moved to dismiss and, in September 2011, the motion was granted in part and denied in part, with leave to amend the complaint. In November 2011, plaintiffs filed an amended complaint on behalf of certain Hartford retail mutual funds, The Hartford Global Health Fund (now known as The Hartford Healthcare Fund), The Hartford Conservative Allocation Fund, The Hartford Growth Opportunities Fund, The Hartford Inflation Plus Fund, The Hartford Advisers Fund (now known as The Hartford Balanced Fund), and The Hartford Capital Appreciation Fund. Plaintiffs seek to rescind the investment management agreements and distribution plans between HIFSCO and these funds and to recover the total fees charged thereunder or, in the alternative, to recover any improper compensation HIFSCO received, in addition to lost earnings. HIFSCO filed a partial motion to dismiss the amended complaint and, in December 2012, the court dismissed without prejudice the claims regarding distribution fees and denied the motion with respect to the advisory fees claims. HIFSCO disputes the allegations and intends to defend vigorously.
In March 2014, the plaintiffs filed a new complaint that added as new plaintiffs The Hartford Floating Rate Fund and The Hartford Small Company Fund, two Hartford retail mutual funds, and named as a defendant HFMC, which assumed the role as investment manager to the funds as of January 2013. HFMC and HIFSCO dispute the allegations and intend to defend vigorously.
This action concerns the activities of HIFSCO in its capacity as investment manager and principal underwriter to the Hartford retail mutual funds and does not concern HIFSCO’s activities in its capacity as principal underwriter to the HLS funds. For this reason, no accrual for litigation relating to this matter has been recorded in the financial statements of the Fund.
Recent Accounting Pronouncement:
In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, modifying Accounting Standards Codification Topic 860. The amended guidance changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. The guidance also requires new disclosures for certain transfers accounted for as sales and collateral supporting transactions that are accounted for as secured borrowings. ASU 2014-11 is effective for annual and interim periods beginning after December 15, 2014, except for the disclosures related to secured borrowings, which are effective for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The adoption of ASU 2014-11 is not expected to have a material impact on the Fund’s results of operations or financial position, but may impact the Fund’s disclosures.
20 |
Hartford Stock HLS Fund |
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Subsequent Event:
Effective on or after January 1, 2015, pursuant to an agreement between the Hartford Funds and State Street Bank and Trust Company ("State Street"), State Street replaced, or is scheduled to replace, JP Morgan Chase Bank, N.A. ("JP Morgan Chase") as the Fund's primary custodian. JP Morgan Chase may serve as custodian of certain Fund assets. In addition, on or after the same date, HFMC has delegated, or will delegate, certain accounting and administrative services functions to State Street. The costs and expenses of such delegation will be borne by HFMC, not by the Funds, and HFMC will compensate State Street for its services out of its own resources.
21 |
Hartford Stock HLS Fund |
Financial Highlights
─ Selected Per-Share Data(A) ─ | ─ Ratios and Supplemental Data ─ | |||||||||||||||||||||||||||||||||||||||||||||||||||
Class | Net Asset | Net | Net | Total from | Dividends | Distributions | Total | Net | Total | Net Assets | Ratio of | Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 58.07 | $ | 1.07 | $ | 5.51 | $ | 6.58 | $ | (1.16 | ) | $ | – | $ | (1.16 | ) | $ | 63.49 | 11.31 | % | $ | 1,552,777 | 0.50 | % | 0.50 | % | 1.79 | % | ||||||||||||||||||||||||
IB | 58.04 | 0.92 | 5.50 | 6.42 | (1.00 | ) | – | (1.00 | ) | 63.46 | 11.04 | 182,112 | 0.75 | 0.75 | 1.54 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 44.73 | $ | 0.99 | $ | 13.41 | $ | 14.40 | $ | (1.06 | ) | $ | – | $ | (1.06 | ) | $ | 58.07 | 32.25 | % | $ | 1,667,278 | 0.51 | % | 0.51 | % | 1.89 | % | ||||||||||||||||||||||||
IB | 44.71 | 0.85 | 13.40 | 14.25 | (0.92 | ) | – | (0.92 | ) | 58.04 | 31.92 | 204,437 | 0.76 | 0.76 | 1.64 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2012 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 39.95 | $ | 0.91 | $ | 4.83 | $ | 5.74 | $ | (0.96 | ) | $ | – | $ | (0.96 | ) | $ | 44.73 | 14.38 | % | $ | 1,532,116 | 0.51 | % | 0.51 | % | 1.86 | % | ||||||||||||||||||||||||
IB | 39.92 | 0.82 | 4.81 | 5.63 | (0.84 | ) | – | (0.84 | ) | 44.71 | 14.10 | 200,153 | 0.76 | 0.76 | 1.61 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2011 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 40.98 | $ | 0.62 | $ | (1.07 | ) | $ | (0.45 | ) | $ | (0.58 | ) | $ | – | $ | (0.58 | ) | $ | 39.95 | (1.09 | )% | $ | 1,614,788 | 0.50 | % | 0.50 | % | 1.37 | % | ||||||||||||||||||||||
IB | 40.94 | 0.51 | (1.06 | ) | (0.55 | ) | (0.47 | ) | – | (0.47 | ) | 39.92 | (1.34 | ) | 231,377 | 0.75 | 0.75 | 1.11 | ||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2010 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 36.10 | $ | 0.44 | $ | 4.89 | $ | 5.33 | $ | (0.45 | ) | $ | – | $ | (0.45 | ) | $ | 40.98 | 14.80 | % | $ | 1,980,502 | 0.50 | % | 0.50 | % | 1.09 | % | ||||||||||||||||||||||||
IB | 36.06 | 0.35 | 4.88 | 5.23 | (0.35 | ) | – | (0.35 | ) | 40.94 | 14.51 | 300,279 | 0.75 | 0.75 | 0.84 |
(A) | Information presented relates to a share outstanding throughout the indicated period. Net investment income (loss) per share amounts are calculated based on average shares outstanding unless otherwise noted. |
(B) | The figures do not include sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees would lower the Fund's performance. |
(C) | Adjustments include waivers and reimbursements, if applicable. Ratios do not include fees paid indirectly (see Expenses in the accompanying Notes to Financial Statements). |
(D) | Net investment income (loss) per share amounts have been calculated using the SEC method. |
Portfolio Turnover Rate for All Share Classes | ||||
For the Year Ended December 31, 2014 | 20% | |||
For the Year Ended December 31, 2013 | 27 | |||
For the Year Ended December 31, 2012 | 82 | |||
For the Year Ended December 31, 2011 | 43 | |||
For the Year Ended December 31, 2010 | 77 |
22 |
Report of Independent Registered Public Accounting Firm |
The Board of Directors and Shareholders of
Hartford Series Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Hartford Stock HLS Fund (one of the portfolios constituting Hartford Series Fund, Inc. (the Funds)) as of December 31, 2014, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2014, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Hartford Stock HLS Fund of the Hartford Series Fund, Inc. at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Minneapolis, Minnesota
February 13, 2015
23 |
Hartford Stock HLS Fund |
Directors and Officers (Unaudited)
The Board of Directors of the Company (the "Directors") appoints officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the Directors. Each Director serves until his or her death, resignation, or retirement or until the next annual meeting of shareholders is held or until his or her successor is elected and qualifies.
Directors and officers who are employed by or who have a financial interest in The Hartford Financial Services Group, Inc. ("The Hartford") are considered “interested” persons of the Fund pursuant to the 1940 Act. The "interested" Directors and officers are reflected in the chart below. Each Director serves as a director for The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., Hartford Series Fund, Inc., and Hartford HLS Series Fund II, Inc., and as a trustee for The Hartford Alternative Strategies Fund, which, as of December 31, 2014, collectively consist of 66 funds. Correspondence may be sent to Directors and officers c/o Hartford Funds, 5 Radnor Corporate Center, Suite 300, 100 Matsonford Road, Radnor, Pennsylvania 19087, except that correspondence to Mr. Annoni, Mr. Dressen and Ms. Quade may be sent to 500 Bielenberg Drive, Suite 500, Woodbury, Minnesota 55125.
The table below sets forth, for each Director and officer, his or her name, year of birth, current position with the Company and date first elected or appointed to Hartford Series Fund, Inc. ("HSF") and Hartford HLS Series Fund II, Inc. ("HSF2"), principal occupation, and, for Directors, other directorships held. The Fund’s Statement of Additional Information contains further information on the Directors and is available free of charge by calling 1-888-843-7824 or writing to: Hartford HLS Funds, c/o Hartford Life Insurance Company/Hartford Life and Annuity Insurance Company, P.O. Box 14293, Lexington, KY 40512-4293 for variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates; Hartford Funds, P.O. Box 55022, Boston, MA 02205-5022 for all shareholders except variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates.
Information on the aggregate remuneration paid to the directors of the Company can be found in the Statement of Operations herein. The Fund pays to The Hartford a portion of the Chief Compliance Officer’s compensation, but does not pay salaries or compensation to any of its other officers or Directors who are employed by The Hartford.
Non-Interested Directors
Hilary E. Ackermann (1956) Director since September 23, 2014
Ms. Ackermann served as Chief Risk Officer at Goldman Sachs Bank USA from October 2008 to November 2011 and serves as a Director of Dynegy, Inc., an independent power company, from October 2012 to present.
Lynn S. Birdsong (1946) Director since 2003, Chairman of the Investment Committee since 2014
Mr. Birdsong is a private investor. Mr. Birdsong currently serves as a Director of Aberdeen Global and Aberdeen Global II (investment funds) (September 2014 to present) and as an Independent Director of Nomura Partners Funds, Inc. (formerly, The Japan Fund) (April 2003 to present). Mr. Birdsong served as Director of the Sovereign High Yield Investment Company (April 2010 to September 2014). From 2003 to March 2005, Mr. Birdsong was an Independent Director of the Atlantic Whitehall Funds. From 1979 to 2002, Mr. Birdsong was a Managing Director of Zurich Scudder Investments, an investment management firm. During his employment with Scudder, Mr. Birdsong was an Interested Director of The Japan Fund. Mr. Birdsong served as Co-Chairman of the Investment Committee of The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., HSF, HSF2 and The Hartford Alternative Strategies Fund from 2005 to 2014.
Robert M. Gavin, Jr. (1940) Director since 2002 (HSF) and 1986 (HSF2), Chairman of the Board for each since 2004
Dr. Gavin is an educational consultant. Prior to September 1, 2001, he was President of Cranbrook Education Community and prior to July 1996, he was President of Macalester College, St. Paul, Minnesota.
Duane E. Hill (1945) Director since 2001 (HSF) and 2002 (HSF2), Chairman of the Nominating Committee since 2003
Mr. Hill is a Partner of TSG Ventures L.P., a private equity investment company. Mr. Hill is a former partner of TSG Capital Group, a private equity investment firm that served as sponsor and lead investor in leveraged buyouts of middle market companies.
Sandra S. Jaffee (1941) Director since 2005
Ms. Jaffee is the founder and Chief Executive Officer of a private company, Homeworks Concierge, LLC, which provides residential property management services in Westchester County, New York (January 2012 to present). Ms. Jaffee served as Chairman (2008 to 2009) and Chief Executive Officer of Fortent (formerly Searchspace Group), a leading provider of compliance/regulatory technology to financial institutions from August 2005 to August 2009. From August 2004 to August 2005, Ms. Jaffee served as an Entrepreneur in Residence with Warburg Pincus, a private equity firm. Prior to joining Warburg Pincus, Ms. Jaffee served as Executive Vice President at Citigroup, from September 1995 to July 2004, where she was President and Chief Executive Officer of Citibank’s Global Securities
24 |
Hartford Stock HLS Fund |
Directors and Officers (Unaudited) – (continued)
Services (1995 to 2003). Ms. Jaffee served as a member of the Board of Directors of Broadridge Financial Solutions (November 2010 to November 2014). Ms. Jaffee currently serves as a member of the Board of Directors of Global Camps Africa (a non-profit organization) (January 2015 to present) as well as a Trustee of Muhlenberg College (September 2007 to present).
William P. Johnston (1944) Director since 2005, Chairman of the Compliance Committee since 2005
In June 2006, Mr. Johnston was appointed as Senior Advisor to The Carlyle Group, a global private equity and other alternative asset investment firm and currently serves as an Operating Executive. In July 2006, Mr. Johnston was elected to the Board of Directors of MultiPlan, Inc. and served as a Director (July 2006 to August 2010). In August 2007, Mr. Johnston was elected to the Board of Directors of LifeCare Holdings, Inc. and served as a Director (August 2007 to June 2013). In February 2008, Mr. Johnston was elected to the Board of Directors of HCR-ManorCare, Inc. In May 2006, Mr. Johnston was elected to the Supervisory Board of Fresenius Medical Care AG & Co. KGaA, after its acquisition of Renal Care Group, Inc. in March 2006. Mr. Johnston joined Renal Care Group in November 2002 as a member of the Board of Directors and served as Chairman of the Board from March 2003 through March 2006. From 2002 through 2013, Mr. Johnston served as a Board member of the Georgia O’Keefe Museum. From September 1987 to December 2002, Mr. Johnston was with Equitable Securities Corporation (and its successors, SunTrust Equitable Securities and SunTrust Robinson Humphrey) serving in various investment banking and managerial positions, including Managing Director and Head of Investment Banking, Chief Executive Officer and Vice Chairman.
Phillip O. Peterson (1944) Director since 2002 (HSF) and 2000 (HSF2), Chairman of the Audit Committee since 2002
Mr. Peterson is a mutual fund industry consultant. He was a partner of KPMG LLP (an accounting firm) until July 1999. Mr. Peterson joined William Blair Funds in February 2007 as a member of the Board of Trustees. From February 2012 to February 2014, Mr. Peterson served as a Trustee of Symetra Variable Mutual Funds. From January 2004 to April 2005, Mr. Peterson served as Independent President of the Strong Mutual Funds.
Lemma W. Senbet (1946) Director since 2005
Dr. Senbet is the William E. Mayer Chair Professor of Finance at the University of Maryland, Robert H. Smith School of Business. He was chair of the Finance Department of the University of Maryland, Robert H. Smith School of Business from 1998 to 2006. Since June 2013, he has been on leave from the University to serve as Executive Director of African Economic Research Consortium which focuses on economic policy research and training. Previously, he was a chaired professor of finance at the University of Wisconsin-Madison. Also, he was a Director of the Fortis Funds from March 2000 to July 2002. Dr. Senbet served as Director of the American Finance Association and President of the Western Finance Association. In 2006, Dr. Senbet was inducted Fellow of Financial Management Association International for his career-long distinguished scholarship and professional service.
Interested Directors and Officers
James E. Davey (1964) Director since 2012, President and Chief Executive Officer since 2010
Mr. Davey serves as Executive Vice President of Hartford Life Insurance Company (“HLIC”) and The Hartford. Additionally, Mr. Davey serves as Chairman of the Board, Manager and Senior Managing Director of Hartford Funds Distributors, LLC (“HFD”). He also currently serves as Director, Chairman of the Board, President and Senior Managing Director of Hartford Administrative Services Company (“HASCO”). Mr. Davey also serves as Manager, Chairman of the Board and Senior Managing Director for Hartford Funds Management Company, LLC (“HFMC”) and Director, Chairman of the Board and Senior Managing Director for Hartford Funds Management Group, Inc. ("HFMG"). Mr. Davey has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Davey joined The Hartford in 2002.
Lowndes A. Smith* (1939) Director since 1996 (HSF) and 2002 (HSF2), Co-Chairman of the Investment Committee since 2005
Mr. Smith served as Vice Chairman of The Hartford from February 1997 to January 2002, as President and Chief Executive Officer of Hartford Life, Inc. from February 1997 to January 2002, and as President and Chief Operating Officer of The Hartford Life Insurance Companies from January 1989 to January 2002. Mr. Smith serves as a Director of White Mountains Insurance Group Ltd. (October 2003 to current); One Beacon Insurance (October 2006 to current); Symetra Financial (August 2007 to current) and is a Managing Director of Whittington Gray Associates (January 2007 to current).
* Mr. Smith resigned as a Director of Hartford Mutual Funds, Inc., Hartford Mutual Funds II, Inc., HSF and HSF2 and as a Trustee of The Hartford Alternative Strategies Fund effective September 17, 2014.
25 |
Hartford Stock HLS Fund |
Directors and Officers (Unaudited) – (continued)
Other Officers
Mark A. Annoni (1964) Vice President, Controller and Treasurer since 2012
Mr. Annoni currently serves as the Assistant Vice President of HLIC (February 2004 to present) and Senior Vice President of HFMG (December 2013 to present). Mr. Annoni has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Annoni joined The Hartford in 2001.
Michael R. Dressen (1963) AML Compliance Officer since 2011
Mr. Dressen currently serves as Assistant Vice President of HLIC. He also serves as Chief Compliance Officer and AML Compliance Officer of HASCO and as AML Officer of HFD. Mr. Dressen has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
Edward P. Macdonald (1967) Vice President, Secretary and Chief Legal Officer since 2005
Mr. Macdonald currently serves as Assistant Secretary, Executive Vice President and Deputy General Counsel of HFD, HASCO, HFMC and HFMG. He also serves as Vice President of HLIC. Mr. Macdonald has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Macdonald joined The Hartford in 2005.
Joseph G. Melcher (1973) Vice President and Chief Compliance Officer since 2013
Mr. Melcher currently serves as Executive Vice President of HFD, HFMG and HASCO. Mr. Melcher also currently serves as Executive Vice President and Chief Compliance Officer of HFMC. Mr. Melcher has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds since joining The Hartford in 2012. Prior to joining The Hartford, Mr. Melcher worked at Touchstone Investments, a member of the Western & Southern Financial Group, where he held the position of Vice President and Chief Compliance Officer from 2010 through 2012 and Assistant Vice President, Compliance from 2005 to 2010.
Vernon J. Meyer (1964) Vice President since 2006
Mr. Meyer currently serves as Senior Vice President of HLIC. He also currently serves as Managing Director and Chief Investment Officer of HFMC and Managing Director of HFMG. Mr. Meyer has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Meyer joined The Hartford in 2004.
Laura S. Quade (1969) Vice President since 2012
Ms. Quade currently serves as Vice President of HASCO, HFD and HFMG. She is the Head of Operations of HASCO and formerly served as Director, Enterprise Operations of HLIC. Ms. Quade has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Ms. Quade joined The Hartford in 2001.
Martin A. Swanson** (1962) Vice President since 2010
Mr. Swanson currently serves as Vice President of HLIC. Mr. Swanson also serves as Managing Director, Chief Marketing Officer and Principal of HFD and Managing Director of HFMG. Mr. Swanson has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
** Mr. Swanson resigned as an officer effective November 6, 2014.
HOW TO OBTAIN A COPY OF THE FUND’S PROXY VOTING POLICIES AND VOTING RECORDS (UNAUDITED)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information about how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov. The Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
26 |
Hartford Stock HLS Fund |
Expense Example (Unaudited)
Your Fund's Expenses
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including investment management fees, distribution and/or service (12b-1) fees, if any, and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period of June 30, 2014 through December 31, 2014.
Actual Expenses
The first set of columns of the table below provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second set of columns of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as taxes, sales charges (loads), or fees which may be applied at the variable life insurance, variable annuity, or qualified retirement plan product level. Therefore, the second set of columns of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would be higher. Expenses are equal to the Fund's annualized expense ratios multiplied by average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
Actual return | Hypothetical (5% return before expenses) | |||||||||||||||||||||||||||||||
Beginning | Ending Account | Expenses paid during the period June 30, 2014 through December 31, 2014 | Beginning | Ending Account | Expenses paid | Annualized | Days | Days | ||||||||||||||||||||||||
Class IA | $ | 1,000.00 | $ | 1,070.10 | $ | 2.61 | $ | 1,000.00 | $ | 1,022.68 | $ | 2.55 | 0.50 | % | 184 | 365 | ||||||||||||||||
Class IB | $ | 1,000.00 | $ | 1,068.90 | $ | 3.91 | $ | 1,000.00 | $ | 1,021.42 | $ | 3.82 | 0.75 | 184 | 365 |
27 |
Hartford Stock HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited)
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of directors, including a majority of those directors who are not “interested persons” of the mutual fund, as defined in the 1940 Act (the “Independent Directors”), annually review and consider the continuation of the mutual fund’s investment advisory and sub-advisory agreements. At its meeting held on August 5-6, 2014, the Board of Directors (the “Board”) of Hartford Series Fund, Inc., including each of the Independent Directors, unanimously voted to approve the continuation of the investment management agreement for Hartford Stock HLS Fund (the “Fund”) with Hartford Funds Management Company, LLC (“HFMC”) and the continuation of the investment sub-advisory agreement between HFMC and the Fund’s sub-adviser, Wellington Management Company, LLP (the “Sub-adviser,” and together with HFMC, the “Advisers”) (collectively, the “Agreements”).
In the months preceding the August 5-6, 2014 meeting, the Board requested, received and reviewed written responses from the Advisers to questions posed to them on behalf of the Independent Directors and supporting materials relating to those questions and responses. The Board considered information furnished to the Board at its meetings throughout the year, as well as information specifically prepared in connection with the annual approval of the Agreements at the Board’s meetings held on June 17-18, 2014 and August 5-6, 2014. Information provided to the Board at its meetings throughout the year included, among other things, reports on Fund performance, legal and compliance matters, sales and marketing activity, shareholder services, and the other services provided to the Fund by the Advisers and their affiliates. The Board also received in-person presentations by Fund officers and representatives of HFMC at the Board’s meetings on June 17-18, 2014 and August 5-6, 2014 concerning the Agreements.
The Independent Directors, advised by independent legal counsel, engaged service providers to assist them with evaluating the Agreements with respect to the Fund. Lipper Inc. (“Lipper”), an independent provider of investment company data, was retained to provide the Board with reports on how the Fund’s contractual management fees, actual management fees, other non-management fees, overall expense ratios and investment performance compared to those of mutual funds with similar investment objectives. The Independent Directors also engaged an independent financial services consultant (the “Consultant”) to assist them in evaluating the Fund’s management fees, sub-advisory fees, other non-management fees, overall expense ratios and investment performance. In addition, the Consultant reviewed the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement.
In determining whether to continue the Agreements for the Fund, the members of the Board reviewed and evaluated information and factors they believed to be relevant and appropriate in light of the information that the Board deemed necessary and appropriate through the exercise of its reasonable business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination to continue the Agreements was based on a comprehensive consideration of all information provided to the Board throughout the year and specifically with respect to the continuation of the Agreements. A more detailed discussion of the factors the Board considered with respect to its approval of the Agreements is provided below.
Nature, Extent and Quality of Services Provided by the Advisers
The Board requested and considered information concerning the nature, extent and quality of the services provided to the Fund by the Advisers. The Board considered, among other things, the terms of the Agreements and the range of services provided by the Advisers. The Board considered the Advisers’ professional personnel who provide services to the Fund, including each Adviser’s ability and experience in attracting and retaining qualified personnel to service the Fund. The Board considered each Adviser’s reputation and overall financial strength, as well as its willingness to consider and implement organizational and operational changes designed to enhance services to the Hartford Funds. In addition, the Board considered the quality of each Adviser’s communications with the Board and responsiveness to Board inquiries and requests made from time to time with respect to the Fund and other Hartford Funds.
The Board also requested and evaluated information concerning each Adviser’s regulatory and compliance environment. In this regard, the Board requested and reviewed information on each Adviser’s compliance policies and procedures, compliance history, and a report from the Fund’s Chief Compliance Officer on each Adviser’s compliance with applicable laws and regulations, including responses to regulatory developments and compliance issues raised by regulators. The Board also noted the Advisers’ support of the Fund’s compliance control structure, particularly the resources devoted by the Advisers in support of the Fund’s obligations pursuant to Rule 38a-1 under the 1940 Act.
With respect to HFMC, the Board noted that under the Agreements, HFMC is responsible for the management of the Fund, including oversight of fund operations and service providers, as well as investment advisory services in connection with selecting, monitoring and supervising the Sub-adviser. The Board considered HFMC’s ongoing monitoring of people, process and performance, including its quarterly reviews of each of
28 |
Hartford Stock HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
the Hartford Funds, semi-annual meetings with the leaders of each Fund’s portfolio management team, and oversight of the Hartford Funds’ approximately 37 portfolio managers. The Board recognized that HFMC has demonstrated a record of making changes to the management
and/or strategies of the Hartford Funds when warranted. The Board considered HFMC’s oversight of the Sub-adviser’s investment approach and results, process for monitoring best execution of portfolio trades by the Sub-adviser, and approach to risk management with respect to the Fund and the service providers to the Fund. The Board also considered HFMC’s oversight of compliance with the Fund’s objective and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over time led to an increase in the scope of HFMC’s services in this regard.
In addition, the Board considered HFMC’s ongoing commitment to review and rationalize the Hartford Funds product line-up and the expenses that HFMC had incurred in connection with fund combinations in recent years. The Board considered that HFMC or its affiliates are responsible for providing the Fund’s officers. The Board also noted that Hartford Life Insurance Company (“HLIC”) provides administrative services to the Fund. The Board considered its experiences with HFMC and HLIC with respect to each of these services.
With respect to the Sub-adviser, which provides certain day-to-day portfolio management services for the Fund, the Board considered the quality of the Fund’s portfolio manager, the Sub-adviser’s other investment personnel, its investment philosophy and process, investment research capabilities and resources, performance record, trade execution capabilities and experience. The Board considered the experience of the Fund’s portfolio manager, the number of accounts managed by the portfolio manager, and the Sub-adviser’s method for compensating the portfolio manager.
Based on these considerations, the Board concluded that it was satisfied with the nature, extent and quality of the services provided to the Fund by HFMC and the Sub-adviser.
Performance of the Fund and the Advisers
The Board considered the investment performance of the Fund. In this regard, the Board reviewed the performance of the Fund over different time periods presented in the materials and evaluated HFMC’s analysis of the Fund’s performance for these time periods. The Board considered information and materials provided to the Board by the Advisers concerning Fund performance, as well as information from Lipper comparing the investment performance of the Fund to an appropriate benchmark and universe of peer funds. The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1- and 3-year periods and the 1st quintile for the 5-year period. The Board also noted that the Fund’s performance was below its benchmark for the 1- and 3-year periods and in line with its benchmark for the 5-year period. The Board further noted that Donald Kilbride had replaced Steve Irons as the Fund’s portfolio manager in 2012.
The Board considered the detailed investment analytics reports provided by Hartford Funds’ Investment Advisory Group throughout the year. These reports include, among other things, information on the Fund’s gross and net returns, the Fund’s investment performance relative to an appropriate benchmark and peer group, various statistics concerning the Fund’s portfolio, and a narrative summary of various factors affecting Fund performance. The Board considered the Advisers’ cooperation with the Investment Committee, which assists the Board in evaluating the performance of the Fund at periodic meetings throughout the year. The Board also considered the analysis provided by the Consultant relating to the Fund’s performance track record.
In light of all the considerations noted above, the Board concluded that it had continued confidence in HFMC’s and the Sub-adviser’s overall capabilities to manage the Fund.
Costs of the Services and Profitability of the Advisers
The Board reviewed information regarding HFMC’s cost to provide investment management and related services to the Fund and HFMC’s profitability, both overall and for the Fund, on a pre-tax basis without regard to distribution expenses. The Board also requested and reviewed information about the profitability to HFMC and its affiliates from all services provided to the Fund and all aspects of their relationship with the Fund. The Board also requested and received information relating to the operations and profitability of the Sub-adviser.
The Board considered the Consultant’s review of the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement, noting the Consultant’s view that Hartford Funds’ process for calculating and reporting Fund profitability is reasonable. In this regard, the Board noted that the Consultant performed a full review of this process in light of the recent restructuring of the
29 |
Hartford Stock HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
Hartford Funds business and reported that the approach to analyzing Fund profitability, including the use of common expense allocation methodologies, is reasonable, sound and well within common industry practice.
Based on these considerations, the Board concluded that the profits anticipated to be realized by the Advisers and their affiliates from their relationships with the Fund would not be excessive.
Comparison of Fees and Services Provided by the Advisers
The Board considered comparative information with respect to the management fees to be paid by the Fund to HFMC and the total expense ratios of the Fund. The Board also considered comparative information with respect to the sub-advisory fees to be paid by HFMC to the Sub-adviser. In this regard, the Board requested and reviewed information from HFMC and the Sub-adviser relating to the management and sub-advisory fees, including the sub-advisory fee schedule for the Fund, and total operating expenses for the Fund. The Board considered that the management fee for the Fund includes the fee paid to HLIC for providing certain administrative services to the Fund. With respect to the sub-advisory fee schedule, the Board considered representations from HFMC and the Sub-adviser that the Sub-adviser’s fees were negotiated at arm’s length on a fund-by-fund basis. The Board also reviewed information from Lipper comparing the Fund’s contractual management fees, actual management fees and overall expense ratios relative to a group of funds selected by Lipper, in consultation with the Consultant, and a broader universe of funds selected by Lipper. The Board noted that the Fund’s contractual management fee and actual management fee were in the 2nd quintile of its expense group, while its total expenses (less 12b-1 and shareholder service fees) were in the 1st quintile.
While the Board recognized that comparisons between the Fund and peer funds may be imprecise, given the different service levels and characteristics of mutual funds and the different business models and cost structures of the Advisers, the comparative information provided by Lipper assisted the Board in evaluating the reasonableness of the Fund’s management and sub-advisory fees and total operating expenses. In addition, the Board considered the analysis and recommendations of the Consultant relating to the Fund’s management and sub-advisory fees and total operating expenses.
Based on these considerations, the Board concluded that the Fund’s fees and total operating expenses, in conjunction with the information about quality of services, profitability, economies of scale, and other matters discussed, were reasonable in light of the services provided.
Economies of Scale
The Board requested and considered information regarding the Advisers’ realization of economies of scale with respect to the Fund and whether the fee levels reflect these economies of scale for the benefit of the Fund’s shareholders. The Board reviewed the breakpoints in the management fee schedule for the Fund, which reduce fee rates as Fund assets grow over time. The Board recognized that a fund with assets beyond the highest breakpoint level will continue to benefit from economies of scale because additional assets are charged the lowest breakpoint fee resulting in lower overall effective management fee rates. The Board also recognized that a fee schedule that reaches a lower breakpoint quickly provides shareholders with the benefit of anticipated or potential economies of scale. The Board noted the effect of the sale and run-off of the variable annuity business on the HLS Funds.
The Board reviewed and evaluated materials from Lipper and the Consultant showing how management fee schedules of peer funds reflect economies of scale for the benefit of shareholders as a peer fund’s assets hypothetically increase over time. Based on information provided by HFMC, Lipper, and the Consultant, the Board recognized that there is no uniform methodology for establishing breakpoints or uniform pattern in asset levels that trigger breakpoints or the amounts of breakpoints triggered.
After considering all of the information available to it, the Board concluded that it was satisfied with the extent to which economies of scale would be shared for the benefit of the Fund’s shareholders based on currently available information and the effective advisory fees and expense ratios for the Fund at its current and reasonably anticipated asset levels. The Board noted, however, that it would continue to monitor future growth in Fund assets and the appropriateness of additional breakpoints.
Other Benefits
The Board considered other benefits to the Advisers and their affiliates from their relationships with the Fund, including the role of the Fund in supporting the variable life insurance and variable annuity products offered by The Hartford.
30 |
Hartford Stock HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
The Board noted that HLIC, an affiliate of HFMC, receives fees for providing certain administrative services to the Fund and that HFMC receives fees for fund accounting and related services from the Fund. The Board considered information on profits to HLIC and HFMC for such services. The Board also considered that Hartford Administrative Services Company (“HASCO”), the Fund’s transfer agent and an affiliate of HFMC,
receives transfer agency compensation from the Fund, and the Board reviewed information on the profitability of the Fund’s transfer agency function to HASCO. The Board considered information provided by HASCO indicating that the transfer agent fees charged by HASCO to the Fund were fair and reasonable based on publicly available information.
The Board also considered that Hartford Funds Distributors, LLC (“HFD”), an affiliate of HFMC, serves as principal underwriter of the Fund. As principal underwriter, HFD receives 12b-1 fees from the Fund. The Board also noted that certain affiliates of HFD distribute shares of the Fund and receive compensation in that connection.
The Board considered benefits to the Sub-adviser from its use of the Fund’s brokerage commissions to obtain soft dollar research, and representations from HFMC and the Sub-adviser that the Sub-adviser would not make any revenue-sharing payments or any other type of distribution payments to HFMC or its affiliates.
The Board considered the benefits to shareholders of being part of the Hartford Funds family of funds. The Board considered HFMC’s efforts to provide investors in the family with a broad range of investment styles and asset classes.
* * * *
Based upon its review of these various factors, among others, the Board concluded that it is in the best interests of the Fund and its shareholders for the Board to approve the Agreements for an additional year. In reaching this decision, the Board did not assign relative weights to the factors discussed above or deem any one or group of them to be controlling in and of themselves. In connection with their deliberations, the Independent Directors met separately in executive session on several occasions, with independent legal counsel and the Consultant, to review the relevant materials and consider their responsibilities under relevant laws and regulations.
31 |
Hartford Stock HLS Fund |
Main Risks (Unaudited)
The main risks of investing in the Fund are described below.
Market, Selection and Strategy Risk: The Fund’s share price may fluctuate due to market risk and/or security selections that may underperform the market or relevant benchmarks. If the sub-adviser's investment strategy does not perform as expected, the Fund could underperform its peers or lose money. There is no guarantee the Fund will achieve its stated objective.
Foreign Investment Risk: Investments in foreign securities may be riskier than investments in U.S. securities. Potential risks include the risks of illiquidity, increased price volatility, less government regulation, less extensive and less frequent accounting and other reporting requirements, unfavorable changes in currency exchange rates, and economic and political disruptions.
32 |
THIS PRIVACY POLICY IS NOT PART OF THIS REPORT
Privacy Policy and Practices of The Hartford Financial Services Group, Inc. and its Affiliates
(herein called “we, our and us”)
This Privacy Policy applies to our United States Operations
We value your trust. We are committed to the responsible: a) management; b) use; and c) protection; of Personal Information.
This notice describes how we collect, disclose, and protect Personal Information.
We collect Personal Information to: a) service your Transactions with us; and b) support our business functions.
We may obtain Personal Information from: a) You; b) your Transactions with us; and c) third parties such as a consumer-reporting agency.
Based on the type of product or service You apply for or get from us, Personal Information such as: a) your name; b) your address; c) your income; d) your payment; or e) your credit history; may be gathered from sources such as applications, Transactions, and consumer reports.
To serve You and service our business, we may share certain Personal Information. We will share Personal Information, only as allowed by law, with affiliates such as: a) our insurance companies; b) our employee agents; c) our brokerage firms; and d) our administrators.
As allowed by law, we may share Personal Financial Information with our affiliates to: a) market our products; or b) market our services; to You without providing You with an option to prevent these disclosures | We may also share Personal Information, only as allowed by law, with unaffiliated third parties including: a) independent agents; b) brokerage firms; c) insurance companies; d) administrators; and e) service providers; who help us serve You and service our business.
When allowed by law, we may share certain Personal Financial Information with other unaffiliated third parties who assist us by performing services or functions such as: a) taking surveys; b) marketing our products or services; or c) offering financial products or services under a joint agreement between us and one or more financial institutions.
We, and third parties we partner with, may track some of the pages You visit through the use of: a) cookies; b) pixel tagging; or c) other technologies; and currently do not process or comply with any web browser’s “do not track” signal or similar mechanism that indicates a request to disable online tracking of individual users who visit our websites or use our services.
We will not sell or share your Personal Financial Information with anyone for purposes unrelated to our business functions without offering You the opportunity to: a) “opt-out;” or b) “opt-in;” as required by law.
We only disclose Personal Health Information with: a) your proper written authorization; or b) as otherwise allowed or required by law.
Our employees have access to Personal Information in the course of doing their jobs, such as: a) underwriting policies; b) paying claims; c) developing new products; or d) advising customers of our products and services. |
We use manual and electronic security procedures to maintain: a) the confidentiality; and b) the integrity of; Personal Information that we have. We use these procedures to guard against unauthorized access.
Some techniques we use to protect Personal Information include: a) secured files; b) user authentication; c) encryption; d) firewall technology; and e) the use of detection software.
We are responsible for and must: a) identify information to be protected; b) provide an adequate level of protection for that data; c) grant access to protected data only to those people who must use it in the performance of their job-related duties.
Employees who violate our Privacy Policy will be subject to discipline, which may include ending their employment with us.
At the start of our business relationship, we will give You a copy of our current Privacy Policy.
We will also give You a copy of our current Privacy Policy once a year if You maintain a continuing business relationship with us.
We will continue to follow our Privacy Policy regarding Personal Information even when a business relationship no longer exists between us. | As used in this Privacy Notice:
Application means your request for our product or service.
Personal Financial Information means financial information such as: a) credit history; b) income; c) financial benefits; or d) policy or claim information.
Personal Health Information means health information such as: a) your medical records; or b) information about your illness, disability or injury.
Personal Information means information that identifies You personally and is not otherwise available to the public. It includes: a) Personal Financial Information; and b) Personal Health Information .
Transaction means your business dealings with us, such as: a) your Application; b) your request for us to pay a claim; and c) your request for us to take an action on your account.
You means an individual who has given us Personal Information in conjunction with: a) asking about; b) applying for; or c) obtaining; a financial product or service from us if the product or service is used mainly for personal, family, or household purposes.
|
This Privacy Policy is being provided on behalf of the following affiliates of The Hartford Financial Services Group, Inc.:
1stAGChoice, Inc.; Access CoverageCorp, Inc.; Access CoverageCorp Technologies, Inc.; American Maturity Life Insurance Company; Archway 60 R, LLC; Business Management Group, Inc.; DMS R, LLC; First State Insurance Company; Fountain Investors I LLC; Fountain Investors II LLC; Fountain Investors III LLC; Fountain Investors IV LLC; FTC Resolution Company LLC; Hart Re Group L.L.C.; Hartford Accident and Indemnity Company; Hartford Administrative Services Company; Hartford Casualty General Agency, Inc.; Hartford Casualty Insurance Company; Hartford Financial Services, LLC; Hartford Fire General Agency, Inc.; Hartford Fire Insurance Company; Hartford Funds Distributors, LLC; Hartford Funds Management Company, LLC; Hartford Funds Management Group, Inc.; Hartford Holdings, Inc.; Hartford HLS Series Fund II, Inc.; Hartford Insurance Company of Illinois; Hartford Insurance Company of the Midwest; Hartford Insurance Company of the Southeast; Hartford Integrated Technologies, Inc.; Hartford International Life Reassurance Corporation; Hartford Investment Management Company; Hartford Life and Accident Insurance Company; Hartford Life and Annuity Insurance Company; Hartford Life Insurance Company; Hartford Life, Inc.; Hartford Life International Holding Company; Hartford Life Private Placement, LLC; Hartford Lloyd’s Corporation; Hartford Lloyd’s Insurance Company; Hartford of Texas General Agency, Inc.; Hartford Residual Market, L.C.C.; Hartford Securities Distribution Company, Inc.; Hartford Series Fund, Inc.; Hartford Specialty Insurance Services of Texas, LLC; Hartford Strategic Investments, LLC; Hartford Underwriters General Agency, Inc.; Hartford Underwriters Insurance Company; Hartford-Comprehensive Employee Benefit Service Company; HDC R, LLC.; Heritage Holdings, Inc.; HIMCO Distribution Services Company; HIMCO Variable Insurance Trust; HLA LLC; HL Investment Advisors, LLC; Horizon Management Group, LLC; HRA Brokerage Services, Inc.; Lanidex Class B, LLC; New England Insurance Company; New England Reinsurance Corporation; Nutmeg Insurance Agency, Inc.; Nutmeg Insurance Company; Pacific Insurance Company, Limited; Planco, LLC; Property and Casualty Insurance Company of Hartford; Revere R, LLC; RVR R, LLC; Sentinel Insurance Company, Ltd.; Sunstone R, LLC; Symphony R, LLC; The Evergreen Group Incorporated; The Hartford Alternative Strategies Fund; The Hartford Mutual Funds, Inc.; The Hartford Mutual Funds II, Inc.; Trumbull Flood Management, L.L.C.; Trumbull Insurance Company; Twin City Fire Insurance Company.
HPP Revised February 2015
HARTFORD HLS FUNDS
P.O. Box 14293
Lexington, KY 40512-4293
HARTFORDFUNDS
hartfordfunds.com
Hartford HLS Funds are underwritten and distributed by Hartford Funds Distributors, LLC.
Hartford Series Fund, Inc. is not a subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford") but is underwritten, distributed by and advised by subsidiaries of The Hartford. Investments in Hartford Series Fund, Inc. are not guaranteed by The Hartford or any other entity.
This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution unless preceded or accompanied by a current prospectus for the Fund.
Investors should carefully consider the investment objectives, risks, charges, and expenses of Hartford Funds before investing. This and other information can be found in the prospectus and summary prospectus, which can be obtained by calling 888-843-7824 (or 800-279-1541 for institutional investors). Investors should read them carefully before they invest.
HLSAR-S14 2-15 113554-4 Printed in U.S.A.
HARTFORDFUNDS
![]() | HARTFORD TOTAL RETURN BOND HLS FUND 2014 Annual Report |
A MESSAGE FROM THE PRESIDENT
Dear Fellow Shareholders:
Thank you for investing in Hartford HLS Funds.
Market Review
Nearly six years into a bull market, U.S. equities (as represented by the S&P 500 Index ) notched another positive year in 2014, finishing with a 13.69% gain. Progress was smooth for most of the year, with stocks generally rising amid little volatility. In the fourth quarter, however, the price of oil declined by nearly 40%, returning volatility to the market and paring some of the year’s returns.
As we enter 2015, the price of oil will likely continue playing an important role in market progress, as its effects are widespread. If prices remain low, consumers should benefit by paying less at the gas pump, which increases the amount of money available for discretionary spending. In contrast, low prices may be a detriment to the oil and natural gas industry in the U.S., as well as to the economies of countries that rely more heavily on oil exports.
Central-bank policies will also continue to influence the markets. The U.S. economy has continued to show self-sustaining growth, which has prompted the U.S. Federal Reserve to wind down the quantitative easing programs it initiated after the global financial crisis. In addition, gradual increases in interest rates are expected to begin in 2015, another sign of positive recovery and a return to pre-crisis policy. But in Europe, a slow recovery and fears of deflation have prompted the start of European Central Bank’s own version of quantitative easing to spur growth.
The final weeks of 2014 provided a stark reminder of how unpredictable market movements can be, and how important it is to maintain a diversified portfolio that’s in line with your time horizon and risk tolerance. As we begin 2015, take time to review your portfolio and your overall investment strategy with your financial advisor.
With more than 40 mutual-fund strategies that span a variety of asset classes and investment goals, your financial advisor can work with you to choose options within our fund family that can help you navigate today’s markets with confidence.
Thank you again for investing with Hartford HLS Funds.
James Davey
President
Hartford HLS Funds
1The S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
Hartford Total Return Bond HLS Fund
Table of Contents
This report is prepared for the general information of contract owners and qualified retirement plan participants. It is not an offer of contracts or of qualified retirement plans. It should not be used in connection with any offer, except in conjunction with the appropriate product prospectus which contains all pertinent information including the applicable sales, administrative and other charges.
The views expressed in the Fund’s Manager Discussion under ‘‘Why did the Fund perform this way?’’ and ‘‘What is the outlook?’’ are views of the Fund’s sub-adviser and portfolio management team through the end of the period and are subject to change based on market and other conditions. The Fund’s Manager Discussion is for informational purposes only and does not represent an offer, recommendation or solicitation to buy, hold or sell any security. The specific securities identified and described, if any, do not represent all of the securities purchased or sold and you should not assume that investments in the securities identified and discussed will be profitable.
Hartford Total Return Bond HLS Fund inception 08/31/1977 |
(sub-advised by Wellington Management Company, LLP) |
Investment objective – The Fund seeks a competitive total return, with income as a secondary objective. |
Performance Overview 12/31/04 - 12/31/14
The chart above represents the hypothetical growth of a $10,000 investment in Class IA. Growth results in classes other than Class IA will vary from what is seen above due to differences in the expenses charged to those share classes.
Average Annual Total Returns (as of 12/31/14)
1 Year | 5 Years | 10 Years | ||||
Total Return Bond IA | 5.89% | 5.26% | 4.43% | |||
Total Return Bond IB | 5.68% | 5.00% | 4.17% | |||
Barclays U.S. Aggregate Bond Index | 5.97% | 4.45% | 4.71% |
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of the investment will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain performance data current to the most recent month-end, please visit our website www.hartfordfunds.com.
Total returns presented above were calculated using the Fund’s net asset value available to shareholders for sale or redemption of Fund shares on December 31, 2014, which may exclude investment transactions as of this date. All share class returns assume the reinvestment of all distributions at net asset value and the deduction of all fund expenses.
Performance information includes performance under the Fund’s previous sub-adviser, Hartford Investment Management Company. As of March 5, 2012, Hartford Investment Management Company no longer served as the sub-adviser to the Fund.
Barclays U.S. Aggregate Bond Index is an unmanaged index and is composed of securities from the Barclays Government/Credit Bond Index, Mortgage-Backed Securities Index, Asset-Backed Securities Index and Commercial Mortgage-Backed Securities Index.
The index is unmanaged, and its results include reinvested dividends and/or distributions, but do not reflect the effect of sales charges, commissions, expenses or taxes.
You cannot invest directly in an index.
As shown in the Fund's current prospectus dated May 1, 2014, the total annual operating expense ratios for Class IA and Class IB were 0.50% and 0.75%, respectively. Actual expenses may be higher. Please see the accompanying Financial Highlights for expense ratios for the year ended December 31, 2014.
The chart and table do not reflect the deductions of taxes, sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees or expenses would lower the contract’s or plan’s performance.
All investments are subject to risk including the possible loss of principal. For a discussion of the Fund’s risks, please see the Main Risks section of this report. For more detailed information on the risks associated with an investment in the Fund, please see the prospectus.
2 |
Hartford Total Return Bond HLS Fund |
Manager Discussion |
December 31, 2014 (Unaudited) |
Portfolio Managers | ||
Joseph F. Marvan, CFA | Lucius T. (L.T.) Hill, III | Campe Goodman, CFA |
Senior Managing Director and Fixed Income Portfolio Manager | Senior Managing Director and Fixed Income Portfolio Manager | Senior Managing Director and Fixed Income Portfolio Manager |
How did the Fund perform?
The Class IA shares of the Hartford Total Return Bond HLS Fund returned 5.89% for the twelve-month period ended December 31, 2014, underperforming the Fund’s benchmark, the Barclays U.S. Aggregate Bond Index, which returned 5.97% for the same period. The Fund outperformed the 5.31% average return of the Lipper Intermediate Investment Grade Debt Funds peer group, a group of funds with investment strategies similar to those of the Fund.
Why did the Fund perform this way?
The bond market produced another year of positive total returns fueled by falling global interest rates amid weakening global growth and persistent geopolitical risks. Falling commodity prices, triggered by oil’s largest annual decline since the financial crisis, pushed inflation lower across the globe, stirring up fears of deflation in some regions. Government bond prices gained amid the flight to quality and expectations that the combination of subpar growth and low inflation would keep central banks’ monetary policy accommodative.
The period was characterized by a divergence of economic performance and monetary policy between the U.S. and the rest of the world. The U.S. economy demonstrated resilience at the same time as growth rates in many world economies slowed significantly. European data in particular disappointed, especially in core countries like Germany, while China continued to face economic struggles from weakening domestic demand and its slumping real estate sector. In Japan, the April sales-tax boost unexpectedly pushed the country into recession in the third quarter.
Globally, most credit spread sectors posted positive absolute returns while performance was mixed relative to duration-equivalent government bonds. In particular, among the weaker fixed income sectors were high yield and bank loans, where spreads widened considerably during the fourth quarter due to falling oil prices and its impact on the energy sector. The outperformance of the U.S. compared to its global counterparts led to rising volatility and a broad U.S.-dollar rally in the currency markets with the U.S. dollar index hitting an eight-year high in December.
The primary drivers of the Fund’s relative underperformance stemmed from its out-of-benchmark allocations to both non-U.S. sovereign debt as well as high yield corporate credit, particularly high yield credit default swap index positions. Additionally, the Fund’s allocation to U.S. TIPS detracted from relative results, as inflation expectations fell meaningfully over the period. On the other hand, the Fund’s out-of-benchmark allocation to non-agency Mortgage Backed Securities (MBS), positioning within agency MBS, and an overweight to Commercial Mortgage Backed Securities (CMBS) were positive contributors to relative performance over the period. Derivatives were also used to manage the duration positioning of the Fund; duration and yield curve positioning were additive to relative returns, particularly a flattening bias in the first quarter and a short duration posture in mid-October. An underweight to investment grade credit, concentrated in Industrials, contributed positively to returns relative to the Barclays U.S. Aggregate Bond Index.
What is the outlook?
We maintain a moderately pro-cyclical risk posture as we see positive economic momentum in the U.S. heading into 2015; however, in our view the global economic backdrop poses risks.
We believe U.S. jobs growth is on solid footing and low oil prices should boost consumption. After posting strong gains in 2014, we expect some slowing in investment spending, particularly in energy. The Federal Open Market Committee appears on track to raise rates in 2015 as long as headline inflation, which is inflation as reported through the Consumer Price Index, holds steady and the labor market continues to improve. At the end of the period, we held a neutral duration posture relative to the Barclays U.S. Aggregate Bond Index. Additionally, we expect more inflation than what we believe is currently priced into the TIPS market; therefore, at the end of the period, we are positioned with a modest out-of-benchmark allocation to TIPS.
We enter 2015 with a positive view on credit overall, based on supportive monetary policy, positive credit fundamentals, and attractive valuations. We continue to favor bank loans based on attractive valuations and low default expectations. At the end of the period, we also held BB rated high yield bonds and contingent convertibles (CoCos) of large European banks. Within the securitized sectors, we continue to favor select non-agency residential mortgage-backed securities due to an improving housing market, and high quality collateralized loan obligations (CLOs) because of their compelling valuations. Additionally, we continue to have an overweight to CMBS. On the other hand, we view agency MBS as overvalued; therefore, we are underweight agency MBS pass-throughs. At the end of the period, we also maintained an underweight to investment grade corporates overall, but continued to favor financials and communications issuers. We held a modest allocation to local currency emerging market debt.
3 |
Hartford Total Return Bond HLS Fund |
Manager Discussion – (continued) |
December 31, 2014 (Unaudited) |
Diversification by Security Type | |
as of December 31, 2014 |
Category | Percentage of Net Assets | |||
Equity Securities | ||||
Preferred Stocks | 0.1 | % | ||
Total | 0.1 | % | ||
Fixed Income Securities | ||||
Asset & Commercial Mortgage Backed Securities | 28.5 | % | ||
Corporate Bonds | 29.3 | |||
Foreign Government Obligations | 3.1 | |||
Municipal Bonds | 1.1 | |||
Senior Floating Rate Interests | 5.2 | |||
U.S. Government Agencies | 28.5 | |||
U.S. Government Securities | 14.4 | |||
Total | 110.1 | % | ||
Short-Term Investments | 5.5 | |||
Purchased Options | 0.0 | |||
Other Assets and Liabilities | (15.7 | ) | ||
Total | 100.0 | % |
Credit Exposure | |
as of December 31, 2014 |
Credit Rating * | Percentage of Net Assets | |||
Aaa/ AAA | 49.5 | % | ||
Aa/ AA | 13.6 | |||
A | 7.7 | |||
Baa/ BBB | 18.7 | |||
Ba/ BB | 8.3 | |||
B | 4.9 | |||
Caa/ CCC or Lower | 4.8 | |||
Not Rated | 2.6 | |||
Non-Debt Securities and Other Short-Term Instruments | 5.6 | |||
Other Assets and Liabilities | (15.7 | ) | ||
Total | 100.0 | % |
* | Credit exposure is the long-term credit ratings for the Fund's holdings, as of the date noted, as provided by Standard and Poor's (S&P) or Moody's Investors Service (Moody's) and typically range from AAA/Aaa (highest) to C/D (lowest). Presentation of S&P and Moody's credit ratings in this report have been selected for informational purposes for shareholders, as well as the Fund's consideration of industry practice. If Moody's and S&P assign different ratings, the lower rating is used. Fixed income securities that are not rated by either agency are listed as "Not Rated." Ratings do not apply to the Fund itself or to the Fund's shares. Ratings may change. |
4 |
Hartford Total Return Bond HLS Fund |
Schedule of Investments |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount ╬ | Market Value ╪ | |||||||
Asset and Commercial Mortgage Backed Securities - 28.5% | ||||||||
Finance and Insurance - 28.5% | ||||||||
American Home Mortgage Assets Trust | ||||||||
$ | 2,303 | 1.05%, 10/25/2046 Δ | $ | 1,672 | ||||
American Money Management Corp. | ||||||||
9,180 | 1.80%, 07/27/2026 ■‡Δ | 9,094 | ||||||
AmeriCredit Automobile Receivables Trust | ||||||||
3,800 | 2.72%, 09/09/2019 | 3,865 | ||||||
Apidos CLO | ||||||||
6,015 | 1.68%, 01/19/2025 ■‡Δ | 5,984 | ||||||
10,915 | 1.71%, 04/17/2026 ■‡Δ | 10,856 | ||||||
Ares CLO Ltd. | ||||||||
8,836 | 1.02%, 04/20/2023 ■‡Δ | 8,784 | ||||||
10,350 | 1.76%, 04/17/2026 ■‡Δ | 10,304 | ||||||
Atlas Senior Loan Fund Ltd. | ||||||||
7,610 | 1.78%, 10/15/2026 ■‡Δ | 7,570 | ||||||
4,200 | 1.81%, 07/16/2026 ■Δ | 4,186 | ||||||
Atrium CDO Corp. | ||||||||
790 | 1.35%, 07/16/2025 ■Δ | 774 | ||||||
3,535 | 1.99%, 11/16/2022 ■Δ | 3,459 | ||||||
Avalon IV Capital Ltd. | ||||||||
3,980 | 2.08%, 04/17/2023 ■Δ | 3,920 | ||||||
Avery Point CLO Ltd. | ||||||||
10,050 | 1.75%, 04/25/2026 ■Δ | 10,014 | ||||||
Babson CLO Ltd. | ||||||||
2,330 | 1.72%, 07/12/2025 ■Δ | 2,318 | ||||||
Banc of America Commercial Mortgage, Inc. | ||||||||
4,361 | 5.35%, 09/10/2047 ‡Δ | 4,452 | ||||||
7,731 | 5.45%, 11/10/2042 Δ | 7,728 | ||||||
Banc of America Funding Corp. | ||||||||
824 | 0.40%, 02/20/2047 Δ | 692 | ||||||
6,480 | 0.47%, 05/20/2047 ‡Δ | 5,259 | ||||||
7,894 | 5.77%, 05/25/2037 ‡ | 6,724 | ||||||
357 | 5.85%, 01/25/2037 | 285 | ||||||
BCAP LLC Trust | ||||||||
1,327 | 0.34%, 01/25/2037 Δ | 1,055 | ||||||
3,474 | 0.35%, 03/25/2037 Δ | 2,888 | ||||||
Bear Stearns Adjustable Rate Mortgage Trust | ||||||||
1,235 | 2.43%, 10/25/2035 Δ | 1,218 | ||||||
Bear Stearns Alt-A Trust | ||||||||
723 | 0.55%, 05/25/2036 Δ | 532 | ||||||
Bear Stearns Commercial Mortgage Securities, Inc. | ||||||||
1,105 | 5.28%, 10/12/2042 Δ | 1,107 | ||||||
2,513 | 5.33%, 02/11/2044 | 2,685 | ||||||
7,485 | 5.41%, 12/11/2040 | 7,684 | ||||||
1,977 | 5.47%, 01/12/2045 | 2,118 | ||||||
5,283 | 5.69%, 06/11/2050 | 5,730 | ||||||
Cal Funding II Ltd. | ||||||||
1,602 | 3.47%, 10/25/2027 ■ | 1,611 | ||||||
Cent CLO L.P. | ||||||||
9,345 | 1.71%, 01/25/2026 ■‡Δ | 9,301 | ||||||
6,305 | 1.72%, 07/27/2026 ■��Δ | 6,272 | ||||||
CIFC Funding Ltd. | ||||||||
11,095 | 1.73%, 04/18/2025 ■‡Δ | 11,021 | ||||||
8,965 | 1.73%, 05/24/2026 ■‡Δ | 8,895 | ||||||
7,240 | 2.33%, 08/14/2024 ■Δ | 7,120 | ||||||
Citigroup Commercial Mortgage Trust | ||||||||
4,135 | 4.02%, 03/10/2047 ‡ | 4,429 | ||||||
445 | 5.06%, 03/10/2047 ■Δ | 430 | ||||||
Citigroup/Deutsche Bank Commercial Mortgage Trust | ||||||||
9,595 | 5.32%, 12/11/2049 ‡ | 10,159 | ||||||
5,070 | 5.48%, 01/15/2046 ‡Δ | 5,213 | ||||||
Cobalt CMBS Commercial Funding Corp. | ||||||||
1,100 | 5.25%, 08/15/2048 | 1,120 | ||||||
Commercial Mortgage Loan Trust | ||||||||
10,941 | 6.04%, 12/10/2049 ‡Δ | 11,759 | ||||||
Commercial Mortgage Pass-Through Certificates | ||||||||
26,582 | 2.40%, 07/10/2046 ■► | 1,119 | ||||||
650 | 2.85%, 10/15/2045 | 650 | ||||||
2,610 | 3.96%, 02/10/2047 | 2,788 | ||||||
4,375 | 3.96%, 03/10/2047 ‡ | 4,686 | ||||||
3,555 | 4.02%, 07/10/2045 | 3,834 | ||||||
5,200 | 4.05%, 04/10/2047 | 5,613 | ||||||
7,550 | 5.76%, 06/10/2046 Δ | 7,914 | ||||||
Commercial Mortgage Trust | ||||||||
6,780 | 3.42%, 03/10/2031 ■ | 6,957 | ||||||
2,435 | 4.50%, 03/10/2046 ■Δ | 1,650 | ||||||
Community or Commercial Mortgage Trust | ||||||||
4,755 | 3.69%, 08/10/2047 ‡ | 4,952 | ||||||
3,155 | 4.01%, 04/10/2047 | 3,391 | ||||||
4,515 | 4.38%, 07/10/2045 Δ | 4,959 | ||||||
Connecticut Avenue Securities Series | ||||||||
2,605 | 3.07%, 07/25/2024 Δ | 2,332 | ||||||
4,410 | 3.17%, 07/25/2024 Δ | 3,984 | ||||||
1,575 | 5.06%, 11/25/2024 Δ | 1,600 | ||||||
Countrywide Alternative Loan Trust | ||||||||
379 | 0.44%, 01/25/2036 Δ | 337 | ||||||
3,414 | 0.49%, 11/25/2035 Δ | 2,717 | ||||||
2,930 | 5.75%, 05/25/2036 | 2,485 | ||||||
Countrywide Home Loans, Inc. | ||||||||
6,087 | 2.55%, 09/25/2047 Δ | 5,423 | ||||||
1,129 | 2.71%, 04/20/2036 Δ | 789 | ||||||
2,232 | 4.84%, 11/20/2035 Δ | 2,003 | ||||||
3,326 | 5.75%, 08/25/2037 | 3,176 | ||||||
CPS Automotive Trust | ||||||||
258 | 5.01%, 06/17/2019 ■ | 264 | ||||||
Credit Acceptance Automotive Loan Trust | ||||||||
8,005 | 1.88%, 03/15/2022 ■ | 8,005 | ||||||
1,860 | 2.21%, 09/15/2020 ■ | 1,874 | ||||||
Credit Suisse Commercial Mortgage Trust | ||||||||
1,975 | 6.17%, 02/15/2041 Δ | 2,165 | ||||||
Credit Suisse Mortgage Capital Certificates | ||||||||
6,007 | 5.47%, 09/15/2039 ‡ | 6,322 | ||||||
222 | 5.89%, 06/15/2039 Δ | 237 | ||||||
CS First Boston Mortgage Securities Corp. | ||||||||
2,915 | 4.77%, 07/15/2037 | 2,941 | ||||||
6,530 | 4.88%, 04/15/2037 ‡ | 6,547 | ||||||
4,328 | 5.50%, 06/25/2035 ‡ | 4,124 | ||||||
CW Capital Cobalt Ltd. | ||||||||
4,397 | 5.22%, 08/15/2048 | 4,633 | ||||||
DBUBS Mortgage Trust | ||||||||
25,658 | 1.37%, 01/01/2021 ■► | 599 | ||||||
Downey S & L Association Mortgage Loan Trust | ||||||||
2,642 | 1.03%, 03/19/2046 Δ | 2,020 | ||||||
Dryden Senior Loan Fund | ||||||||
10,915 | 1.58%, 04/18/2026 ■‡Δ | 10,793 | ||||||
10,870 | 1.70%, 07/15/2026 ■Δ | 10,809 |
The accompanying notes are an integral part of these financial statements.
5 |
Hartford Total Return Bond HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount ╬ | Market Value ╪ | |||||||
Asset and Commercial Mortgage Backed Securities - 28.5% - (continued) | ||||||||
Finance and Insurance - 28.5% - (continued) | ||||||||
Fieldstone Mortgage Investment Corp. | ||||||||
$ | 1,881 | 0.44%, 05/25/2036 Δ | $ | 1,218 | ||||
First Franklin Mortgage Loan Trust | ||||||||
3,267 | 0.41%, 04/25/2036 Δ | 2,113 | ||||||
First Horizon Alternative Mortgage Securities | ||||||||
8,165 | 2.23%, 04/25/2036 ‡Δ | 6,818 | ||||||
5,573 | 2.24%, 09/25/2035 ‡Δ | 4,864 | ||||||
First Investors Automotive Owner Trust | ||||||||
2,665 | 1.49%, 01/15/2020 ■ | 2,666 | ||||||
6,495 | 1.67%, 11/16/2020 ■ | 6,476 | ||||||
1,295 | 1.81%, 10/15/2018 ■ | 1,300 | ||||||
1,750 | 2.39%, 11/16/2020 ■ | 1,745 | ||||||
Flatiron CLO Ltd. | ||||||||
2,210 | 2.13%, 07/17/2026 ■Δ | 2,177 | ||||||
Four Times Square Trust | ||||||||
3,175 | 5.40%, 12/13/2028 ■ | 3,624 | ||||||
FREMF Mortgage Trust | ||||||||
4,680 | 3.01%, 10/25/2047 ■Δ | 4,679 | ||||||
5,485 | 5.41%, 09/25/2043 ■Δ | 6,063 | ||||||
GE Business Loan Trust | ||||||||
4,495 | 1.16%, 05/15/2034 ■‡Δ | 3,795 | ||||||
GE Capital Commercial Mortgage Corp. | ||||||||
2,220 | 5.49%, 11/10/2045 Δ | 2,255 | ||||||
GM Financial Automobile Leasing Trust | ||||||||
1,260 | 1.96%, 03/20/2018 ■ | 1,261 | ||||||
GMAC Commercial Mortgage Securities, Inc. | ||||||||
2,748 | 5.24%, 11/10/2045 Δ | 2,797 | ||||||
GMAC Mortgage Corp. Loan Trust | ||||||||
4,936 | 2.93%, 09/19/2035 Δ | 4,609 | ||||||
82 | 2.96%, 04/19/2036 Δ | 72 | ||||||
Gramercy Park CLO Ltd. | ||||||||
8,670 | 1.53%, 07/17/2023 ■‡Δ | 8,670 | ||||||
Greenwich Capital Commercial Funding Corp. | ||||||||
1,205 | 5.44%, 03/10/2039 Δ | 1,285 | ||||||
8,355 | 5.74%, 12/10/2049 | 9,049 | ||||||
212 | 6.01%, 07/10/2038 Δ | 222 | ||||||
GS Mortgage Securities Trust | ||||||||
53,134 | 0.31%, 07/10/2046 ► | 612 | ||||||
10,893 | 1.69%, 08/10/2044 ■► | 636 | ||||||
4,340 | 2.95%, 11/05/2034 ■‡ | 4,333 | ||||||
1,580 | 3.67%, 04/10/2047 ■Δ | 1,096 | ||||||
4,510 | 3.68%, 04/12/2047 Δ | 4,729 | ||||||
6,235 | 3.86%, 06/10/2047 ‡ | 6,621 | ||||||
4,110 | 4.00%, 04/10/2047 Δ | 4,408 | ||||||
2,960 | 5.03%, 04/10/2047 ■Δ | 2,810 | ||||||
GSAA Home Equity Trust | ||||||||
14,453 | 0.25%, 02/25/2037 ‡Δ | 7,834 | ||||||
6,945 | 0.25%, 03/25/2037 ‡Δ | 3,663 | ||||||
1,883 | 0.40%, 04/25/2047 Δ | 1,225 | ||||||
178 | 0.41%, 11/25/2036 Δ | 104 | ||||||
1,479 | 0.47%, 03/25/2036 Δ | 1,034 | ||||||
GSAMP Trust | ||||||||
4,703 | 0.26%, 01/25/2037 Δ | 2,826 | ||||||
GSR Mortgage Loan Trust | ||||||||
8,120 | 2.63%, 01/25/2036 Δ | 7,530 | ||||||
Harborview Mortgage Loan Trust | ||||||||
3,267 | 0.35%, 01/19/2038 Δ | 2,768 | ||||||
7,629 | 0.38%, 05/19/2047 Δ | 3,197 | ||||||
9,937 | 0.40%, 12/19/2036 ‡Δ | 7,059 | ||||||
1,336 | 0.51%, 01/19/2035 Δ | 932 | ||||||
Hilton USA Trust | ||||||||
5,985 | 2.66%, 11/05/2030 ■‡ | 5,992 | ||||||
1,183 | 2.91%, 11/05/2030 ■Δ | 1,183 | ||||||
IndyMac Index Mortgage Loan Trust | ||||||||
4,133 | 0.45%, 07/25/2035 ‡Δ | 3,496 | ||||||
672 | 0.46%, 01/25/2036 Δ | 465 | ||||||
6,424 | 0.57%, 07/25/2046 ‡Δ | 3,566 | ||||||
2,426 | 2.46%, 01/25/2036 Δ | 2,269 | ||||||
1,644 | 2.47%, 08/25/2035 Δ | 1,314 | ||||||
3,603 | 2.54%, 03/25/2036 Δ | 2,805 | ||||||
ING Investment Management CLO Ltd. | ||||||||
5,215 | 1.43%, 03/14/2022 ■‡Δ | 5,191 | ||||||
10,895 | 1.73%, 04/18/2026 ■‡Δ | 10,846 | ||||||
3,335 | 2.08%, 03/14/2022 ■Δ | 3,286 | ||||||
JP Morgan Chase Commercial Mortgage Securities | ||||||||
8,801 | 1.66%, 02/12/2051 Δ | 8,829 | ||||||
1,380 | 2.75%, 10/15/2045 ■ | 1,058 | ||||||
1,365 | 2.83%, 10/15/2045 | 1,362 | ||||||
3,550 | 3.91%, 05/05/2030 ■Δ | 3,711 | ||||||
1,676 | 4.57%, 12/15/2047 ■Δ | 1,441 | ||||||
700 | 4.82%, 10/15/2045 ■Δ | 697 | ||||||
9,483 | 5.34%, 05/15/2047 ‡ | 10,071 | ||||||
6,265 | 5.40%, 12/15/2044 ‡Δ | 6,370 | ||||||
6,186 | 5.42%, 01/12/2043 ‡Δ | 6,322 | ||||||
3,426 | 5.72%, 02/15/2051 | 3,685 | ||||||
8,447 | 5.89%, 02/12/2049 Δ | 9,062 | ||||||
JP Morgan Mortgage Trust | ||||||||
712 | 2.54%, 04/25/2037 Δ | 637 | ||||||
2,846 | 2.60%, 09/25/2035 Δ | 2,782 | ||||||
1,736 | 2.60%, 05/25/2036 Δ | 1,577 | ||||||
JPMBB Commercial Mortgage Securities Trust | ||||||||
30,103 | 0.89%, 09/15/2047 ► | 1,559 | ||||||
3,225 | 3.80%, 09/15/2047 | 3,399 | ||||||
LB-UBS Commercial Mortgage Trust | ||||||||
10,804 | 5.86%, 07/15/2040 | 11,400 | ||||||
1,390 | 6.32%, 04/15/2041 Δ | 1,533 | ||||||
LCM Ltd. | ||||||||
1,345 | 2.13%, 04/15/2022 ■Δ | 1,326 | ||||||
Lehman Brothers Small Balance Commercial | ||||||||
1,095 | 5.52%, 09/25/2030 ■Δ | 1,103 | ||||||
Lehman XS Trust | ||||||||
2,633 | 0.38%, 07/25/2046 Δ | 2,092 | ||||||
Limerock CLO | ||||||||
11,335 | 1.73%, 04/18/2026 ■Δ | 11,255 | ||||||
Luminent Mortgage Trust | ||||||||
1,688 | 0.37%, 02/25/2046 Δ | 1,272 | ||||||
1,768 | 0.43%, 11/25/2035 Δ | 1,590 | ||||||
Madison Park Funding Ltd. | ||||||||
6,520 | 1.68%, 01/19/2025 ■Δ | 6,472 | ||||||
9,860 | 1.68%, 07/20/2026 ■Δ | 9,792 | ||||||
Magnetite CLO Ltd. | ||||||||
8,310 | 1.70%, 07/25/2026 ■Δ | 8,240 | ||||||
6,540 | 1.71%, 04/15/2026 ■Δ | 6,505 | ||||||
6,695 | 2.23%, 07/25/2026 ■Δ | 6,518 | ||||||
Merrill Lynch Mortgage Investors Trust | ||||||||
146 | 2.51%, 12/25/2035 Δ | 138 | ||||||
1,578 | 2.53%, 07/25/2035 Δ | 1,307 | ||||||
1,835 | 5.14%, 07/12/2038 | 1,872 |
The accompanying notes are an integral part of these financial statements.
6 |
Hartford Total Return Bond HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount ╬ | Market Value ╪ | |||||||
Asset and Commercial Mortgage Backed Securities - 28.5% - (continued) | ||||||||
Finance and Insurance - 28.5% - (continued) | ||||||||
Merrill Lynch/Countrywide Commercial Mortgage Trust | ||||||||
$ | 7,969 | 5.38%, 08/12/2048 | $ | 8,465 | ||||
2,285 | 5.42%, 08/12/2048 | 2,399 | ||||||
4,830 | 5.70%, 09/12/2049 | 5,223 | ||||||
6,505 | 5.81%, 06/12/2050 Δ | 7,025 | ||||||
Morgan Stanley ABS Capital I | ||||||||
4,636 | 0.32%, 06/25/2036 Δ | 3,556 | ||||||
Morgan Stanley BAML Trust | ||||||||
6,300 | 3.74%, 08/15/2047 Δ | 6,635 | ||||||
1,530 | 4.06%, 02/15/2047 | 1,650 | ||||||
1,605 | 4.50%, 08/15/2045 ■ | 1,238 | ||||||
Morgan Stanley Capital I | ||||||||
98,513 | 0.91%, 09/15/2047 ■► | 1,554 | ||||||
4,920 | 3.47%, 08/11/2029 ■ | 5,091 | ||||||
1,444 | 4.99%, 08/13/2042 | 1,448 | ||||||
1,503 | 5.38%, 11/14/2042 Δ | 1,527 | ||||||
920 | 5.55%, 10/12/2052 ■Δ | 932 | ||||||
10,889 | 5.69%, 04/15/2049 Δ | 11,724 | ||||||
736 | 5.83%, 10/15/2042 Δ | 755 | ||||||
Morgan Stanley Capital Investments | ||||||||
4,829 | 5.81%, 12/12/2049 | 5,250 | ||||||
Morgan Stanley Mortgage Loan Trust | ||||||||
592 | 0.34%, 05/25/2036 Δ | 312 | ||||||
1,843 | 0.34%, 11/25/2036 Δ | 894 | ||||||
Morgan Stanley Re-Remic Trust | ||||||||
4,264 | 5.99%, 08/12/2045 ■Δ | 4,570 | ||||||
2,298 | 5.99%, 08/15/2045 ■Δ | 2,463 | ||||||
National Credit Union Administration | ||||||||
1,090 | 1.84%, 10/07/2020 Δ | 1,096 | ||||||
Neuberger Berman CLO XVI Ltd. | ||||||||
8,335 | 1.70%, 03/01/2026 ■Δ | 8,266 | ||||||
Neuberger Berman CLO XVII Ltd. | ||||||||
8,265 | 1.63%, 08/04/2025 ■Δ | 8,196 | ||||||
Oak Hill Credit Partners | ||||||||
3,030 | 1.70%, 07/20/2026 ■Δ | 3,012 | ||||||
OZLM Funding Ltd. | ||||||||
10,530 | 1.78%, 04/17/2026 ■Δ | 10,502 | ||||||
RBSGC Mortage Pass Through Certificates | ||||||||
3,236 | 6.25%, 01/25/2037 | 2,929 | ||||||
Residential Accredit Loans, Inc. | ||||||||
430 | 0.39%, 02/25/2046 Δ | 207 | ||||||
922 | 0.91%, 09/25/2046 Δ | 617 | ||||||
8,588 | 1.41%, 11/25/2037 Δ | 5,462 | ||||||
Residential Asset Securitization Trust | ||||||||
3,202 | 0.62%, 03/25/2035 Δ | 2,460 | ||||||
1,662 | 6.25%, 11/25/2036 | 1,177 | ||||||
Santander Drive Automotive Receivables Trust | ||||||||
4,790 | 1.55%, 10/15/2018 | 4,806 | ||||||
1,920 | 1.82%, 05/15/2019 | 1,921 | ||||||
1,385 | 2.25%, 06/17/2019 | 1,398 | ||||||
4,500 | 2.36%, 04/15/2020 | 4,525 | ||||||
SBA Tower Trust | ||||||||
5,250 | 2.90%, 10/15/2044 ■Δ | 5,264 | ||||||
Securitized Asset Backed Receivables LLC | ||||||||
565 | 0.26%, 07/25/2036 Δ | 275 | ||||||
Seneca Park CLO Ltd. | ||||||||
7,360 | 1.70%, 07/17/2026 ■Δ | 7,350 | ||||||
Sequoia Mortgage Trust | ||||||||
855 | 2.46%, 07/20/2037 Δ | 721 | ||||||
Shackleton CLO Ltd. | ||||||||
7,325 | 1.72%, 07/17/2026 ■Δ | 7,284 | ||||||
Soundview Home Equity Loan Trust, Inc. | ||||||||
3,225 | 0.35%, 07/25/2037 Δ | 2,004 | ||||||
SpringCastle America Funding LLC | ||||||||
7,799 | 2.70%, 05/25/2023 ■ | 7,786 | ||||||
Springleaf Funding Trust | ||||||||
8,435 | 2.41%, 12/15/2022 ■ | 8,428 | ||||||
Springleaf Mortgage Loan Trust | ||||||||
275 | 2.31%, 06/25/2058 ■ | 270 | ||||||
6,285 | 3.52%, 12/25/2065 ■ | 6,412 | ||||||
Structured Adjustable Rate Mortgage Loan Trust | ||||||||
1,561 | 0.47%, 09/25/2034 Δ | 1,374 | ||||||
Structured Agency Credit Risk Debt Notes | ||||||||
1,600 | 4.67%, 02/25/2024 Δ | 1,583 | ||||||
2,065 | 4.92%, 10/25/2024 Δ | 2,040 | ||||||
Symphony CLO Ltd. | ||||||||
8,660 | 1.71%, 07/14/2026 ■Δ | 8,640 | ||||||
8,030 | 1.98%, 01/09/2023 ■Δ | 8,059 | ||||||
UBS-Barclays Commercial Mortgage Trust | ||||||||
4,680 | 3.18%, 03/10/2046 Δ | 4,758 | ||||||
985 | 4.23%, 03/10/2046 ■Δ | 808 | ||||||
Voya CLO Ltd. | ||||||||
2,915 | 1.68%, 07/17/2026 ■Δ | 2,901 | ||||||
Wachovia Bank Commercial Mortgage Trust | ||||||||
1,002 | 5.31%, 11/15/2048 | 1,062 | ||||||
2,130 | 5.56%, 03/15/2042 ■Δ | 2,140 | ||||||
Wells Fargo Alternative Loan Trust | ||||||||
5,320 | 6.25%, 11/25/2037 | 5,061 | ||||||
Wells Fargo Commercial Mortgage Trust | ||||||||
6,965 | 2.92%, 10/15/2045 | 7,014 | ||||||
3,220 | 3.82%, 08/15/2050 | 3,406 | ||||||
Westlake Automobile Receivables Trust | ||||||||
390 | 0.97%, 10/16/2017 ■ | 390 | ||||||
8,275 | 1.58%, 04/15/2020 ■ | 8,273 | ||||||
WF-RBS Commercial Mortgage Trust | ||||||||
2,410 | 2.92%, 08/15/2047 | 2,475 | ||||||
175 | 3.44%, 04/15/2045 | 183 | ||||||
6,700 | 3.68%, 08/15/2047 | 7,021 | ||||||
120 | 3.88%, 08/15/2046 | 128 | ||||||
6,165 | 4.00%, 05/15/2047 | 6,619 | ||||||
6,150 | 4.05%, 03/15/2047 | 6,619 | ||||||
3,174 | 4.10%, 03/15/2047 | 3,436 | ||||||
550 | 4.90%, 06/15/2044 ■ | 619 | ||||||
710 | 5.00%, 06/15/2044 ■ | 664 | ||||||
815 | 5.00%, 04/15/2045 ■ | 630 | ||||||
1,045 | 5.75%, 04/15/2045 ■Δ | 1,115 | ||||||
923,641 | ||||||||
Total Asset and Commercial Mortgage Backed Securities | ||||||||
(Cost $910,820) | $ | 923,641 | ||||||
Corporate Bonds - 29.3% | ||||||||
Administrative, Support, Waste Management and Remediation Services - 0.1% | ||||||||
ADT (The) Corp. | ||||||||
$ | 2,045 | 6.25%, 10/15/2021 | $ | 2,101 |
The accompanying notes are an integral part of these financial statements.
7 |
Hartford Total Return Bond HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount ╬ | Market Value ╪ | |||||||
Corporate Bonds - 29.3% - (continued) | ||||||||
Administrative, Support, Waste Management and Remediation Services - 0.1% - (continued) | ||||||||
Clean Harbors, Inc. | ||||||||
$ | 345 | 5.13%, 06/01/2021 | $ | 344 | ||||
1,385 | 5.25%, 08/01/2020 | 1,392 | ||||||
3,837 | ||||||||
Agriculture, Forestry, Fishing and Hunting - 0.0% | ||||||||
Weyerhaeuser Co. | ||||||||
200 | 7.38%, 10/01/2019 | 239 | ||||||
Arts, Entertainment and Recreation - 1.9% | ||||||||
CCO Holdings LLC | ||||||||
80 | 5.13%, 02/15/2023 | 78 | ||||||
65 | 5.25%, 09/30/2022 | 65 | ||||||
385 | 5.75%, 09/01/2023 | 390 | ||||||
Comcast Corp. | ||||||||
4,520 | 4.75%, 03/01/2044 | 5,037 | ||||||
425 | 5.70%, 07/01/2019 | 488 | ||||||
DirecTV Holdings LLC | ||||||||
2,600 | 3.95%, 01/15/2025 | 2,621 | ||||||
4,000 | 5.00%, 03/01/2021 ‡ | 4,362 | ||||||
Gannett Co., Inc. | ||||||||
4,005 | 5.13%, 10/15/2019 | 4,095 | ||||||
565 | 5.13%, 07/15/2020 | 576 | ||||||
Grupo Televisa S.A.B. | ||||||||
1,260 | 5.00%, 05/13/2045 | 1,282 | ||||||
NBC Universal Media LLC | ||||||||
1,715 | 5.95%, 04/01/2041 | 2,205 | ||||||
News America Holdings, Inc. | ||||||||
1,955 | 8.00%, 10/17/2016 | 2,183 | ||||||
News America, Inc. | ||||||||
3,500 | 6.15%, 03/01/2037 | 4,386 | ||||||
1,675 | 6.20%, 12/15/2034 | 2,139 | ||||||
Numericable Group S.A. | ||||||||
645 | 4.88%, 05/15/2019 ■ | 639 | ||||||
Sky plc | ||||||||
4,470 | 2.63%, 09/16/2019 ■ | 4,472 | ||||||
Time Warner Cable, Inc. | ||||||||
165 | 4.50%, 09/15/2042 | 170 | ||||||
Time Warner Entertainment Co., L.P. | ||||||||
80 | 8.38%, 03/15/2023 | 108 | ||||||
8,175 | 8.38%, 07/15/2033 | 12,268 | ||||||
Time Warner, Inc. | ||||||||
2,040 | 3.40%, 06/15/2022 | 2,062 | ||||||
2,550 | 4.75%, 03/29/2021 | 2,783 | ||||||
3,115 | 5.88%, 11/15/2016 | 3,376 | ||||||
2,725 | 6.10%, 07/15/2040 | 3,319 | ||||||
2,700 | 6.50%, 11/15/2036 | 3,435 | ||||||
62,539 | ||||||||
Beverage and Tobacco Product Manufacturing - 0.2% | ||||||||
Altria Group, Inc. | ||||||||
1,203 | 10.20%, 02/06/2039 | 2,095 | ||||||
Anheuser-Busch InBev Worldwide, Inc. | ||||||||
2,574 | 0.80%, 07/15/2015 | 2,578 | ||||||
4,673 | ||||||||
Chemical Manufacturing - 0.3% | ||||||||
CF Industries Holdings, Inc. | ||||||||
6,270 | 5.15%, 03/15/2034 ‡ | 6,559 | ||||||
Dow Chemical Co. | ||||||||
1,350 | 8.55%, 05/15/2019 | 1,678 | ||||||
8,237 | ||||||||
Computer and Electronic Product Manufacturing - 0.0% | ||||||||
EMC Corp. | ||||||||
410 | 1.88%, 06/01/2018 | 409 | ||||||
Hewlett-Packard Co. | ||||||||
390 | 1.17%, 01/14/2019 Δ | 383 | ||||||
Semiconductor Manufacturing International | ||||||||
250 | 4.13%, 10/07/2019 ■ | 249 | ||||||
1,041 | ||||||||
Construction - 0.1% | ||||||||
Lennar Corp. | ||||||||
1,805 | 4.50%, 06/15/2019 | 1,805 | ||||||
Finance and Insurance - 14.1% | ||||||||
Abbey National Treasury Services plc | ||||||||
250 | 2.35%, 09/10/2019 | 249 | ||||||
Ally Financial, Inc. | ||||||||
1,845 | 3.75%, 11/18/2019 | 1,817 | ||||||
American Express Co. | ||||||||
3,525 | 3.63%, 12/05/2024 | 3,554 | ||||||
American International Group, Inc. | ||||||||
480 | 4.50%, 07/16/2044 | 507 | ||||||
335 | 8.18%, 05/15/2058 | 454 | ||||||
American Tower Corp. | ||||||||
4,565 | 3.40%, 02/15/2019 | 4,646 | ||||||
2,435 | 4.50%, 01/15/2018 | 2,586 | ||||||
960 | 5.00%, 02/15/2024 | 1,018 | ||||||
1,550 | 7.00%, 10/15/2017 | 1,750 | ||||||
Aquarius Invest. plc Swiss Reinsurance Co., Ltd. | ||||||||
425 | 6.38%, 09/01/2024 § | 442 | ||||||
AXA S.A. | ||||||||
220 | 6.46%, 12/14/2018 §♠ | 232 | ||||||
Banco Bilbao Vizcaya Argentaria S.A. | ||||||||
EUR | 6,200 | 7.00%, 12/29/2049 § | 7,643 | |||||
3,800 | 9.00%, 05/09/2018 §♠ | 4,066 | ||||||
Banco Del Estado de Chile | ||||||||
1,600 | 3.88%, 02/08/2022 § | 1,615 | ||||||
Banco do Brasil | ||||||||
4,250 | 6.25%, 04/15/2024 §♠ | 3,103 | ||||||
Banco Santander S.A. | ||||||||
EUR | 9,000 | 6.25%, 03/12/2049 § | 10,618 | |||||
Bank of America Corp. | ||||||||
1,560 | 4.20%, 08/26/2024 | 1,589 | ||||||
1,440 | 4.88%, 04/01/2044 | 1,591 | ||||||
795 | 5.13%, 06/17/2019 ♠ | 767 | ||||||
Bank of Ireland | ||||||||
EUR | 2,930 | 10.00%, 07/30/2016 § | 3,824 | |||||
Bankia S.A. | ||||||||
EUR | 200 | 4.00%, 05/22/2024 §Δ | 236 | |||||
Barclays Bank plc | ||||||||
14,890 | 6.05%, 12/04/2017 ■‡ | 16,378 | ||||||
EUR | 1,010 | 6.50%, 06/15/2049 | 1,196 | |||||
EUR | 1,420 | 8.00%, 12/15/2049 | 1,788 | |||||
3,245 | 8.25%, 12/15/2018 ♠β | 3,326 | ||||||
BBVA International PFD Uniperson | ||||||||
350 | 5.92%, 04/18/2017 ♠ | 356 | ||||||
Bear Stearns & Co., Inc. | ||||||||
4,392 | 5.55%, 01/22/2017 ‡ | 4,734 | ||||||
BP Capital Markets plc | ||||||||
2,340 | 2.52%, 01/15/2020 | 2,343 |
The accompanying notes are an integral part of these financial statements.
8 |
Hartford Total Return Bond HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount ╬ | Market Value ╪ | |||||||
Corporate Bonds - 29.3% - (continued) | ||||||||
Finance and Insurance - 14.1% - (continued) | ||||||||
BPCE S.A. | ||||||||
$ | 250 | 0.86%, 06/23/2017 Δ | $ | 250 | ||||
4,615 | 2.50%, 12/10/2018 ‡ | 4,678 | ||||||
3,760 | 5.15%, 07/21/2024 ■‡ | 3,875 | ||||||
5,430 | 5.70%, 10/22/2023 ■‡ | 5,830 | ||||||
500 | 5.70%, 10/22/2023 § | 537 | ||||||
Brandywine Operating Partnership L.P. | ||||||||
5,950 | 3.95%, 02/15/2023 ‡ | 6,001 | ||||||
Capital One Financial Corp. | ||||||||
3,300 | 6.15%, 09/01/2016 ‡ | 3,546 | ||||||
CIT Group, Inc. | ||||||||
2,658 | 5.50%, 02/15/2019 ■ | 2,804 | ||||||
Citigroup, Inc. | ||||||||
1,850 | 1.70%, 07/25/2016 | 1,863 | ||||||
6,525 | 1.85%, 11/24/2017 | 6,517 | ||||||
2,200 | 2.50%, 09/26/2018 | 2,226 | ||||||
205 | 5.30%, 05/06/2044 | 225 | ||||||
1,000 | 6.13%, 08/25/2036 | 1,192 | ||||||
10,205 | 6.68%, 09/13/2043 ‡ | 13,195 | ||||||
2,699 | 8.50%, 05/22/2019 | 3,363 | ||||||
CNH Industrial Capital LLC | ||||||||
675 | 3.38%, 07/15/2019 ■ | 645 | ||||||
Credit Agricole S.A. | ||||||||
EUR | 2,940 | 6.50%, 06/23/2049 § | 3,613 | |||||
1,710 | 6.63%, 09/23/2019 ■♠Δ | 1,657 | ||||||
Credit Suisse Group AG | ||||||||
EUR | 1,650 | 5.75%, 09/18/2025 § | 2,256 | |||||
2,015 | 6.25%, 12/18/2024 ■♠Δ | 1,938 | ||||||
1,640 | 7.88%, 02/24/2041 § | 1,738 | ||||||
Credit Suisse New York | ||||||||
320 | 3.00%, 10/29/2021 | 319 | ||||||
Development Bank of Kazakhstan JSC | ||||||||
1,700 | 4.13%, 12/10/2022 § | 1,428 | ||||||
Export-Import Bank of China | ||||||||
9,700 | 3.63%, 07/31/2024 § | 9,795 | ||||||
Export-Import Bank of India | ||||||||
1,715 | 4.00%, 01/14/2023 § | 1,715 | ||||||
Fifth Third Bancorp | ||||||||
375 | 4.90%, 09/30/2019 ♠ | 363 | ||||||
General Electric Capital Corp. | ||||||||
1,050 | 5.30%, 02/11/2021 | 1,199 | ||||||
3,900 | 6.25%, 12/15/2022 ‡♠ | 4,246 | ||||||
Goldman Sachs Group, Inc. | ||||||||
2,000 | 2.38%, 01/22/2018 | 2,020 | ||||||
200 | 4.80%, 07/08/2044 | 214 | ||||||
6,637 | 6.00%, 06/15/2020 ‡ | 7,673 | ||||||
2,655 | 6.25%, 02/01/2041 | 3,356 | ||||||
4,400 | 6.45%, 05/01/2036 ‡ | 5,318 | ||||||
5,610 | 6.75%, 10/01/2037 ‡ | 7,054 | ||||||
HCP, Inc. | ||||||||
3,810 | 4.25%, 11/15/2023 ‡ | 4,005 | ||||||
Health Care REIT, Inc. | ||||||||
5,400 | 4.50%, 01/15/2024 ‡ | 5,719 | ||||||
HSBC Holdings plc | ||||||||
1,800 | 5.25%, 03/14/2044 | 2,016 | ||||||
EUR | 1,275 | 5.25%, 12/29/2049 § | 1,543 | |||||
2,100 | 5.63%, 01/17/2020 ♠ | 2,107 | ||||||
1,865 | 6.38%, 09/17/2024 ♠ | 1,884 | ||||||
1,765 | 6.50%, 09/15/2037 | 2,268 | ||||||
5,050 | 6.80%, 06/01/2038 ‡ | 6,697 | ||||||
Industrial & Commercial Bk of China Ltd. | ||||||||
2,695 | 6.00%, 12/10/2019 ■♠ | 2,729 | ||||||
JP Morgan Chase & Co. | ||||||||
3,100 | 2.60%, 01/15/2016 | 3,153 | ||||||
1,600 | 3.38%, 05/01/2023 | 1,583 | ||||||
3,820 | 4.35%, 08/15/2021 ‡ | 4,151 | ||||||
3,050 | 4.85%, 02/01/2044 | 3,384 | ||||||
520 | 5.00%, 07/01/2019 ♠ | 509 | ||||||
9,885 | 5.63%, 08/16/2043 ‡ | 11,495 | ||||||
3,500 | 6.00%, 01/15/2018 ‡ | 3,916 | ||||||
KBC Groep N.V. | ||||||||
EUR | 1,290 | 5.63%, 03/19/2019 §♠ | 1,526 | |||||
Kimco Realty Corp. | ||||||||
5,075 | 3.13%, 06/01/2023 | 4,972 | ||||||
Liberty Property L.P. | ||||||||
2,165 | 3.38%, 06/15/2023 | 2,110 | ||||||
1,930 | 4.13%, 06/15/2022 | 2,001 | ||||||
Lloyds Banking Group plc | ||||||||
EUR | 4,115 | 6.38%, 06/27/2049 § | 5,060 | |||||
GBP | 1,820 | 7.00%, 12/29/2049 § | 2,816 | |||||
Marsh & McLennan Cos., Inc. | ||||||||
1,540 | 2.55%, 10/15/2018 | 1,566 | ||||||
2,360 | 3.50%, 03/10/2025 | 2,375 | ||||||
Massachusetts Mutual Life Insurance Co. | ||||||||
2,818 | 8.88%, 06/01/2039 ■ | 4,547 | ||||||
Merrill Lynch & Co., Inc. | ||||||||
3,006 | 5.70%, 05/02/2017 | 3,250 | ||||||
19,825 | 6.05%, 05/16/2016 ╦ | 20,993 | ||||||
4,905 | 7.75%, 05/14/2038 | 6,927 | ||||||
MetLife, Inc. | ||||||||
1,745 | 1.76%, 12/15/2017 | 1,751 | ||||||
1,245 | 4.37%, 09/15/2023 | 1,357 | ||||||
Minerva Luxembourg S.A. | ||||||||
1,645 | 7.75%, 01/31/2023 ■ | 1,612 | ||||||
Morgan Stanley | ||||||||
2,915 | 4.35%, 09/08/2026 | 2,932 | ||||||
3,685 | 4.88%, 11/01/2022 | 3,914 | ||||||
5,925 | 5.55%, 04/27/2017 | 6,431 | ||||||
9,000 | 6.25%, 08/28/2017 | 9,998 | ||||||
1,600 | 7.30%, 05/13/2019 | 1,898 | ||||||
MSCI, Inc. | ||||||||
340 | 5.25%, 11/15/2024 ■ | 352 | ||||||
Nationwide Building Society | ||||||||
GBP | 4,535 | 6.88%, 03/11/2049 § | 6,900 | |||||
Nationwide Mutual Insurance Co. | ||||||||
5,420 | 9.38%, 08/15/2039 ■ | 8,588 | ||||||
Navient Corp. | ||||||||
1,590 | 5.50%, 01/15/2019 | 1,626 | ||||||
1,915 | 7.25%, 01/25/2022 | 2,078 | ||||||
NN Group N.V. | ||||||||
EUR | 300 | 4.63%, 04/08/2044 § | 383 | |||||
Pacific Life Insurance Co. | ||||||||
325 | 9.25%, 06/15/2039 ■ | 511 | ||||||
PNC Bank NA | ||||||||
1,574 | 6.88%, 04/01/2018 | 1,813 | ||||||
Prudential Financial, Inc. | ||||||||
650 | 4.60%, 05/15/2044 | 685 | ||||||
Realty Income Corp. | ||||||||
2,766 | 3.25%, 10/15/2022 | 2,727 |
The accompanying notes are an integral part of these financial statements.
9 |
Hartford Total Return Bond HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount ╬ | Market Value ╪ | |||||||
Corporate Bonds - 29.3% - (continued) | ||||||||
Finance and Insurance - 14.1% - (continued) | ||||||||
Royal Bank of Scotland Group plc | ||||||||
$ | 5,165 | 5.13%, 05/28/2024 | $ | 5,254 | ||||
1,815 | 6.13%, 12/15/2022 | 1,975 | ||||||
850 | 9.50%, 03/16/2022 § | 966 | ||||||
Santander U.S. Debt S.A. | ||||||||
8,000 | 3.72%, 01/20/2015 ■ | 8,012 | ||||||
SBA Tower Trust | ||||||||
5,620 | 2.93%, 12/15/2017 ■ | 5,692 | ||||||
7,645 | 3.60%, 04/15/2043 ■ | 7,664 | ||||||
Societe Generale | ||||||||
1,930 | 6.00%, 01/27/2020 ■♠ | 1,756 | ||||||
EUR | 3,105 | 6.75%, 04/07/2049 § | 3,647 | |||||
200 | 7.88%, 12/18/2023 §♠ | 194 | ||||||
7,610 | 8.25%, 11/29/2018 §♠ | 7,817 | ||||||
Standard Chartered plc | ||||||||
250 | 0.58%, 09/08/2017 ■Δ | 249 | ||||||
975 | 4.00%, 07/12/2022 § | 991 | ||||||
State Street Corp. | ||||||||
925 | 4.96%, 03/15/2018 | 1,002 | ||||||
Sumitomo Mitsui Financial Group, Inc. | ||||||||
6,715 | 4.44%, 04/02/2024 ■ | 6,953 | ||||||
TSMC Global Ltd. | ||||||||
4,461 | 1.63%, 04/03/2018 ■ | 4,379 | ||||||
UBS AG Stamford CT | ||||||||
1,600 | 7.63%, 08/17/2022 | 1,884 | ||||||
UDR, Inc. | ||||||||
1,395 | 3.70%, 10/01/2020 | 1,446 | ||||||
UniCredit S.p.A. | ||||||||
1,500 | 8.00%, 06/03/2024 §♠ | 1,457 | ||||||
UNIQA Insurance Group AG | ||||||||
EUR | 300 | 6.88%, 07/31/2043 § | 418 | |||||
UnitedHealth Group, Inc. | ||||||||
4,000 | 1.40%, 10/15/2017 | 3,996 | ||||||
5,375 | 2.30%, 12/15/2019 | 5,397 | ||||||
Ventas Realty L.P. | ||||||||
3,425 | 2.70%, 04/01/2020 | 3,389 | ||||||
1,275 | 3.25%, 08/15/2022 | 1,258 | ||||||
Wells Fargo & Co. | ||||||||
3,165 | 3.45%, 02/13/2023 | 3,208 | ||||||
6,280 | 4.10%, 06/03/2026 | 6,419 | ||||||
3,875 | 4.13%, 08/15/2023 | 4,067 | ||||||
170 | 4.65%, 11/04/2044 | 175 | ||||||
74 | 5.38%, 11/02/2043 | 84 | ||||||
Yasar Holdings | ||||||||
1,050 | 8.88%, 05/06/2020 ■ | 1,092 | ||||||
456,776 | ||||||||
Food Manufacturing - 0.4% | ||||||||
Cargill, Inc. | ||||||||
400 | 3.25%, 11/15/2021 ■ | 414 | ||||||
ESAL GmbH | ||||||||
3,250 | 6.25%, 02/05/2023 § | 3,079 | ||||||
Grupo Bimbo S.A.B. de C.V. | ||||||||
8,655 | 4.88%, 06/27/2044 ■ | 8,707 | ||||||
12,200 | ||||||||
Health Care and Social Assistance - 1.3% | ||||||||
Cardinal Health, Inc. | ||||||||
6,550 | 3.50%, 11/15/2024 ‡ | 6,532 | ||||||
Celgene Corp. | ||||||||
4,410 | 4.63%, 05/15/2044 | 4,574 | ||||||
Community Health Systems, Inc. | ||||||||
805 | 5.13%, 08/01/2021 | 835 | ||||||
CVS Caremark Corp. | ||||||||
1,749 | 8.35%, 07/10/2031 ■ | 2,366 | ||||||
Dignity Health | ||||||||
480 | 2.64%, 11/01/2019 | 484 | ||||||
135 | 5.27%, 11/01/2064 | 146 | ||||||
Gilead Sciences, Inc. | ||||||||
2,620 | 3.50%, 02/01/2025 | 2,689 | ||||||
HCA, Inc. | ||||||||
3,660 | 6.50%, 02/15/2020 ‡ | 4,101 | ||||||
Medtronic, Inc. | ||||||||
275 | 1.30%, 03/15/2020 ■Δ | 275 | ||||||
5,395 | 2.50%, 03/15/2020 ■ | 5,409 | ||||||
4,830 | 3.15%, 03/15/2022 ■ | 4,891 | ||||||
550 | 4.38%, 03/15/2035 ■ | 584 | ||||||
2,635 | 4.63%, 03/15/2045 ■ | 2,856 | ||||||
Perrigo Co., Ltd. | ||||||||
2,120 | 1.30%, 11/08/2016 | 2,111 | ||||||
Tenet Healthcare Corp. | ||||||||
3,695 | 6.00%, 10/01/2020 | 3,968 | ||||||
Wellcare Health Plans, Inc. | ||||||||
720 | 5.75%, 11/15/2020 | 743 | ||||||
42,564 | ||||||||
Information - 2.5% | ||||||||
Activision Blizzard, Inc. | ||||||||
3,915 | 5.63%, 09/15/2021 ■‡ | 4,111 | ||||||
Alibaba Group Holding Ltd. | ||||||||
2,245 | 4.50%, 11/28/2034 ■ | 2,308 | ||||||
AT&T, Inc. | ||||||||
3,135 | 4.80%, 06/15/2044 | 3,194 | ||||||
Audatex North America, Inc. | ||||||||
1,850 | 6.00%, 06/15/2021 ■ | 1,906 | ||||||
COX Communications, Inc. | ||||||||
20 | 2.95%, 06/30/2023 ■ | 19 | ||||||
3,255 | 3.85%, 02/01/2025 ■ | 3,286 | ||||||
DISH DBS Corp. | ||||||||
1,360 | 5.88%, 11/15/2024 ■ | 1,367 | ||||||
1,785 | 7.88%, 09/01/2019 | 2,026 | ||||||
First Data Corp. | ||||||||
162 | 6.75%, 11/01/2020 ■ | 173 | ||||||
400 | 12.63%, 01/15/2021 | 475 | ||||||
Inmarsat Finance plc | ||||||||
890 | 4.88%, 05/15/2022 ■ | 881 | ||||||
Sprint Communications, Inc. | ||||||||
2,370 | 7.00%, 03/01/2020 ■ | 2,559 | ||||||
1,766 | 9.00%, 11/15/2018 ■ | 2,009 | ||||||
T-Mobile USA, Inc. | ||||||||
1,315 | 5.25%, 09/01/2018 | 1,364 | ||||||
1,995 | 6.46%, 04/28/2019 | 2,075 | ||||||
860 | 6.63%, 04/28/2021 | 883 | ||||||
Unitymedia Hessen GmbH & Co. | ||||||||
650 | 5.50%, 01/15/2023 ■ | 679 | ||||||
1,814 | 7.50%, 03/15/2019 ■ | 1,905 | ||||||
Verizon Communications, Inc. | ||||||||
5,031 | 2.63%, 02/21/2020 ■ | 4,974 | ||||||
1,575 | 3.50%, 11/01/2024 | 1,547 | ||||||
4,950 | 4.40%, 11/01/2034 | 4,920 | ||||||
3,235 | 4.86%, 08/21/2046 ■ | 3,323 | ||||||
3,258 | 5.01%, 08/21/2054 ■ | 3,371 |
The accompanying notes are an integral part of these financial statements.
10 |
Hartford Total Return Bond HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount ╬ | Market Value ╪ | |||||||
Corporate Bonds - 29.3% - (continued) | ||||||||
Information - 2.5% - (continued) | ||||||||
Verizon Communications, Inc. - (continued) | ||||||||
$ | 8,270 | 5.15%, 09/15/2023 | $ | 9,132 | ||||
5,020 | 6.40%, 02/15/2038 | 6,194 | ||||||
9,060 | 6.55%, 09/15/2043 | 11,607 | ||||||
VimpelCom Holdings B.V. | ||||||||
3,915 | 5.95%, 02/13/2023 ■ | 2,973 | ||||||
Wind Acquisition Finance S.A. | ||||||||
1,240 | 4.75%, 07/15/2020 ■ | 1,159 | ||||||
80,420 | ||||||||
Machinery Manufacturing - 0.6% | ||||||||
Case New Holland Industrial, Inc. | ||||||||
1,301 | 7.88%, 12/01/2017 | 1,431 | ||||||
Caterpillar, Inc. | ||||||||
10,415 | 2.25%, 12/01/2019 | 10,427 | ||||||
Hutchison Whampoa International Ltd. | ||||||||
525 | 1.63%, 10/31/2017 ■ | 520 | ||||||
7,800 | 2.00%, 11/08/2017 ■‡ | 7,816 | ||||||
20,194 | ||||||||
Mining - 0.6% | ||||||||
ABJA Investment Co. Pte Ltd. | ||||||||
6,445 | 5.95%, 07/31/2024 § | 6,432 | ||||||
Barrick North America Finance LLC | ||||||||
500 | 4.40%, 05/30/2021 | 505 | ||||||
FMG Resources Aug 2006 | ||||||||
1,380 | 6.88%, 04/01/2022 ■ | 1,149 | ||||||
Freeport-McMoRan Copper & Gold, Inc. | ||||||||
575 | 5.45%, 03/15/2043 | 544 | ||||||
Freeport-McMoRan, Inc. | ||||||||
5,410 | 4.00%, 11/14/2021 | 5,360 | ||||||
150 | 5.40%, 11/14/2034 | 146 | ||||||
Glencore Funding LLC | ||||||||
3,480 | 1.70%, 05/27/2016 ■‡ | 3,486 | ||||||
Newmont Mining Corp. | ||||||||
175 | 4.88%, 03/15/2042 | 152 | ||||||
Peabody Energy Corp. | ||||||||
2,385 | 6.50%, 09/15/2020 | 2,069 | ||||||
Steel Dynamics, Inc. | ||||||||
240 | 5.13%, 10/01/2021 ■ | 245 | ||||||
255 | 5.50%, 10/01/2024 ■ | 261 | ||||||
20,349 | ||||||||
Miscellaneous Manufacturing - 0.0% | ||||||||
Triumph Group, Inc. | ||||||||
1,115 | 5.25%, 06/01/2022 | 1,112 | ||||||
Motor Vehicle and Parts Manufacturing - 0.7% | ||||||||
Chrysler Group LLC | ||||||||
900 | 8.00%, 06/15/2019 | 946 | ||||||
General Motors Co. | ||||||||
2,650 | 6.25%, 10/02/2043 | 3,166 | ||||||
General Motors Financial Co., Inc. | ||||||||
4,985 | 3.50%, 07/10/2019 ‡ | 5,090 | ||||||
8,360 | 4.75%, 08/15/2017 ‡ | 8,817 | ||||||
TRW Automotive, Inc. | ||||||||
450 | 7.25%, 03/15/2017 ■ | 497 | ||||||
Volkswagen Group of America Finance LLC | ||||||||
5,300 | 1.60%, 11/20/2017 ■ | 5,280 | ||||||
23,796 | ||||||||
Nonmetallic Mineral Product Manufacturing - 0.2% | ||||||||
Cemex S.A.B. de C.V. | ||||||||
EUR | 2,785 | 4.75%, 01/11/2022 § | 3,299 | |||||
Union Andina de Cementos SAA | ||||||||
3,405 | 5.88%, 10/30/2021 ■ | 3,454 | ||||||
6,753 | ||||||||
Other Services - 0.1% | ||||||||
Cardtronics, Inc. | ||||||||
1,430 | 5.13%, 08/01/2022 ■ | 1,394 | ||||||
Paper Manufacturing - 0.1% | ||||||||
Clearwater Paper Corp. | ||||||||
1,415 | 5.38%, 02/01/2025 ■ | 1,394 | ||||||
Graphic Packaging International | ||||||||
1,020 | 4.88%, 11/15/2022 | 1,025 | ||||||
2,419 | ||||||||
Petroleum and Coal Products Manufacturing - 2.3% | ||||||||
Anadarko Petroleum Corp. | ||||||||
2,815 | 6.38%, 09/15/2017 | 3,130 | ||||||
California Resources Corp. | ||||||||
40 | 5.00%, 01/15/2020 ■ | 35 | ||||||
510 | 5.50%, 09/15/2021 ■ | 436 | ||||||
35 | 6.00%, 11/15/2024 ■ | 29 | ||||||
Cenovus Energy, Inc. | ||||||||
4,225 | 5.20%, 09/15/2043 ‡ | 4,069 | ||||||
Cimarex Energy Co. | ||||||||
275 | 4.38%, 06/01/2024 | 263 | ||||||
CNPC General Capital | ||||||||
9,060 | 1.45%, 04/16/2016 ■‡ | 9,040 | ||||||
Continental Resources, Inc. | ||||||||
455 | 5.00%, 09/15/2022 | 440 | ||||||
Denbury Resources, Inc. | ||||||||
543 | 5.50%, 05/01/2022 | 497 | ||||||
Enable Midstream Partners L.P. | ||||||||
80 | 5.00%, 05/15/2044 ■ | 75 | ||||||
Harvest Operations Corp. | ||||||||
1,695 | 6.88%, 10/01/2017 | 1,633 | ||||||
Kosmos Energy Ltd. | ||||||||
575 | 7.88%, 08/01/2021 § | 486 | ||||||
Lukoil International Finance B.V. | ||||||||
8,025 | 3.42%, 04/24/2018 ■ | 6,821 | ||||||
625 | 3.42%, 04/24/2018 § | 531 | ||||||
Nexen, Inc. | ||||||||
1,185 | 7.50%, 07/30/2039 | 1,645 | ||||||
Pemex Project Funding Master Trust | ||||||||
5,805 | 6.63%, 06/15/2035 | 6,705 | ||||||
Pertamina Persero PT | ||||||||
1,675 | 5.63%, 05/20/2043 § | 1,574 | ||||||
Petrobras Global Finance | ||||||||
275 | 2.37%, 01/15/2019 Δ | 244 | ||||||
GBP | 6,625 | 5.38%, 10/01/2029 | 8,209 | |||||
Petrobras International Finance Co. | ||||||||
850 | 5.38%, 01/27/2021 | 788 | ||||||
3,475 | 7.88%, 03/15/2019 | 3,657 | ||||||
Pioneer Natural Resources Co. | ||||||||
660 | 6.65%, 03/15/2017 | 723 | ||||||
2,090 | 7.50%, 01/15/2020 | 2,451 | ||||||
Plains Exploration & Production Co. | ||||||||
1,150 | 6.63%, 05/01/2021 | 1,236 | ||||||
712 | 6.88%, 02/15/2023 | 792 | ||||||
SM Energy Co. | ||||||||
255 | 6.13%, 11/15/2022 ■ | 240 |
The accompanying notes are an integral part of these financial statements.
11 |
Hartford Total Return Bond HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount ╬ | Market Value ╪ | |||||||
Corporate Bonds - 29.3% - (continued) | ||||||||
Petroleum and Coal Products Manufacturing - 2.3% - (continued) | ||||||||
Tesoro Corp. | ||||||||
$ | 250 | 5.13%, 04/01/2024 | $ | 248 | ||||
Tesoro Logistics L.P. | ||||||||
605 | 5.50%, 10/15/2019 ■ | 600 | ||||||
905 | 6.25%, 10/15/2022 ■ | 903 | ||||||
Transocean, Inc. | ||||||||
475 | 6.38%, 12/15/2021 | 438 | ||||||
Tullow Oil plc | ||||||||
275 | 6.00%, 11/01/2020 ■ | 228 | ||||||
Valero Energy Corp. | ||||||||
4,391 | 9.38%, 03/15/2019 | 5,476 | ||||||
Williams Partners L.P. | ||||||||
6,085 | 3.90%, 01/15/2025 | 5,848 | ||||||
5,085 | 4.30%, 03/04/2024 | 5,076 | ||||||
WPX Energy, Inc. | ||||||||
190 | 5.25%, 09/15/2024 | 177 | ||||||
74,743 | ||||||||
Pipeline Transportation - 0.8% | ||||||||
Energy Transfer Equity L.P. | ||||||||
9,305 | 5.95%, 10/01/2043 ‡ | 10,206 | ||||||
3,137 | 7.50%, 10/15/2020 ‡ | 3,482 | ||||||
Kinder Morgan Energy Partners L.P. | ||||||||
4,510 | 5.50%, 03/01/2044 | 4,584 | ||||||
Kinder Morgan, Inc. | ||||||||
1,240 | 3.05%, 12/01/2019 | 1,230 | ||||||
2,755 | 4.30%, 06/01/2025 | 2,756 | ||||||
MarkWest Energy Partners L.P. | ||||||||
480 | 4.88%, 12/01/2024 | 469 | ||||||
485 | 6.75%, 11/01/2020 | 505 | ||||||
Southern Star Central Corp. | ||||||||
160 | 5.13%, 07/15/2022 ■ | 161 | ||||||
Sunoco Logistics Partners Operations L.P. | ||||||||
2,555 | 4.25%, 04/01/2024 | 2,584 | ||||||
25,977 | ||||||||
Plastics and Rubber Products Manufacturing - 0.0% | ||||||||
Continental Rubber of America Corp. | ||||||||
475 | 4.50%, 09/15/2019 ■ | 492 | ||||||
Primary Metal Manufacturing - 0.1% | ||||||||
United States Steel Corp. | ||||||||
1,265 | 7.38%, 04/01/2020 | 1,328 | ||||||
Rail Transportation - 0.1% | ||||||||
Canadian Pacific Railway Co. | ||||||||
1,780 | 9.45%, 08/01/2021 | 2,436 | ||||||
Real Estate, Rental and Leasing - 0.8% | ||||||||
Air Lease Corp. | ||||||||
500 | 2.13%, 01/15/2018 | 491 | ||||||
Duke Realty L.P. | ||||||||
4,000 | 3.63%, 04/15/2023 ‡ | 4,016 | ||||||
1,480 | 3.75%, 12/01/2024 | 1,497 | ||||||
International Lease Finance Corp. | ||||||||
3,920 | 5.88%, 04/01/2019 ‡ | 4,224 | ||||||
2,500 | 6.75%, 09/01/2016 ■ | 2,662 | ||||||
ProLogis L.P. | ||||||||
11,075 | 3.35%, 02/01/2021 | 11,224 | ||||||
Ryder System, Inc. | ||||||||
2,560 | 2.55%, 06/01/2019 | 2,564 | ||||||
26,678 | ||||||||
Retail Trade - 0.5% | ||||||||
Amazon.com, Inc. | ||||||||
4,925 | 4.95%, 12/05/2044 | 5,087 | ||||||
Building Materials Corp. | ||||||||
219 | 6.75%, 05/01/2021 ■ | 232 | ||||||
Group 1 Automotive, Inc. | ||||||||
600 | 5.00%, 06/01/2022 ■ | 586 | ||||||
Home Depot, Inc. | ||||||||
265 | 4.20%, 04/01/2043 | 276 | ||||||
Jaguar Land Rover plc | ||||||||
450 | 8.13%, 05/15/2021 ■ | 493 | ||||||
Sotheby's | ||||||||
2,390 | 5.25%, 10/01/2022 ■ | 2,259 | ||||||
Wal-Mart Stores, Inc. | ||||||||
3,310 | 4.30%, 04/22/2044 | 3,613 | ||||||
William Carter Co. | ||||||||
1,770 | 5.25%, 08/15/2021 | 1,823 | ||||||
14,369 | ||||||||
Transportation Equipment Manufacturing - 0.1% | ||||||||
Kansas City Southern de Mexico S.A. de C.V. | ||||||||
4,125 | 3.00%, 05/15/2023 | 4,011 | ||||||
Truck Transportation - 0.3% | ||||||||
Penske Truck Leasing Co. | ||||||||
970 | 2.50%, 06/15/2019 ■ | 964 | ||||||
6,150 | 2.88%, 07/17/2018 ■ | 6,254 | ||||||
2,490 | 4.88%, 07/11/2022 ■ | 2,682 | ||||||
9,900 | ||||||||
Utilities - 1.1% | ||||||||
AES (The) Corp. | ||||||||
460 | 5.50%, 03/15/2024 | 467 | ||||||
Appalachian Power Co. | ||||||||
95 | 4.40%, 05/15/2044 | 100 | ||||||
Berkshire Hathaway Energy Co. | ||||||||
7,665 | 8.48%, 09/15/2028 ‡ | 11,422 | ||||||
CenterPoint Energy, Inc. | ||||||||
3,075 | 6.85%, 06/01/2015 | 3,150 | ||||||
Consolidated Edison Co. of NY | ||||||||
2,310 | 3.30%, 12/01/2024 | 2,352 | ||||||
Dolphin Subsidiary II, Inc. | ||||||||
2,860 | 7.25%, 10/15/2021 | 2,917 | ||||||
Duke Energy Florida, Inc. | ||||||||
1,420 | 5.65%, 06/15/2018 | 1,601 | ||||||
Duke Energy Progress, Inc. | ||||||||
1,395 | 4.38%, 03/30/2044 | 1,532 | ||||||
Empresa Electrica Angamos S.A. | ||||||||
4,980 | 4.88%, 05/25/2029 ■ | 4,893 | ||||||
Eskom Holdings Ltd. | ||||||||
6,300 | 5.75%, 01/26/2021 ■ | 6,331 | ||||||
Pacific Gas & Electric Co. | ||||||||
1,700 | 8.25%, 10/15/2018 | 2,046 | ||||||
36,811 | ||||||||
Total Corporate Bonds | ||||||||
(Cost $925,253) | $ | 947,093 |
The accompanying notes are an integral part of these financial statements.
12 |
Hartford Total Return Bond HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount ╬ | Market Value ╪ | |||||||
Foreign Government Obligations - 3.1% | ||||||||
Angola - 0.1% | ||||||||
Angola (Republic of) | ||||||||
$ | 3,050 | 7.00%, 08/16/2019 § | $ | 3,035 | ||||
Azerbaijan - 0.1% | ||||||||
Azerbaijan (Republic of) | ||||||||
4,144 | 4.75%, 03/13/2023 § | 3,999 | ||||||
Brazil - 0.5% | ||||||||
Brazil (Federative Republic of) | ||||||||
5,525 | 4.88%, 01/22/2021 ‡ | 5,871 | ||||||
BRL | 36,600 | 9.70%, 09/01/2020 ○ | 9,001 | |||||
14,872 | ||||||||
Colombia - 0.1% | ||||||||
Colombia (Republic of) | ||||||||
COP | 10,873,700 | 6.00%, 04/28/2028 | 3,970 | |||||
Costa Rica - 0.1% | ||||||||
Costa Rica (Republic of) | ||||||||
3,700 | 5.63%, 04/30/2043 § | 3,043 | ||||||
Croatia - 0.1% | ||||||||
Croatia (Republic of) | ||||||||
1,820 | 6.00%, 01/26/2024 § | 1,961 | ||||||
Dominican Republic - 0.1% | ||||||||
Dominican (Republic of) | ||||||||
DOP | 178,000 | 11.50%, 05/10/2024 ■ | 4,002 | |||||
Ethiopia - 0.1% | ||||||||
Ethiopia (Federal Republic of) | ||||||||
1,745 | 6.63%, 12/11/2024 ■ | 1,702 | ||||||
Indonesia - 0.2% | ||||||||
Indonesia (Republic of) | ||||||||
IDR | 60,000,000 | 8.38%, 03/15/2024 | 5,026 | |||||
Kazakhstan - 0.1% | ||||||||
Kazakhstan (Republic of) | ||||||||
5,325 | 4.88%, 10/14/2044 ■ | 4,872 | ||||||
Kenya - 0.1% | ||||||||
Kenya (Republic of) | ||||||||
3,125 | 6.88%, 06/24/2024 § | 3,274 | ||||||
Latvia - 0.0% | ||||||||
Latvia (Republic of) | ||||||||
400 | 2.75%, 01/12/2020 § | 394 | ||||||
Mexico - 0.6% | ||||||||
Mexico (United Mexican States) | ||||||||
MXN | 80,838 | 4.00%, 06/13/2019 ◄ | 5,979 | |||||
3,074 | 4.00%, 10/02/2023 | 3,189 | ||||||
MXN | 66,808 | 4.00%, 11/08/2046 ◄ | 5,170 | |||||
5,760 | 4.75%, 03/08/2044 | 6,005 | ||||||
150 | 5.75%, 10/12/2110 | 161 | ||||||
20,504 | ||||||||
Nigeria - 0.1% | ||||||||
Nigeria (Federal Republic of) | ||||||||
4,775 | 5.13%, 07/12/2018 § | 4,727 | ||||||
Romania - 0.2% | ||||||||
Romania (Republic of) | ||||||||
6,350 | 4.38%, 08/22/2023 § | 6,676 | ||||||
Russia - 0.1% | ||||||||
Russia (Federation of) | ||||||||
500 | 3.63%, 04/29/2015 § | 499 | ||||||
RUB | 195,100 | 7.50%, 02/27/2019 Δ | 2,473 | |||||
2,972 | ||||||||
South Africa - 0.1% | ||||||||
South Africa (Republic of) | ||||||||
ZAR | 37,800 | 7.75%, 02/28/2023 | 3,251 | |||||
Turkey - 0.1% | ||||||||
Turkey (Republic of) | ||||||||
TRY | 7,625 | 8.50%, 09/14/2022 | 3,377 | |||||
Uruguay - 0.2% | ||||||||
Uruguay (Republic of) | ||||||||
UYU | 146,691 | 4.25%, 04/05/2027 ◄ | 5,944 | |||||
UYU | 32,470 | 4.38%, 12/15/2028 ◄ | 1,331 | |||||
7,275 | ||||||||
Venezuela - 0.1% | ||||||||
Venezuela (Republic of) | ||||||||
5,900 | 7.00%, 03/31/2038 § | 2,413 | ||||||
Total Foreign Government Obligations | ||||||||
(Cost $109,137) | $ | 101,345 | ||||||
Municipal Bonds - 1.1% | ||||||||
General Obligations - 0.5% | ||||||||
California State GO, Taxable | ||||||||
$ | 7,345 | 7.55%, 04/01/2039 ‡ | $ | 11,335 | ||||
Illinois State, GO | ||||||||
4,900 | 4.51%, 03/01/2015 | 4,934 | ||||||
230 | 5.88%, 03/01/2019 | 254 | ||||||
16,523 | ||||||||
Higher Education (Univ., Dorms, etc.) - 0.2% | ||||||||
Massachusetts State Development Fin Agency Rev | ||||||||
130 | 5.35%, 12/01/2028 | 147 | ||||||
University of California | ||||||||
5,580 | 4.60%, 05/15/2031 | 6,164 | ||||||
6,311 | ||||||||
Miscellaneous - 0.2% | ||||||||
Puerto Rico Government Employees Retirement System | ||||||||
3,325 | 6.15%, 07/01/2038 | 1,652 | ||||||
1,575 | 6.20%, 07/01/2039 | 783 | ||||||
7,965 | 6.30%, 07/01/2043 ‡ | 3,957 | ||||||
1,995 | 6.55%, 07/01/2058 | 991 | ||||||
7,383 | ||||||||
Tax Allocation - 0.0% | ||||||||
Industry, CA, Urban Development Agency | ||||||||
275 | 6.10%, 05/01/2024 | 288 |
The accompanying notes are an integral part of these financial statements.
13 |
Hartford Total Return Bond HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount ╬ | Market Value ╪ | |||||||
Municipal Bonds - 1.1% - (continued) | ||||||||
Utilities - Electric - 0.2% | ||||||||
Municipal Elec Auth Georgia | ||||||||
$ | 3,185 | 6.64%, 04/01/2057 | $ | 4,223 | ||||
Total Municipal Bonds | ||||||||
(Cost $32,174) | $ | 34,728 | ||||||
Senior Floating Rate Interests ♦ - 5.2% | ||||||||
Accommodation and Food Services - 0.0% | ||||||||
Hilton Worldwide Holdings, Inc. | ||||||||
$ | 1,178 | 3.50%, 10/26/2020 | $ | 1,163 | ||||
Administrative, Support, Waste Management and Remediation Services - 0.1% | ||||||||
Acosta Holdco, Inc. | ||||||||
985 | 5.00%, 09/26/2021 | 984 | ||||||
Audio Visual Services Group, Inc. | ||||||||
1,236 | 4.50%, 01/25/2021 | 1,224 | ||||||
ServiceMaster (The) Co. | ||||||||
995 | 4.25%, 07/01/2021 | 975 | ||||||
3,183 | ||||||||
Agriculture, Construction, Mining and Machinery - 0.0% | ||||||||
Signode Industrial Group US, Inc. | ||||||||
863 | 3.75%, 05/01/2021 | 824 | ||||||
Air Transportation - 0.0% | ||||||||
Delta Air Lines, Inc. | ||||||||
951 | 3.25%, 10/18/2018 | 930 | ||||||
Arts, Entertainment and Recreation - 0.5% | ||||||||
24 Hour Fitness Worldwide, Inc. | ||||||||
1,070 | 4.75%, 05/28/2021 | 1,022 | ||||||
Aristocrat Leisure Ltd. | ||||||||
1,130 | 4.75%, 10/20/2021 | 1,107 | ||||||
Caesars Entertainment Operating Co., Inc. | ||||||||
3,460 | 6.99%, 03/01/2017 | 3,018 | ||||||
Caesars Growth Property Holdings LLC | ||||||||
791 | 6.25%, 05/08/2021 | 720 | ||||||
Formula One Holdings | ||||||||
1,750 | 4.75%, 07/30/2021 | 1,705 | ||||||
1,390 | 7.75%, 07/29/2022 | 1,348 | ||||||
MGM Resorts International | ||||||||
1,357 | 3.50%, 12/20/2019 | 1,319 | ||||||
Numericable | ||||||||
1,040 | 4.50%, 05/21/2020 | 1,033 | ||||||
Scientific Games International, Inc. | ||||||||
585 | 6.00%, 10/01/2021 | 576 | ||||||
Station Casinos LLC | ||||||||
383 | 4.25%, 03/02/2020 | 375 | ||||||
Templar Energy | ||||||||
600 | 8.50%, 11/25/2020 | 430 | ||||||
Tribune Co. | ||||||||
1,826 | 4.00%, 12/27/2020 | 1,795 | ||||||
14,448 | ||||||||
Chemical Manufacturing - 0.2% | ||||||||
Cytec Industries, Inc. | ||||||||
246 | 4.50%, 10/03/2019 | 242 | ||||||
Ferro Corp. | ||||||||
354 | 4.00%, 07/30/2021 | 348 | ||||||
Ineos US Finance LLC | ||||||||
4,183 | 3.75%, 05/04/2018 | 4,046 | ||||||
Minerals Technologies, Inc. | ||||||||
960 | 4.00%, 05/07/2021 | 948 | ||||||
Monarch, Inc. | ||||||||
473 | 4.50%, 10/03/2019 | 467 | ||||||
Pinnacle Operating Corp. | ||||||||
880 | 4.75%, 11/15/2018 | 869 | ||||||
Univar, Inc. | ||||||||
371 | 5.00%, 06/30/2017 | 358 | ||||||
7,278 | ||||||||
Computer and Electronic Product Manufacturing - 0.2% | ||||||||
Avago Technologies Ltd. | ||||||||
1,493 | 3.75%, 05/06/2021 | 1,486 | ||||||
CDW LLC | ||||||||
2,839 | 3.25%, 04/29/2020 | 2,748 | ||||||
Freescale Semiconductor, Inc. | ||||||||
1,027 | 4.25%, 02/28/2020 | 1,001 | ||||||
1,386 | 5.00%, 01/15/2021 | 1,380 | ||||||
NXP Semiconductors Netherlands B.V. | ||||||||
1,056 | 3.25%, 01/11/2020 | 1,037 | ||||||
7,652 | ||||||||
Finance and Insurance - 0.6% | ||||||||
Asurion LLC | ||||||||
1,219 | 5.00%, 05/24/2019 | 1,201 | ||||||
1,615 | 8.50%, 03/03/2021 | 1,600 | ||||||
Chrysler Group LLC | ||||||||
1,531 | 3.25%, 12/31/2018 | 1,514 | ||||||
2,669 | 3.50%, 05/24/2017 | 2,649 | ||||||
Cooper Gay Swett & Crawford Ltd. | ||||||||
803 | 5.00%, 04/16/2020 | 737 | ||||||
Evertec LLC | ||||||||
4,651 | 3.50%, 04/17/2020 | 4,550 | ||||||
Interactive Data Corp. | ||||||||
841 | 4.75%, 05/02/2021 | 834 | ||||||
National Financial Partners Corp. | ||||||||
367 | 4.50%, 07/01/2020 | 363 | ||||||
Sedgwick CMS Holdings, Inc. | ||||||||
3,728 | 3.75%, 03/01/2021 | 3,616 | ||||||
1,250 | 6.75%, 02/28/2022 | 1,172 | ||||||
USI Insurance Services LLC | ||||||||
1,086 | 4.25%, 12/27/2019 | 1,065 | ||||||
Walter Investment Management Corp. | ||||||||
1,231 | 4.75%, 12/18/2020 | 1,108 | ||||||
20,409 | ||||||||
Food Manufacturing - 0.2% | ||||||||
Burger King Co. | ||||||||
800 | 4.50%, 12/31/2021 | 797 | ||||||
H.J. Heinz Co. | ||||||||
3,075 | 3.50%, 06/05/2020 | 3,052 | ||||||
Hearthside Food Solutions | ||||||||
597 | 4.50%, 06/02/2021 | 590 | ||||||
Hostess Brands, Inc. | ||||||||
362 | 6.75%, 04/09/2020 | 367 | ||||||
Roundy's Supermarkets, Inc. | ||||||||
624 | 5.75%, 03/03/2021 | 584 | ||||||
U.S. Foodservice, Inc. | ||||||||
1,136 | 4.50%, 03/31/2019 | 1,127 | ||||||
6,517 |
The accompanying notes are an integral part of these financial statements.
14 |
Hartford Total Return Bond HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount ╬ | Market Value ╪ | |||||||
Senior Floating Rate Interests ♦ - 5.2% - (continued) | ||||||||
Food Services - 0.0% | ||||||||
ARAMARK Corp. | ||||||||
$ | 1,010 | 3.25%, 02/24/2021 | $ | 992 | ||||
Furniture and Related Product Manufacturing - 0.1% | ||||||||
Tempur Sealy International, Inc. | ||||||||
814 | 3.50%, 03/18/2020 | 796 | ||||||
Wilsonart International Holdings LLC | ||||||||
843 | 4.00%, 10/31/2019 | 817 | ||||||
1,613 | ||||||||
Health Care and Social Assistance - 0.4% | ||||||||
American Renal Holdings, Inc. | ||||||||
1,189 | 4.50%, 08/20/2019 | 1,174 | ||||||
Catalent Pharma Solutions, Inc. | ||||||||
204 | 4.25%, 05/20/2021 | 202 | ||||||
Community Health Systems, Inc. | ||||||||
1,406 | 4.25%, 01/27/2021 | 1,401 | ||||||
DaVita HealthCare Partners, Inc. | ||||||||
1,836 | 3.50%, 06/24/2021 | 1,813 | ||||||
HCA, Inc. | ||||||||
2,158 | 3.01%, 05/01/2018 | 2,136 | ||||||
Healogics, Inc. | ||||||||
374 | 5.25%, 07/01/2021 | 368 | ||||||
Ikaria Acquisition, Inc. | ||||||||
540 | 5.00%, 02/12/2021 | 537 | ||||||
215 | 8.75%, 02/14/2022 | 211 | ||||||
IMS Health, Inc. | ||||||||
1,019 | 3.50%, 03/17/2021 | 993 | ||||||
Jazz Pharmaceuticals, Inc. | ||||||||
990 | 3.25%, 06/12/2018 | 975 | ||||||
Mallinckrodt International Finance S.A. | ||||||||
1,514 | 3.25%, 03/19/2021 | 1,483 | ||||||
One Call Medical, Inc. | ||||||||
660 | 5.00%, 11/27/2020 | 652 | ||||||
Ortho-Clinical Diagnostics, Inc. | ||||||||
1,602 | 4.75%, 06/30/2021 | 1,573 | ||||||
STHI Holding Corp. | ||||||||
244 | 4.50%, 08/06/2021 | 242 | ||||||
Surgery Center Holdings, Inc. | ||||||||
520 | 5.25%, 11/03/2020 | 506 | ||||||
14,266 | ||||||||
Information - 1.0% | ||||||||
Charter Communications Operating LLC | ||||||||
3,029 | 3.00%, 07/01/2020 | 2,966 | ||||||
1,088 | 3.00%, 01/03/2021 | 1,066 | ||||||
450 | 4.25%, 09/10/2021 | 453 | ||||||
Eagle Parent, Inc. | ||||||||
419 | 4.00%, 05/16/2018 | 413 | ||||||
First Data Corp. | ||||||||
5,740 | 3.67%, 03/23/2018 | 5,621 | ||||||
845 | 4.17%, 03/24/2021 | 832 | ||||||
Hyland Software, Inc. | ||||||||
367 | 4.75%, 02/19/2021 | 363 | ||||||
Kronos, Inc. | ||||||||
2,729 | 4.50%, 10/30/2019 | 2,704 | ||||||
594 | 9.75%, 04/30/2020 | 603 | ||||||
La Quinta Intermediate Holdings | ||||||||
1,294 | 4.00%, 04/14/2021 | 1,276 | ||||||
Lawson Software, Inc. | ||||||||
2,248 | 3.75%, 06/03/2020 | 2,178 | ||||||
Level 3 Financing, Inc. | ||||||||
2,020 | 4.50%, 01/31/2022 ☼ | 2,019 | ||||||
Syniverse Holdings, Inc. | ||||||||
1,008 | 4.00%, 04/23/2019 | 978 | ||||||
TransFirsT, Inc. | ||||||||
295 | 5.50%, 11/12/2021 | 293 | ||||||
205 | 9.00%, 11/11/2022 | 202 | ||||||
Verint Systems, Inc. | ||||||||
1,676 | 3.50%, 09/06/2019 | 1,657 | ||||||
Virgin Media Finance plc | ||||||||
2,900 | 3.50%, 06/07/2020 | 2,844 | ||||||
Zayo Group LLC | ||||||||
1,820 | 4.00%, 07/02/2019 | 1,798 | ||||||
Ziggo B.V. | ||||||||
2,625 | 3.50%, 01/15/2022 | 2,548 | ||||||
30,814 | ||||||||
Media - 0.0% | ||||||||
Media General, Inc. | ||||||||
480 | 4.25%, 07/31/2020 ☼ | 474 | ||||||
Mining - 0.3% | ||||||||
American Rock Salt Holdings LLC | ||||||||
1,438 | 4.75%, 05/20/2021 | 1,400 | ||||||
Arch Coal, Inc. | ||||||||
3,777 | 6.25%, 05/16/2018 | 3,118 | ||||||
BWAY Holding Co. | ||||||||
1,243 | 5.55%, 08/14/2020 | 1,237 | ||||||
Fortescue Metals Group Ltd. | ||||||||
2,591 | 3.75%, 06/30/2019 | 2,347 | ||||||
8,102 | ||||||||
Miscellaneous Manufacturing - 0.1% | ||||||||
BE Aerospace, Inc. | ||||||||
1,875 | 4.00%, 12/16/2021 | 1,864 | ||||||
DigitalGlobe, Inc. | ||||||||
796 | 3.75%, 01/31/2020 | 788 | ||||||
Hamilton Sundstrand Corp. | ||||||||
3 | 4.00%, 12/13/2019 | 2 | ||||||
Reynolds Group Holdings, Inc. | ||||||||
1,895 | 4.00%, 12/01/2018 | 1,857 | ||||||
4,511 | ||||||||
Motor Vehicle and Parts Manufacturing - 0.1% | ||||||||
Tower Automotive Holdings USA LLC | ||||||||
1,742 | 4.00%, 04/23/2020 | 1,708 | ||||||
Nonmetallic Mineral Product Manufacturing - 0.0% | ||||||||
Ardagh Holdings USA, Inc. | ||||||||
466 | 4.00%, 12/17/2019 | 457 | ||||||
Other Services - 0.1% | ||||||||
Apex Tool Group LLC | ||||||||
444 | 4.50%, 01/31/2020 | 431 | ||||||
Husky Injection Molding Systems Ltd. | ||||||||
219 | 4.25%, 06/30/2021 | 214 | ||||||
Rexnord LLC | ||||||||
2,000 | 4.00%, 08/21/2020 | 1,956 | ||||||
2,601 | ||||||||
Petroleum and Coal Products Manufacturing - 0.1% | ||||||||
American Energy-Marcellus LLC | ||||||||
540 | 5.25%, 08/04/2020 | 472 |
The accompanying notes are an integral part of these financial statements.
15 |
Hartford Total Return Bond HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount ╬ | Market Value ╪ | |||||||
Senior Floating Rate Interests ♦ - 5.2% - (continued) | ||||||||
Petroleum and Coal Products Manufacturing - 0.1% - (continued) | ||||||||
Chief Exploration & Development | ||||||||
$ | 625 | 7.50%, 05/16/2021 | $ | 558 | ||||
Drillships Ocean Ventures, Inc. | ||||||||
539 | 5.50%, 07/25/2021 | 431 | ||||||
Fieldwood Energy LLC | ||||||||
1,530 | 3.88%, 09/28/2018 | 1,445 | ||||||
Seadrill Ltd. | ||||||||
2,150 | 4.00%, 02/21/2021 | 1,663 | ||||||
4,569 | ||||||||
Pipeline Transportation - 0.1% | ||||||||
EP Energy LLC | ||||||||
1,404 | 4.50%, 04/30/2019 | 1,347 | ||||||
Philadelphia Energy Solutions LLC | ||||||||
815 | 6.25%, 04/04/2018 | 764 | ||||||
2,111 | ||||||||
Plastics and Rubber Products Manufacturing - 0.1% | ||||||||
Berry Plastics Group, Inc. | ||||||||
3,316 | 3.50%, 02/08/2020 | 3,202 | ||||||
Consolidated Container Co. | ||||||||
1,173 | 5.00%, 07/03/2019 | 1,128 | ||||||
4,330 | ||||||||
Primary Metal Manufacturing - 0.1% | ||||||||
Novelis, Inc. | ||||||||
3,678 | 3.75%, 03/10/2017 | 3,628 | ||||||
Professional, Scientific and Technical Services - 0.1% | ||||||||
Advantage Sales & Marketing, Inc. | ||||||||
818 | 4.25%, 07/23/2021 | 808 | ||||||
MoneyGram International, Inc. | ||||||||
1,849 | 4.25%, 03/27/2020 | 1,691 | ||||||
2,499 | ||||||||
Real Estate, Rental and Leasing - 0.2% | ||||||||
DTZ U.S. Borrower LLC | ||||||||
765 | 5.50%, 11/04/2021 Б | 761 | ||||||
415 | 9.25%, 11/04/2022 | 408 | ||||||
International Lease Finance Corp. | ||||||||
765 | 3.50%, 03/06/2021 | 757 | ||||||
Neff Corp. | ||||||||
608 | 7.25%, 06/09/2021 | 608 | ||||||
SBA Senior Finance II LLC | ||||||||
2,348 | 3.25%, 03/24/2021 | 2,295 | ||||||
4,829 | ||||||||
Retail Trade - 0.4% | ||||||||
Affinia Group, Inc. | ||||||||
536 | 4.75%, 04/27/2020 | 529 | ||||||
Albertson's LLC | ||||||||
805 | 4.50%, 08/25/2021 | 804 | ||||||
American Builders & Contractors Supply Co., Inc. | ||||||||
928 | 3.50%, 04/16/2020 | 898 | ||||||
Cooper-Standard Automotive, Inc. | ||||||||
776 | 4.00%, 04/04/2021 | 763 | ||||||
Lands' End, Inc. | ||||||||
789 | 4.25%, 04/04/2021 | 780 | ||||||
Mauser-Werke GmbH | ||||||||
404 | 4.50%, 07/31/2021 | 396 | ||||||
Metaldyne Performance Group, Inc. | ||||||||
685 | 4.25%, 10/20/2021 | 681 | ||||||
Michaels Stores, Inc. | ||||||||
1,152 | 4.00%, 01/28/2020 | 1,130 | ||||||
Neiman Marcus (The) Group, Inc. | ||||||||
1,572 | 4.25%, 10/25/2020 | 1,534 | ||||||
Rite Aid Corp. | ||||||||
250 | 5.75%, 08/21/2020 | 250 | ||||||
Weight Watchers International, Inc. | ||||||||
4,976 | 4.00%, 04/02/2020 | 3,819 | ||||||
11,584 | ||||||||
Truck Transportation - 0.0% | ||||||||
Nexeo Solutions LLC | ||||||||
640 | 5.00%, 09/08/2017 | 615 | ||||||
Utilities - 0.1% | ||||||||
Calpine Corp. | ||||||||
1,381 | 3.25%, 01/31/2022 | 1,329 | ||||||
Energy Future Holdings | ||||||||
600 | 4.25%, 06/19/2016 | 600 | ||||||
Star West Generation LLC | ||||||||
2,128 | 4.25%, 03/13/2020 | 2,097 | ||||||
Texas Competitive Electric Holdings Co. LLC | ||||||||
800 | 4.65%, 10/10/2017 Ψ | 516 | ||||||
4,542 | ||||||||
Wholesale Trade - 0.1% | ||||||||
Gates Global LLC | ||||||||
1,895 | 4.25%, 07/05/2021 | 1,841 | ||||||
Total Senior Floating Rate Interests | ||||||||
(Cost $174,412) | $ | 168,490 | ||||||
U.S. Government Agencies - 28.5% | ||||||||
FHLMC - 9.4% | ||||||||
$ | 69,868 | 0.36%, 10/25/2020 ► | $ | 983 | ||||
32,941 | 2.00%, 08/25/2018 ► | 2,044 | ||||||
59,585 | 3.00%, 01/15/2029 - 01/15/2044 ☼Ð | 60,920 | ||||||
59,839 | 3.50%, 01/15/2029 - 01/15/2044 ☼Ð | 62,476 | ||||||
60,288 | 4.00%, 08/01/2025 - 07/01/2044 ☼Ð | 64,357 | ||||||
62,100 | 4.50%, 01/15/2044 ☼Ð | 67,308 | ||||||
30,072 | 5.50%, 10/01/2018 - 06/01/2041 | 33,671 | ||||||
10,849 | 6.00%, 04/01/2017 - 01/15/2044 ☼Ð | 12,319 | ||||||
430 | 6.50%, 07/01/2031 - 12/01/2037 | 489 | ||||||
4 | 7.50%, 09/01/2029 - 11/01/2031 | 5 | ||||||
304,572 | ||||||||
FNMA - 12.1% | ||||||||
7,504 | 2.14%, 11/01/2022 | 7,382 | ||||||
10,442 | 2.15%, 10/01/2022 | 10,286 | ||||||
5,028 | 2.20%, 12/01/2022 | 4,966 | ||||||
2,929 | 2.28%, 11/01/2022 | 2,896 | ||||||
130 | 2.29%, 10/01/2022 | 129 | ||||||
2,487 | 2.34%, 11/01/2022 | 2,468 | ||||||
2,299 | 2.40%, 10/01/2022 | 2,291 | ||||||
2,976 | 2.42%, 10/01/2022 - 11/01/2022 | 2,968 | ||||||
135 | 2.44%, 01/01/2023 | 134 | ||||||
115 | 2.45%, 08/01/2022 | 115 | ||||||
2,011 | 2.47%, 11/01/2022 | 2,011 | ||||||
45,524 | 2.50%, 01/15/2029 - 01/15/2044 ☼Ð | 45,470 | ||||||
130 | 2.66%, 09/01/2022 | 132 | ||||||
1,150 | 2.76%, 05/01/2021 | 1,179 | ||||||
181 | 2.78%, 04/01/2022 | 185 | ||||||
181 | 2.98%, 01/01/2022 | 187 |
The accompanying notes are an integral part of these financial statements.
16 |
Hartford Total Return Bond HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount ╬ | Market Value ╪ | |||||||
U.S. Government Agencies - 28.5% - (continued) | ||||||||
FNMA - 12.1% - (continued) | ||||||||
$ | 84,020 | 3.00%, 01/15/2029 - 01/15/2044 ☼Ð | $ | 85,388 | ||||
139 | 3.20%, 04/01/2022 | 146 | ||||||
1,055 | 3.21%, 05/01/2023 | 1,105 | ||||||
1,477 | 3.26%, 05/01/2024 | 1,548 | ||||||
575 | 3.34%, 04/01/2024 | 607 | ||||||
220 | 3.45%, 01/01/2024 | 234 | ||||||
232 | 3.47%, 01/01/2024 | 247 | ||||||
6,400 | 3.50%, 01/15/2044 Ð | 6,671 | ||||||
580 | 3.67%, 08/01/2023 | 624 | ||||||
155 | 3.70%, 10/01/2023 | 167 | ||||||
2,084 | 3.74%, 06/01/2026 | 2,259 | ||||||
210 | 3.76%, 03/01/2024 | 227 | ||||||
480 | 3.86%, 11/01/2023 - 12/01/2025 | 524 | ||||||
551 | 3.87%, 10/01/2025 | 605 | ||||||
701 | 3.89%, 05/01/2030 | 759 | ||||||
730 | 3.93%, 10/01/2023 | 800 | ||||||
308 | 3.96%, 05/01/2034 | 338 | ||||||
195 | 3.97%, 05/01/2029 | 215 | ||||||
25,176 | 4.00%, 06/01/2025 - 01/15/2044 ☼Ð | 26,905 | ||||||
2,895 | 4.02%, 11/01/2028 | 3,199 | ||||||
464 | 4.06%, 10/01/2028 | 515 | ||||||
96,403 | 4.50%, 04/01/2025 - 01/15/2044 ☼Ð | 104,700 | ||||||
27,686 | 5.00%, 02/01/2018 - 01/15/2044 ☼Ð | 30,298 | ||||||
28,092 | 5.50%, 01/01/2017 - 01/01/2037 | 31,458 | ||||||
6,719 | 5.50%, 06/25/2042 ► | 1,176 | ||||||
6,822 | 6.00%, 04/01/2016 - 02/01/2037 | 7,750 | ||||||
10 | 6.50%, 07/01/2016 - 07/01/2032 | 11 | ||||||
231 | 7.00%, 02/01/2016 - 10/01/2037 | 268 | ||||||
226 | 7.50%, 11/01/2015 - 05/01/2032 | 256 | ||||||
— | 8.00%, 04/01/2032 | — | ||||||
391,799 | ||||||||
GNMA - 7.0% | ||||||||
9,700 | 3.00%, 01/15/2044 ☼Ð | 9,919 | ||||||
42,606 | 3.50%, 11/15/2042 - 01/15/2044 ☼Ð | 44,818 | ||||||
82,490 | 4.00%, 07/20/2040 - 01/15/2044 ☼Ð | 88,632 | ||||||
25,365 | 4.50%, 11/15/2039 - 07/15/2041 | 27,912 | ||||||
21,626 | 5.00%, 05/20/2040 - 03/15/2044 ☼Ð | 23,941 | ||||||
6,801 | 5.50%, 03/15/2033 - 10/20/2034 | 7,706 | ||||||
16,983 | 6.00%, 12/15/2023 - 06/15/2041 | 19,325 | ||||||
4,582 | 6.50%, 06/15/2028 - 09/15/2032 | 5,254 | ||||||
17 | 7.00%, 06/20/2030 - 08/15/2031 | 20 | ||||||
1 | 8.50%, 11/15/2024 | 1 | ||||||
227,528 | ||||||||
Total U.S. Government Agencies | ||||||||
(Cost $908,746) | $ | 923,899 | ||||||
U.S. Government Securities - 14.4% | ||||||||
Other Direct Federal Obligations - 6.2% | ||||||||
FHLB - 6.2% | ||||||||
$ | 200,000 | 0.09%, 02/25/2015 ○ | $ | 199,982 | ||||
U.S. Treasury Securities - 8.2% | ||||||||
U.S. Treasury Bonds - 3.0% | ||||||||
23,575 | 3.00%, 11/15/2044 ╦ | 24,776 | ||||||
39,865 | 3.13%, 08/15/2044 □Є | 42,917 | ||||||
15,525 | 3.38%, 05/15/2044 Є | 17,478 | ||||||
10,150 | 3.75%, 11/15/2043 | 12,201 | ||||||
97,372 | ||||||||
U.S. Treasury Notes - 5.2% | ||||||||
163,400 | 0.13%, 04/15/2019 - 07/15/2024 ◄╦ | 160,297 | ||||||
3,605 | 0.25%, 07/31/2015 □Є | 3,608 | ||||||
1,300 | 0.50%, 09/30/2016 Є | 1,298 | ||||||
375 | 1.00%, 09/15/2017 | 375 | ||||||
250 | 2.25%, 11/15/2024 | 252 | ||||||
2,075 | 2.38%, 08/15/2024 | 2,113 | ||||||
167,943 | ||||||||
265,315 | ||||||||
Total U.S. Government Securities | ||||||||
(Cost $459,125) | $ | 465,297 | ||||||
Preferred Stocks - 0.1% | ||||||||
Banks - 0.0% | ||||||||
2 | U.S. Bancorp | $ | 1,833 | |||||
Diversified Financials - 0.1% | ||||||||
65 | Citigroup Capital XIII | 1,736 | ||||||
10 | Discover Financial Services | 263 | ||||||
1,999 | ||||||||
Insurance - 0.0% | ||||||||
11 | Allstate (The) Corp. | 279 | ||||||
Total Preferred Stocks | ||||||||
(Cost $3,941) | $ | 4,111 | ||||||
Total Long-Term Investments Excluding Purchased Options | ||||||||
(Cost $3,523,608) | $ | 3,568,604 | ||||||
Short-Term Investments - 5.5% | ||||||||
Other Direct Federal Obligations - 4.6% | ||||||||
FHLB | ||||||||
$ | 42,325 | 0.07%, 1/30/2015 ○ | $ | 42,323 | ||||
108,345 | 0.07%, 4/28/2015 | 108,305 | ||||||
150,628 | ||||||||
Repurchase Agreements - 0.9% | ||||||||
Bank of America Merrill Lynch Repurchase Agreement (maturing on 01/02/2015 in the amount of $27, collateralized by U.S. Treasury Note 0.75%, 2018, value of $28) | ||||||||
$ | 27 | 0.05%, 12/31/2014 | $ | 27 | ||||
Bank of America Merrill Lynch TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $139, collateralized by U.S. Treasury Note 2.50%, 2024, value of $142) | ||||||||
139 | 0.07%, 12/31/2014 | 139 | ||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $3,624, collateralized by U.S. Treasury Bond 3.88% - 5.25%, 2029 - 2040, U.S. Treasury Note 0.25% - 4.63%, 2015 - 2022, value of $3,697) | ||||||||
3,624 | 0.06%, 12/31/2014 | 3,624 |
The accompanying notes are an integral part of these financial statements.
17 |
Hartford Total Return Bond HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Shares or Principal Amount ╬ | Market Value ╪ | |||||||||||
Short-Term Investments - 5.5% - (continued) | ||||||||||||
Repurchase Agreements - 0.9% - (continued) | ||||||||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $1,579, collateralized by FHLMC 2.00% - 5.50%, 2019 - 2044, FNMA 2.00% - 4.00%, 2024 - 2042, GNMA 3.00%, 2043, U.S. Treasury Bill 0.07%, 2015, value of $1,611) | ||||||||||||
$ | 1,579 | 0.07%, 12/31/2014 | $ | 1,579 | ||||||||
Barclays Capital TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $3,882, collateralized by U.S. Treasury Bond 3.63%, 2043, U.S. Treasury Note 0.88% - 2.00%, 2017 - 2020, value of $3,959) | ||||||||||||
3,882 | 0.05%, 12/31/2014 | 3,882 | ||||||||||
Citigroup Global Markets, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $6,938, collateralized by U.S. Treasury Bond 3.63% - 9.88%, 2015 - 2043, U.S. Treasury Note 0.25% - 2.75%, 2015 - 2022, value of $7,076) | ||||||||||||
6,938 | 0.06%, 12/31/2014 | 6,938 | ||||||||||
Deutsche Bank Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $1,126, collateralized by FHLMC 2.00% - 10.50%, 2015 - 2047, FNMA 2.00% - 9.50%, 2015 - 2049, GNMA 2.50% - 10.00%, 2016 - 2055, value of $1,149) | ||||||||||||
1,126 | 0.12%, 12/31/2014 | 1,126 | ||||||||||
RBS Securities, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $295, collateralized by U.S. Treasury Note 0.38% - 2.13%, 2015 - 2016, value of $301) | ||||||||||||
295 | 0.07%, 12/31/2014 | 295 | ||||||||||
Societe Generale TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $3,301, collateralized by U.S. Treasury Bond 8.75%, 2020, U.S. Treasury Note 0.25% - 2.88%, 2015 - 2022, value of $3,367) | ||||||||||||
3,301 | 0.07%, 12/31/2014 | 3,301 | ||||||||||
TD Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $7,069, collateralized by FHLMC 3.00% - 4.00%, 2026 - 2044, FNMA 2.50% - 5.00%, 2025 - 2044, value of $7,210) | ||||||||||||
7,069 | 0.08%, 12/31/2014 | 7,069 | ||||||||||
27,980 | ||||||||||||
Total Short-Term Investments | ||||||||||||
(Cost $178,640) | $ | 178,608 | ||||||||||
Total Investments Excluding Purchased Options | ||||||||||||
(Cost $3,702,248) | 115.7 | % | $ | 3,747,212 | ||||||||
Total Purchased Options | ||||||||||||
(Cost $1,434) | — | % | 96 | |||||||||
Total Investments | ||||||||||||
(Cost $3,703,682) ▲ | 115.7 | % | $ | 3,747,308 | ||||||||
Other Assets and Liabilities | (15.7 | )% | (507,669 | ) | ||||||||
Total Net Assets | 100.0 | % | $ | 3,239,639 |
The accompanying notes are an integral part of these financial statements.
18 |
Hartford Total Return Bond HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Note: | Percentage of investments as shown is the ratio of the total market value to total net assets. |
The Fund may refer to any one or more of the industry classifications used by one or more widely recognized market indices, ratings group indices and/or as defined by Fund management. Industry classifications may not be identical across all security types.
Equity industry classifications used in this report are the Global Industry Classification Standard, which was developed by and is the exclusive property and service mark of MSCI, Inc. and Standard & Poor’s.
For Fund compliance purposes, the Fund may not use the same classification system shown in this report as these classifications are used for reporting ease.
▲ | At December 31, 2014, the cost of securities for federal income tax purposes was $3,707,970 and the aggregate gross unrealized appreciation and depreciation based on that cost were: |
Unrealized Appreciation | $ | 85,737 | ||
Unrealized Depreciation | (46,399 | ) | ||
Net Unrealized Appreciation | $ | 39,338 |
╬ | All principal amounts are in U.S. dollars unless otherwise indicated. |
Ψ | The issuer is in bankruptcy. However, the investment held by the Fund is current with respect to interest payments. |
Δ | Variable rate securities; the rate reported is the coupon rate in effect at December 31, 2014. |
○ | The interest rate disclosed for these securities represents the effective yield on the date of the acquisition. |
► | Securities disclosed are interest-only strips. |
◄ | The principal amount for this security is adjusted for inflation and the interest payments equal a fixed percentage of the inflation-adjusted principal amount. |
♦ | Senior floating rate interests generally pay interest rates which are periodically adjusted by reference to a base short-term, floating lending rate plus a premium. The base lending rates are primarily the LIBOR, and secondarily the prime rate offered by one or more major United States banks (the "Prime Rate") and the certificate of deposit rate or other base lending rates used by commercial lenders. Senior floating rate interests often require prepayments from excess cash flows or permit the borrower to repay at its election. The rate at which the borrower repays cannot be predicted with accuracy. As a result, the actual remaining maturity may be substantially less than the stated maturities shown. Unless otherwise noted, the interest rate disclosed for these securities represents the average coupon as of December 31, 2014. |
Б | This security, or a portion of this security, has unfunded loan commitments. As of December 31, 2014, the aggregate value of the unfunded commitment was $286, which rounds to zero percent of total net assets. |
■ | Securities issued within terms of a private placement memorandum, exempt from registration under Rule 144A under the Securities Act of 1933, as amended, and may be sold only to qualified institutional buyers. Unless otherwise noted, these holdings are determined to be liquid. At December 31, 2014, the aggregate value of these securities was $660,403, which represents 20.4% of total net assets. |
§ | These securities were sold to the Fund under Regulation S, rules governing offers and sales made outside the United States without registration under the Securities Act of 1933, as amended. The Fund may only be able to resell these securities in the United States if an exemption from registration under the federal and state securities laws is available, or the Fund may only be able to sell these securities outside of the United States (such as on a foreign exchange) to a non-U.S. person. Unless otherwise indicated, these holdings are determined to be liquid. At December 31, 2014, the aggregate value of these securities was $132,001, which represents 4.1% of total net assets. |
β | Convertible security. |
♠ | Perpetual maturity security. Maturity date shown is the next call date or final legal maturity date, whichever comes first. |
☼ | This security, or a portion of this security, was purchased on a when-issued or delayed-delivery basis. The cost of these securities was $514,730 at December 31, 2014. |
‡ | This security, or a portion of this security, has been segregated to cover funding requirements on investment transactions settling in the future. |
╦ | This security, or a portion of this security, has been pledged as collateral in connection with OTC swap contracts. |
Є | This security, or a portion of this security, has been pledged as collateral in connection with centrally cleared swap contracts. |
□ | This security, or a portion of this security, has been pledged as collateral in connection with futures contracts. |
Ð | Represents or includes a TBA transaction. |
The accompanying notes are an integral part of these financial statements.
19 |
Hartford Total Return Bond HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Cash and securities pledged and received as collateral in connection with derivatives at December 31, 2014:
Pledged ‡ | Received * | |||||||
OTC option and/or OTC swap contracts | $ | – | $ | 19,058 | ||||
Total | $ | – | $ | 19,058 |
‡ | As previously noted, certain securities, or a portion of these securities, are pledged as collateral in connection with certain derivative instruments. These securities are held by the Fund but are not represented in the table above. |
* | Securities valued at $9,707, held on behalf of the Fund at the custodian, were designated by broker(s) as collateral in connection with OTC option and/or OTC swap contracts. Since the broker retains legal title to the securities, the securities are not considered an asset of the Fund and are not included on the Statement of Assets and Liabilities. |
OTC Swaption Contracts Outstanding at December 31, 2014
Description | Counter - party | Risk Exposure Category | Exercise Price/ FX Rate/ Rate | Expiration Date | Number of Contracts * | Market Value ╪ | Premiums Paid by Fund | Unrealized Appreciation (Depreciation) | ||||||||||||||||||
Purchased swaption contracts: | ||||||||||||||||||||||||||
Puts | ||||||||||||||||||||||||||
Interest Rate Swaption USD | JPM | IR | 3.50 | % | 04/29/15 | USD | 50,860,000 | $ | 11 | $ | 895 | $ | (884 | ) |
* The number of contracts does not omit 000's.
OTC Option Contracts Outstanding at December 31, 2014
Description | Counter - party | Risk Exposure Category | Exercise Price/ FX Rate/ Rate | Expiration Date | Number of Contracts * | Market Value ╪ | Premiums Paid by Fund | Unrealized Appreciation (Depreciation) | ||||||||||||||||
Purchased Option contracts: | ||||||||||||||||||||||||
Calls | ||||||||||||||||||||||||
BRL Call/USD Put | JPM | FX | 2.41 BRL per USD | 09/28/15 | BRL | 21,400,000 | $ | 18 | $ | 153 | $ | (135 | ) | |||||||||||
INR Call/USD Put | BOA | FX | 62.55 INR per USD | 01/16/15 | INR | 410,000,000 | 9 | 107 | (98 | ) | ||||||||||||||
MXN Call/USD Put | JPM | FX | 13.61 MXN per USD | 01/16/15 | MXN | 88,909,409 | – | 131 | (131 | ) | ||||||||||||||
RUB Call/USD Put | GSC | FX | 36.97 RUB per USD | 09/03/15 | RUB | 312,000,000 | 7 | 112 | (105 | ) | ||||||||||||||
Total Calls | 832,309,409 | $ | 34 | $ | 503 | $ | (469 | ) | ||||||||||||||||
Puts | ||||||||||||||||||||||||
PEN Put/USD Call | JPM | FX | 3.01 PEN per USD | 03/10/15 | PEN | 9,760,000 | $ | 51 | $ | 36 | $ | 15 | ||||||||||||
Total purchased option contracts | 842,069,409 | $ | 85 | $ | 539 | $ | (454 | ) |
* The number of contracts does not omit 000's.
Futures Contracts Outstanding at December 31, 2014
Number of | Expiration | Notional | Market | Unrealized Appreciation/(Depreciation) | Variation Margin | |||||||||||||||||||||||||
Description | Contracts* | Date | Amount | Value ╪ | Asset | Liability | Asset | Liability | ||||||||||||||||||||||
Long position contracts: | ||||||||||||||||||||||||||||||
Long Gilt Future | 51 | 03/27/2015 | $ | 9,244 | $ | 9,501 | $ | 257 | $ | – | $ | 34 | $ | – | ||||||||||||||||
U.S. Treasury 30-Year Bond Future | 1,748 | 03/20/2015 | 249,545 | 252,695 | 3,150 | – | 494 | – | ||||||||||||||||||||||
U.S. Treasury 5-Year Note Future | 5,254 | 03/31/2015 | 624,808 | 624,857 | 49 | – | 821 | – | ||||||||||||||||||||||
Total | $ | 3,456 | $ | – | $ | 1,349 | $ | – | ||||||||||||||||||||||
Short position contracts: | ||||||||||||||||||||||||||||||
Euro-BOBL Future | 2 | 03/06/2015 | $ | 313 | $ | 315 | $ | – | $ | (2 | ) | $ | – | $ | – | |||||||||||||||
Euro-BUND Future | 55 | 03/06/2015 | 10,184 | 10,374 | – | (190 | ) | – | – | |||||||||||||||||||||
U.S. Treasury 10-Year Note Future | 3,002 | 03/20/2015 | 379,392 | 380,644 | – | (1,252 | ) | 13 | (681 | ) | ||||||||||||||||||||
U.S. Treasury 2-Year Note Future | 10 | 03/31/2015 | 2,186 | 2,186 | – | – | – | – | ||||||||||||||||||||||
U.S. Treasury CME Ultra Long Term Bond Future | 258 | 03/20/2015 | 40,866 | 42,618 | – | (1,752 | ) | – | (89 | ) | ||||||||||||||||||||
Total | $ | – | $ | (3,196 | ) | $ | 13 | $ | (770 | ) | ||||||||||||||||||||
Total futures contracts | $ | 3,456 | $ | (3,196 | ) | $ | 1,362 | $ | (770 | ) |
* The number of contracts does not omit 000's.
The accompanying notes are an integral part of these financial statements.
20 |
Hartford Total Return Bond HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
OTC Credit Default Swap Contracts Outstanding at December 31, 2014
Counter- | Notional | (Pay)/ Receive Fixed Rate/ Implied | Expiration | Upfront Premiums | Upfront Premiums | Market | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||
Reference Entity | party | Amount (a) | Credit Spread (b) | Date | Paid | Received | Value ╪ | Asset | Liability | |||||||||||||||||||||
Credit default swaps on indices: | ||||||||||||||||||||||||||||||
Buy protection: | ||||||||||||||||||||||||||||||
ABX.HE.AA.06-1 | BCLY | USD | 3,882 | (0.32)% | 07/25/45 | $ | 1,450 | $ | – | $ | 811 | $ | – | $ | (639 | ) | ||||||||||||||
ABX.HE.AAA.06-1 | BCLY | USD | 534 | (0.18)% | 07/25/45 | 56 | – | 13 | – | (43 | ) | |||||||||||||||||||
ABX.HE.AAA.06-1 | BOA | USD | 268 | (0.18)% | 07/25/45 | 15 | – | 7 | – | (8 | ) | |||||||||||||||||||
ABX.HE.AAA.06-1 | GSC | USD | 29 | (0.18)% | 07/25/45 | 3 | – | 1 | – | (2 | ) | |||||||||||||||||||
ABX.HE.AAA.06-1 | JPM | USD | 220 | (0.18)% | 07/25/45 | 6 | – | 6 | – | – | ||||||||||||||||||||
ABX.HE.AAA.06-1 | MSC | USD | 203 | (0.18)% | 07/25/45 | 17 | – | 5 | – | (12 | ) | |||||||||||||||||||
ABX.HE.AAA.06-2 | BOA | USD | 4,808 | (0.11)% | 05/25/46 | 1,004 | – | 956 | – | (48 | ) | |||||||||||||||||||
ABX.HE.AAA.06-2 | CSI | USD | 2,386 | (0.11)% | 05/25/46 | 563 | – | 474 | – | (89 | ) | |||||||||||||||||||
ABX.HE.AAA.06-2 | JPM | USD | 2,476 | (0.11)% | 05/25/46 | 497 | – | 492 | – | (5 | ) | |||||||||||||||||||
ABX.HE.AAA.06-2 | MSC | USD | 655 | (0.11)% | 05/25/46 | 132 | – | 130 | – | (2 | ) | |||||||||||||||||||
ABX.HE.AAA.07 | MSC | USD | 296 | (0.09)% | 08/25/37 | 77 | – | 77 | – | – | ||||||||||||||||||||
ABX.HE.AAA.07-1 | CSI | USD | 4,542 | (0.09)% | 08/25/37 | 1,316 | – | 1,174 | – | (142 | ) | |||||||||||||||||||
ABX.HE.AAA.07-1 | GSC | USD | 1,868 | (0.09)% | 08/25/37 | 471 | – | 483 | 12 | – | ||||||||||||||||||||
ABX.HE.AAA.07-1 | MSC | USD | 2,519 | (0.09)% | 08/25/37 | 617 | – | 651 | 34 | – | ||||||||||||||||||||
ABX.HE.PENAAA.06-2 | BCLY | USD | 787 | (0.11)% | 05/25/46 | 129 | – | 109 | – | (20 | ) | |||||||||||||||||||
ABX.HE.PENAAA.06-2 | BOA | USD | 2,053 | (0.11)% | 05/25/46 | 467 | – | 285 | – | (182 | ) | |||||||||||||||||||
ABX.HE.PENAAA.06-2 | GSC | USD | 1,933 | (0.11)% | 05/25/46 | 483 | – | 268 | – | (215 | ) | |||||||||||||||||||
ABX.HE.PENAAA.06-2 | JPM | USD | 3,488 | (0.11)% | 05/25/46 | 851 | – | 484 | – | (367 | ) | |||||||||||||||||||
ABX.HE.PENAAA.06-2 | JPM | USD | 1,220 | (0.11)% | 05/25/46 | 167 | – | 169 | 2 | – | ||||||||||||||||||||
ABX.HE.PENAAA.06-2 | MSC | USD | 2,435 | (0.11)% | 05/25/46 | 591 | – | 338 | – | (253 | ) | |||||||||||||||||||
ABX.HE.PENAAA.07-1 | JPM | USD | 2,971 | (0.09)% | 08/25/37 | 1,222 | – | 668 | – | (554 | ) | |||||||||||||||||||
CDX.EM.21 | JPM | USD | 7,125 | (1.00)% | 12/20/19 | 848 | – | 739 | – | (109 | ) | |||||||||||||||||||
CMBX.NA.A.7 | JPM | USD | 3,010 | (2.00)% | 01/17/47 | – | (63 | ) | (6 | ) | 57 | – | ||||||||||||||||||
CMBX.NA.AA.2 | BOA | USD | 7,501 | (0.15)% | 03/15/49 | 2,845 | – | 2,506 | – | (339 | ) | |||||||||||||||||||
CMBX.NA.AA.2 | CSI | USD | 1,277 | (0.15)% | 03/15/49 | 446 | – | 427 | – | (19 | ) | |||||||||||||||||||
CMBX.NA.AA.2 | CSI | USD | 3,463 | (0.15)% | 03/15/49 | 1,074 | – | 1,157 | 83 | – | ||||||||||||||||||||
CMBX.NA.AA.7 | CSI | USD | 3,405 | (1.50)% | 01/17/47 | – | (33 | ) | 3 | 36 | – | |||||||||||||||||||
CMBX.NA.AA.7 | CSI | USD | 7,880 | (1.50)% | 01/17/47 | 36 | – | 6 | – | (30 | ) | |||||||||||||||||||
CMBX.NA.AA.7 | MSC | USD | 3,400 | (1.50)% | 01/17/47 | – | (35 | ) | 3 | 38 | – | |||||||||||||||||||
CMBX.NA.AJ.1 | DEUT | USD | 1,430 | (0.84)% | 10/12/52 | 100 | – | 32 | – | (68 | ) | |||||||||||||||||||
CMBX.NA.AJ.1 | JPM | USD | 455 | (0.84)% | 10/12/52 | 32 | – | 10 | – | (22 | ) | |||||||||||||||||||
CMBX.NA.AJ.1 | MSC | USD | 2,550 | (0.84)% | 10/12/52 | 179 | – | 57 | – | (122 | ) | |||||||||||||||||||
CMBX.NA.AJ.2 | CSI | USD | 3,639 | (1.09)% | 03/15/49 | 299 | – | 311 | 12 | – | ||||||||||||||||||||
CMBX.NA.AJ.2 | DEUT | USD | 4,562 | (1.09)% | 03/15/49 | 412 | – | 390 | – | (22 | ) | |||||||||||||||||||
CMBX.NA.AJ.2 | GSC | USD | 5,930 | (1.09)% | 03/15/49 | 445 | – | 507 | 62 | – | ||||||||||||||||||||
CMBX.NA.AJ.4 | CBK | USD | 2,376 | (0.96)% | 02/17/51 | 448 | – | 462 | 14 | – | ||||||||||||||||||||
CMBX.NA.AJ.4 | CSI | USD | 4,761 | (0.96)% | 02/17/51 | 872 | – | 926 | 54 | – | ||||||||||||||||||||
CMBX.NA.AJ.4 | CSI | USD | 1,026 | (0.96)% | 02/17/51 | 205 | – | 200 | – | (5 | ) | |||||||||||||||||||
CMBX.NA.AJ.4 | DEUT | USD | 2,963 | (0.96)% | 02/17/51 | 576 | – | 576 | – | – | ||||||||||||||||||||
CMBX.NA.AJ.4 | GSC | USD | 6,320 | (0.96)% | 02/17/51 | 1,108 | – | 1,228 | 120 | – | ||||||||||||||||||||
CMBX.NA.AJ.4 | MSC | USD | 2,286 | (0.96)% | 02/17/51 | 400 | – | 445 | 45 | – | ||||||||||||||||||||
CMBX.NA.AJ.4 | MSC | USD | 7,007 | (0.96)% | 02/17/51 | 2,206 | – | 1,362 | – | (844 | ) | |||||||||||||||||||
CMBX.NA.AM.2 | CSI | USD | 7,960 | (0.50)% | 03/15/49 | 487 | – | 80 | – | (407 | ) | |||||||||||||||||||
CMBX.NA.AM.2 | DEUT | USD | 7,960 | (0.50)% | 03/15/49 | 457 | – | 80 | – | (377 | ) | |||||||||||||||||||
CMBX.NA.AM.2 | MSC | USD | 1,815 | (0.50)% | 03/15/49 | 89 | – | 18 | – | (71 | ) | |||||||||||||||||||
CMBX.NA.AM.4 | MSC | USD | 2,685 | (0.50)% | 02/17/51 | 568 | – | 86 | – | (482 | ) | |||||||||||||||||||
CMBX.NA.AS.6 | CSI | USD | 6,665 | (1.00)% | 05/11/63 | 89 | – | 57 | – | (32 | ) | |||||||||||||||||||
CMBX.NA.AS.7 | CBK | USD | 2,970 | (1.00)% | 01/17/47 | 70 | – | 49 | – | (21 | ) | |||||||||||||||||||
CMBX.NA.AS.7 | CSI | USD | 3,650 | (1.00)% | 01/17/47 | 86 | – | 60 | – | (26 | ) | |||||||||||||||||||
Total | $ | 24,511 | $ | (131 | ) | $ | 19,372 | $ | 569 | $ | (5,577 | ) | ||||||||||||||||||
Sell protection: | ||||||||||||||||||||||||||||||
CMBX.NA.A.2 | BOA | USD | 1,693 | 0.25% | 03/15/49 | $ | – | $ | (977 | ) | $ | (1,116 | ) | $ | – | $ | (139 | ) | ||||||||||||
CMBX.NA.A.6 | MSC | USD | 2,230 | 2.00% | 05/11/63 | 20 | – | 24 | 4 | – | ||||||||||||||||||||
CMBX.NA.AAA.6 | BOA | USD | 9,890 | 0.50% | 05/11/63 | – | (225 | ) | (209 | ) | 16 | – | ||||||||||||||||||
CMBX.NA.AAA.6 | CSI | USD | 7,695 | 0.50% | 05/11/63 | – | (150 | ) | (163 | ) | – | (13 | ) | |||||||||||||||||
CMBX.NA.AAA.6 | CSI | USD | 15,965 | 0.50% | 05/11/63 | – | (434 | ) | (339 | ) | 95 | – |
The accompanying notes are an integral part of these financial statements.
21 |
Hartford Total Return Bond HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
OTC Credit Default Swap Contracts Outstanding at December 31, 2014 - (continued)
Counter- | Notional | (Pay)/ Receive Fixed Rate/Implied | Expiration | Upfront Premiums | Upfront Premiums | Market | Unrealized Appreciation/ | |||||||||||||||||||||||
Reference Entity | party | Amount (a) | Credit Spread (b) | Date | Paid | Received | Value ╪ | Asset | Liability | |||||||||||||||||||||
Credit default swaps on indices: - (continued) | ||||||||||||||||||||||||||||||
Sell protection: - (continued) | ||||||||||||||||||||||||||||||
CMBX.NA.AAA.6 | CSI | USD | 1,368 | 5.00% | 05/11/63 | $ | – | $ | (40 | ) | $ | 5 | $ | 45 | $ | – | ||||||||||||||
CMBX.NA.AAA.6 | DEUT | USD | 4,850 | 0.50% | 05/11/63 | – | (74 | ) | (103 | ) | – | (29 | ) | |||||||||||||||||
CMBX.NA.AAA.6 | DEUT | USD | 12,790 | 0.50% | 05/11/63 | – | (311 | ) | (272 | ) | 39 | – | ||||||||||||||||||
CMBX.NA.AAA.6 | GSC | USD | 2,610 | 0.50% | 05/11/63 | – | (56 | ) | (55 | ) | 1 | – | ||||||||||||||||||
CMBX.NA.AAA.6 | MSC | USD | 7,315 | 0.50% | 05/11/63 | – | (177 | ) | (156 | ) | 21 | – | ||||||||||||||||||
CMBX.NA.AAA.6 | UBS | USD | 23,365 | 0.50% | 05/11/63 | – | (597 | ) | (497 | ) | 100 | – | ||||||||||||||||||
CMBX.NA.AAA.7 | BOA | USD | 5,070 | 0.50% | 01/17/47 | – | (125 | ) | (161 | ) | – | (36 | ) | |||||||||||||||||
CMBX.NA.AAA.7 | CSI | USD | 5,010 | 0.50% | 01/17/47 | – | (137 | ) | (159 | ) | – | (22 | ) | |||||||||||||||||
CMBX.NA.BB.6 | BOA | USD | 7,875 | 5.00% | 05/11/63 | – | (56 | ) | 26 | 82 | – | |||||||||||||||||||
CMBX.NA.BB.6 | CBK | USD | 3,325 | 5.00% | 05/11/63 | – | (26 | ) | 11 | 37 | – | |||||||||||||||||||
CMBX.NA.BB.6 | CSI | USD | 5,555 | 5.00% | 05/11/63 | – | (69 | ) | 18 | 87 | – | |||||||||||||||||||
CMBX.NA.BB.6 | CSI | USD | 5,425 | 5.00% | 05/11/63 | 93 | – | 18 | – | (75 | ) | |||||||||||||||||||
CMBX.NA.BB.6 | CSI | USD | 3,420 | 5.00% | 05/11/63 | 1 | – | 12 | 11 | – | ||||||||||||||||||||
CMBX.NA.BB.6 | GSC | USD | 2,590 | 5.00% | 05/11/63 | 15 | – | 8 | – | (7 | ) | |||||||||||||||||||
CMBX.NA.BB.6 | MSC | USD | 2,335 | 5.00% | 05/11/63 | – | (149 | ) | 8 | 157 | – | |||||||||||||||||||
CMBX.NA.BB.7 | BOA | USD | 2,190 | 5.00% | 01/17/47 | – | (80 | ) | (44 | ) | 36 | – | ||||||||||||||||||
CMBX.NA.BB.7 | CBK | USD | 790 | 5.00% | 01/17/47 | – | (24 | ) | (16 | ) | 8 | – | ||||||||||||||||||
CMBX.NA.BB.7 | CSI | USD | 7,735 | 5.00% | 01/17/47 | – | (370 | ) | (158 | ) | 212 | – | ||||||||||||||||||
CMBX.NA.BB.7 | DEUT | USD | 3,845 | 5.00% | 01/17/47 | – | (103 | ) | (78 | ) | 25 | – | ||||||||||||||||||
CMBX.NA.BB.7 | MSC | USD | 1,580 | 5.00% | 01/17/47 | – | (20 | ) | (32 | ) | – | (12 | ) | |||||||||||||||||
CMBX.NA.BBB-.7 | CSI | USD | 6,080 | 3.00% | 01/17/47 | – | (265 | ) | (72 | ) | 193 | – | ||||||||||||||||||
PrimeX.ARM.2 | MSC | USD | 5,682 | 4.58% | 12/25/37 | – | (417 | ) | 175 | 592 | – | |||||||||||||||||||
PrimeX.ARM.2 | MSC | USD | 49 | 4.58% | 12/25/37 | 2 | – | 2 | – | – | ||||||||||||||||||||
Total | $ | 131 | $ | (4,882 | ) | $ | (3,323 | ) | $ | 1,761 | $ | (333 | ) | |||||||||||||||||
Total traded indices | $ | 24,642 | $ | (5,013 | ) | $ | 16,049 | $ | 2,330 | $ | (5,910 | ) | ||||||||||||||||||
Credit default swaps on single-name issues: | ||||||||||||||||||||||||||||||
Buy protection: | ||||||||||||||||||||||||||||||
Brazil (Federative Republic of) | GSC | USD | 4,260 | (1.00)% / 1.94% | 12/20/19 | $ | 183 | $ | – | $ | 186 | $ | 3 | $ | – | |||||||||||||||
Brazil (Federative Republic of) | JPM | USD | 4,240 | (1.00)% / 1.94% | 12/20/19 | 213 | – | 185 | – | (28 | ) | |||||||||||||||||||
ConAgra Foods, Inc. | JPM | USD | 1,300 | (1.00)% / 0.54% | 03/20/20 | – | (32 | ) | (30 | ) | 2 | – | ||||||||||||||||||
Darden Restaurants, Inc. | BCLY | USD | 6,300 | (1.00)% / 1.51% | 12/20/19 | 230 | – | 151 | – | (79 | ) | |||||||||||||||||||
E L Du Pont De Nemours & Company | BCLY | USD | 1,275 | (1.00)% / 0.42% | 03/20/20 | – | (37 | ) | (37 | ) | – | – | ||||||||||||||||||
Russia (Federation of) | GSC | USD | 13,125 | (1.00)% / 4.78% | 12/20/19 | 2,829 | – | 2,073 | – | (756 | ) | |||||||||||||||||||
Total | $ | 3,455 | $ | (69 | ) | $ | 2,528 | $ | 5 | $ | (863 | ) | ||||||||||||||||||
Sell protection: | ||||||||||||||||||||||||||||||
Illinois State GO | GSC | USD | 1,050 | 1.00% / 1.32% | 06/20/17 | $ | 4 | $ | – | $ | (8 | ) | $ | – | $ | (12 | ) | |||||||||||||
Turkey (Republic of) | BNP | USD | 4,030 | 1.00% / 1.77% | 12/20/19 | – | (144 | ) | (146 | ) | – | (2 | ) | |||||||||||||||||
South Africa (Republic of) | GSC | USD | 4,050 | 1.00% / 1.83% | 12/20/19 | – | (111 | ) | (158 | ) | – | (47 | ) | |||||||||||||||||
Transocean, Inc. | MSC | USD | 825 | 1.00% / 6.60% | 03/20/20 | – | (161 | ) | (189 | ) | – | (28 | ) | |||||||||||||||||
Total | $ | 4 | $ | (416 | ) | $ | (501 | ) | $ | – | $ | (89 | ) | |||||||||||||||||
Total single-name issues | $ | 3,459 | $ | (485 | ) | $ | 2,027 | $ | 5 | $ | (952 | ) | ||||||||||||||||||
Total OTC contracts | $ | 28,101 | $ | (5,498 | ) | $ | 18,076 | $ | 2,335 | $ | (6,862 | ) |
(a) | The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement. |
(b) | Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements on corporate issues, U.S. municipal issues or sovereign government issues as of period end serve as an indicator of the current status of the payment/performance risk and represent the likelihood of risk of default for the credit derivative. The implied credit spread of a particular entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads represent a deterioration of the reference entity's credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. The percentage shown is the implied credit spread on December 31, 2014. For credit default swap agreements on indices, the quoted market prices and resulting values serve as the indicator of the current status of the payment/performance risk. |
The accompanying notes are an integral part of these financial statements.
22 |
Hartford Total Return Bond HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Centrally Cleared Credit Default Swap Contracts Outstanding at December 31, 2014
Clearing | Notional | (Pay)/ Receive Fixed | Expiration | Market | Unrealized Appreciation/ (Depreciation) | Variation Margin | ||||||||||||||||||||||||||||||
Reference Entity | House (a) | Amount (b) | Rate | Date | Cost Basis | Value ╪ | Asset | Liability | Asset | Liability | ||||||||||||||||||||||||||
Credit default swaps on indices: | ||||||||||||||||||||||||||||||||||||
Buy protection: | ||||||||||||||||||||||||||||||||||||
CDX.NA.HY.22 | CME | USD | 27,705 | (5.00)% | 06/20/19 | $ | (1,700 | ) | $ | (1,888 | ) | $ | – | $ | (188 | ) | $ | – | $ | (17 | ) | |||||||||||||||
CDX.NA.HY.23 | CME | USD | 163,295 | (5.00)% | 12/20/19 | (8,930 | ) | (10,136 | ) | – | (1,206 | ) | – | (125 | ) | |||||||||||||||||||||
CDX.NA.IG.23 | CME | USD | 222,050 | (1.00)% | 12/20/19 | (3,125 | ) | (3,567 | ) | – | (442 | ) | – | (5 | ) | |||||||||||||||||||||
ITRAXX.EUR.22 | ICE | EUR | 43,705 | (1.00)% | 12/20/19 | (1,023 | ) | (956 | ) | 67 | – | 7 | – | |||||||||||||||||||||||
ITRAXX.XOV.22 | ICE | EUR | 69,455 | (5.00)% | 12/20/19 | (5,900 | ) | (5,631 | ) | 269 | – | 133 | – | |||||||||||||||||||||||
Total | $ | (20,678 | ) | $ | (22,178 | ) | $ | 336 | $ | (1,836 | ) | $ | 140 | $ | (147 | ) |
(a) | The FCM to the contracts is GSC. |
(b) | The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement. |
Centrally Cleared Interest Rate Swap Contracts Outstanding at December 31, 2014
Clearing | Payments made | Payments received | Notional | Expiration | Upfront | Market | Unrealized | Variation Margin | ||||||||||||||||||||||||||
House (a) | by Fund | by Fund | Amount | Date | (Received) | Value ╪ | Asset | Liability | Asset | Liability | ||||||||||||||||||||||||
LCH | 0.43% Fixed | 6M EURIBOR | EUR | 250 | 09/17/17 | $ | – | $ | (2 | ) | $ | – | $ | (2 | ) | $ | – | $ | – |
(a) | The FCM to the contracts is GSC. |
TBA Sale Commitments Outstanding at December 31, 2014 | ||||||||||||||
Description | Principal | Maturity Date | Market Value ╪ | Unrealized | ||||||||||
FHLMC, 3.50% | $ | 16,300 | 01/15/2044 | $ | 16,948 | $ | (101 | ) | ||||||
FHLMC, 5.00% | 2,900 | 01/15/2044 | 3,200 | 9 | ||||||||||
FHLMC, 5.50% | 29,900 | 01/15/2044 | 33,402 | 44 | ||||||||||
FNMA, 3.50% | 41,600 | 01/15/2029 | 43,946 | (65 | ) | |||||||||
FNMA, 3.50% | 29,200 | 01/15/2044 | 30,439 | (34 | ) | |||||||||
FNMA, 4.00% | 8,400 | 01/15/2029 | 8,900 | (3 | ) | |||||||||
FNMA, 5.50% | 18,900 | 01/15/2044 | 21,141 | 5 | ||||||||||
FNMA, 6.00% | 5,700 | 01/15/2044 | 6,464 | 5 | ||||||||||
GNMA, 3.50% | 7,700 | 01/15/2044 | 8,083 | (6 | ) | |||||||||
GNMA, 4.50% | 67,700 | 01/15/2044 | 73,970 | (9 | ) | |||||||||
Total | $ | 246,493 | $ | (155 | ) |
At December 31, 2014, the aggregate market value of these securities represents 7.6% of total net assets.
Foreign Currency Contracts Outstanding at December 31, 2014
Unrealized Appreciation/(Depreciation) | ||||||||||||||||||||||
Currency | Buy / Sell | Delivery Date | Counterparty | Contract Amount | Market Value ╪ | Asset | Liability | |||||||||||||||
BRL | Buy | 01/15/2015 | UBS | $ | 4,696 | $ | 4,779 | $ | 83 | $ | – | |||||||||||
BRL | Sell | 01/15/2015 | UBS | 9,108 | 9,230 | – | (122 | ) | ||||||||||||||
COP | Buy | 01/15/2015 | UBS | 1,444 | 1,414 | – | (30 | ) | ||||||||||||||
COP | Sell | 01/15/2015 | BOA | 9,207 | 9,119 | 88 | – | |||||||||||||||
EUR | Buy | 03/18/2015 | NAB | 30 | 29 | – | (1 | ) | ||||||||||||||
EUR | Buy | 01/16/2015 | RBC | 743 | 732 | – | (11 | ) |
The accompanying notes are an integral part of these financial statements.
23 |
Hartford Total Return Bond HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Foreign Currency Contracts Outstanding at December 31, 2014 - (continued)
Unrealized Appreciation/(Depreciation) | ||||||||||||||||||||||
Currency | Buy / Sell | Delivery Date | Counterparty | Contract Amount | Market Value ╪ | Asset | Liability | |||||||||||||||
EUR | Sell | 02/19/2015 | BNP | $ | 326 | $ | 315 | $ | 11 | $ | – | |||||||||||
EUR | Sell | 02/19/2015 | BOA | 734 | 714 | 20 | – | |||||||||||||||
EUR | Sell | 09/18/2015 | CBK | 3,350 | 3,144 | 206 | – | |||||||||||||||
EUR | Sell | 02/19/2015 | DEUT | 336 | 327 | 9 | – | |||||||||||||||
EUR | Sell | 01/16/2015 | HSBC | 1,615 | 1,567 | 48 | – | |||||||||||||||
EUR | Sell | 01/16/2015 | JPM | 42,718 | 41,631 | 1,087 | – | |||||||||||||||
EUR | Sell | 02/19/2015 | JPM | 294 | 284 | 10 | – | |||||||||||||||
EUR | Sell | 03/18/2015 | NAB | 1,696 | 1,658 | 38 | – | |||||||||||||||
GBP | Sell | 02/06/2015 | BOA | 6,706 | 6,599 | 107 | – | |||||||||||||||
GBP | Sell | 01/16/2015 | CBK | 9,873 | 9,823 | 50 | – | |||||||||||||||
GBP | Sell | 02/06/2015 | MSC | 606 | 600 | 6 | – | |||||||||||||||
MYR | Buy | 02/13/2015 | BOA | 4,543 | 4,520 | – | (23 | ) | ||||||||||||||
MYR | Sell | 02/13/2015 | BCLY | 9,779 | 9,367 | 412 | – | |||||||||||||||
NGN | Buy | 10/08/2015 | BNP | 5,231 | 4,606 | – | (625 | ) | ||||||||||||||
NGN | Sell | 10/08/2015 | CBK | 2,270 | 2,329 | – | (59 | ) | ||||||||||||||
NGN | Sell | 01/15/2015 | JPM | 2,336 | 2,489 | – | (153 | ) | ||||||||||||||
RON | Buy | 03/16/2015 | BNP | 4,875 | 4,742 | – | (133 | ) | ||||||||||||||
RSD | Buy | 09/18/2015 | CBK | 3,094 | 2,876 | – | (218 | ) | ||||||||||||||
RUB | Sell | 01/15/2015 | JPM | 1,712 | 1,468 | 244 | – | |||||||||||||||
TRY | Buy | 03/31/2015 | BOA | 5,548 | 5,533 | – | (15 | ) | ||||||||||||||
TRY | Sell | 03/31/2015 | BCLY | 5,646 | 5,532 | 114 | – | |||||||||||||||
ZAR | Buy | 01/15/2015 | CBK | 3,348 | 3,335 | – | (13 | ) | ||||||||||||||
ZAR | Sell | 01/15/2015 | BCLY | 3,355 | 3,335 | 20 | – | |||||||||||||||
Total | $ | 2,553 | $ | (1,403 | ) | |||||||||||||||||
╪ | See Significant Accounting Policies of accompanying Notes to Financial Statements regarding valuation of securities. |
The accompanying notes are an integral part of these financial statements.
24 |
Hartford Total Return Bond HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
GLOSSARY: (abbreviations used in preceding Schedule of Investments) | ||
Counterparty Abbreviations: | ||
BCLY | Barclays | |
BNP | BNP Paribas Securities Services | |
BOA | Banc of America Securities LLC | |
CBK | Citibank NA | |
CME | Chicago Mercantile Exchange | |
CSI | Credit Suisse International | |
DEUT | Deutsche Bank Securities, Inc. | |
FCM | Futures Commission Merchant | |
GSC | Goldman Sachs & Co. | |
HSBC | HSBC Bank USA | |
ICE | Intercontinental Exchange | |
JPM | JP Morgan Chase & Co. | |
LCH | LCH Clearnet | |
MSC | Morgan Stanley | |
NAB | National Australia Bank Limited | |
RBC | RBC Dominion Securities, Inc. | |
UBS | UBS AG | |
Currency Abbreviations: | ||
BRL | Brazilian Real | |
COP | Colombian Peso | |
DOP | Dominican Peso | |
EUR | EURO | |
GBP | British Pound | |
IDR | Indonesian New Rupiah | |
INR | Indian Rupee | |
MXN | Mexican New Peso | |
MYR | Malaysian Ringgit | |
NGN | Nigerian Naira | |
PEN | Peruvian New Sol | |
RON | New Romanian Leu | |
RSD | Serbian Dinar | |
RUB | Russian New Ruble | |
TRY | Turkish New Lira | |
USD | U.S. Dollar | |
UYU | Uruguayan Peso | |
ZAR | South African Rand | |
Index Abbreviations: | ||
ABX.HE | Markit Asset Backed Security Home Equity | |
ABX.HE.PEN | Markit Asset Backed Security Home Equity Penultimate | |
CDX.EM | Credit Derivatives Emerging Markets | |
CDX.NA.HY | Credit Derivatives North American High Yield | |
CDX.NA.IG | Credit Derivatives North American Investment Grade | |
CMBX.NA | Markit Commercial Mortgage Backed North American | |
ITRAXX.EUR | Markit iTraxx - Europe | |
ITRAXX.XOV | Markit iTraxx Index - Europe Crossover | |
PrimeX.ARM | Markit PrimeX Adjustable Rate Mortgage Backed Security | |
Municipal Bond Abbreviations: | ||
GO | General Obligation | |
Rev | Revenue | |
Other Abbreviations: | |
CLO | Collateralized Loan Obligation |
EURIBOR | Euro Interbank Offered Rate |
FHLB | Federal Home Loan Bank |
FHLMC | Federal Home Loan Mortgage Corp. |
FNMA | Federal National Mortgage Association |
FX | Foreign Exchange |
GNMA | Government National Mortgage Association |
IR | Interest Rate |
LIBOR | London Interbank Offered Rate |
OTC | Over-the-Counter |
REIT | Real Estate Investment Trust |
TBA | To Be Announced |
The accompanying notes are an integral part of these financial statements.
25 |
Hartford Total Return Bond HLS Fund |
Schedule of Investments – (continued) |
December 31, 2014 |
(000’s Omitted) |
Investment Valuation Hierarchy Level Summary |
December 31, 2014 |
Total | Level 1 ♦ | Level 2 ♦ | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Asset and Commercial Mortgage Backed Securities | $ | 923,641 | $ | – | $ | 847,597 | $ | 76,044 | ||||||||
Corporate Bonds | 947,093 | – | 947,093 | – | ||||||||||||
Foreign Government Obligations | 101,345 | – | 101,345 | – | ||||||||||||
Municipal Bonds | 34,728 | – | 34,728 | – | ||||||||||||
Preferred Stocks | 4,111 | 2,278 | 1,833 | – | ||||||||||||
Senior Floating Rate Interests | 168,490 | – | 168,490 | – | ||||||||||||
U.S. Government Agencies | 923,899 | – | 923,899 | – | ||||||||||||
U.S. Government Securities | 465,297 | 185,073 | 280,224 | – | ||||||||||||
Short-Term Investments | 178,608 | – | 178,608 | – | ||||||||||||
Purchased Options | 96 | – | 96 | – | ||||||||||||
Total | $ | 3,747,308 | $ | 187,351 | $ | 3,483,913 | $ | 76,044 | ||||||||
Foreign Currency Contracts * | $ | 2,553 | $ | – | $ | 2,553 | $ | – | ||||||||
Futures * | 3,456 | 3,456 | – | – | ||||||||||||
Swaps - Credit Default * | 2,671 | – | 2,671 | – | ||||||||||||
Total | $ | 8,680 | $ | 3,456 | $ | 5,224 | $ | – | ||||||||
Liabilities: | ||||||||||||||||
TBA Sale Commitments | $ | 246,493 | $ | – | $ | 246,493 | $ | – | ||||||||
Total | $ | 246,493 | $ | – | $ | 246,493 | $ | – | ||||||||
Foreign Currency Contracts * | $ | 1,403 | $ | – | $ | 1,403 | $ | – | ||||||||
Futures * | 3,196 | 3,196 | – | – | ||||||||||||
Swaps - Credit Default * | 8,698 | – | 8,698 | – | ||||||||||||
Swaps - Interest Rate * | 2 | – | 2 | – | ||||||||||||
Total | $ | 13,299 | $ | 3,196 | $ | 10,103 | $ | – |
♦ | For the year ended December 31, 2014, investments valued at $305,412 were transferred from Level 1 to Level 2, and there were no transfers from Level 2 to Level 1. Investments are transferred between Level 1 and Level 2 for a variety of reasons including, but not limited to: |
1) | Foreign equities for which a fair value price is more representative of exit value than the local market close (transfer into Level 2). Foreign equities for which the local market close is more representative of exit value (transfer into Level 1). |
2) | U.S. Treasury securities that no longer represent the most recent issue (transfer into Level 2). |
3) | Equity investments with no observable trading but a bid or mean price is used (transfer into Level 2). Equity investments using observable quoted prices in an active market (transfer into Level 1). |
* | Derivative instruments (excluding purchased and written options, if applicable) are valued at the unrealized appreciation/depreciation on the investments. |
Following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
Balance as of December 31, 2013 | Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Net Amortization | Purchases | Sales | Transfers Into Level 3 * | Transfers Out of Level 3 * | Balance as of December 31, 2014 | ||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||
Asset & Commercial Mortgage Backed Securities | $ | 100,975 | $ | 3,626 | $ | (365 | )† | $ | 4,568 | $ | 34,623 | $ | (55,656 | ) | $ | — | $ | (11,727 | ) | $ | 76,044 | |||||||||||||||
Corporate Bonds | 4,547 | 100 | 23 | — | — | (4,670 | ) | — | — | — | ||||||||||||||||||||||||||
Total | $ | 105,522 | $ | 3,726 | $ | (342 | ) | $ | 4,568 | $ | 34,623 | $ | (60,326 | ) | $ | — | $ | (11,727 | ) | $ | 76,044 | |||||||||||||||
Swaps‡ | $ | 294 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (294 | ) | $ | — | |||||||||||||||||
Total | $ | 294 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (294 | ) | $ | — |
* | Investments are transferred into and out of Level 3 for a variety of reasons including, but not limited to: | |
1) | Investments where trading has been halted (transfer into Level 3) or investments where trading has resumed (transfer out of Level 3). | |
2) | Broker quoted investments (transfer into Level 3) or quoted prices in active markets (transfer out of Level 3). | |
3) | Investments that have certain restrictions on trading (transfer into Level 3) or investments where trading restrictions have expired (transfer out of Level 3). | |
† | Change in unrealized appreciation (depreciation) in the current period relating to assets still held at December 31, 2014 was $(135). | |
‡ | Derivative instruments not reflected in the Schedule of Investments are valued at the unrealized appreciation/ depreciation on the investment. |
Note: | For purposes of reporting transfers between different hierarchy levels, both transfers in and out of each level, as applicable, are shown as if they occurred at the beginning of the period. |
The accompanying notes are an integral part of these financial statements.
26 |
Hartford Total Return Bond HLS Fund |
Statement of Assets and Liabilities |
December 31, 2014 |
(000’s Omitted) |
Assets: | ||||
Investments in securities, at market value (cost $3,703,682) | $ | 3,747,308 | ||
Cash | 3,134 | |||
Unrealized appreciation on foreign currency contracts | 2,553 | |||
Unrealized appreciation on OTC swap contracts | 2,335 | |||
Receivables: | ||||
Investment securities sold | 505,183 | |||
Fund shares sold | 297 | |||
Dividends and interest | 18,809 | |||
Variation margin on financial derivative instruments | 1,502 | |||
OTC swap premiums paid | 28,101 | |||
Other assets | — | |||
Total assets | 4,309,222 | |||
Liabilities: | ||||
Unrealized depreciation on foreign currency contracts | 1,403 | |||
Unrealized depreciation on OTC swap contracts | 6,862 | |||
TBA sale commitments, at market value (proceeds $246,338) | 246,493 | |||
Payables: | ||||
Investment securities purchased | 797,026 | |||
Fund shares redeemed | 1,443 | |||
Investment management fees | 327 | |||
Distribution fees | 20 | |||
Collateral received from broker | 9,351 | |||
Variation margin on financial derivative instruments | 917 | |||
Accrued expenses | 223 | |||
OTC swap premiums received | 5,498 | |||
Other liabilities | 20 | |||
Total liabilities | 1,069,583 | |||
Net assets | $ | 3,239,639 | ||
Summary of Net Assets: | ||||
Capital stock and paid-in-capital | $ | 3,045,938 | ||
Undistributed net investment income | 91,320 | |||
Accumulated net realized gain | 63,603 | |||
Unrealized appreciation of investments and the translations of assets and liabilities denominated in foreign currency | 38,778 | |||
Net assets | $ | 3,239,639 | ||
Shares authorized | 5,000,000 | |||
Par value | $ | 0.001 | ||
Class IA: Net asset value per share | $ | 11.63 | ||
Shares outstanding | 247,681 | |||
Net assets | $ | 2,879,633 | ||
Class IB: Net asset value per share | $ | 11.56 | ||
Shares outstanding | 31,155 | |||
Net assets | $ | 360,006 |
The accompanying notes are an integral part of these financial statements.
27 |
Hartford Total Return Bond HLS Fund |
Statement of Operations |
For the Year Ended December 31, 2014 |
(000’s Omitted) |
Investment Income: | ||||
Dividends | $ | 584 | ||
Interest | 116,821 | |||
Less: Foreign tax withheld | (39 | ) | ||
Total investment income, net | 117,366 | |||
Expenses: | ||||
Investment management fees | 16,133 | |||
Transfer agent fees | 6 | |||
Distribution fees - Class IB | 980 | |||
Custodian fees | 78 | |||
Accounting services fees | 700 | |||
Board of Directors' fees | 90 | |||
Audit fees | 40 | |||
Other expenses | 569 | |||
Total expenses (before fees paid indirectly) | 18,596 | |||
Custodian fee offset | (1 | ) | ||
Total fees paid indirectly | (1 | ) | ||
Total expenses, net | 18,595 | |||
Net Investment Income | 98,771 | |||
Net Realized Gain on Investments, Other Financial Instruments and Foreign Currency Transactions: | ||||
Net realized gain on investments | 138,887 | |||
Less: Foreign taxes paid on realized capital gains | (57 | ) | ||
Net realized gain on purchased option contracts | 1,599 | |||
Net realized loss on TBA sale transactions | (19,911 | ) | ||
Net realized loss on futures contracts | (11,440 | ) | ||
Net realized gain on written option contracts | 1,121 | |||
Net realized loss on swap contracts | (13,969 | ) | ||
Net realized gain on foreign currency contracts | 1,939 | |||
Net realized loss on other foreign currency transactions | (154 | ) | ||
Net Realized Gain on Investments, Other Financial Instruments and Foreign Currency Transactions | 98,015 | |||
Net Changes in Unrealized Appreciation of Investments, Other Financial Instruments and Foreign Currency Transactions: | ||||
Net unrealized appreciation of investments | 15,554 | |||
Net unrealized depreciation of purchased option contracts | (1,196 | ) | ||
Net unrealized depreciation of TBA sale commitments | (818 | ) | ||
Net unrealized depreciation of futures contracts | (5,369 | ) | ||
Net unrealized depreciation of swap contracts | (2,758 | ) | ||
Net unrealized appreciation of foreign currency contracts | 1,150 | |||
Net unrealized depreciation on translation of other assets and liabilities in foreign currencies | (78 | ) | ||
Net Changes in Unrealized Appreciation of Investments, Other Financial Instruments and Foreign Currency Transactions | 6,485 | |||
Net Gain on Investments, Other Financial Instruments and Foreign Currency Transactions | 104,500 | |||
Net Increase in Net Assets Resulting from Operations | $ | 203,271 |
The accompanying notes are an integral part of these financial statements.
28 |
Hartford Total Return Bond HLS Fund |
Statement of Changes in Net Assets |
(000’s Omitted) |
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Operations: | ||||||||
Net investment income | $ | 98,771 | $ | 105,303 | ||||
Net realized gain on investments, other financial instruments and foreign currency transactions | 98,015 | 2,282 | ||||||
Net unrealized appreciation (depreciation) of investments, other financial instruments and foreign currency transactions | 6,485 | (157,806 | ) | |||||
Net Increase (Decrease) in Net Assets Resulting from Operations | 203,271 | (50,221 | ) | |||||
Distributions to Shareholders: | ||||||||
From net investment income | ||||||||
Class IA | (97,444 | ) | (133,325 | ) | ||||
Class IB | (11,323 | ) | (17,335 | ) | ||||
Total distributions | (108,767 | ) | (150,660 | ) | ||||
Capital Share Transactions: | ||||||||
Class IA | ||||||||
Sold | 161,255 | 655,332 | ||||||
Issued on reinvestment of distributions | 97,444 | 133,325 | ||||||
Redeemed | (753,675 | ) | (895,940 | ) | ||||
Total capital share transactions | (494,976 | ) | (107,283 | ) | ||||
Class IB | ||||||||
Sold | 11,944 | 52,736 | ||||||
Issued on reinvestment of distributions | 11,323 | 17,335 | ||||||
Redeemed | (88,688 | ) | (195,160 | ) | ||||
Total capital share transactions | (65,421 | ) | (125,089 | ) | ||||
Net decrease from capital share transactions | (560,397 | ) | (232,372 | ) | ||||
Net Decrease in Net Assets | (465,893 | ) | (433,253 | ) | ||||
Net Assets: | ||||||||
Beginning of period | 3,705,532 | 4,138,785 | ||||||
End of period | $ | 3,239,639 | $ | 3,705,532 | ||||
Undistributed (distributions in excess of) net investment income | $ | 91,320 | $ | 107,442 | ||||
Shares: | ||||||||
Class IA | ||||||||
Sold | 13,906 | 56,799 | ||||||
Issued on reinvestment of distributions | 8,429 | 11,960 | ||||||
Redeemed | (64,593 | ) | (76,678 | ) | ||||
Total share activity | (42,258 | ) | (7,919 | ) | ||||
Class IB | ||||||||
Sold | 1,038 | 4,520 | ||||||
Issued on reinvestment of distributions | 985 | 1,564 | ||||||
Redeemed | (7,668 | ) | (16,836 | ) | ||||
Total share activity | (5,645 | ) | (10,752 | ) |
The accompanying notes are an integral part of these financial statements.
29 |
Hartford Total Return Bond HLS Fund |
Notes to Financial Statements |
December 31, 2014 |
(000’s Omitted) |
Organization:
Hartford Total Return Bond HLS Fund (the "Fund") serves as an underlying investment option for certain variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company (“HLIC”) and its affiliates and certain qualified retirement plans. The Fund may also serve as an underlying investment option for certain variable annuity and variable life separate accounts of other insurance companies. Owners of variable annuity contracts and policyholders of variable life insurance contracts may choose the funds permitted in the variable insurance contract prospectus. In addition, participants in certain qualified retirement plans may choose the Fund if permitted by their plans.
Hartford Series Fund, Inc. (the “Company”) is an open-end registered management investment company comprised of fifteen portfolios. Financial statements for the Fund, a series of the Company, are included in this report.
The Company is organized under the laws of the State of Maryland and is registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (“1940 Act”). The Fund is a diversified open-end management investment company. The Fund is an investment company and applies specialized accounting and reporting under Accounting Standards Codification Topic 946, Financial Services - Investment Companies.
The Fund is divided into Class IA and Class IB shares. Each class is offered at the per share net asset value (“NAV”) without a sales charge and is subject to the same expenses, except that the Class IB shares are subject to distribution and service fees charged pursuant to a Distribution Plan adopted in accordance with Rule 12b-1 under the 1940 Act.
Significant Accounting Policies:
The following is a summary of significant accounting policies of the Fund in the preparation of its financial statements, which are in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The preparation of financial statements in accordance with U.S. GAAP may require 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
Determination of Net Asset Value – The NAV of each class of the Fund's shares is determined as of the close of regular trading (normally 4:00 p.m. Eastern Time) (the “NYSE Close”) on each day that the New York Stock Exchange (the “Exchange”) is open (“Valuation Date”). Information that becomes known to the Fund after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the NAV determined earlier that day.
Investment Valuation and Fair Value Measurements – For purposes of calculating the NAV, portfolio investments and other assets held by the Fund's portfolio for which market quotes are readily available are valued at market value. Market value is generally determined on the basis of last reported sales prices or official close price. If no sales are reported, market value is based on quotes obtained from a quotation reporting system, established market makers, or independent pricing services. If market prices are not readily available or are deemed unreliable, the Fund will use the fair value of the investment as determined in good faith under policies and procedures established by and under the supervision of the Company's Board of Directors. Market quotes are considered not readily available where there is an absence of current or reliable market-based data (e.g., trade information or indicative market quotes), including where events occur after the close of the relevant market, but prior to the NYSE Close, that materially affect the values of the Fund's portfolio investments or assets. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the investments trade do not open for trading for the entire day and no other market prices are available. There can be no assurance that the Fund could obtain the fair market value assigned to an investment if the Fund were to sell the investment at approximately the time at which the Fund determines its NAV.
Fixed income investments (other than short-term obligations), non-exchange traded derivatives and centrally cleared swaps held by the Fund are normally valued on the basis of quotes obtained from independent pricing services or brokers and dealers in accordance with procedures established by the Company's Board of Directors. Prices obtained from independent pricing services use information provided by market makers or estimates of market values through accepted market modeling, trading and pricing conventions. Inputs to the models may include, but are not limited to, prepayment speeds, pricing spread, yield, trade information, dealer quotes, market
30 |
Hartford Total Return Bond HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
color, cash flow models and the investment’s terms and conditions. Generally, the Fund may use fair valuation in regard to fixed income investments when the Fund holds defaulted or distressed investments or investments in a company in which a reorganization is pending. Senior floating rate interests generally trade in over-the-counter (“OTC”) markets and are priced through an independent pricing service utilizing independent market quotations from loan dealers or financial institutions. A composite bid price is used, which is an average of the dealer marks and dealer runs. Short-term investments maturing in 60 days or less are generally valued at amortized cost, if their original term to maturity was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if the original term to maturity exceeded 60 days, which approximates fair value.
Exchange traded options, futures and options on futures are valued at the settlement price or last trade price determined by the relevant exchange as of the NYSE Close. If the last trade price for exchange traded options does not fall between the bid and ask prices, the value will be the mean of the bid and ask prices as of the NYSE Close. If a last trade price is not available, the value will be the mean of the bid and ask prices as of the NYSE Close. If a mean of the bid and ask prices cannot be calculated for the day, the value will be the bid price as of the NYSE Close. In the case of OTC options and such instruments that do not trade on an exchange, values may be supplied by a pricing service using a formula or other objective method that may take into consideration the style, direction, expiration, strike price, notional value and volatility or other special adjustments.
Investments valued in currencies other than U.S. dollars are converted to U.S. dollars using exchange rates obtained from independent pricing services for calculation of the NAV. As a result, the NAV of the Fund’s shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of investments traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that the NYSE is closed and the market value may change on days when an investor is not able to purchase, redeem or exchange shares of the Fund.
Foreign currency contracts represent agreements to exchange currencies on specific future dates at predetermined rates. Foreign currency contracts are valued using foreign currency exchange rates and forward rates as provided by an independent pricing service on the Valuation Date.
Investments in open-end mutual funds are valued at the respective NAV of each open-end mutual fund on the Valuation Date.
Financial instruments for which prices are not available from an independent pricing service may be valued using market quotations obtained from one or more dealers that make markets in the respective financial instrument in accordance with procedures established by the Company's Board of Directors.
U.S. GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants. The U.S. GAAP fair value measurement standards require disclosure of a fair value hierarchy for each major category of assets and liabilities. Various inputs are used in determining the fair value of the Fund’s investments. These inputs are summarized into three broad hierarchy levels. This hierarchy is based on whether the valuation inputs are observable or unobservable. These levels are:
Level 1 – Quoted prices in active markets for identical investments. Level 1 may include exchange traded instruments, such as domestic equities, some foreign equities, options, futures, mutual funds, exchange traded funds, rights and warrants.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar investments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 2 may include debt investments that are traded less frequently than exchange traded instruments and which are valued using independent pricing services; foreign equities, which are principally traded on certain foreign markets and are adjusted daily pursuant to a fair value pricing service in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close; senior floating rate interests, which are valued using an aggregate of dealer bids; short-term investments, which are valued at amortized cost; and swaps, which are valued based upon the terms of each swap contract.
Level 3 – Significant unobservable inputs that are supported by limited or no market activity. Level 3 may include financial instruments whose values are determined using indicative market quotes or require significant management judgment or estimation. These unobservable valuation inputs may include estimates for current yields, maturity/duration, prepayment speed,
31 |
Hartford Total Return Bond HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
and indicative market quotes for comparable investments along with other assumptions relating to credit quality, collateral value, complexity of the investment structure, general market conditions and liquidity. This category may include investments where trading has been halted or there are certain restrictions on trading. While these investments are priced using unobservable inputs, the valuation of these investments reflects the best available data and management believes the prices are a reasonable representation of exit price. For more information on specific valuation techniques and unobservable inputs, please see the following table titled “Quantitative Information about Level 3 Fair Value Measurements.”
The Board of Directors of the Company generally reviews and approves the “Procedures for Valuation of Portfolio Securities” at least once a year. These procedures define how investments are to be valued, including the formation and activities of a Valuation Committee. The Valuation Committee is responsible for determining in good faith the fair value of investments when the value cannot be obtained from primary pricing services or alternative sources or if the valuation of an investment as provided by the primary pricing service or alternative source is believed not to reflect the investment’s fair value as of the Valuation Date. Voting members of the Valuation Committee include the Fund’s Treasurer or designee and a Vice President of the investment manager or designee. An Assistant Vice President of the Fund with legal expertise or designee is also included on the Valuation Committee as a non-voting advisory member. In addition, the Fund’s Chief Compliance Officer shall designate a member of the compliance group to attend Valuation Committee meetings as a non-voting resource, to monitor for and provide guidance with respect to compliance with these procedures. Two members of the Valuation Committee or their designees, representing different departments, shall constitute a quorum for purposes of permitting the Valuation Committee to take action. The Valuation Committee will consider all relevant factors in determining an investment’s fair value, and may seek the advice of the Fund’s sub-adviser, knowledgeable brokers, and legal counsel in making such determination. The Valuation Committee reports to the Audit Committee of the Company’s Board of Directors. The Audit Committee receives quarterly written reports which include details of all fair-valued investments, including the reason for the fair valuation, and an indication, when possible, of the accuracy of the valuation by disclosing the next available reliable public price quotation or the disposition price of such investments (the “look-back” test). The Board of Directors then must consider for ratification all of the fair value determinations made during the previous quarter.
Valuation levels are not necessarily indicative of the risk associated with investing in such investments. Individual investments within any of the above mentioned asset classes may be assigned a different hierarchical level than those presented above, as individual circumstances dictate.
For additional information, refer to the Investment Valuation Hierarchy Level Summary and the Level 3 roll-forward reconciliation, if applicable, which is included in the Schedule of Investments.
Quantitative Information about Level 3 Fair Value Measurements:
Security Type/Valuation Technique | Unobservable Input * | Input Value(s) Range (Weighted Average) ‡ | Fair Value at December 31, 2014 | |||||
Assets: | ||||||||
Asset and Commercial Mortgage Backed Securities | ||||||||
Discounted cash flow | Internal rate of return | 2.79% - 6.99% (4.42%) | 57,295 | |||||
Life expectancy (in months) | 23 - 309 (151) | |||||||
Independent pricing service | Prior day valuation | $67.73 - $100.73 ($77.65) | 3,849 | |||||
Indicative market quotations | Broker quote † | $99.26 - $99.92 ($99.63) | 14,900 | |||||
Total | $ | 76,044 |
* | Significant changes to any unobservable inputs may result in a significant change to the fair value. | |
‡ | Unless otherwise noted, inputs were weighted based on the fair value of the investments included in the range. | |
† | The broker quote represents the best available estimate of fair value per share as of December 31, 2014. |
Investment Transactions and Investment Income – Investment transactions are recorded as of the trade date (the date the order to buy or sell is executed) for financial reporting purposes. Investments purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Realized gains and losses are determined on the basis of identified cost.
32 |
Hartford Total Return Bond HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Trade date for senior floating rate interests purchased in the primary loan market is considered the date on which the loan allocations are determined. Trade date for senior floating rate interests purchased in the secondary loan market is the date on which the transaction is entered into.
Dividend income from domestic securities is accrued on the ex-dividend date. Interest income, including amortization of premium, accretion of discounts, inflation adjustments and additional principal received in-kind in lieu of cash, is accrued on a daily basis. Paydown gains and losses on mortgage related and other asset backed securities are included in interest income in the Statement of Operations, as applicable.
Taxes – The Fund may be subject to taxes imposed on realized gains on securities of certain foreign countries in which the Fund invests. The amount of foreign tax expense is included on the accompanying Statement of Operations as a reduction to net realized gain on investments in these securities.
Foreign Currency Transactions – Assets and liabilities denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates in effect on the valuation date. Purchases and sales of investments, income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions.
The Fund does not isolate that portion of portfolio investment valuation resulting from fluctuations in the foreign currency exchange rates from the fluctuations arising from changes in the market prices of investments held. Exchange rate fluctuations are included with the net realized and unrealized gain or loss on investments in the accompanying financial statements.
Net realized foreign exchange gains or losses arise from sales of foreign currencies and the difference between asset and liability amounts initially stated in foreign currencies and the U.S. dollar value of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of other assets and liabilities at the end of the reporting period, resulting from changes in the exchange rates.
Joint Trading Account – The Fund may invest cash balances into a joint trading account that may be invested in one or more repurchase agreements.
Fund Share Valuation and Dividend Distributions to Shareholders – Orders for the Fund’s shares are executed in accordance with the investment instructions of the contract holders and plan participants. The NAV of the Fund’s shares is determined as of the close of business on each business day of the Exchange. The NAV is determined separately for each class of shares of the Fund by dividing the Fund’s net assets attributable to that class by the number of shares of the class outstanding. Each class of shares offered by the Fund has equal rights as to assets and voting privileges (except that shareholders of a class have exclusive voting rights regarding any matter relating solely to that class of shares). Income and non-class specific expenses are allocated daily to each class on the basis of the relative net assets of the class. Realized and unrealized gains and losses are allocated daily based on the relative net assets of each class of shares of the Fund.
Orders for the purchase of the Fund’s shares received prior to the close of the Exchange on any day the Exchange is open for business are priced at the NAV determined as of the close of the Exchange. Orders received after the close of the Exchange, or on a day on which the Exchange and/or the Fund is not open for business, are priced at the next determined NAV.
Dividends are declared pursuant to a policy adopted by the Company's Board of Directors based upon the investment performance of the Fund. The policy of the Fund is to pay dividends from net investment income and realized gains, if any, at least once a year.
Net investment income, dividends and distributions from net realized gains and capital are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP with respect to character and timing (see Federal Income Taxes: Distributions and Components of Distributable Earnings and Reclassification of Capital Accounts).
33 |
Hartford Total Return Bond HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Securities and Other Investments:
Repurchase Agreements – A repurchase agreement is an agreement by which a counterparty agrees to sell an investment and agrees to repurchase the investment sold from the buyer at a mutually agreed upon time and price. During the period of the repurchase agreement, the counterparty will deposit cash and or securities in a third party custodial account to serve as collateral. At the time the Fund enters into a repurchase agreement, the value of the underlying collateral, including accrued interest, will be equal to or exceed the value of the repurchase agreement. Repurchase agreements expose the Fund to counterparty risk - that is, the risk that the counterparty will not fulfill its obligations. To minimize counterparty risk, the investments that serve to collateralize the repurchase agreement are held by the Fund’s custodian in book entry or physical form in the custodial account of the Fund or in a third party custodial account. Repurchase agreements are valued at cost plus accrued interest, which approximates fair value. Repurchase agreements have master netting arrangements which allow the Fund to offset amounts owed to a counterparty with amounts owed by the counterparty, including any collateral. Upon an event of default under a master repurchase agreement, the non-defaulting party may close out all transactions traded under such agreement and net amounts owed under each transaction to one net amount payable by one party to the other. Absent an event of default, the master repurchase agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty. The Fund, as shown on the Schedule of Investments, had outstanding repurchase agreements and related collateral as of December 31, 2014.
Illiquid and Restricted Investments – The Fund is permitted to invest up to 15% of its net assets in illiquid investments. Illiquid investments are those that may not be sold or disposed of in the ordinary course of business within seven days, at approximately the price used to determine the Fund’s NAV. The Fund may not be able to sell illiquid investments when its sub-adviser considers it desirable to do so or may have to sell such investments at a price that is lower than the price that could be obtained if the investments were more liquid. A sale of illiquid investments may require more time and may result in higher dealer discounts and other selling expenses than does the sale of those that are liquid. Illiquid investments also may be more difficult to value due to the unavailability of reliable market quotations for such investments, and an investment in them may have an adverse impact on the Fund’s NAV. The Fund may also purchase certain restricted investments that can only be resold to certain qualified investors and may be determined to be liquid pursuant to policies and guidelines established by the Company's Board of Directors. The Fund, as shown on the Schedule of Investments, had illiquid or restricted investments as of December 31, 2014.
Investments Purchased on a When-Issued or Delayed-Delivery Basis – Delivery and payment for investments that have been purchased by the Fund on a forward commitment, or when-issued or delayed-delivery basis, take place beyond the customary settlement period. The Fund may dispose of or renegotiate a delayed-delivery transaction after it is entered into, and may sell delayed-delivery investments before they are delivered, which may result in a realized gain or loss. During this period, such investments are subject to market fluctuations, and the Fund identifies investments segregated in its records with a value at least equal to the amount of the commitment. The Fund, as shown on the Schedule of Investments, had when-issued or delayed-delivery investments as of December 31, 2014.
In connection with the Fund’s ability to purchase investments on a when-issued or forward commitment basis, the Fund may enter into to-be-announced (“TBA”) commitments. TBA commitments are forward agreements for the purchase or sale of mortgage backed securities for a fixed price, with payment and delivery on an agreed-upon future settlement date. The specific securities to be delivered are not identified at the trade date; however, delivered securities must meet specified terms, including issuer, rate and mortgage terms. Although the Fund may enter into TBA commitments with the intention of acquiring or delivering securities for its portfolio, the Fund can extend the settlement date, roll the transaction, or dispose of a commitment prior to settlement if deemed appropriate to do so. If the TBA commitment is closed through the acquisition of an offsetting TBA commitment, the Fund realizes a gain or loss. In a TBA roll transaction, the Fund generally purchases or sells the initial TBA commitment prior to the agreed upon settlement date and enters into a new TBA commitment for future delivery or receipt of the mortgage backed securities. TBA commitments involve a risk of loss if the value of the security to be purchased or sold declines or increases, respectively, prior to settlement date.
The Fund may enter into “dollar rolls” in which the Fund sells securities and contracts with the same counterparty to repurchase substantially similar securities (for example, same issuer, coupon and maturity) on a specified future date at an agreed upon price. The Fund gives up the right to receive interest paid on the investments sold. The Fund would benefit to the extent of any differences
34 |
Hartford Total Return Bond HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
between the price received for the security and the lower forward price for the future purchase. Dollar rolls involve the risk that the market value of the securities that the Fund is required to purchase may decline below the agreed upon repurchase price of those securities. The Fund records dollar roll transactions as purchases and sales and realizes gains and losses on these transactions. These transactions are excluded from the Fund’s portfolio turnover rate. The Fund, as shown on the Schedule of Investments, had open TBA commitments as of December 31, 2014, which may be a part of dollar roll transactions.
Senior Floating Rate Interests – The Fund may invest in senior floating rate interests. Senior floating rate interests hold the most senior position in the capital structure of a business entity (the “Borrower”), are typically secured by specific collateral and have a claim on the assets and/or stock of the Borrower that is senior to the assets held by subordinated debtholders and stockholders of the Borrower. Senior floating rate interests are typically structured and administered by a financial institution that acts as the agent of the lenders participating in the senior floating rate interest. The Fund may invest in multiple series or tranches of a senior floating rate interest, which may have varying terms and carry different associated risks. The Fund may also enter into unfunded loan commitments, which are contractual obligations for future funding. Unfunded loan commitments may include revolving credit facilities, which may obligate the Fund to supply additional cash to the borrower on demand, representing a potential financial obligation by the Fund in the future. The Fund may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a senior floating rate interest. In certain circumstances, the Fund may receive various fees upon the restructure of a senior floating rate interest by a borrower. Fees earned/paid are recorded as a component of income or realized gain/loss in the Statement of Operations.
Senior floating rate interests are typically rated below-investment-grade, which suggests the risk of default is higher, and generally pay higher interest rates than investment-grade debt securities. A default could lead to non-payment of income or principal, which would result in a reduction of investment income to the Fund, and there can be no assurance that the liquidation of any collateral would satisfy the Borrower’s obligation in the event of non-payment of scheduled interest or principal payments, or that such collateral could be readily liquidated. The Fund, as shown on the Schedule of Investments, had senior floating rate interests as of December 31, 2014.
Mortgage Related and Other Asset Backed Securities – The Fund may invest in mortgage related and other asset backed securities. These securities include mortgage pass-through securities, collateralized mortgage obligations, commercial mortgage backed securities, stripped mortgage backed securities, asset backed securities, collateralized debt obligations and other securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property. Mortgage related securities are created from pools of residential or commercial mortgage loans, including mortgage loans made by savings and loan institutions, mortgage bankers, commercial banks and other similar financial institutions. Asset backed securities are created from many types of assets, including auto loans, credit card receivables, home equity loans, and student loans. These securities provide a monthly payment that consists of both interest and principal payments. Interest payments may be determined by fixed or adjustable rates. The rate of pre-payments on underlying mortgages will affect the price and volatility of a mortgage related security, and may have the effect of shortening or extending the effective duration of the security relative to what was anticipated at the time of purchase. The timely payment of principal and interest of certain mortgage related securities is guaranteed by the full faith and credit of the United States Government. Mortgage related and other asset backed securities created and guaranteed by non-governmental issuers, including government-sponsored corporations, may be supported by various forms of insurance or guarantees, but there can be no assurance that the private insurers or guarantors can meet their obligations under the insurance policies or guarantee arrangements. The Fund, as shown on the Schedule of Investments, had outstanding mortgage related and other asset backed securities as of December 31, 2014.
Inflation Indexed Bonds – The Fund may invest in inflation indexed bonds. Inflation indexed bonds are fixed income investments whose principal value is periodically adjusted to the rate of inflation. The interest rate on these bonds is generally fixed at issuance at a rate lower than typical bonds. Over the life of an inflation indexed bond, however, interest will be paid based on a principal value, which is adjusted for inflation. Any increase or decrease in the principal amount of an inflation indexed bond will be included as interest income on the Statement of Operations, even though investors do not receive the principal amount until maturity. The Fund, as shown on the Schedule of Investments, had inflation indexed bonds as of December 31, 2014.
35 |
Hartford Total Return Bond HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Financial Derivative Instruments:
The following disclosures contain information on how and why the Fund uses derivative instruments, the credit-risk-related contingent features in certain derivative instruments and how derivative instruments affect the Fund’s financial position and results of operations. The location and fair value amounts of these instruments on the Statement of Assets and Liabilities and the realized gains and losses and changes in unrealized gains and losses on the Statement of Operations, each categorized by type of derivative contract, are included in the following Additional Derivative Instrument Information footnote. The derivative instruments outstanding as of year-end are disclosed in the notes to the Schedule of Investments, if applicable. The amounts of realized gains and losses and changes in unrealized gains and losses on derivative instruments during the year are disclosed in the Statement of Operations.
Foreign Currency Contracts – The Fund may enter into foreign currency contracts that obligate the Fund to purchase or sell currencies at specified future dates. Foreign currency contracts are used to hedge the currency exposure associated with some or all of the Fund’s investments and/or as part of an investment strategy. Foreign currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. The Fund will record a realized gain or loss when the foreign currency contract is settled.
Foreign currency contracts involve elements of market risk in excess of the amounts reflected in the Statement of Assets and Liabilities. In addition, risks may arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of the contracts and from unanticipated movements in the value of the foreign currencies relative to the U.S. dollar. The Fund, as shown on the Schedule of Investments, had outstanding foreign currency contracts as of December 31, 2014.
Futures Contracts – The Fund may enter into futures contracts. A futures contract is an agreement between two parties to buy or sell an asset at a set price on a future date. The Fund uses futures contracts to manage or obtain exposure to the investment markets, commodities, or movements in interest rates and currency values. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the investments held by the Fund and the prices of futures contracts and the possibility of an illiquid market. Upon entering into a futures contract, the Fund is required to deposit with a futures commission merchant (“FCM”) an amount of cash or U.S. Government or Agency Obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily at the most recent settlement price reported by an exchange on which, over time, they are traded most extensively, and an appropriate payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed on the Statement of Assets and Liabilities; however, the Fund seeks to reduce this risk through the use of an FCM. The Fund, as shown on the Schedule of Investments, had outstanding futures contracts as of December 31, 2014.
Options Contracts – An option contract is a contract sold by one party to another party that offers the buyer the right, but not the obligation, to buy (call) or sell (put) an investment or other financial asset at an agreed-upon price during a specific period of time or on a specific date. Options contracts are either privately negotiated in the over-the-counter market ("OTC options") or executed in a registered exchange ("exchange traded options"). The Fund may write (sell) covered call and put options on futures, swaps (“swaptions”), securities, commodities or currencies. “Covered” means that so long as the Fund is obligated as the writer of an option, it will own either the underlying investments or currency or an option to purchase the same underlying investments or currency having an expiration date of the covered option and an exercise price equal to or less than the exercise price of the covered option, or will pledge cash or other liquid investments having a value equal to or greater than the fluctuating market value of the option investment or currency. Writing put options increases the Fund’s exposure to the underlying instrument. Writing call options decreases the Fund’s exposure to the underlying instrument. Premiums received from writing options that expire are treated as realized gains. Premiums received from writing options that are exercised or closed are added to the proceeds or offset amounts paid on the underlying futures, swap, investment or currency transaction to determine the realized gain or loss. The Fund as a writer of an option has no control over whether the underlying instrument may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the instrument underlying the written option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. The Fund may also purchase put and call options. Purchasing call options increases the Fund’s exposure to the underlying instrument. Purchasing put options decreases the Fund’s exposure to the underlying instrument. The Fund pays a premium, which is included on the Fund’s Statement of Assets and Liabilities as an investment and is subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options that expire are treated as realized
36 |
Hartford Total Return Bond HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
losses. Certain options may be purchased with premiums to be determined on a future date. The premiums for these options are based upon implied volatility parameters at specified terms. The risk associated with purchasing put and call options is generally limited to the premium paid. Premiums paid for purchasing options that are exercised or closed are added to the amounts paid or offset against the proceeds on the underlying investment transaction to determine the realized gain or loss. Entering into over-the-counter options also exposes the Fund to counterparty risk. Counterparty risk is the possibility that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements.
The Fund, as shown on the Schedule of Investments, had outstanding purchased option contracts as of December 31, 2014. The Fund had no outstanding written option contracts as of December 31, 2014. Transactions involving written option contracts during the year ended December 31, 2014, are summarized below:
Options Contract Activity During the Year Ended December 31, 2014 | ||||||||
Call Options Written During the Year | Number of Contracts* | Premium Amounts | ||||||
Beginning of the year | — | $ | — | |||||
Written | 271,740,897 | 4,506 | ||||||
Expired | (252,240,000 | ) | (641 | ) | ||||
Closed | (19,500,897 | ) | (3,865 | ) | ||||
Exercised | — | — | ||||||
End of year | — | $ | — |
Put Options Written During the Year | Number of Contracts* | Premium Amounts | ||||||
Beginning of the year | — | $ | — | |||||
Written | 271,740,878 | 4,132 | ||||||
Expired | (250,100,000 | ) | (307 | ) | ||||
Closed | (21,640,878 | ) | (3,825 | ) | ||||
Exercised | — | — | ||||||
End of year | — | $ | — |
* The number of contracts does not omit 000's.
Swap Contracts – The Fund may invest in swap contracts. Swap contracts are agreements to exchange or swap investment cash flows, assets, foreign currencies or market-linked returns at specified, future intervals. Swap contracts are either privately negotiated in the over-the-counter market (“OTC swaps”) or cleared in a central clearing house (“centrally cleared swaps”). The Fund may enter into credit default, total return, cross-currency, interest rate, inflation and other forms of swap contracts to manage its exposure to credit, currency, interest rate, commodity and inflation risk. Swap contracts are also used to gain exposure to certain markets. In connection with these contracts, investments or cash may be identified as collateral or margin in accordance with the terms of the respective swap contracts and/or master netting arrangement to provide assets of value and recourse in the event of default or bankruptcy/insolvency.
Swaps are valued based on custom valuations furnished by an independent pricing service. Swaps for which prices are not available from an independent pricing service are valued in accordance with procedures established by the Company's Board of Directors. Changes in market value, if any, are reflected as a component of net changes in unrealized appreciation or depreciation on the Statement of Operations. Daily changes in valuation of centrally cleared swaps, if any, are recorded as a receivable or payable for the change in value (“variation margin”) on the Statement of Assets and Liabilities. Realized gains or losses on centrally cleared swaps are recorded upon the termination of the swap. OTC swap payments received or paid at the beginning of the measurement period are reflected as such on the Statement of Assets and Liabilities and represent premiums paid or received upon entering into the swap contract to compensate for differences between the stated terms of the swap contract and prevailing market conditions (credit spreads, currency exchange rates, interest rates and other relevant factors). These upfront premiums are recorded as realized gains or losses on the Statement of Operations upon termination or maturity of the swap. A liquidation payment received or made at the termination or maturity of the swap is recorded as a realized gain or loss on the Statement of Operations. Net periodic payments received or paid by the Fund are included as part of realized gains or losses on the Statement of Operations.
Entering into these contracts involves, to varying degrees, elements of liquidation, counterparty, credit and market risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market
37 |
Hartford Total Return Bond HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
for these contracts, that the counterparty to the contracts may default on its obligation to perform or disagree as to the meaning of contractual terms in the contracts, and that there may be unfavorable changes in market conditions (credit spreads, currency exchange rates, interest rates and other relevant factors).
The Fund’s maximum risk of loss from counterparty risk for OTC swaps is the net value of the discounted cash flows to be received from the counterparty over the contract’s remaining life, and current market value, to the extent that amount is positive. The risk is mitigated by having a master netting arrangement between the Fund and the counterparty, which allows for the netting of payments made or received (although such amounts are presented on a gross basis within the Statement of Assets and Liabilities, as applicable) as well as the posting of collateral to the Fund to cover the Fund’s exposure to the counterparty. In a centrally cleared swap, while the Fund enters into an agreement with a clearing broker to execute contracts with a counterparty, the performance of the swap is guaranteed by the central clearinghouse, which reduces the Fund’s exposure to counterparty risk. The Fund is still exposed to the counterparty risk through the clearing broker and clearinghouse. The clearinghouse attempts to minimize this risk to its participants through the use of mandatory margin requirements, daily cash settlements and other procedures. Likewise, the clearing broker reduces its risk through margin requirements and required segregation of customer balances.
Credit Default Swap Contracts – The credit default swap market allows the Fund to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults of corporate and sovereign issuers, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. Certain credit default swaps involve the exchange of a fixed rate premium for protection against the loss in value of an underlying investment or index in the event of a credit event, such as payment default or bankruptcy.
Under a credit default swap contract, one party acts as guarantor by receiving the fixed periodic payment in exchange for the commitment to purchase the underlying investment at par if the defined credit event occurs. Upon the occurrence of a defined credit event, the difference between the value of the reference obligation and the swap’s notional amount is recorded as realized gain or loss on swap transactions in the Statement of Operations. A “buyer” of credit protection agrees to pay a counterparty to assume the credit risk of an issuer upon the occurrence of certain events. The “seller” of the protection receives periodic payments and agrees to assume the credit risk of an issuer upon the occurrence of certain events. Although specified events are contract specific, credit events are generally defined as bankruptcy, failure to pay, restructuring, obligation acceleration, obligation default or repudiation/moratorium. A “seller’s” exposure is limited to the total notional amount of the credit default swap contract. These potential amounts would be partially offset by any recovery values of the respective referenced obligations or upfront payments received upon entering into the contract.
Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap contracts on corporate issues, sovereign government issues or U.S. municipal issues as of year-end are disclosed in the notes to the Schedule of Investments, as applicable, and serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and there may also be upfront payments required to be made to enter into the contract. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the contract. For credit default swap contracts on credit indices, the quoted market prices and resulting values serve as the indicator of the current status of the payment/performance risk. Increasing market values, in absolute terms when compared to the notional amount of the swap, represent a deterioration of the referenced equity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the contract. The Fund, as shown on the Schedule of Investments, had outstanding credit default swap contracts as of December 31, 2014.
Interest Rate Swap Contracts – The Fund is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Fund holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Fund may enter into interest rate swap contracts. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate, based on a specified interest rate or benchmark (e.g. London Interbank Offered Rate (“LIBOR”)), multiplied by a notional amount, in return for payments equal to a fixed rate multiplied by the same amount, for a specific period of time. The net interest received or paid on interest rate swap contracts is recorded as a realized gain or loss. Interest rate swaps are marked to market daily and the change, if any, is
38 |
Hartford Total Return Bond HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
recorded as an unrealized gain or loss in the Statement of Operations. When the interest rate swap contract is terminated early, the Fund records a realized gain or loss equal to the difference between the current market value and the upfront premium or cost.
If an interest rate swap contract provides for payments in different currencies, the parties might agree to exchange the notional amount as well. Interest rate swaps may also depend on other prices or rates, such as the value of an index. The risks of interest rate swaps include changes in market conditions which will affect the value of the contract or the cash flows and the possible inability of the counterparty to fulfill its obligations under the contract. The Fund’s maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from the counterparty over the contract’s remaining life, to the extent that amount is positive. The Fund, as shown on the Schedule of Investments, had outstanding interest rate swap contracts as of December 31, 2014.
Spreadlock Swap Contracts – The Fund may invest in spreadlock swap contracts. These contracts involve commitments to pay or receive a settlement amount calculated as the spread difference between two interest rate curves and a fixed spread at a specific forward date determined at the beginning of the contract. Settlement amounts paid or received are recorded as a realized gain or loss on the Statement of Operations at the determination date. The Fund had no outstanding spreadlock swap contracts as of December 31, 2014.
Additional Derivative Instrument Information:
Fair Value of Derivative Instruments on the Statement of Assets and Liabilities as of December 31, 2014:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate | Foreign | Credit | Equity | Commodity | Other | Total | ||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||
Investments in securities, at value (purchased option contracts), market value | $ | 11 | $ | 85 | $ | — | $ | — | $ | — | $ | — | $ | 96 | ||||||||||||||
Unrealized appreciation on foreign currency contracts | — | 2,553 | — | — | — | — | 2,553 | |||||||||||||||||||||
Unrealized appreciation on OTC swap contracts | — | — | 2,335 | — | — | — | 2,335 | |||||||||||||||||||||
Variation margin receivable * | 1,362 | — | 140 | — | — | — | 1,502 | |||||||||||||||||||||
Total | $ | 1,373 | $ | 2,638 | $ | 2,475 | $ | — | $ | — | $ | — | $ | 6,486 |
Liabilities: | ||||||||||||||||||||||||||||
Unrealized depreciation on foreign currency contracts | $ | — | $ | 1,403 | $ | — | $ | — | $ | — | $ | — | $ | 1,403 | ||||||||||||||
Unrealized depreciation on OTC swap contracts | — | — | 6,862 | — | — | — | 6,862 | |||||||||||||||||||||
Variation margin payable * | 770 | — | 147 | — | — | — | 917 | |||||||||||||||||||||
Total | $ | 770 | $ | 1,403 | $ | 7,009 | $ | — | $ | — | $ | — | $ | 9,182 |
* Only current day's variation margin is reported within the Statement of Assets and Liabilities. The variation margin is included in the open futures net cumulative appreciation of $260 and open centrally cleared swaps net cumulative depreciation of $(1,502) as reported in the Schedule of Investments.
The volume of derivatives that is presented in the Schedule of Investments is consistent with the derivative activity during the year ended December 31, 2014.
39 |
Hartford Total Return Bond HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
The Effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2014:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate Contracts | Foreign Exchange Contracts | Credit Contracts | Equity Contracts | Commodity Contracts | Other Contracts | Total | ||||||||||||||||||||||
Realized Gain (Loss) on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net realized gain (loss) on purchased option contracts | $ | 1,687 | $ | (85 | ) | $ | (3 | ) | $ | — | $ | — | $ | — | $ | 1,599 | ||||||||||||
Net realized loss on futures contracts | (11,440 | ) | — | — | — | — | — | (11,440 | ) | |||||||||||||||||||
Net realized gain on written option contracts | 172 | — | 949 | — | — | — | 1,121 | |||||||||||||||||||||
Net realized gain (loss) on swap contracts | 870 | — | (14,839 | ) | — | — | — | (13,969 | ) | |||||||||||||||||||
Net realized gain on foreign currency contracts | — | 1,939 | — | — | — | — | 1,939 | |||||||||||||||||||||
Total | $ | (8,711 | ) | $ | 1,854 | $ | (13,893 | ) | $ | — | $ | — | $ | — | $ | (20,750 | ) | |||||||||||
Net Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net change in unrealized depreciation of investments in purchased option contracts | $ | (742 | ) | $ | (454 | ) | $ | — | $ | — | $ | — | $ | — | $ | (1,196 | ) | |||||||||||
Net change in unrealized depreciation of futures contracts | (5,369 | ) | — | — | — | — | — | (5,369 | ) | |||||||||||||||||||
Net change in unrealized depreciation of swap contracts | (296 | ) | — | (2,462 | ) | — | — | — | (2,758 | ) | ||||||||||||||||||
Net change in unrealized appreciation of foreign currency contracts | — | 1,150 | — | — | — | — | 1,150 | |||||||||||||||||||||
Total | $ | (6,407 | ) | $ | 696 | $ | (2,462 | ) | $ | — | $ | — | $ | — | $ | (8,173 | ) |
Balance Sheet Offsetting Information - The following discloses both gross information and net information about instruments and transactions eligible for offset in the financial statements, and instruments and transactions that are subject to a master netting arrangement, as well as amounts related to margin, reflected as financial collateral (including cash collateral), held at clearing brokers, counterparties and the Fund’s custodian. The master netting arrangements allow the clearing brokers to net any collateral held in or on behalf of the Fund, or liabilities or payment obligations of the clearing brokers to the Fund, against any liabilities or payment obligations of the Fund to the clearing brokers. The Fund is required to deposit financial collateral (including cash collateral) at the FCM's custodian on behalf of clearing brokers and counterparties to continually meet the original and maintenance requirements established by the clearing brokers and counterparties for certain derivative types. Such requirements are specific to the respective clearing broker or counterparty. Certain master netting arrangements may not be enforceable in the bankruptcy proceedings of a counterparty.
Offsetting of Financial Assets and Derivative Assets as of December 31, 2014:
Gross Amounts* | Financial | Non-cash | Cash Collateral | Net Amount (not | ||||||||||||||||
Description | ||||||||||||||||||||
OTC purchased option and OTC swap contracts at market value | $ | 22,376 | $ | (3,561 | ) | $ | (9,238 | )† | $ | (9,119 | )† | $ | 458 | |||||||
Futures contracts - variation margin receivable | 1,362 | (770 | ) | — | — | 592 | ||||||||||||||
Swap contracts - variation margin receivable | 140 | (140 | ) | — | — | — | ||||||||||||||
Unrealized appreciation on foreign currency contracts | 2,553 | (542 | ) | — | — | 2,011 | ||||||||||||||
Total subject to a master netting or similar arrangement | $ | 26,431 | $ | (5,013 | ) | $ | (9,238 | ) | $ | (9,119 | ) | $ | 3,061 |
* | Gross amounts are presented here as there are no amounts netted within the Statement of Assets and Liabilities. |
† | An additional $469 of non-cash collateral and $232 of cash collateral was received by the Fund related to derivative assets. |
40 |
Hartford Total Return Bond HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Offsetting of Financial Liabilities and Derivative Liabilities as of December 31, 2014:
Gross Amounts* of Liabilities Presented in Statement of Assets and Liabilities | Financial Instruments with Allowable Netting | Non-cash Collateral Pledged | Cash Collateral Pledged | Net Amount (not less than $0) | ||||||||||||||||
Description | ||||||||||||||||||||
OTC swap contracts at market value | $ | 4,204 | $ | (3,561 | ) | $ | — | $ | — | $ | 643 | |||||||||
Futures contracts - variation margin payable | 770 | (770 | ) | (7,791 | ) | — | — | |||||||||||||
Swaps contracts - variation margin payable | 147 | (140 | ) | (16,623 | ) | — | — | |||||||||||||
Unrealized depreciation on foreign currency contracts | 1,403 | (542 | ) | — | — | 861 | ||||||||||||||
Total subject to a master netting or similar arrangement | $ | 6,524 | $ | (5,013 | ) | $ | (24,414 | ) | $ | — | $ | 1,504 |
* | Gross amounts are presented here as there are no amounts netted within the Statement of Assets and Liabilities. |
Principal Risks:
Credit risk depends largely on the perceived financial health of bond issuers. In general, the credit rating is inversely related to the credit risk of the issuer. Higher rated bonds generally are deemed to have less credit risk, while lower or unrated bonds are deemed to have higher risk of default. The share price, yield and total return of a fund that holds securities with higher credit risk may be more volatile than those of a fund that holds bonds with lower credit risk. Similar to credit risk, the Fund may be exposed to counterparty risk, or the risk that an institution or other entity with which the Fund has unsettled or open transactions will default.
The Fund’s investments expose the Fund to various risks including, but not limited to, interest rate, prepayment, extension, foreign currency and equity risks. Interest rate risk is the risk that fixed income securities will decline in value because of changes in interest rates. As nominal interest rates rise, the values of certain fixed income securities held by the Fund are likely to decrease. A nominal interest rate can be described as the sum of a real interest rate and an expected inflation rate. Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. Duration is useful primarily as a measure of the sensitivity of a fixed income security’s market price to interest rate (i.e., yield) movements. Senior floating rate interests and securities subject to prepayment and extension risk generally offer less potential for gains when interest rates decline. Rising interest rates may cause prepayments to occur at a slower than expected rate, thereby effectively lengthening the maturity of the security and making the security more sensitive to interest rate changes. Prepayment and extension risk are major risks of mortgage backed securities, senior floating rate interests and certain asset backed securities. For certain asset backed securities, the actual maturity may be less than the stated maturity shown in the Schedule of Investments, if applicable. As a result, the timing of income recognition relating to these securities may vary based upon the actual maturity.
If the Fund invests directly in foreign currencies or in securities that trade in, and receive revenues in, foreign currencies, or in derivatives that provide exposure to foreign currencies, it will be subject to the risk that those currencies will decline in value relative to the base currency (U.S. dollars) of the Fund, or, in the case of hedging positions, that the Fund’s base currency will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities, such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad. As a result, the Fund’s investments in foreign currency denominated securities may reduce the returns of the Fund. The market values of equity securities, such as common stocks and preferred stocks, or equity related investments, such as futures and options, may decline due to general market conditions which are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. The market value of equity securities may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities and equity related investments generally have greater market price volatility than fixed income securities.
41 |
Hartford Total Return Bond HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Federal Income Taxes:
Federal Income Taxes – For federal income tax purposes, the Fund intends to continue to qualify as a Regulated Investment Company ("RIC") under Subchapter M of the Internal Revenue Code (“IRC”) by distributing substantially all of its taxable net investment income and net realized capital gains to its shareholders and otherwise complying with the requirements of the IRC. The Fund has distributed substantially all of its income and capital gains in prior years, if applicable, and intends to distribute substantially all of its income and capital gains prior to the next fiscal year-end. Accordingly, no provision for federal income or excise taxes has been made in the accompanying financial statements. Distributions from short-term capital gains are treated as ordinary income distributions for federal income tax purposes.
Net Investment Income (Loss), Net Realized Gains (Losses) and Distributions – Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of losses deferred due to wash sale adjustments, foreign currency gains and losses, adjustments related to Passive Foreign Investment Companies ("PFICs"), Real Estate Investment Trusts ("REITs"), RICs, certain derivatives and partnerships. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund.
Distributions and Components of Distributable Earnings – The tax character of distributions paid by the Fund for the periods indicated is as follows (as adjusted for dividends payable, if applicable):
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Ordinary Income | $ | 108,767 | $ | 150,660 |
As of December 31, 2014, the Fund’s components of distributable earnings (deficit) on a tax basis are as follows:
Amount | ||||
Undistributed Ordinary Income | $ | 137,524 | ||
Undistributed Long-Term Capital Gain | 23,735 | |||
Unrealized Appreciation* | 30,998 | |||
Total Accumulated Earnings | $ | 192,257 |
* | Differences between book-basis and tax-basis unrealized appreciation (depreciation) may be attributable to the losses deferred due to wash sale adjustments, foreign currency gains and losses and adjustments related to PFICs, REITs, RICs, certain derivatives and partnerships. |
Reclassification of Capital Accounts – The Fund may record reclassifications in its capital accounts. These reclassifications have no impact on the total net assets of the Fund. The reclassifications are a result of permanent differences between U.S. GAAP and tax accounting for such items as foreign currency, PFICs, expiration or utilization of capital loss carryforwards or net operating losses. Adjustments are made to reflect the impact these items have on current and future distributions to shareholders. Therefore, the source of the Fund’s distributions may be shown in the accompanying Statement of Changes in Net Assets as from undistributed net investment income, from accumulated net realized gains on investments or from capital depending on the type of book and tax differences that exist. For the year ended December 31, 2014, the Fund recorded reclassifications to increase (decrease) the accounts listed below:
Amount | ||||
Undistributed Net Investment Income (Loss) | $ | (6,126 | ) | |
Accumulated Net Realized Gain (Loss) | 6,126 |
Capital Loss Carryforward – On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which made changes to the capital loss carryforward rules. The changes are effective for taxable years beginning after the date of enactment. Under the Act, funds are permitted to carry forward capital losses for an unlimited period. Additionally, capital loss
42 |
Hartford Total Return Bond HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
carryforwards retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under prior regulation.
The Fund had no capital loss carryforward for U.S. federal income tax purposes as of December 31, 2014.
During the year ended December 31, 2014, the Fund utilized $28,282 of prior year capital loss carryforwards.
Accounting for Uncertainty in Income Taxes – The Fund has adopted financial reporting rules that require the Fund to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions. Generally, tax authorities can examine all tax returns filed for the last three years. The Fund does not have an examination in progress.
The Fund has reviewed all open tax years and major jurisdictions and concluded that these financial reporting rules had no effect on the Fund’s financial position or results of operations. There is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on the tax return for the fiscal year ended December 31, 2014. The Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Expenses:
Investment Management Agreement – Hartford Funds Management Company, LLC ("HFMC") serves as the Fund’s investment manager pursuant to an Investment Management Agreement with the Company. HFMC is an indirect wholly owned subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford"). The investment manager has overall investment supervisory responsibility for the Fund. In addition, the investment manager provides administrative personnel, services, equipment, facilities and office space for proper operation of the Fund. HFMC has contracted with Wellington Management Company, LLP ("Wellington Management") under a sub-advisory agreement for the provision of day-to-day investment management services to the Fund in accordance with the Fund’s investment objective and policies. The Fund pays a fee to the investment manager, a portion of which may be used to compensate Wellington Management.
The schedule below reflects the rates of compensation paid to the investment manager for investment management services rendered as of December 31, 2014; the rates are accrued daily and paid monthly:
Average Daily Net Assets | Annual Fee | |
On first $250 million | 0.5250% | |
On next $250 million | 0.5000% | |
On next $500 million | 0.4750% | |
On next $1.5 billion | 0.4500% | |
On next $2.5 billion | 0.4450% | |
On next $5 billion | 0.4300% | |
Over $10 billion | 0.4200% |
Accounting Services Agreement – Pursuant to the Fund Accounting Agreement between HFMC and the Company, on behalf of the Fund, HFMC provides accounting services to the Fund and receives monthly compensation based on the Fund’s average daily net assets at the rates set forth below. The Fund’s accounting services fees are accrued daily and paid monthly.
Average Daily Net Assets | Annual Fee | |
On first $5 billion | 0.020% | |
On next $5 billion | 0.015% | |
Over $10 billion | 0.010% |
43 |
Hartford Total Return Bond HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Operating Expenses – Allocable expenses incurred by the Company are allocated to each Fund and allocated to classes within a Fund in proportion to the average daily net assets of the Fund and each class, except where allocation of certain expenses is more fairly made directly to the Fund or to specific classes within a Fund.
Fees Paid Indirectly – The Fund's custodian has agreed to reduce its fees when the Fund maintains cash on deposit in a non-interest-bearing custody account. For the year ended December 31, 2014, this amount, if any, is included in the Statement of Operations.
The ratio of expenses to average net assets in the accompanying financial highlights excludes the reduction in expenses related to fees paid indirectly. The annualized expense ratio after waivers for the period listed below reflecting the reduction for fees paid indirectly is as follows:
Year Ended December 31, 2014 | ||||
Class IA | 0.50% | |||
Class IB | 0.75 |
Distribution Plan for Class IB Shares – Hartford Funds Distributors, LLC (“HFD”), an indirect wholly owned subsidiary of The Hartford, is the principal underwriter and distributor of the Fund. The Company, on behalf of the Fund, has adopted a Distribution Plan pursuant to Rule 12b-1 of the 1940 Act for Class IB shares.
The Distribution Plan provides that the Fund may pay annually up to 0.25% of the average daily net assets of the Fund attributable to its Class IB shares for activities primarily intended to result in the sale of Class IB shares. The Board has the authority to suspend or reduce these payments at any point in time. Under the terms of the Distribution Plan and the principal underwriting agreement, the Fund is authorized to make payments monthly to the distributor that may be used to pay or reimburse entities providing distribution and shareholder servicing with respect to the Class IB shares for such entities’ fees or expenses incurred or paid in that regard. The distribution fees paid during the period can be found on the Statement of Operations. These fees are accrued daily and paid monthly or at such other intervals as the Board of Directors may determine.
Other Related Party Transactions – Certain officers of the Fund are directors and/or officers of HFMC and/or The Hartford or its subsidiaries. For the year ended December 31, 2014, a portion of the Fund's Chief Compliance Officer's compensation was paid by all the investment companies in the Hartford fund complex. The portion allocated to the Fund, as represented in other expenses on the Statement of Operations, was in the amount of $5. Hartford Administrative Services Company ("HASCO"), an indirect wholly owned subsidiary of The Hartford, provides transfer agent services to the Fund. Effective December 1, 2014, pursuant to a sub-transfer agency agreement between HASCO and Boston Financial Data Services, Inc. (“BFDS”), HASCO delegated certain transfer agent, dividend disbursing agent and shareholder servicing agent functions to BFDS. HASCO is compensated by the Fund based on the number of classes plus out of pocket expenses for providing such services, a portion of which may be used to compensate BFDS. The amount paid to HASCO can be found in the Statement of Operations. These fees are accrued daily and paid monthly.
Investment Transactions:
For the year ended December 31, 2014, the cost of purchases and proceeds from sales of investment securities (excluding short-term investments) were as follows:
Excluding U.S. Government Obligations | U.S. Government Obligations | Total | ||||||||||
Cost of Purchases | $ | 24,838,372 | $ | 1,184,091 | $ | 26,022,463 | ||||||
Sales Proceeds | 24,918,865 | 1,706,119 | 26,624,984 |
Line of Credit:
The Fund is one of several Hartford Funds that participate in a $500 million committed revolving line of credit facility. The facility is to be used for temporary or emergency purposes. Under the arrangement, the funds are required to own securities having a market value in
44 |
Hartford Total Return Bond HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
excess of 300% of the total bank borrowings. The interest rate on borrowings varies depending on the nature of the loan. The facility also requires a fee to be paid based on the amount of the commitment. This commitment fee is allocated to all the funds participating in the line of credit based on the average net assets of the funds. During the year ended December 31, 2014, the Fund did not have any borrowings under this facility.
Indemnifications:
Under the Company's organizational documents, the Company shall indemnify its officers and directors to the full extent required or permitted under Maryland General Corporation Law and the federal securities laws. In addition, the Company, on behalf of the Fund, may enter into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, as of the date of these financial statements, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Pending Legal Proceedings:
On February 25, 2011, Jennifer L. Kasilag, Louis Mellinger, Judith M. Menendez, Jacqueline M. Robinson, and Linda A. Russell filed a derivative lawsuit against Hartford Investment Financial Services, LLC (“HIFSCO”) (now known as HFD) on behalf of six Hartford retail mutual funds in the United States District Court for the District of New Jersey, alleging that HIFSCO received excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the 1940 Act when serving as investment manager and principal underwriter, respectively, to the Hartford retail mutual funds. Although this action was purportedly filed on behalf of certain of the Hartford Funds, none of the Hartford Funds is itself a defendant to the suit. HIFSCO moved to dismiss and, in September 2011, the motion was granted in part and denied in part, with leave to amend the complaint. In November 2011, plaintiffs filed an amended complaint on behalf of certain Hartford retail mutual funds, The Hartford Global Health Fund (now known as The Hartford Healthcare Fund), The Hartford Conservative Allocation Fund, The Hartford Growth Opportunities Fund, The Hartford Inflation Plus Fund, The Hartford Advisers Fund (now known as The Hartford Balanced Fund), and The Hartford Capital Appreciation Fund. Plaintiffs seek to rescind the investment management agreements and distribution plans between HIFSCO and these funds and to recover the total fees charged thereunder or, in the alternative, to recover any improper compensation HIFSCO received, in addition to lost earnings. HIFSCO filed a partial motion to dismiss the amended complaint and, in December 2012, the court dismissed without prejudice the claims regarding distribution fees and denied the motion with respect to the advisory fees claims. HIFSCO disputes the allegations and intends to defend vigorously.
In March 2014, the plaintiffs filed a new complaint that added as new plaintiffs The Hartford Floating Rate Fund and The Hartford Small Company Fund, two Hartford retail mutual funds, and named as a defendant HFMC, which assumed the role as investment manager to the funds as of January 2013. HFMC and HIFSCO dispute the allegations and intend to defend vigorously.
This action concerns the activities of HIFSCO in its capacity as investment manager and principal underwriter to the Hartford retail mutual funds and does not concern HIFSCO’s activities in its capacity as principal underwriter to the HLS funds. For this reason, no accrual for litigation relating to this matter has been recorded in the financial statements of the Fund.
Recent Accounting Pronouncement:
In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, modifying Accounting Standards Codification Topic 860. The amended guidance changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. The guidance also requires new disclosures for certain transfers accounted for as sales and collateral supporting transactions that are accounted for as secured borrowings. ASU 2014-11 is effective for annual and interim periods beginning after December 15, 2014, except for the disclosures related to secured borrowings, which are effective for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The adoption of ASU 2014-11 is not expected to have a material impact on the Fund’s results of operations or financial position, but may impact the Fund’s disclosures.
45 |
Hartford Total Return Bond HLS Fund |
Notes to Financial Statements – (continued) |
December 31, 2014 |
(000’s Omitted) |
Subsequent Event:
Effective on or after January 1, 2015, pursuant to an agreement between the Hartford Funds and State Street Bank and Trust Company ("State Street"), State Street replaced, or is scheduled to replace, JP Morgan Chase Bank, N.A. ("JP Morgan Chase") as the Fund's primary custodian. JP Morgan Chase may serve as custodian of certain Fund assets. In addition, on or after the same date, HFMC has delegated, or will delegate, certain accounting and administrative services functions to State Street. The costs and expenses of such delegation will be borne by HFMC, not by the Funds, and HFMC will compensate State Street for its services out of its own resources.
46 |
Hartford Total Return Bond HLS Fund |
Financial Highlights |
─ Selected Per-Share Data(A) ─ | ─ Ratios and Supplemental Data ─ | |||||||||||||||||||||||||||||||||||||||||||||||||||
Class | Net Asset Value at Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Investment Operations | Dividends from Net Investment Income | Distributions from Realized Capital Gains | Total Dividends and Distributions | Net Asset Value at End of Period | Total Return(B) | Net Assets at End of Period (000s) | Ratio of Expenses to Average Net Assets Before Adjust- ments(C) | Ratio of Expenses to Average Net Assets After Adjust- ments(C) | Ratio of Net Investment Income (Loss) to Average Net Assets | |||||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 11.35 | $ | 0.33 | $ | 0.34 | $ | 0.67 | $ | (0.39 | ) | $ | – | $ | (0.39 | ) | $ | 11.63 | 5.89 | % | $ | 2,879,633 | 0.50 | % | 0.50 | % | 2.85 | % | ||||||||||||||||||||||||
IB | 11.27 | 0.30 | 0.34 | 0.64 | (0.35 | ) | – | (0.35 | ) | 11.56 | 5.68 | 360,006 | 0.75 | 0.75 | 2.60 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 11.99 | $ | 0.32 | $ | (0.49 | ) | $ | (0.17 | ) | $ | (0.47 | ) | $ | – | $ | (0.47 | ) | $ | 11.35 | (1.36 | )% | $ | 3,290,622 | 0.50 | % | 0.50 | % | 2.76 | % | ||||||||||||||||||||||
IB | 11.91 | 0.29 | (0.50 | ) | (0.21 | ) | (0.43 | ) | – | (0.43 | ) | 11.27 | (1.66 | ) | 414,910 | 0.75 | 0.75 | 2.51 | ||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2012 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 11.63 | $ | 0.41 | $ | 0.45 | $ | 0.86 | $ | (0.50 | ) | $ | – | $ | (0.50 | ) | $ | 11.99 | 7.54 | % | $ | 3,572,511 | 0.50 | % | 0.50 | % | 3.01 | % | ||||||||||||||||||||||||
IB | 11.55 | 0.40 | 0.43 | 0.83 | (0.47 | ) | – | (0.47 | ) | 11.91 | 7.27 | 566,274 | 0.75 | 0.75 | 2.76 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2011 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 10.90 | $ | 0.44 | $ | 0.31 | $ | 0.75 | $ | (0.02 | ) | $ | – | $ | (0.02 | ) | $ | 11.63 | 6.99 | % | $ | 3,718,609 | 0.49 | % | 0.49 | % | 3.60 | % | ||||||||||||||||||||||||
IB | 10.84 | 0.42 | 0.31 | 0.73 | (0.02 | ) | – | (0.02 | ) | 11.55 | 6.72 | 632,685 | 0.74 | 0.74 | 3.35 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2010 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 10.58 | $ | 0.45 | $ | 0.34 | $ | 0.79 | $ | (0.47 | ) | $ | – | $ | (0.47 | ) | $ | 10.90 | 7.51 | % | $ | 4,026,583 | 0.50 | % | 0.50 | % | 3.90 | % | ||||||||||||||||||||||||
IB | 10.53 | 0.44 | 0.31 | 0.75 | (0.44 | ) | – | (0.44 | ) | 10.84 | 7.25 | 722,317 | 0.75 | 0.75 | 3.65 |
(A) | Information presented relates to a share outstanding throughout the indicated period. Net investment income (loss) per share amounts are calculated based on average shares outstanding unless otherwise noted. |
(B) | The figures do not include sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees would lower the Fund's performance. |
(C) | Adjustments include waivers and reimbursements, if applicable. Ratios do not include fees paid indirectly (see Expenses in the accompanying Notes to Financial Statements). |
(D) | Net investment income (loss) per share amounts have been calculated using the SEC method. |
Portfolio Turnover Rate for All Share Classes | ||||
For the Year Ended December 31, 2014 | 84% | |||
For the Year Ended December 31, 2013 | 81 | |||
For the Year Ended December 31, 2012 | 88 | |||
For the Year Ended December 31, 2011 | 107 | |||
For the Year Ended December 31, 2010 | 188 |
47 |
Report of Independent Registered Public Accounting Firm |
The Board of Directors and Shareholders of |
Hartford Series Fund, Inc. |
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Hartford Total Return Bond HLS Fund (one of the portfolios constituting Hartford Series Fund, Inc. (the Funds)) as of December 31, 2014, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2014, by correspondence with the custodian, agent banks and brokers or by other appropriate auditing procedures where replies from agent banks and brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Hartford Total Return Bond HLS Fund of the Hartford Series Fund, Inc. at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
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Minneapolis, Minnesota | |
February 13, 2015 |
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Hartford Total Return Bond HLS Fund |
Directors and Officers (Unaudited) |
The Board of Directors of the Company (the "Directors") appoints officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the Directors. Each Director serves until his or her death, resignation, or retirement or until the next annual meeting of shareholders is held or until his or her successor is elected and qualifies.
Directors and officers who are employed by or who have a financial interest in The Hartford Financial Services Group, Inc. ("The Hartford") are considered “interested” persons of the Fund pursuant to the 1940 Act. The "interested" Directors and officers are reflected in the chart below. Each Director serves as a director for The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., Hartford Series Fund, Inc., and Hartford HLS Series Fund II, Inc., and as a trustee for The Hartford Alternative Strategies Fund, which, as of December 31, 2014, collectively consist of 66 funds. Correspondence may be sent to Directors and officers c/o Hartford Funds, 5 Radnor Corporate Center, Suite 300, 100 Matsonford Road, Radnor, Pennsylvania 19087, except that correspondence to Mr. Annoni, Mr. Dressen and Ms. Quade may be sent to 500 Bielenberg Drive, Suite 500, Woodbury, Minnesota 55125.
The table below sets forth, for each Director and officer, his or her name, year of birth, current position with the Company and date first elected or appointed to Hartford Series Fund, Inc. ("HSF") and Hartford HLS Series Fund II, Inc. ("HSF2"), principal occupation, and, for Directors, other directorships held. The Fund’s Statement of Additional Information contains further information on the Directors and is available free of charge by calling 1-888-843-7824 or writing to: Hartford HLS Funds, c/o Hartford Life Insurance Company/Hartford Life and Annuity Insurance Company, P.O. Box 14293, Lexington, KY 40512-4293 for variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates; Hartford Funds, P.O. Box 55022, Boston, MA 02205-5022 for all shareholders except variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates.
Information on the aggregate remuneration paid to the directors of the Company can be found in the Statement of Operations herein. The Fund pays to The Hartford a portion of the Chief Compliance Officer’s compensation, but does not pay salaries or compensation to any of its other officers or Directors who are employed by The Hartford.
Non-Interested Directors
Hilary E. Ackermann (1956) Director since September 23, 2014
Ms. Ackermann served as Chief Risk Officer at Goldman Sachs Bank USA from October 2008 to November 2011 and serves as a Director of Dynegy, Inc., an independent power company, from October 2012 to present.
Lynn S. Birdsong (1946) Director since 2003, Chairman of the Investment Committee since 2014
Mr. Birdsong is a private investor. Mr. Birdsong currently serves as a Director of Aberdeen Global and Aberdeen Global II (investment funds) (September 2014 to present) and as an Independent Director of Nomura Partners Funds, Inc. (formerly, The Japan Fund) (April 2003 to present). Mr. Birdsong served as Director of the Sovereign High Yield Investment Company (April 2010 to September 2014). From 2003 to March 2005, Mr. Birdsong was an Independent Director of the Atlantic Whitehall Funds. From 1979 to 2002, Mr. Birdsong was a Managing Director of Zurich Scudder Investments, an investment management firm. During his employment with Scudder, Mr. Birdsong was an Interested Director of The Japan Fund. Mr. Birdsong served as Co-Chairman of the Investment Committee of The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., HSF, HSF2 and The Hartford Alternative Strategies Fund from 2005 to 2014.
Robert M. Gavin, Jr. (1940) Director since 2002 (HSF) and 1986 (HSF2), Chairman of the Board for each since 2004
Dr. Gavin is an educational consultant. Prior to September 1, 2001, he was President of Cranbrook Education Community and prior to July 1996, he was President of Macalester College, St. Paul, Minnesota.
Duane E. Hill (1945) Director since 2001 (HSF) and 2002 (HSF2), Chairman of the Nominating Committee since 2003
Mr. Hill is a Partner of TSG Ventures L.P., a private equity investment company. Mr. Hill is a former partner of TSG Capital Group, a private equity investment firm that served as sponsor and lead investor in leveraged buyouts of middle market companies.
Sandra S. Jaffee (1941) Director since 2005
Ms. Jaffee is the founder and Chief Executive Officer of a private company, Homeworks Concierge, LLC, which provides residential property management services in Westchester County, New York (January 2012 to present). Ms. Jaffee served as Chairman (2008 to 2009) and Chief Executive Officer of Fortent (formerly Searchspace Group), a leading provider of compliance/regulatory technology to financial institutions from August 2005 to August 2009. From August 2004 to August 2005, Ms. Jaffee served as an Entrepreneur in Residence with Warburg Pincus, a private equity firm. Prior to joining Warburg Pincus, Ms. Jaffee served as Executive Vice President at Citigroup, from September 1995 to July 2004, where she was President and Chief Executive Officer of Citibank’s Global Securities
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Directors and Officers (Unaudited) – (continued) |
Services (1995 to 2003). Ms. Jaffee served as a member of the Board of Directors of Broadridge Financial Solutions (November 2010 to November 2014). Ms. Jaffee currently serves as a member of the Board of Directors of Global Camps Africa (a non-profit organization) (January 2015 to present) as well as a Trustee of Muhlenberg College (September 2007 to present).
William P. Johnston (1944) Director since 2005, Chairman of the Compliance Committee since 2005
In June 2006, Mr. Johnston was appointed as Senior Advisor to The Carlyle Group, a global private equity and other alternative asset investment firm and currently serves as an Operating Executive. In July 2006, Mr. Johnston was elected to the Board of Directors of MultiPlan, Inc. and served as a Director (July 2006 to August 2010). In August 2007, Mr. Johnston was elected to the Board of Directors of LifeCare Holdings, Inc. and served as a Director (August 2007 to June 2013). In February 2008, Mr. Johnston was elected to the Board of Directors of HCR-ManorCare, Inc. In May 2006, Mr. Johnston was elected to the Supervisory Board of Fresenius Medical Care AG & Co. KGaA, after its acquisition of Renal Care Group, Inc. in March 2006. Mr. Johnston joined Renal Care Group in November 2002 as a member of the Board of Directors and served as Chairman of the Board from March 2003 through March 2006. From 2002 through 2013, Mr. Johnston served as a Board member of the Georgia O’Keefe Museum. From September 1987 to December 2002, Mr. Johnston was with Equitable Securities Corporation (and its successors, SunTrust Equitable Securities and SunTrust Robinson Humphrey) serving in various investment banking and managerial positions, including Managing Director and Head of Investment Banking, Chief Executive Officer and Vice Chairman.
Phillip O. Peterson (1944) Director since 2002 (HSF) and 2000 (HSF2), Chairman of the Audit Committee since 2002
Mr. Peterson is a mutual fund industry consultant. He was a partner of KPMG LLP (an accounting firm) until July 1999. Mr. Peterson joined William Blair Funds in February 2007 as a member of the Board of Trustees. From February 2012 to February 2014, Mr. Peterson served as a Trustee of Symetra Variable Mutual Funds. From January 2004 to April 2005, Mr. Peterson served as Independent President of the Strong Mutual Funds.
Lemma W. Senbet (1946) Director since 2005
Dr. Senbet is the William E. Mayer Chair Professor of Finance at the University of Maryland, Robert H. Smith School of Business. He was chair of the Finance Department of the University of Maryland, Robert H. Smith School of Business from 1998 to 2006. Since June 2013, he has been on leave from the University to serve as Executive Director of African Economic Research Consortium which focuses on economic policy research and training. Previously, he was a chaired professor of finance at the University of Wisconsin-Madison. Also, he was a Director of the Fortis Funds from March 2000 to July 2002. Dr. Senbet served as Director of the American Finance Association and President of the Western Finance Association. In 2006, Dr. Senbet was inducted Fellow of Financial Management Association International for his career-long distinguished scholarship and professional service.
Interested Directors and Officers
James E. Davey (1964) Director since 2012, President and Chief Executive Officer since 2010
Mr. Davey serves as Executive Vice President of Hartford Life Insurance Company (“HLIC”) and The Hartford. Additionally, Mr. Davey serves as Chairman of the Board, Manager and Senior Managing Director of Hartford Funds Distributors, LLC (“HFD”). He also currently serves as Director, Chairman of the Board, President and Senior Managing Director of Hartford Administrative Services Company (“HASCO”). Mr. Davey also serves as Manager, Chairman of the Board and Senior Managing Director for Hartford Funds Management Company, LLC (“HFMC”) and Director, Chairman of the Board and Senior Managing Director for Hartford Funds Management Group, Inc. ("HFMG"). Mr. Davey has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Davey joined The Hartford in 2002.
Lowndes A. Smith* (1939) Director since 1996 (HSF) and 2002 (HSF2), Co-Chairman of the Investment Committee since 2005
Mr. Smith served as Vice Chairman of The Hartford from February 1997 to January 2002, as President and Chief Executive Officer of Hartford Life, Inc. from February 1997 to January 2002, and as President and Chief Operating Officer of The Hartford Life Insurance Companies from January 1989 to January 2002. Mr. Smith serves as a Director of White Mountains Insurance Group Ltd. (October 2003 to current); One Beacon Insurance (October 2006 to current); Symetra Financial (August 2007 to current) and is a Managing Director of Whittington Gray Associates (January 2007 to current).
* Mr. Smith resigned as a Director of Hartford Mutual Funds, Inc., Hartford Mutual Funds II, Inc., HSF and HSF2 and as a Trustee of The Hartford Alternative Strategies Fund effective September 17, 2014.
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Directors and Officers (Unaudited) – (continued) |
Other Officers
Mark A. Annoni (1964) Vice President, Controller and Treasurer since 2012
Mr. Annoni currently serves as the Assistant Vice President of HLIC (February 2004 to present) and Senior Vice President of HFMG (December 2013 to present). Mr. Annoni has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Annoni joined The Hartford in 2001.
Michael R. Dressen (1963) AML Compliance Officer since 2011
Mr. Dressen currently serves as Assistant Vice President of HLIC. He also serves as Chief Compliance Officer and AML Compliance Officer of HASCO and as AML Officer of HFD. Mr. Dressen has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
Edward P. Macdonald (1967) Vice President, Secretary and Chief Legal Officer since 2005
Mr. Macdonald currently serves as Assistant Secretary, Executive Vice President and Deputy General Counsel of HFD, HASCO, HFMC and HFMG. He also serves as Vice President of HLIC. Mr. Macdonald has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Macdonald joined The Hartford in 2005.
Joseph G. Melcher (1973) Vice President and Chief Compliance Officer since 2013
Mr. Melcher currently serves as Executive Vice President of HFD, HFMG and HASCO. Mr. Melcher also currently serves as Executive Vice President and Chief Compliance Officer of HFMC. Mr. Melcher has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds since joining The Hartford in 2012. Prior to joining The Hartford, Mr. Melcher worked at Touchstone Investments, a member of the Western & Southern Financial Group, where he held the position of Vice President and Chief Compliance Officer from 2010 through 2012 and Assistant Vice President, Compliance from 2005 to 2010.
Vernon J. Meyer (1964) Vice President since 2006
Mr. Meyer currently serves as Senior Vice President of HLIC. He also currently serves as Managing Director and Chief Investment Officer of HFMC and Managing Director of HFMG. Mr. Meyer has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Meyer joined The Hartford in 2004.
Laura S. Quade (1969) Vice President since 2012
Ms. Quade currently serves as Vice President of HASCO, HFD and HFMG. She is the Head of Operations of HASCO and formerly served as Director, Enterprise Operations of HLIC. Ms. Quade has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Ms. Quade joined The Hartford in 2001.
Martin A. Swanson** (1962) Vice President since 2010
Mr. Swanson currently serves as Vice President of HLIC. Mr. Swanson also serves as Managing Director, Chief Marketing Officer and Principal of HFD and Managing Director of HFMG. Mr. Swanson has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
** Mr. Swanson resigned as an officer effective November 6, 2014.
HOW TO OBTAIN A COPY OF THE FUND’S PROXY VOTING POLICIES AND VOTING RECORDS (UNAUDITED)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information about how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov. The Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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Hartford Total Return Bond HLS Fund |
Expense Example (Unaudited) |
Your Fund's Expenses
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including investment management fees, distribution and/or service (12b-1) fees, if any, and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period of June 30, 2014 through December 31, 2014.
Actual Expenses
The first set of columns of the table below provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second set of columns of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as taxes, sales charges (loads), or fees which may be applied at the variable life insurance, variable annuity, or qualified retirement plan product level. Therefore, the second set of columns of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would be higher. Expenses are equal to the Fund's annualized expense ratios multiplied by average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
Actual return | Hypothetical (5% return before expenses) | |||||||||||||||||||||||||||||||||||
Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Annualized expense ratio | Days in the current 1/2 year | Days in the full year | ||||||||||||||||||||||||||||
Class IA | $ | 1,000.00 | $ | 1,009.90 | $ | 2.53 | $ | 1,000.00 | $ | 1,022.68 | $ | 2.55 | 0.50 | % | 184 | 365 | ||||||||||||||||||||
Class IB | $ | 1,000.00 | $ | 1,008.50 | $ | 3.80 | $ | 1,000.00 | $ | 1,021.42 | $ | 3.82 | 0.75 | 184 | 365 |
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Hartford Total Return Bond HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) |
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of directors, including a majority of those directors who are not “interested persons” of the mutual fund, as defined in the 1940 Act (the “Independent Directors”), annually review and consider the continuation of the mutual fund’s investment advisory and sub-advisory agreements. At its meeting held on August 5-6, 2014, the Board of Directors (the “Board”) of Hartford Series Fund, Inc., including each of the Independent Directors, unanimously voted to approve the continuation of the investment management agreement for Hartford Total Return Bond HLS Fund (the “Fund”) with Hartford Funds Management Company, LLC (“HFMC”) and the continuation of the investment sub-advisory agreement between HFMC and the Fund’s sub-adviser, Wellington Management Company, LLP (the “Sub-adviser,” and together with HFMC, the “Advisers”) (collectively, the “Agreements”).
In the months preceding the August 5-6, 2014 meeting, the Board requested, received and reviewed written responses from the Advisers to questions posed to them on behalf of the Independent Directors and supporting materials relating to those questions and responses. The Board considered information furnished to the Board at its meetings throughout the year, as well as information specifically prepared in connection with the annual approval of the Agreements at the Board’s meetings held on June 17-18, 2014 and August 5-6, 2014. Information provided to the Board at its meetings throughout the year included, among other things, reports on Fund performance, legal and compliance matters, sales and marketing activity, shareholder services, and the other services provided to the Fund by the Advisers and their affiliates. The Board also received in-person presentations by Fund officers and representatives of HFMC at the Board’s meetings on June 17-18, 2014 and August 5-6, 2014 concerning the Agreements.
The Independent Directors, advised by independent legal counsel, engaged service providers to assist them with evaluating the Agreements with respect to the Fund. Lipper Inc. (“Lipper”), an independent provider of investment company data, was retained to provide the Board with reports on how the Fund’s contractual management fees, actual management fees, other non-management fees, overall expense ratios and investment performance compared to those of mutual funds with similar investment objectives. The Independent Directors also engaged an independent financial services consultant (the “Consultant”) to assist them in evaluating the Fund’s management fees, sub-advisory fees, other non-management fees, overall expense ratios and investment performance. In addition, the Consultant reviewed the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement.
In determining whether to continue the Agreements for the Fund, the members of the Board reviewed and evaluated information and factors they believed to be relevant and appropriate in light of the information that the Board deemed necessary and appropriate through the exercise of its reasonable business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination to continue the Agreements was based on a comprehensive consideration of all information provided to the Board throughout the year and specifically with respect to the continuation of the Agreements. A more detailed discussion of the factors the Board considered with respect to its approval of the Agreements is provided below.
Nature, Extent and Quality of Services Provided by the Advisers
The Board requested and considered information concerning the nature, extent and quality of the services provided to the Fund by the Advisers. The Board considered, among other things, the terms of the Agreements and the range of services provided by the Advisers. The Board considered the Advisers’ professional personnel who provide services to the Fund, including each Adviser’s ability and experience in attracting and retaining qualified personnel to service the Fund. The Board considered each Adviser’s reputation and overall financial strength, as well as its willingness to consider and implement organizational and operational changes designed to enhance services to the Hartford Funds. In addition, the Board considered the quality of each Adviser’s communications with the Board and responsiveness to Board inquiries and requests made from time to time with respect to the Fund and other Hartford Funds.
The Board also requested and evaluated information concerning each Adviser’s regulatory and compliance environment. In this regard, the Board requested and reviewed information on each Adviser’s compliance policies and procedures, compliance history, and a report from the Fund’s Chief Compliance Officer on each Adviser’s compliance with applicable laws and regulations, including responses to regulatory developments and compliance issues raised by regulators. The Board also noted the Advisers’ support of the Fund’s compliance control structure, particularly the resources devoted by the Advisers in support of the Fund’s obligations pursuant to Rule 38a-1 under the 1940 Act.
With respect to HFMC, the Board noted that under the Agreements, HFMC is responsible for the management of the Fund, including oversight of fund operations and service providers, as well as investment advisory services in connection with selecting, monitoring and supervising the Sub-adviser. The Board considered HFMC’s ongoing monitoring of people, process and performance, including its quarterly reviews of each of
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Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued) |
the Hartford Funds, semi-annual meetings with the leaders of each Fund’s portfolio management team, and oversight of the Hartford Funds’ approximately 37 portfolio managers. The Board recognized that HFMC has demonstrated a record of making changes to the management
and/or strategies of the Hartford Funds when warranted. The Board considered HFMC’s oversight of the Sub-adviser’s investment approach and results, process for monitoring best execution of portfolio trades by the Sub-adviser, and approach to risk management with respect to the Fund and the service providers to the Fund. The Board also considered HFMC’s oversight of compliance with the Fund’s objective and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over time led to an increase in the scope of HFMC’s services in this regard.
In addition, the Board considered HFMC’s ongoing commitment to review and rationalize the Hartford Funds product line-up and the expenses that HFMC had incurred in connection with fund combinations in recent years. The Board considered that HFMC or its affiliates are responsible for providing the Fund’s officers. The Board also noted that Hartford Life Insurance Company (“HLIC”) provides administrative services to the Fund. The Board considered its experiences with HFMC and HLIC with respect to each of these services.
With respect to the Sub-adviser, which provides certain day-to-day portfolio management services for the Fund, the Board considered the quality of the Fund’s portfolio managers, the Sub-adviser’s other investment personnel, its investment philosophy and process, investment research capabilities and resources, performance record, trade execution capabilities and experience. The Board considered the experience of the Fund’s portfolio managers, the number of accounts managed by the portfolio managers, and the Sub-adviser’s method for compensating the portfolio managers.
Based on these considerations, the Board concluded that it was satisfied with the nature, extent and quality of the services provided to the Fund by HFMC and the Sub-adviser.
Performance of the Fund and the Advisers
The Board considered the investment performance of the Fund. In this regard, the Board reviewed the performance of the Fund over different time periods presented in the materials and evaluated HFMC’s analysis of the Fund’s performance for these time periods. The Board considered information and materials provided to the Board by the Advisers concerning Fund performance, as well as information from Lipper comparing the investment performance of the Fund to an appropriate benchmark and universe of peer funds. The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1- and 3-year periods and the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was above its benchmark for the 1-, 3- and 5-year periods.
The Board considered the detailed investment analytics reports provided by Hartford Funds’ Investment Advisory Group throughout the year. These reports include, among other things, information on the Fund’s gross and net returns, the Fund’s investment performance relative to an appropriate benchmark and peer group, various statistics concerning the Fund’s portfolio, and a narrative summary of various factors affecting Fund performance. The Board considered the Advisers’ cooperation with the Investment Committee, which assists the Board in evaluating the performance of the Fund at periodic meetings throughout the year. The Board also considered the analysis provided by the Consultant relating to the Fund’s performance track record.
In light of all the considerations noted above, the Board concluded that it had continued confidence in HFMC’s and the Sub-adviser’s overall capabilities to manage the Fund.
Costs of the Services and Profitability of the Advisers
The Board reviewed information regarding HFMC’s cost to provide investment management and related services to the Fund and HFMC’s profitability, both overall and for the Fund, on a pre-tax basis without regard to distribution expenses. The Board also requested and reviewed information about the profitability to HFMC and its affiliates from all services provided to the Fund and all aspects of their relationship with the Fund. The Board also requested and received information relating to the operations and profitability of the Sub-adviser.
The Board considered the Consultant’s review of the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement, noting the Consultant’s view that Hartford Funds’ process for calculating and reporting Fund profitability is reasonable. In this regard, the Board noted that the Consultant performed a full review of this process in light of the recent restructuring of the Hartford Funds business and reported that the approach to analyzing Fund profitability, including the use of common expense allocation methodologies, is reasonable, sound and well within common industry practice.
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Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued) |
Based on these considerations, the Board concluded that the profits anticipated to be realized by the Advisers and their affiliates from their relationships with the Fund would not be excessive.
Comparison of Fees and Services Provided by the Advisers
The Board considered comparative information with respect to the management fees to be paid by the Fund to HFMC and the total expense ratios of the Fund. The Board also considered comparative information with respect to the sub-advisory fees to be paid by HFMC to the Sub-adviser. In this regard, the Board requested and reviewed information from HFMC and the Sub-adviser relating to the management and sub-advisory fees, including the sub-advisory fee schedule for the Fund, and total operating expenses for the Fund. The Board considered that the management fee for the Fund includes the fee paid to HLIC for providing certain administrative services to the Fund. With respect to the sub-advisory fee schedule, the Board considered representations from HFMC and the Sub-adviser that the Sub-adviser’s fees were negotiated at arm’s length on a fund-by-fund basis. The Board also reviewed information from Lipper comparing the Fund’s contractual management fees, actual management fees and overall expense ratios relative to a group of funds selected by Lipper, in consultation with the Consultant, and a broader universe of funds selected by Lipper. The Board noted that the Fund’s contractual management fee, actual management fee and total expenses (less 12b-1 and shareholder service fees) were in the 1st quintile of its expense group.
While the Board recognized that comparisons between the Fund and peer funds may be imprecise, given the different service levels and characteristics of mutual funds and the different business models and cost structures of the Advisers, the comparative information provided by Lipper assisted the Board in evaluating the reasonableness of the Fund’s management and sub-advisory fees and total operating expenses. In addition, the Board considered the analysis and recommendations of the Consultant relating to the Fund’s management and sub-advisory fees and total operating expenses.
Based on these considerations, the Board concluded that the Fund’s fees and total operating expenses, in conjunction with the information about quality of services, profitability, economies of scale, and other matters discussed, were reasonable in light of the services provided.
Economies of Scale
The Board requested and considered information regarding the Advisers’ realization of economies of scale with respect to the Fund and whether the fee levels reflect these economies of scale for the benefit of the Fund’s shareholders. The Board reviewed the breakpoints in the management fee schedule for the Fund, which reduce fee rates as Fund assets grow over time. The Board recognized that a fund with assets beyond the highest breakpoint level will continue to benefit from economies of scale because additional assets are charged the lowest breakpoint fee resulting in lower overall effective management fee rates. The Board also recognized that a fee schedule that reaches a lower breakpoint quickly provides shareholders with the benefit of anticipated or potential economies of scale. The Board noted the effect of the sale and run-off of the variable annuity business on the HLS Funds.
The Board reviewed and evaluated materials from Lipper and the Consultant showing how management fee schedules of peer funds reflect economies of scale for the benefit of shareholders as a peer fund’s assets hypothetically increase over time. Based on information provided by HFMC, Lipper, and the Consultant, the Board recognized that there is no uniform methodology for establishing breakpoints or uniform pattern in asset levels that trigger breakpoints or the amounts of breakpoints triggered.
After considering all of the information available to it, the Board concluded that it was satisfied with the extent to which economies of scale would be shared for the benefit of the Fund’s shareholders based on currently available information and the effective advisory fees and expense ratios for the Fund at its current and reasonably anticipated asset levels. The Board noted, however, that it would continue to monitor future growth in Fund assets and the appropriateness of additional breakpoints.
Other Benefits
The Board considered other benefits to the Advisers and their affiliates from their relationships with the Fund, including the role of the Fund in supporting the variable life insurance and variable annuity products offered by The Hartford.
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Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued) |
The Board noted that HLIC, an affiliate of HFMC, receives fees for providing certain administrative services to the Fund and that HFMC receives fees for fund accounting and related services from the Fund. The Board considered information on profits to HLIC and HFMC for such services. The Board also considered that Hartford Administrative Services Company (“HASCO”), the Fund’s transfer agent and an affiliate of HFMC,
receives transfer agency compensation from the Fund, and the Board reviewed information on the profitability of the Fund’s transfer agency function to HASCO. The Board considered information provided by HASCO indicating that the transfer agent fees charged by HASCO to the Fund were fair and reasonable based on publicly available information.
The Board also considered that Hartford Funds Distributors, LLC (“HFD”), an affiliate of HFMC, serves as principal underwriter of the Fund. As principal underwriter, HFD receives 12b-1 fees from the Fund. The Board also noted that certain affiliates of HFD distribute shares of the Fund and receive compensation in that connection.
The Board considered the benefits, if any, to the Sub-adviser from any use of the Fund’s brokerage commissions to obtain soft dollar research, and representations from HFMC and the Sub-adviser that the Sub-adviser would not make any revenue-sharing payments or any other type of distribution payments to HFMC or its affiliates.
The Board considered the benefits to shareholders of being part of the Hartford Funds family of funds. The Board considered HFMC’s efforts to provide investors in the family with a broad range of investment styles and asset classes.
* * * *
Based upon its review of these various factors, among others, the Board concluded that it is in the best interests of the Fund and its shareholders for the Board to approve the Agreements for an additional year. In reaching this decision, the Board did not assign relative weights to the factors discussed above or deem any one or group of them to be controlling in and of themselves. In connection with their deliberations, the Independent Directors met separately in executive session on several occasions, with independent legal counsel and the Consultant, to review the relevant materials and consider their responsibilities under relevant laws and regulations.
56 |
Hartford Total Return Bond HLS Fund |
Main Risks (Unaudited) |
The main risks of investing in the Fund are described below.
Market, Selection and Strategy Risk: The Fund’s share price may fluctuate due to market risk and/or security selections that may underperform the market or relevant benchmarks. If the sub-adviser's investment strategy does not perform as expected, the Fund could underperform its peers or lose money. There is no guarantee the Fund will achieve its stated objective.
Fixed Income Risk: The Fund is subject to interest rate risk (the risk that the value of an investment decreases when interest rates rise), credit risk (the risk that the issuing company of a security is unable to pay interest and principal when due), liquidity risk (the risk that an investment may be difficult to sell at an advantageous time or price) and call risk (the risk that an investment may be redeemed early). These risks also apply to the Fund’s investments in U.S. government securities, which may not be guaranteed by the U.S. government.
Mortgage-Backed Securities Risk: Mortgage-backed securities are subject to interest rate risk, credit risk, prepayment risk, extension risk, and the risk that an investment’s value may be reduced or become worthless if it receives interest or income payments only after other investments in the same pool. The Fund may purchase mortgage-backed securities in the "to be announced" (TBA) market. This subjects the Fund to counterparty risk and the risk that the security the Fund buys will lose value prior to its delivery.
Foreign Investment and Emerging Markets Risk: Investments in foreign securities may be riskier than investments in U.S. securities. Potential risks include the risks of illiquidity, increased price volatility, less government regulation, less extensive and less frequent accounting and other reporting requirements, unfavorable changes in currency exchange rates, and economic and political disruptions. These risks are generally greater for investments in emerging markets.
Derivatives Risk: Investments in derivatives can be volatile. Potential risks include currency risk, leverage risk (the risk that small market movements may result in large changes in the value of an investment), liquidity risk, index risk, pricing risk, and counterparty risk (the risk that the counterparty may be unwilling or unable to honor its obligations).
Active Trading Risk: Actively trading investments may result in higher costs (thus affecting performance).
57 |
THIS PRIVACY POLICY IS NOT PART OF THIS REPORT
Privacy Policy and Practices of The Hartford Financial Services Group, Inc. and its Affiliates
(herein called “we, our and us”)
This Privacy Policy applies to our United States Operations
We value your trust. We are committed to the responsible: a) management; b) use; and c) protection; of Personal Information.
This notice describes how we collect, disclose, and protect Personal Information.
We collect Personal Information to: a) service your Transactions with us; and b) support our business functions.
We may obtain Personal Information from: a) You; b) your Transactions with us; and c) third parties such as a consumer-reporting agency.
Based on the type of product or service You apply for or get from us, Personal Information such as: a) your name; b) your address; c) your income; d) your payment; or e) your credit history; may be gathered from sources such as applications, Transactions, and consumer reports.
To serve You and service our business, we may share certain Personal Information. We will share Personal Information, only as allowed by law, with affiliates such as: a) our insurance companies; b) our employee agents; c) our brokerage firms; and d) our administrators.
As allowed by law, we may share Personal Financial Information with our affiliates to: a) market our products; or b) market our services; to You without providing You with an option to prevent these disclosures. | We may also share Personal Information, only as allowed by law, with unaffiliated third parties including: a) independent agents; b) brokerage firms; c) insurance companies; d) administrators; and e) service providers; who help us serve You and service our business.
When allowed by law, we may share certain Personal Financial Information with other unaffiliated third parties who assist us by performing services or functions such as: a) taking surveys; b) marketing our products or services; or c) offering financial products or services under a joint agreement between us and one or more financial institutions.
We, and third parties we partner with, may track some of the pages You visit through the use of: a) cookies; b) pixel tagging; or c) other technologies; and currently do not process or comply with any web browser’s “do not track” signal or similar mechanism that indicates a request to disable online tracking of individual users who visit our websites or use our services.
We will not sell or share your Personal Financial Information with anyone for purposes unrelated to our business functions without offering You the opportunity to: a) “opt-out;” or b) “opt-in;” as required by law.
We only disclose Personal Health Information with: a) your proper written authorization; or b) as otherwise allowed or required by law.
Our employees have access to Personal Information in the course of doing their jobs, such as: a) underwriting policies; b) paying claims; c) developing new products; or d) advising customers of our products and services. |
We use manual and electronic security procedures to maintain: a) the confidentiality; and b) the integrity of; Personal Information that we have. We use these procedures to guard against unauthorized access.
Some techniques we use to protect Personal Information include: a) secured files; b) user authentication; c) encryption; d) firewall technology; and e) the use of detection software.
We are responsible for and must: a) identify information to be protected; b) provide an adequate level of protection for that data; c) grant access to protected data only to those people who must use it in the performance of their job-related duties.
Employees who violate our Privacy Policy will be subject to discipline, which may include ending their employment with us.
At the start of our business relationship, we will give You a copy of our current Privacy Policy.
We will also give You a copy of our current Privacy Policy once a year if You maintain a continuing business relationship with us.
We will continue to follow our Privacy Policy regarding Personal Information even when a business relationship no longer exists between us. | As used in this Privacy Notice:
Application means your request for our product or service.
Personal Financial Information means financial information such as: a) credit history; b) income; c) financial benefits; or d) policy or claim information.
Personal Health Information means health information such as: a) your medical records; or b) information about your illness, disability or injury.
Personal Information means information that identifies You personally and is not otherwise available to the public. It includes: a) Personal Financial Information; and b) Personal Health Information .
Transaction means your business dealings with us, such as: a) your Application; b) your request for us to pay a claim; and c) your request for us to take an action on your account.
You means an individual who has given us Personal Information in conjunction with: a) asking about; b) applying for; or c) obtaining; a financial product or service from us if the product or service is used mainly for personal, family, or household purposes. |
This Privacy Policy is being provided on behalf of the following affiliates of The Hartford Financial Services Group, Inc.:
1stAGChoice, Inc.; Access CoverageCorp, Inc.; Access CoverageCorp Technologies, Inc.; American Maturity Life Insurance Company; Archway 60 R, LLC; Business Management Group, Inc.; DMS R, LLC; First State Insurance Company; Fountain Investors I LLC; Fountain Investors II LLC; Fountain Investors III LLC; Fountain Investors IV LLC; FTC Resolution Company LLC; Hart Re Group L.L.C.; Hartford Accident and Indemnity Company; Hartford Administrative Services Company; Hartford Casualty General Agency, Inc.; Hartford Casualty Insurance Company; Hartford Financial Services, LLC; Hartford Fire General Agency, Inc.; Hartford Fire Insurance Company; Hartford Funds Distributors, LLC; Hartford Funds Management Company, LLC; Hartford Funds Management Group, Inc.; Hartford Holdings, Inc.; Hartford HLS Series Fund II, Inc.; Hartford Insurance Company of Illinois; Hartford Insurance Company of the Midwest; Hartford Insurance Company of the Southeast; Hartford Integrated Technologies, Inc.; Hartford International Life Reassurance Corporation; Hartford Investment Management Company; Hartford Life and Accident Insurance Company; Hartford Life and Annuity Insurance Company; Hartford Life Insurance Company; Hartford Life, Inc.; Hartford Life International Holding Company; Hartford Life Private Placement, LLC; Hartford Lloyd’s Corporation; Hartford Lloyd’s Insurance Company; Hartford of Texas General Agency, Inc.; Hartford Residual Market, L.C.C.; Hartford Securities Distribution Company, Inc.; Hartford Series Fund, Inc.; Hartford Specialty Insurance Services of Texas, LLC; Hartford Strategic Investments, LLC; Hartford Underwriters General Agency, Inc.; Hartford Underwriters Insurance Company; Hartford-Comprehensive Employee Benefit Service Company; HDC R, LLC.; Heritage Holdings, Inc.; HIMCO Distribution Services Company; HIMCO Variable Insurance Trust; HLA LLC; HL Investment Advisors, LLC; Horizon Management Group, LLC; HRA Brokerage Services, Inc.; Lanidex Class B, LLC; New England Insurance Company; New England Reinsurance Corporation; Nutmeg Insurance Agency, Inc.; Nutmeg Insurance Company; Pacific Insurance Company, Limited; Planco, LLC; Property and Casualty Insurance Company of Hartford; Revere R, LLC; RVR R, LLC; Sentinel Insurance Company, Ltd.; Sunstone R, LLC; Symphony R, LLC; The Evergreen Group Incorporated; The Hartford Alternative Strategies Fund; The Hartford Mutual Funds, Inc.; The Hartford Mutual Funds II, Inc.; Trumbull Flood Management, L.L.C.; Trumbull Insurance Company; Twin City Fire Insurance Company.
HPP Revised February 2015
HARTFORD HLS FUNDS
P.O. Box 14293
Lexington, KY 40512-4293
HARTFORDFUNDS
hartfordfunds.com
Hartford HLS Funds are underwritten and distributed by Hartford Funds Distributors, LLC.
Hartford Series Fund, Inc. is not a subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford") but is underwritten, distributed by and advised by subsidiaries of The Hartford. Investments in Hartford Series Fund, Inc. are not guaranteed by The Hartford or any other entity.
This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution unless preceded or accompanied by a current prospectus for the Fund.
Investors should carefully consider the investment objectives, risks, charges, and expenses of Hartford Funds before investing. This and other information can be found in the prospectus and summary prospectus, which can be obtained by calling 888-843-7824 (or 800-279-1541 for institutional investors). Investors should read them carefully before they invest.
HLSAR-TRB14 2-15 113555-4 Printed in U.S.A.
HARTFORDFUNDS
![]() | HARTFORD ULTRASHORT BOND HLS FUND
2014 Annual Report |
A MESSAGE FROM THE PRESIDENT
Dear Fellow Shareholders:
Thank you for investing in Hartford HLS Funds.
Market Review
Nearly six years into a bull market, U.S. equities (as represented by the S&P 500 Index ) notched another positive year in 2014, finishing with a 13.69% gain. Progress was smooth for most of the year, with stocks generally rising amid little volatility. In the fourth quarter, however, the price of oil declined by nearly 40%, returning volatility to the market and paring some of the year’s returns.
As we enter 2015, the price of oil will likely continue playing an important role in market progress, as its effects are widespread. If prices remain low, consumers should benefit by paying less at the gas pump, which increases the amount of money available for discretionary spending. In contrast, low prices may be a detriment to the oil and natural gas industry in the U.S., as well as to the economies of countries that rely more heavily on oil exports.
Central-bank policies will also continue to influence the markets. The U.S. economy has continued to show self-sustaining growth, which has prompted the U.S. Federal Reserve to wind down the quantitative easing programs it initiated after the global financial crisis. In addition, gradual increases in interest rates are expected to begin in 2015, another sign of positive recovery and a return to pre-crisis policy. But in Europe, a slow recovery and fears of deflation have prompted the start of European Central Bank’s own version of quantitative easing to spur growth.
The final weeks of 2014 provided a stark reminder of how unpredictable market movements can be, and how important it is to maintain a diversified portfolio that’s in line with your time horizon and risk tolerance. As we begin 2015, take time to review your portfolio and your overall investment strategy with your financial advisor.
With more than 40 mutual-fund strategies that span a variety of asset classes and investment goals, your financial advisor can work with you to choose options within our fund family that can help you navigate today’s markets with confidence.
Thank you again for investing with Hartford HLS Funds.
James Davey
President
Hartford HLS Funds
1The S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
Hartford Ultrashort Bond HLS Fund
Table of Contents
This report is prepared for the general information of contract owners and qualified retirement plan participants. It is not an offer of contracts or of qualified retirement plans. It should not be used in connection with any offer, except in conjunction with the appropriate product prospectus which contains all pertinent information including the applicable sales, administrative and other charges.
The views expressed in the Fund’s Manager Discussion under ‘‘Why did the Fund perform this way?’’ and ‘‘What is the outlook?’’ are views of the Fund’s sub-adviser and portfolio management team through the end of the period and are subject to change based on market and other conditions. The Fund’s Manager Discussion is for informational purposes only and does not represent an offer, recommendation or solicitation to buy, hold or sell any security. The specific securities identified and described, if any, do not represent all of the securities purchased or sold and you should not assume that investments in the securities identified and discussed will be profitable.
Hartford Ultrashort Bond HLS Fund inception 08/31/1977
(sub-advised by Wellington Management Company, LLP)
Investment objective – The Fund seeks total return and income consistent with preserving capital and maintaining liquidity. |
Performance Overview 12/31/13 - 12/31/14
The chart above represents the hypothetical growth of a $10,000 investment in Class IA. Growth results in classes other than Class IA will vary from what is seen above due to difference in the expenses charged to those share classes.
Average Annual Total Returns (as of 12/31/14)
1 year | Since Inception* | |
Ultrashort Bond IA | 0.10 % | 0.08 % |
Ultrashort Bond IB | -0.10 % | -0.16 % |
Barclays 9-12 Month U.S. Treasury Index | 0.23 % | 0.23 % |
* | On October 21, 2013, the Fund converted from a money market fund to an ultrashort bond fund. Total returns shown are from conversion date (October 21, 2013) to December 31, 2014. |
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of the investment will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain performance data current to the most recent month-end, please visit our website www.hartfordfunds.com.
Total returns presented above were calculated using the Fund’s net asset value available to shareholders for sale or redemption of Fund shares on December 31, 2014, which may exclude investment transactions as of this date. All share class returns assume the reinvestment of all distributions at net asset value and the deduction of all fund expenses.
Prior to October 21, 2013, the Fund was managed as a money market fund. Accordingly, performance of the Fund prior to October 21, 2013 is not shown. Past performance information for when the Fund was managed as a money market fund is available upon request by calling 1-800-862-6668.
Barclays 9-12 Month U.S. Treasury Index measures the performance of U.S. Treasury securities that have a remaining maturity between one and twelve months.
The index is unmanaged, and its results include reinvested dividends and/or distributions, but do not reflect the effect of sales charges, commissions, expenses or taxes.
You cannot invest directly in an index.
As shown in the Fund's current prospectus dated May 1, 2014, the total annual operating expense ratios for Class IA and Class IB were 0.45% and 0.70%, respectively. Actual expenses may be higher. Please see the accompanying Financial Highlights for expense ratios for the year ended December 31, 2014.
The chart and table do not reflect the deductions of taxes, sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees or expenses would lower the contract’s or plan’s performance.
All investments are subject to risk including the possible loss of principal. For a discussion of the Fund’s risks, please see the Main Risks section of this report. For more detailed information on the risks associated with an investment in the Fund, please see the prospectus.
2 |
Hartford Ultrashort Bond HLS Fund
Manager Discussion
December 31, 2014 (Unaudited)
Portfolio Manager |
Timothy E. Smith |
Senior Managing Director and Fixed Income Portfolio Manager |
How did the Fund perform?
The Class IA shares of the Hartford Ultrashort Bond HLS Fund returned 0.10% for the twelve-month period ended December 31, 2014, underperforming the Fund’s benchmark, the Barclays 9-12 Month U.S. Treasury Index, which returned 0.23% for the same period. The Fund outperformed the 0.01% average return of the Lipper Short-Intermediate Investment Grade Debt Funds peer group, a group of funds that invest primarily in investment grade issues with dollar-weighted average maturities of one to five years.
Why did the Fund perform this way?
The bond market produced another year of positive total returns fueled by falling global interest rates amid weakening global growth and persistent geopolitical risks. Falling commodity prices, triggered by oil’s largest annual decline since the financial crisis, pushed inflation lower across the globe, stirring up fears of deflation in some regions. Government bond prices gained amid investors moving capital to less risky investment vehicles and expectations that the combination of subpar growth and low inflation would keep central banks’ monetary policy accommodative.
The year was characterized by a divergence of economic performance and monetary policy between the U.S. and the rest of the world. The U.S. economy demonstrated resilience at the same time as growth rates in many world economies slowed significantly. The U.S. economy got off to a rough start in 2014 as bad weather hindered growth in the first quarter, but quickly rebounded and went on to post its strongest growth in over a decade in the third quarter due to gains in consumer and business spending. U.S. job growth continued at a steady pace and the unemployment rate declined to a six-year low. Consumer confidence inched higher over the period, supported by an improving labor market, and later buoyed by lower gasoline prices. The housing recovery progressed in fits and starts during the year and home prices moderated after posting a strong gain in calendar year 2013.
Global central banks such as the European Central Bank (ECB) and Bank of Japan (BOJ) adopted more accommodative policy stances in attempts to prop up their respective economies and avert deflation. The U.S. Federal Reserve (Fed) ended its quantitative easing program, which began in 2008, reflecting its confidence in the U.S. economic recovery despite the global slowdown. The Fed took another step in December towards bringing interest rates to normal levels by replacing a pledge to keep borrowing costs low for a “considerable time” with a message of patience.
Developed market bond yields fell on the year as global economic fears kept central banks’ monetary policy accommodative. European government bond yields in particular hit record lows on expectations of ECB sovereign quantitative easing. In the U.S., the Treasury yield curve flattened; longer-term interest rates declined, aided by demand for safe-haven assets and the outlook for slow inflation, while shorter-dated Treasury yields rose in anticipation of tighter Fed monetary policy. Globally, most credit spread sectors posted positive absolute returns while performance was mixed relative to duration-equivalent government bonds. In particular, among the weaker fixed income sectors were high yield and bank loans, where spreads widened considerably during the fourth quarter due to falling oil prices and its impact on the energy sector. Within investment grade credit, spreads widened modestly and posted negative excess returns. The outperformance of the U.S. compared to its global counterparts led to rising volatility and a broad U.S.-dollar rally in the currency markets with the U.S. dollar index hitting an eight-year high in December.
An out-of-benchmark allocation to non-corporate credit modestly detracted from relative performance during the period. Out-of-benchmark allocations to investment grade corporate credit, particularly financial institutions and industrials, contributed to relative performance during the period. An out-of-benchmark allocation to Asset Backed Securities (ABS) was also additive, specifically within auto, credit card, and equipment. Yield curve and duration positioning contributed to performance relative to the Barclays 9-12 Month U.S. Treasury Index during the period. We use Treasury futures and interest rate swaps to manage duration and yield curve exposure.
What is the outlook?
We believe that U.S. economic momentum continues to be positive, and we expect moderately stronger U.S. growth in 2015. Challenges to the global growth outlook have increased, however. On balance, in our view, the Fund is positioned with a moderately pro-cyclical risk posture.
Meanwhile, as the market has become more concerned with the global growth and inflation outlook, the volatility of short rates has increased. The market is currently pricing in the first interest rate increase around the second or third quarter of 2015, although we acknowledge the risk that slowing global growth, lower commodity prices and weak global inflation could cause the Fed to increase interest rates later than the market expects. That said, we expect Treasury yields to rise in the second half of 2015 as U.S. economic
3 |
Hartford Ultrashort Bond HLS Fund
Manager Discussion – (continued)
December 31, 2014 (Unaudited)
growth and core inflation, which is inflation measured excluding Consumer Price Index items that have volatile prices, pick up.
At the end of the period our duration positioning was short relative to the Barclays 9-12 Month U.S. Treasury Index. We continued to be positioned with out-of-benchmark allocations to investment grade corporates, ABS, and Commercial Mortgage Backed Securities. Within investment grade corporates, we favor U.S. financials, as financial companies have de-levered significantly, and we have been looking to the new issue market to add exposure in fixed and floating rate issues. Within ABS, we favor auto, credit card and equipment issuers, as consumer fundamentals are supported by improving labor markets.
Diversification by Security Type
as of December 31, 2014
Category | Percentage of Net Assets | |||
Fixed Income Securities | ||||
Asset & Commercial Mortgage Backed Securities | 26.7 | % | ||
Certificates of Deposit | 0.5 | |||
Corporate Bonds | 48.3 | |||
Municipal Bonds | 0.5 | |||
U.S. Government Agencies | 12.4 | |||
U.S. Government Securities | 11.0 | |||
Total | 99.4 | % | ||
Short-Term Investments | 0.5 | |||
Other Assets and Liabilities | 0.1 | |||
Total | 100.0 | % |
Credit Exposure
as of December 31, 2014
Credit Rating * | Percentage of Net Assets | |||
Aaa/ AAA | 26.8 | % | ||
Aa/ AA | 29.7 | |||
A | 28.4 | |||
Baa/ BBB | 14.5 | |||
Short-Term Instruments | 0.5 | |||
Other Assets and Liabilities | 0.1 | |||
Total | 100.0 | % |
* | Credit exposure is the long-term credit ratings for the Fund's holdings, as of the date noted, as provided by Standard and Poor's (S&P) or Moody's Investors Service (Moody's) and typically range from AAA/Aaa (highest) to C/D (lowest). Presentation of S&P and Moody's credit ratings in this report have been selected for informational purposes for shareholders, as well as the Fund's consideration of industry practice. If Moody's and S&P assign different ratings, the lower rating is used. Fixed income securities that are not rated by either agency are listed as "Not Rated." Ratings do not apply to the Fund itself or to the Fund's shares. Ratings may change. |
4 |
Hartford Ultrashort Bond HLS Fund
Schedule of Investments
December 31, 2014
(000’s Omitted)
Shares or Principal Amount | Market Value ╪ | |||||||
Asset and Commercial Mortgage Backed Securities - 26.7% | ||||||||
Finance and Insurance - 25.4% | ||||||||
Ally Automotive Receivables Trust | ||||||||
$ | 3,435 | 0.63%, 05/15/2017 | $ | 3,435 | ||||
3,112 | 0.70%, 12/21/2015 | 3,112 | ||||||
1,885 | 0.75%, 02/21/2017 | 1,882 | ||||||
Ally Master Owner Trust | ||||||||
4,410 | 0.53%, 01/16/2018 Δ | 4,406 | ||||||
4,380 | 0.63%, 01/15/2019 Δ | 4,376 | ||||||
2,500 | 0.64%, 10/15/2019 Δ | 2,500 | ||||||
American Express Credit Account Master Trust | ||||||||
1,520 | 0.98%, 05/15/2019 | 1,520 | ||||||
1,485 | 1.26%, 01/15/2020 | 1,481 | ||||||
AmeriCredit Automobile Receivables Trust | ||||||||
900 | 0.54%, 03/08/2017 Δ | 900 | ||||||
Banc of America Commercial Mortgage, Inc. | ||||||||
1,817 | 5.35%, 09/10/2047 Δ | 1,855 | ||||||
Bank of America Credit Card Trust | ||||||||
2,995 | 0.53%, 06/15/2021 Δ | 2,993 | ||||||
Bear Stearns Commercial Mortgage Securities, Inc. | ||||||||
4,717 | 4.87%, 09/11/2042 | 4,785 | ||||||
2,857 | 5.28%, 10/12/2042 Δ | 2,905 | ||||||
BMW Vehicle Owner Trust | ||||||||
556 | 0.41%, 02/25/2016 | 556 | ||||||
Cabela's Master Credit Card Trust | ||||||||
1,085 | 0.50%, 03/16/2020 Δ | 1,085 | ||||||
Capital Automotive Receivables Asset Trust | ||||||||
3,316 | 0.53%, 03/21/2016 Δ | 3,316 | ||||||
3,265 | 0.68%, 05/20/2016 | 3,267 | ||||||
Capital One Multi-Asset Execution Trust | ||||||||
6,000 | 0.33%, 02/15/2019 Δ | 6,000 | ||||||
3,605 | 0.96%, 09/16/2019 | 3,592 | ||||||
CarMax Automotive Owner Trust | ||||||||
2,096 | 0.52%, 11/15/2016 | 2,096 | ||||||
Chase Issuance Trust | ||||||||
6,000 | 0.58%, 11/16/2020 Δ | 6,012 | ||||||
6,850 | 0.59%, 08/15/2017 | 6,852 | ||||||
3,405 | 0.79%, 06/15/2017 | 3,409 | ||||||
Chesapeake Funding LLC | ||||||||
1,955 | 0.58%, 03/07/2026 ■Δ | 1,954 | ||||||
Citibank Credit Card Issuance Trust | ||||||||
3,660 | 0.46%, 11/07/2018 Δ | 3,656 | ||||||
2,045 | 1.02%, 02/22/2019 | 2,037 | ||||||
4,965 | 1.32%, 09/07/2018 | 4,993 | ||||||
Citigroup/Deutsche Bank Commercial Mortgage Trust | ||||||||
4,680 | 5.40%, 07/15/2044 Δ | 4,755 | ||||||
1,730 | 5.48%, 01/15/2046 Δ | 1,779 | ||||||
CNH Equipment Trust | ||||||||
1,265 | 0.49%, 03/15/2017 | 1,265 | ||||||
2,144 | 0.63%, 01/17/2017 | 2,144 | ||||||
1,961 | 0.86%, 09/15/2017 | 1,962 | ||||||
Community or Commercial Mortgage Trust | ||||||||
1,130 | 0.96%, 03/15/2029 ■Δ | 1,125 | ||||||
Credit Acceptance Automotive Loan Trust | ||||||||
1,985 | 1.50%, 04/15/2021 ■ | 1,989 | ||||||
Credit Suisse Mortgage Capital Certificates | ||||||||
1,824 | 5.47%, 09/15/2039 | 1,920 | ||||||
Discover Card Master Trust | ||||||||
7,480 | 0.86%, 11/15/2017 | 7,491 | ||||||
DT Automotive Owner Trust | ||||||||
883 | 0.66%, 07/17/2017 ■ | 883 | ||||||
First Investors Automotive Owner Trust | ||||||||
965 | 0.89%, 09/15/2017 ■ | 965 | ||||||
2,060 | 1.06%, 11/15/2018 ■ | 2,058 | ||||||
Ford Credit Automotive Lease Trust | ||||||||
1,575 | 0.76%, 09/15/2016 | 1,576 | ||||||
Ford Credit Automotive Owner Trust | ||||||||
1,672 | 0.48%, 11/15/2016 | 1,672 | ||||||
2,727 | 0.57%, 06/15/2016 | 2,727 | ||||||
Ford Credit Floorplan Master Owner Trust | ||||||||
2,105 | 0.55%, 02/15/2019 Δ | 2,106 | ||||||
2,450 | 0.85%, 01/15/2018 | 2,450 | ||||||
GE Capital Credit Card Master Note Trust | ||||||||
6,735 | 1.03%, 01/15/2018 | 6,736 | ||||||
GE Dealer Floorplan Master Note Trust | ||||||||
6,500 | 0.61%, 10/20/2017 Δ | 6,499 | ||||||
8,345 | 0.66%, 06/20/2017 Δ | 8,349 | ||||||
Golden Credit Card Trust | ||||||||
4,465 | 0.40%, 02/15/2018 ■Δ | 4,464 | ||||||
3,125 | 0.48%, 03/15/2019 ■Δ | 3,117 | ||||||
3,275 | 0.79%, 09/15/2017 ■ | 3,278 | ||||||
Hilton USA Trust | ||||||||
1,858 | 1.16%, 11/05/2030 ■Δ | 1,858 | ||||||
Huntington Automotive Trust | ||||||||
1,718 | 0.81%, 09/15/2016 | 1,720 | ||||||
John Deere Owner Trust | ||||||||
6,000 | 0.69%, 01/15/2019 | 5,996 | ||||||
6,000 | 0.87%, 08/15/2017 | 6,012 | ||||||
JP Morgan Chase Commercial Mortgage Securities Corp. | ||||||||
649 | 3.85%, 06/15/2043 ■ | 652 | ||||||
2,234 | 4.92%, 10/15/2042 | 2,264 | ||||||
1,085 | 6.06%, 04/15/2045 Δ | 1,133 | ||||||
M&T Bank Automotive Receivables Trust | ||||||||
6,535 | 1.06%, 11/15/2017 ■ | 6,555 | ||||||
Mercedes-Benz Automotive Lease Trust | ||||||||
4,097 | 0.59%, 02/15/2016 | 4,096 | ||||||
3,445 | 0.62%, 07/15/2016 | 3,447 | ||||||
Mercedes-Benz Automotive Receivables Trust | ||||||||
3,980 | 0.61%, 12/17/2018 | 3,978 | ||||||
Morgan Stanley Capital I | ||||||||
463 | 4.99%, 08/13/2042 | 464 | ||||||
1,100 | 5.38%, 11/14/2042 Δ | 1,117 | ||||||
New York City Tax Lien | ||||||||
671 | 1.03%, 11/10/2027 ■ | 670 | ||||||
Nissan Automotive Lease Trust | ||||||||
840 | 0.42%, 01/15/2016 Δ | 839 | ||||||
2,890 | 0.61%, 09/15/2015 | 2,889 | ||||||
925 | 0.75%, 06/15/2016 | 926 | ||||||
2,475 | 1.04%, 10/15/2019 | 2,471 | ||||||
Nissan Automotive Receivables Owner Trust | ||||||||
1,189 | 0.40%, 06/15/2016 | 1,189 | ||||||
Porsche Innovative Lease Owner Trust | ||||||||
1,125 | 0.54%, 01/22/2016 ■ | 1,125 | ||||||
Prestige Automotive Receivables Trust | ||||||||
1,682 | 0.97%, 03/15/2018 ■ | 1,682 | ||||||
Santander Drive Automotive Receivables Trust | ||||||||
790 | 0.53%, 04/17/2017 Δ | 790 | ||||||
655 | 0.66%, 06/15/2017 | 655 |
The accompanying notes are an integral part of these financial statements.
5 |
Hartford Ultrashort Bond HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Shares or Principal Amount | Market Value ╪ | |||||||
Asset and Commercial Mortgage Backed Securities - 26.7% - (continued) | ||||||||
Finance and Insurance - 25.4% - (continued) | ||||||||
Synchrony Credit Card Master Note Trust | ||||||||
$ | 3,500 | 1.61%, 11/16/2020 | $ | 3,487 | ||||
Volvo Financial Equipment LLC | ||||||||
2,230 | 0.82%, 04/16/2018 ■ | 2,226 | ||||||
Westlake Automobile Receivables Trust | ||||||||
2,550 | 0.70%, 05/15/2017 ■ | 2,549 | ||||||
Wheels SPV LLC | ||||||||
675 | 0.84%, 03/20/2023 ■ | 675 | ||||||
World Omni Automotive Receivables Trust | ||||||||
2,703 | 0.48%, 11/15/2016 | 2,703 | ||||||
220,453 | ||||||||
Machinery Manufacturing - 0.1% | ||||||||
Kubota Credit Owner Trust | ||||||||
1,025 | 0.58%, 02/15/2017 ■ | 1,025 | ||||||
Real Estate, Rental and Leasing - 0.7% | ||||||||
Enterprise Fleet Financing LLC | ||||||||
3,022 | 0.68%, 09/20/2018 ■ | 3,022 | ||||||
1,185 | 0.87%, 09/20/2019 ■ | 1,185 | ||||||
1,924 | 1.06%, 03/20/2019 ■ | 1,927 | ||||||
6,134 | ||||||||
Transportation Equipment Manufacturing - 0.5% | ||||||||
GE Equipment Transportation LLC | ||||||||
1,310 | 0.61%, 06/24/2016 | 1,311 | ||||||
3,000 | 0.92%, 09/25/2017 | 3,007 | ||||||
4,318 | ||||||||
Total Asset and Commercial Mortgage Backed Securities | ||||||||
(Cost $232,261) | $ | 231,930 | ||||||
Certificates of Deposit - 0.5% | ||||||||
Finance and Insurance - 0.5% | ||||||||
Credit Suisse New York, | ||||||||
$ | 4,500 | 0.65%, 12/07/2015 Δ | $ | 4,502 | ||||
Total Certificates of Deposit | ||||||||
(Cost $4,500) | $ | 4,502 | ||||||
Corporate Bonds - 48.3% | ||||||||
Arts, Entertainment and Recreation - 0.8% | ||||||||
Comcast Corp. | ||||||||
$ | 3,000 | 5.85%, 11/15/2015 | $ | 3,137 | ||||
Fidelity National Information Services, Inc. | ||||||||
405 | 1.45%, 06/05/2017 | 403 | ||||||
NBC Universal Enterprise | ||||||||
3,000 | 0.92%, 04/15/2018 ■Δ | 3,025 | ||||||
6,565 | ||||||||
Beverage and Tobacco Product Manufacturing - 2.1% | ||||||||
Anheuser-Busch InBev Worldwide, Inc. | ||||||||
5,000 | 0.63%, 02/01/2019 Δ | 4,974 | ||||||
BAT International Finance plc | ||||||||
2,105 | 1.40%, 06/05/2015 ■ | 2,109 | ||||||
Coca-Cola Enterprises, Inc. | ||||||||
5,000 | 2.13%, 09/15/2015 | 5,050 | ||||||
Philip Morris International, Inc. | ||||||||
6,000 | 2.50%, 05/16/2016 | 6,142 | ||||||
18,275 | ||||||||
Chemical Manufacturing - 0.2% | ||||||||
Monsanto Co. | ||||||||
2,000 | 1.15%, 06/30/2017 | 1,985 | ||||||
Computer and Electronic Product Manufacturing - 0.5% | ||||||||
Hewlett-Packard Co. | ||||||||
3,000 | 1.17%, 01/14/2019 Δ | 2,949 | ||||||
Thermo Fisher Scientific, Inc. | ||||||||
1,450 | 1.30%, 02/01/2017 | 1,442 | ||||||
4,391 | ||||||||
Electrical Equipment, Appliance Manufacturing - 0.3% | ||||||||
Whirlpool Corp. | ||||||||
2,645 | 1.35%, 03/01/2017 | 2,637 | ||||||
Finance and Insurance - 35.1% | ||||||||
Abbey National Treasury Services plc | ||||||||
1,500 | 0.66%, 09/29/2017 Δ | 1,496 | ||||||
3,000 | 0.75%, 03/13/2017 Δ | 2,999 | ||||||
ABN Amro Bank N.V. | ||||||||
2,150 | 0.65%, 06/06/2016 ■Δ | 2,147 | ||||||
American Express Credit Corp. | ||||||||
1,500 | 0.74%, 07/29/2016 Δ | 1,506 | ||||||
2,500 | 0.79%, 03/18/2019 Δ | 2,489 | ||||||
1,500 | 1.13%, 06/05/2017 | 1,495 | ||||||
American Honda Finance Corp. | ||||||||
6,000 | 0.73%, 10/07/2016 Δ | 6,026 | ||||||
Australia & New Zealand Banking Group Ltd. | ||||||||
3,000 | 0.61%, 01/10/2017 ■Δ | 3,005 | ||||||
Bank of America Corp. | ||||||||
2,000 | 1.07%, 03/22/2016 Δ | 2,008 | ||||||
2,000 | 1.27%, 01/15/2019 Δ | 2,028 | ||||||
2,000 | 1.32%, 03/22/2018 Δ | 2,015 | ||||||
2,000 | 1.70%, 08/25/2017 | 2,001 | ||||||
Bank of Montreal | ||||||||
6,000 | 0.75%, 07/15/2016 Δ | 6,027 | ||||||
Bank of New York Mellon Corp. | ||||||||
6,000 | 0.46%, 03/04/2016 Δ | 6,001 | ||||||
Bank of Nova Scotia | ||||||||
6,000 | 0.75%, 07/15/2016 Δ | 6,014 | ||||||
Bank of Tokyo-Mitsubishi UFJ Ltd. | ||||||||
2,000 | 0.55%, 09/08/2017 ■Δ | 1,980 | ||||||
Barclays Bank plc | ||||||||
2,815 | 0.81%, 02/17/2017 Δ | 2,817 | ||||||
BB&T Corp. | ||||||||
2,500 | 0.89%, 02/01/2019 Δ | 2,501 | ||||||
BNP Paribas | ||||||||
5,000 | 0.83%, 12/12/2016 Δ | 5,010 | ||||||
BP Capital Markets plc | ||||||||
3,000 | 0.65%, 11/07/2016 Δ | 3,000 | ||||||
4,000 | 0.88%, 09/26/2018 Δ | 3,964 | ||||||
BPCE S.A. | ||||||||
6,000 | 1.08%, 02/10/2017 Δ | 6,040 | ||||||
Branch Banking & Trust Co. | ||||||||
2,500 | 0.66%, 12/01/2016 Δ | 2,502 | ||||||
Canadian Imperial Bank of Commerce | ||||||||
6,000 | 0.75%, 07/18/2016 Δ | 6,025 |
The accompanying notes are an integral part of these financial statements.
6 |
Hartford Ultrashort Bond HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Shares or Principal Amount | Market Value ╪ | |||||||
Corporate Bonds - 48.3% - (continued) | ||||||||
Finance and Insurance - 35.1% - (continued) | ||||||||
Capital One Bank | ||||||||
$ | 2,500 | 1.15%, 11/21/2016 | $ | 2,491 | ||||
1,500 | 1.30%, 06/05/2017 | 1,487 | ||||||
Caterpillar Financial Services Corp. | ||||||||
2,175 | 0.46%, 03/03/2017 Δ | 2,174 | ||||||
6,000 | 0.47%, 02/26/2016 Δ | 6,007 | ||||||
Citigroup, Inc. | ||||||||
2,500 | 0.91%, 11/15/2016 Δ | 2,501 | ||||||
4,000 | 1.00%, 04/08/2019 Δ | 4,015 | ||||||
4,000 | 3.95%, 06/15/2016 | 4,152 | ||||||
Commonwealth Bank of Australia | ||||||||
2,000 | 0.75%, 09/20/2016 ■Δ | 2,006 | ||||||
Credit Agricole S.A. | ||||||||
6,000 | 1.08%, 10/03/2016 ■Δ | 6,037 | ||||||
Credit Suisse New York | ||||||||
1,700 | 1.38%, 05/26/2017 | 1,695 | ||||||
Deutsche Bank AG London | ||||||||
2,000 | 0.84%, 02/13/2017 Δ | 2,003 | ||||||
2,000 | 1.35%, 05/30/2017 | 1,983 | ||||||
Fifth Third Bancorp | ||||||||
2,500 | 0.74%, 11/18/2016 Δ | 2,506 | ||||||
2,500 | 1.35%, 06/01/2017 | 2,497 | ||||||
Ford Motor Credit Co. LLC | ||||||||
2,150 | 1.01%, 01/17/2017 Δ | 2,150 | ||||||
2,500 | 1.07%, 03/12/2019 Δ | 2,486 | ||||||
2,000 | 1.72%, 12/06/2017 | 1,979 | ||||||
General Electric Capital Corp. | ||||||||
2,000 | 0.51%, 05/15/2017 Δ | 1,997 | ||||||
3,000 | 0.95%, 04/02/2018 Δ | 3,028 | ||||||
Goldman Sachs Group, Inc. | ||||||||
2,000 | 1.33%, 11/15/2018 Δ | 2,020 | ||||||
3,000 | 1.43%, 04/30/2018 Δ | 3,035 | ||||||
2,000 | 1.60%, 11/23/2015 | 2,010 | ||||||
Harley-Davidson Financial Services, Inc. | ||||||||
2,600 | 3.88%, 03/15/2016 ■ | 2,683 | ||||||
HSBC Bank plc | ||||||||
3,000 | 0.87%, 05/15/2018 ■Δ | 3,012 | ||||||
Huntington National Bank | ||||||||
3,000 | 0.66%, 04/24/2017 Δ | 2,997 | ||||||
ING Bank N.V. | ||||||||
6,000 | 1.89%, 09/25/2015 ■Δ | 6,062 | ||||||
JP Morgan Chase & Co. | ||||||||
3,000 | 0.85%, 02/26/2016 Δ | 3,006 | ||||||
3,000 | 0.86%, 01/28/2019 Δ | 3,000 | ||||||
Lloyds Banking Group plc | ||||||||
2,595 | 4.38%, 01/12/2015 ■ | 2,598 | ||||||
Macquarie Bank Ltd. | ||||||||
3,750 | 1.23%, 01/31/2017 ■Δ | 3,785 | ||||||
Manufacturers & Traders Trust Co. | ||||||||
3,000 | 0.61%, 01/30/2017 Δ | 2,996 | ||||||
1,500 | 1.40%, 07/25/2017 | 1,498 | ||||||
MetLife Global Funding I | ||||||||
9,500 | 0.46%, 04/10/2015 ■Δ | 9,500 | ||||||
Morgan Stanley | ||||||||
3,000 | 1.08%, 01/24/2019 Δ | 3,006 | ||||||
1,525 | 1.48%, 02/25/2016 Δ | 1,537 | ||||||
1,275 | 5.95%, 12/28/2017 | 1,417 | ||||||
National Rural Utilities Cooperative Finance Corp. | ||||||||
4,000 | 0.53%, 11/23/2016 Δ | 4,004 | ||||||
New York Life Global Funding | ||||||||
3,500 | 1.13%, 03/01/2017 ■ | 3,492 | ||||||
Nissan Motor Acceptance Corp. | ||||||||
1,375 | 0.78%, 03/03/2017 ■Δ | 1,379 | ||||||
3,975 | 0.95%, 09/26/2016 ■Δ | 3,998 | ||||||
Nordea Bank AB | ||||||||
3,000 | 0.59%, 04/04/2017 ■Δ | 3,003 | ||||||
3,000 | 0.69%, 05/13/2016 ■Δ | 3,007 | ||||||
PNC Bank NA | ||||||||
7,500 | 1.15%, 11/01/2016 | 7,510 | ||||||
Pricoa Global Funding I | ||||||||
3,500 | 1.15%, 11/25/2016 ■ | 3,493 | ||||||
Principal Life Global Funding II | ||||||||
2,000 | 1.13%, 02/24/2017 ■ | 1,986 | ||||||
1,450 | 1.20%, 05/19/2017 ■ | 1,440 | ||||||
Private Export Funding Corp. | ||||||||
23,370 | 4.55%, 05/15/2015 | 23,745 | ||||||
Prudential Financial, Inc. | ||||||||
4,000 | 1.01%, 08/15/2018 Δ | 4,024 | ||||||
Rabobank Nederland | ||||||||
6,000 | 0.72%, 03/18/2016 Δ | 6,018 | ||||||
Royal Bank of Canada | ||||||||
3,000 | 0.56%, 01/23/2017 Δ | 3,005 | ||||||
3,000 | 0.61%, 03/08/2016 Δ | 3,005 | ||||||
Societe Generale | ||||||||
3,000 | 1.32%, 10/01/2018 Δ | 3,053 | ||||||
Sumitomo Mitsui Banking Corp. | ||||||||
3,000 | 0.66%, 01/10/2017 Δ | 2,996 | ||||||
SunTrust Banks, Inc. | ||||||||
3,000 | 0.67%, 02/15/2017 Δ | 3,001 | ||||||
Svenska Handelsbanken AB | ||||||||
6,000 | 0.72%, 09/23/2016 Δ | 6,022 | ||||||
Toronto-Dominion Bank | ||||||||
3,000 | 0.47%, 05/02/2017 Δ | 2,992 | ||||||
3,000 | 0.70%, 09/09/2016 Δ | 3,008 | ||||||
Toyota Motor Credit Corp. | ||||||||
4,000 | 0.52%, 05/17/2016 Δ | 4,008 | ||||||
2,000 | 1.13%, 05/16/2017 | 1,992 | ||||||
U.S. Bancorp | ||||||||
875 | 0.72%, 11/15/2018 Δ | 878 | ||||||
UBS AG Stamford CT | ||||||||
6,000 | 5.88%, 12/20/2017 | 6,700 | ||||||
Ventas Realty L.P. | ||||||||
570 | 1.25%, 04/17/2017 | 565 | ||||||
4,000 | 1.55%, 09/26/2016 | 4,016 | ||||||
Wells Fargo & Co. | ||||||||
2,000 | 1.15%, 06/02/2017 | 1,989 | ||||||
Wells Fargo Bank NA | ||||||||
1,450 | 0.38%, 06/02/2016 Δ | 1,448 | ||||||
304,229 | ||||||||
Health Care and Social Assistance - 1.8% | ||||||||
Actavis Funding SCS | ||||||||
2,000 | 1.30%, 06/15/2017 | 1,964 | ||||||
Bayer Finance LLC | ||||||||
2,000 | 0.69%, 10/06/2017 ■Δ | 1,997 | ||||||
CVS Caremark Corp. | ||||||||
2,585 | 1.20%, 12/05/2016 | 2,592 | ||||||
Express Scripts Holding Co. | ||||||||
1,500 | 1.25%, 06/02/2017 | 1,484 | ||||||
1,500 | 3.13%, 05/15/2016 | 1,542 |
The accompanying notes are an integral part of these financial statements.
7 |
Hartford Ultrashort Bond HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Shares or Principal Amount | Market Value ╪ | |||||||
Corporate Bonds - 48.3% - (continued) | ||||||||
Health Care and Social Assistance - 1.8% - (continued) | ||||||||
McKesson Corp. | ||||||||
$ | 3,300 | 1.29%, 03/10/2017 | $ | 3,283 | ||||
Medtronic, Inc. | ||||||||
1,820 | 1.50%, 03/15/2018 ■ | 1,811 | ||||||
Perrigo Co., Ltd. | ||||||||
935 | 1.30%, 11/08/2016 | 931 | ||||||
15,604 | ||||||||
Information - 1.6% | ||||||||
British Telecommunications plc | ||||||||
1,190 | 1.25%, 02/14/2017 | 1,184 | ||||||
3,135 | 1.63%, 06/28/2016 | 3,158 | ||||||
Thomson Reuters Corp. | ||||||||
700 | 0.88%, 05/23/2016 | 697 | ||||||
3,000 | 1.30%, 02/23/2017 | 2,984 | ||||||
Verizon Communications, Inc. | ||||||||
6,000 | 1.99%, 09/14/2018 Δ | 6,241 | ||||||
14,264 | ||||||||
Miscellaneous Manufacturing - 0.3% | ||||||||
Rockwell Collins, Inc. | ||||||||
2,300 | 0.59%, 12/15/2016 Δ | 2,300 | ||||||
Motor Vehicle and Parts Manufacturing - 0.3% | ||||||||
Daimler Finance NA LLC | ||||||||
2,200 | 0.59%, 03/10/2017 ■Δ | 2,196 | ||||||
Petroleum and Coal Products Manufacturing - 1.6% | ||||||||
Devon Energy Corp. | ||||||||
4,250 | 0.78%, 12/15/2016 Δ | 4,231 | ||||||
Enbridge, Inc. | ||||||||
1,800 | 0.68%, 06/02/2017 Δ | 1,792 | ||||||
2,000 | 0.89%, 10/01/2016 Δ | 1,999 | ||||||
Petrobras Global Finance Co. | ||||||||
3,000 | 1.85%, 05/20/2016 Δ | 2,842 | ||||||
Statoil ASA | ||||||||
3,000 | 0.69%, 11/08/2018 Δ | 3,005 | ||||||
13,869 | ||||||||
Pipeline Transportation - 0.6% | ||||||||
Enterprise Products Operating LLC | ||||||||
5,000 | 1.25%, 08/13/2015 | 5,013 | ||||||
Real Estate, Rental and Leasing - 0.4% | ||||||||
GATX Corp. | ||||||||
1,145 | 1.25%, 03/04/2017 | 1,134 | ||||||
PACCAR Financial Services Corp. | ||||||||
1,500 | 0.84%, 12/06/2018 Δ | 1,509 | ||||||
975 | 1.10%, 06/06/2017 | 971 | ||||||
3,614 | ||||||||
Retail Trade - 0.5% | ||||||||
Kroger (The) Co. | ||||||||
4,500 | 0.76%, 10/17/2016 Δ | 4,493 | ||||||
Utilities - 1.5% | ||||||||
Dominion Resources, Inc. | ||||||||
4,000 | 1.05%, 11/01/2016 | 3,993 | ||||||
Duke Energy Indiana, Inc. | ||||||||
6,000 | 0.58%, 07/11/2016 Δ | 6,010 | ||||||
Nstar Electric Co. | ||||||||
3,165 | 0.47%, 05/17/2016 Δ | 3,162 | ||||||
13,165 | ||||||||
Wholesale Trade - 0.7% | ||||||||
SABMiller Holdings, Inc. | ||||||||
6,000 | 0.92%, 08/01/2018 ■Δ | 6,019 | ||||||
Total Corporate Bonds | ||||||||
(Cost $418,935) | $ | 418,619 | ||||||
Municipal Bonds - 0.5% | ||||||||
Industrial - 0.2% | ||||||||
New Jersey State Econ DA | ||||||||
$ | 2,000 | 1.10%, 06/15/2016 | $ | 1,994 | ||||
Transportation - 0.3% | ||||||||
New Jersey State Transit Corp | ||||||||
2,000 | 0.80%, 09/15/2015 | 1,999 | ||||||
Total Municipal Bonds | ||||||||
(Cost $4,000) | $ | 3,993 | ||||||
U.S. Government Agencies - 12.4% | ||||||||
FHLMC - 1.1% | ||||||||
$ | 9,595 | 0.35%, 03/18/2015 | $ | 9,598 | ||||
FNMA - 11.3% | ||||||||
97,549 | 0.50%, 07/02/2015 - 03/30/2016 | 97,711 | ||||||
Total U.S. Government Agencies | ||||||||
(Cost $107,254) | $ | 107,309 | ||||||
U.S. Government Securities - 11.0% | ||||||||
Other Direct Federal Obligations - 11.0% | ||||||||
FHLB - 11.0% | ||||||||
$ | 22,250 | 0.32%, 03/18/2016 | $ | 22,223 | ||||
23,000 | 0.34%, 01/25/2016 | 23,009 | ||||||
27,500 | 0.38%, 06/24/2016 | 27,433 | ||||||
12,500 | 1.00%, 03/11/2016 | 12,580 | ||||||
4,600 | 1.63%, 09/28/2015 | 4,643 | ||||||
5,500 | 3.13%, 03/11/2016 | 5,673 | ||||||
95,561 | ||||||||
Total U.S. Government Securities | ||||||||
(Cost $95,630) | $ | 95,561 | ||||||
Total Long-Term Investments | ||||||||
(Cost $862,580) | $ | 861,914 | ||||||
Short-Term Investments - 0.5% | ||||||||
Repurchase Agreements - 0.5% | ||||||||
Bank of America Merrill Lynch Repurchase Agreement (maturing on 01/02/2015 in the amount of $4, collateralized by U.S. Treasury Note 0.75%, 2018, value of $4) | ||||||||
$ | 4 | 0.05%, 12/31/2014 | $ | 4 | ||||
Bank of America Merrill Lynch TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $20, collateralized by U.S. Treasury Note 2.50%, 2024, value of $20) | ||||||||
20 | 0.07%, 12/31/2014 | 20 |
The accompanying notes are an integral part of these financial statements.
8 |
Hartford Ultrashort Bond HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted) |
Shares or Principal Amount | Market Value ╪ | |||||||||||
Short-Term Investments - 0.5% - (continued) | ||||||||||||
Repurchase Agreements - 0.5% - (continued) | ||||||||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $524, collateralized by U.S. Treasury Bond 3.88% - 5.25%, 2029 - 2040, U.S. Treasury Note 0.25% - 4.63%, 2015 - 2022, value of $534) | ||||||||||||
$ | 524 | 0.06%, 12/31/2014 | $ | 524 | ||||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $228, collateralized by FHLMC 2.00% - 5.50%, 2019 - 2044, FNMA 2.00% - 4.00%, 2024 - 2042, GNMA 3.00%, 2043, U.S. Treasury Bill 0.07%, 2015, value of $233) | ||||||||||||
228 | 0.07%, 12/31/2014 | 228 | ||||||||||
Barclays Capital TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $561, collateralized by U.S. Treasury Bond 3.63%, 2043, U.S. Treasury Note 0.88% - 2.00%, 2017 - 2020, value of $572) | ||||||||||||
561 | 0.05%, 12/31/2014 | 561 | ||||||||||
Citigroup Global Markets, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $1,002, collateralized by U.S. Treasury Bond 3.63% - 9.88%, 2015 - 2043, U.S. Treasury Note 0.25% - 2.75%, 2015 - 2022, value of $1,023) | ||||||||||||
1,002 | 0.06%, 12/31/2014 | 1,002 | ||||||||||
Deutsche Bank Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $163, collateralized by FHLMC 2.00% - 10.50%, 2015 - 2047, FNMA 2.00% - 9.50%, 2015 - 2049, GNMA 2.50% - 10.00%, 2016 - 2055, value of $166) | ||||||||||||
163 | 0.12%, 12/31/2014 | 163 | ||||||||||
RBS Securities, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $43, collateralized by U.S. Treasury Note 0.38% - 2.13%, 2015 - 2016, value of $44) | ||||||||||||
43 | 0.07%, 12/31/2014 | 43 | ||||||||||
Societe Generale TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $477, collateralized by U.S. Treasury Bond 8.75%, 2020, U.S. Treasury Note 0.25% - 2.88%, 2015 - 2022, value of $486) | ||||||||||||
477 | 0.07%, 12/31/2014 | 477 | ||||||||||
TD Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $1,021, collateralized by FHLMC 3.00% - 4.00%, 2026 - 2044, FNMA 2.50% - 5.00%, 2025 - 2044, value of $1,042) | ||||||||||||
1,021 | 0.08%, 12/31/2014 | 1,021 | ||||||||||
4,043 | ||||||||||||
Total Short-Term Investments | ||||||||||||
(Cost $4,043) | $ | 4,043 | ||||||||||
Total Investments | ||||||||||||
(Cost $866,623) ▲ | 99.9 | % | $ | 865,957 | ||||||||
Other Assets and Liabilities | 0.1 | % | 808 | |||||||||
Total Net Assets | 100.0 | % | $ | 866,765 |
The accompanying notes are an integral part of these financial statements.
9 |
Hartford Ultrashort Bond HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted) |
Note: | Percentage of investments as shown is the ratio of the total market value to total net assets. |
The Fund may refer to any one or more of the industry classifications used by one or more widely recognized market indices, ratings group indices and/or as defined by Fund management. Industry classifications may not be identical across all security types.
For Fund compliance purposes, the Fund may not use the same classification system shown in this report as these classifications are used for reporting ease.
▲ | At December 31, 2014, the cost of securities for federal income tax purposes was $866,623 and the aggregate gross unrealized appreciation and depreciation based on that cost were: |
Unrealized Appreciation | $ | 572 | ||
Unrealized Depreciation | (1,238 | ) | ||
Net Unrealized Depreciation | $ | (666 | ) |
Δ | Variable rate securities; the rate reported is the coupon rate in effect at December 31, 2014. |
■ | Securities issued within terms of a private placement memorandum, exempt from registration under Rule 144A under the Securities Act of 1933, as amended, and may be sold only to qualified institutional buyers. Unless otherwise noted, these holdings are determined to be liquid. At December 31, 2014, the aggregate value of these securities was $126,754, which represents 14.6% of total net assets. |
╪ | See Significant Accounting Policies of accompanying Notes to Financial Statements regarding valuation of securities. |
GLOSSARY: (abbreviations used in preceding Schedule of Investments) | |
Municipal Bond Abbreviations: | |
DA | Development Authority |
Other Abbreviations: | |
FHLB | Federal Home Loan Bank |
FHLMC | Federal Home Loan Mortgage Corp. |
FNMA | Federal National Mortgage Association |
GNMA | Government National Mortgage Association |
The accompanying notes are an integral part of these financial statements.
10 |
Hartford Ultrashort Bond HLS Fund
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted) |
Investment Valuation Hierarchy Level Summary
December 31, 2014
Total | Level 1 ♦ | Level 2 ♦ | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Asset and Commercial Mortgage Backed Securities | $ | 231,930 | $ | – | $ | 228,143 | $ | 3,787 | ||||||||
Certificates of Deposit | 4,502 | – | 4,502 | – | ||||||||||||
Corporate Bonds | 418,619 | – | 418,619 | – | ||||||||||||
Municipal Bonds | 3,993 | – | 3,993 | – | ||||||||||||
U.S. Government Agencies | 107,309 | – | 107,309 | – | ||||||||||||
U.S. Government Securities | 95,561 | – | 95,561 | – | ||||||||||||
Short-Term Investments | 4,043 | – | 4,043 | – | ||||||||||||
Total | $ | 865,957 | $ | – | $ | 862,170 | $ | 3,787 |
♦ | For the year ended December 31, 2014, there were no transfers between Level 1 and Level 2. |
Following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
Balance as of December 31, 2013 | Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Net Amortization | Purchases | Sales | Transfers Into Level 3 * | Transfers Out of Level 3 * | Balance as of December 31, 2014 | ||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||
Asset & Commercial Mortgage Backed Securities | $ | 7,186 | $ | — | $ | (8 | )† | $ | — | $ | 4,225 | $ | (430 | ) | $ | — | $ | (7,186 | ) | $ | 3,787 | |||||||||||||||
Total | $ | 7,186 | $ | — | $ | (8 | ) | $ | — | $ | 4,225 | $ | (430 | ) | $ | — | $ | (7,186 | ) | $ | 3,787 |
* | Investments are transferred into and out of Level 3 for a variety of reasons including, but not limited to: |
1) | Investments where trading has been halted (transfer into Level 3) or investments where trading has resumed (transfer out of Level 3). | |
2) | Broker quoted investments (transfer into Level 3) or quoted prices in active markets (transfer out of Level 3). | |
3) | Investments that have certain restrictions on trading (transfer into Level 3) or investments where trading restrictions have expired (transfer out of Level 3). |
† | Change in unrealized appreciation (depreciation) in the current period relating to assets still held at December 31, 2014 was $(8). |
Note: | For purposes of reporting transfers between different hierarchy levels, both transfers in and out of each level, as applicable, are shown as if they occurred at the beginning of the period. |
The accompanying notes are an integral part of these financial statements.
11 |
Hartford Ultrashort Bond HLS Fund
Statement of Assets and Liabilities
December 31, 2014
(000’s Omitted) |
Assets: | ||||
Investments in securities, at market value (cost $866,623) | $ | 865,957 | ||
Cash | 10 | |||
Receivables: | ||||
Fund shares sold | 210 | |||
Interest | 1,420 | |||
Total assets | 867,597 | |||
Liabilities: | ||||
Payables: | ||||
Fund shares redeemed | 693 | |||
Investment management fees | 76 | |||
Distribution fees | 7 | |||
Accrued expenses | 56 | |||
Total liabilities | 832 | |||
Net assets | $ | 866,765 | ||
Summary of Net Assets: | ||||
Capital stock and paid-in-capital | $ | 865,277 | ||
Undistributed net investment income | 2,080 | |||
Accumulated net realized gain | 74 | |||
Unrealized depreciation of investments | (666 | ) | ||
Net assets | $ | 866,765 | ||
Shares authorized | 14,000,000 | |||
Par value | $ | 0.01 | ||
Class IA: Net asset value per share | $ | 10.01 | ||
Shares outstanding | 74,466 | |||
Net assets | $ | 745,597 | ||
Class IB: Net asset value per share | $ | 9.98 | ||
Shares outstanding | 12,138 | |||
Net assets | $ | 121,168 |
The accompanying notes are an integral part of these financial statements.
12 |
Hartford Ultrashort Bond HLS Fund
Statement of Operations
For the Year Ended December 31, 2014
(000’s Omitted) |
Investment Income: | ||||
Interest | 6,562 | |||
Total investment income, net | 6,562 | |||
Expenses: | ||||
Investment management fees | 4,023 | |||
Transfer agent fees | 6 | |||
Distribution fees - Class IB | 342 | |||
Custodian fees | 3 | |||
Accounting services fees | 100 | |||
Board of Directors' fees | 27 | |||
Audit fees | 18 | |||
Other expenses | 94 | |||
Total expenses (before fees paid indirectly) | 4,613 | |||
Custodian fee offset | — | |||
Total fees paid indirectly | — | |||
Total expenses, net | 4,613 | |||
Net Investment Income | 1,949 | |||
Net Realized Gain on Investments: | ||||
Net realized gain on investments | 209 | |||
Net Realized Gain on Investments | 209 | |||
Net Changes in Unrealized Depreciation of Investments: | ||||
Net unrealized depreciation of investments | (468 | ) | ||
Net Changes in Unrealized Depreciation of Investments | (468 | ) | ||
Net Loss on Investments | (259 | ) | ||
Net Increase in Net Assets Resulting from Operations | $ | 1,690 |
The accompanying notes are an integral part of these financial statements.
13 |
Hartford Ultrashort Bond HLS Fund
Statement of Changes in Net Assets
(000’s Omitted) |
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | 1,949 | $ | (369 | ) | |||
Net realized gain on investments | 209 | 2 | ||||||
Net unrealized depreciation of investments | (468 | ) | (198 | ) | ||||
Net Increase (Decrease) in Net Assets Resulting from Operations | 1,690 | (565 | ) | |||||
Capital Share Transactions: | ||||||||
Class IA | ||||||||
Sold | 45,541 | 1,019,371 | ||||||
Redeemed | (314,816 | ) | (1,609,509 | ) | ||||
Total capital share transactions | (269,275 | ) | (590,138 | ) | ||||
Class IB | ||||||||
Sold | 12,390 | 142,018 | ||||||
Redeemed | (54,208 | ) | (251,269 | ) | ||||
Total capital share transactions | (41,818 | ) | (109,251 | ) | ||||
Net decrease from capital share transactions | (311,093 | ) | (699,389 | ) | ||||
Net Decrease in Net Assets | (309,403 | ) | (699,954 | ) | ||||
Net Assets: | ||||||||
Beginning of period | 1,176,168 | 1,876,122 | ||||||
End of period | $ | 866,765 | $ | 1,176,168 | ||||
Undistributed (distributions in excess of) net investment income | $ | 2,080 | $ | — | ||||
Shares*: | ||||||||
Class IA | ||||||||
Sold | 4,545 | 1,011,310 | ||||||
Redeemed | (31,429 | ) | (2,513,617 | )† | ||||
Total share activity | (26,884 | ) | (1,502,307 | ) | ||||
Class IB | ||||||||
Sold | 1,239 | 138,053 | ||||||
Redeemed | (5,421 | ) | (394,198 | )† | ||||
Total share activity | (4,182 | ) | (256,145 | ) |
* Please see Reverse Stock Split note in the Notes to Financial Statements for more information. The share amounts reflect actual activity during the year ended December 31, 2013 and do not reflect the impact of the reverse stock split.
† Amount includes adjustments made for reverse stock split of $1,080,670 and $182,596 for Class IA and Class IB, respectively.
The accompanying notes are an integral part of these financial statements.
14 |
Hartford Ultrashort Bond HLS Fund
Notes to Financial Statements
December 31, 2014
(000’s Omitted) |
Organization:
Hartford Ultrashort Bond HLS Fund (the "Fund") serves as an underlying investment option for certain variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company (“HLIC”) and its affiliates and certain qualified retirement plans. The Fund may also serve as an underlying investment option for certain variable annuity and variable life separate accounts of other insurance companies. Owners of variable annuity contracts and policyholders of variable life insurance contracts may choose the funds permitted in the variable insurance contract prospectus. In addition, participants in certain qualified retirement plans may choose the Fund if permitted by their plans.
Hartford Series Fund, Inc. (the “Company”) is an open-end registered management investment company comprised of fifteen portfolios. Financial statements for the Fund, a series of the Company, are included in this report.
The Company is organized under the laws of the State of Maryland and is registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (“1940 Act”). The Fund is a diversified open-end management investment company. The Fund is an investment company and applies specialized accounting and reporting under Accounting Standards Codification Topic 946, Financial Services - Investment Companies.
The Fund is divided into Class IA and Class IB shares. Each class is offered at the per share net asset value (“NAV”) without a sales charge and is subject to the same expenses, except that the Class IB shares are subject to distribution and service fees charged pursuant to a Distribution Plan adopted in accordance with Rule 12b-1 under the 1940 Act.
Significant Accounting Policies:
The following is a summary of significant accounting policies of the Fund in the preparation of its financial statements, which are in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The preparation of financial statements in accordance with U.S. GAAP may require 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
Determination of Net Asset Value – The NAV of each class of the Fund's shares is determined as of the close of regular trading (normally 4:00 p.m. Eastern Time) (the “NYSE Close”) on each day that the New York Stock Exchange (the “Exchange”) is open (“Valuation Date”). Information that becomes known to the Fund after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the NAV determined earlier that day.
Investment Valuation and Fair Value Measurements – For purposes of calculating the NAV, portfolio investments and other assets held by the Fund's portfolio for which market quotes are readily available are valued at market value. Market value is generally determined on the basis of last reported sales prices or official close price. If no sales are reported, market value is based on quotes obtained from a quotation reporting system, established market makers, or independent pricing services. If market prices are not readily available or are deemed unreliable, the Fund will use the fair value of the investment as determined in good faith under policies and procedures established by and under the supervision of the Company's Board of Directors. Market quotes are considered not readily available where there is an absence of current or reliable market-based data (e.g., trade information or indicative market quotes), including where events occur after the close of the relevant market, but prior to the NYSE Close, that materially affect the values of the Fund's portfolio investments or assets. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the investments trade do not open for trading for the entire day and no other market prices are available. There can be no assurance that the Fund could obtain the fair market value assigned to an investment if the Fund were to sell the investment at approximately the time at which the Fund determines its NAV.
Fixed income investments (other than short-term obligations), non-exchange traded derivatives and centrally cleared swaps held by the Fund are normally valued on the basis of quotes obtained from independent pricing services or brokers and dealers in accordance with procedures established by the Company's Board of Directors. Prices obtained from independent pricing services use information provided by market makers or estimates of market values through accepted market modeling, trading and pricing conventions. Inputs to the models may include, but are not limited to, prepayment speeds, pricing spread, yield, trade information, dealer quotes, market
15 |
Hartford Ultrashort Bond HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted) |
color, cash flow models and the investment’s terms and conditions. Generally, the Fund may use fair valuation in regard to fixed income investments when the Fund holds defaulted or distressed investments or investments in a company in which a reorganization is pending. Short-term investments maturing in 60 days or less are generally valued at amortized cost, if their original term to maturity was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if the original term to maturity exceeded 60 days, which approximates fair value.
Investments in open-end mutual funds are valued at the respective NAV of each open-end mutual fund on the Valuation Date.
Financial instruments for which prices are not available from an independent pricing service may be valued using market quotations obtained from one or more dealers that make markets in the respective financial instrument in accordance with procedures established by the Company's Board of Directors.
U.S. GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants. The U.S. GAAP fair value measurement standards require disclosure of a fair value hierarchy for each major category of assets and liabilities. Various inputs are used in determining the fair value of the Fund’s investments. These inputs are summarized into three broad hierarchy levels. This hierarchy is based on whether the valuation inputs are observable or unobservable. These levels are:
Level 1 – Quoted prices in active markets for identical investments. Level 1 may include exchange traded instruments, such as domestic equities, some foreign equities, options, futures, mutual funds, exchange traded funds, rights and warrants.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar investments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 2 may include debt investments that are traded less frequently than exchange traded instruments and which are valued using independent pricing services; foreign equities, which are principally traded on certain foreign markets and are adjusted daily pursuant to a fair value pricing service in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close; senior floating rate interests, which are valued using an aggregate of dealer bids; short-term investments, which are valued at amortized cost; and swaps, which are valued based upon the terms of each swap contract.
Level 3 – Significant unobservable inputs that are supported by limited or no market activity. Level 3 may include financial instruments whose values are determined using indicative market quotes or require significant management judgment or estimation. These unobservable valuation inputs may include estimates for current yields, maturity/duration, prepayment speed, and indicative market quotes for comparable investments along with other assumptions relating to credit quality, collateral value, complexity of the investment structure, general market conditions and liquidity. This category may include investments where trading has been halted or there are certain restrictions on trading. While these investments are priced using unobservable inputs, the valuation of these investments reflects the best available data and management believes the prices are a reasonable representation of exit price.
The Board of Directors of the Company generally reviews and approves the “Procedures for Valuation of Portfolio Securities” at least once a year. These procedures define how investments are to be valued, including the formation and activities of a Valuation Committee. The Valuation Committee is responsible for determining in good faith the fair value of investments when the value cannot be obtained from primary pricing services or alternative sources or if the valuation of an investment as provided by the primary pricing service or alternative source is believed not to reflect the investment’s fair value as of the Valuation Date. Voting members of the Valuation Committee include the Fund's Treasurer or designee and a Vice President of the investment manager or designee. An Assistant Vice President of the Fund with legal expertise or designee is also included on the Valuation Committee as a non-voting advisory member. In addition, the Fund’s Chief Compliance Officer shall designate a member of the compliance group to attend Valuation Committee meetings as a non-voting resource, to monitor for and provide guidance with respect to compliance with these procedures. Two members of the Valuation Committee or their designees, representing different departments, shall constitute a quorum for purposes of permitting the Valuation Committee to take action. The Valuation Committee will consider all relevant factors in determining an investment’s fair value, and may seek the advice of the Fund’s sub-adviser, knowledgeable brokers, and legal counsel in making such determination. The Valuation Committee reports to the Audit Committee of the Company's Board of Directors. The Audit Committee receives quarterly written reports which include details of
16 |
Hartford Ultrashort Bond HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted) |
all fair-valued investments, including the reason for the fair valuation, and an indication, when possible, of the accuracy of the valuation by disclosing the next available reliable public price quotation or the disposition price of such investments (the “look-back” test). The Board of Directors then must consider for ratification all of the fair value determinations made during the previous quarter.
Valuation levels are not necessarily indicative of the risk associated with investing in such investments. Individual investments within any of the above mentioned asset classes may be assigned a different hierarchical level than those presented above, as individual circumstances dictate.
For additional information, refer to the Investment Valuation Hierarchy Level Summary and the Level 3 roll-forward reconciliation, if applicable, which is included in the Schedule of Investments.
Investment Transactions and Investment Income – Investment transactions are recorded as of the trade date (the date the order to buy or sell is executed) for financial reporting purposes. Investments purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Realized gains and losses are determined on the basis of identified cost.
Interest income, including amortization of premium, accretion of discounts, inflation adjustments and additional principal received in-kind in lieu of cash, is accrued on a daily basis. Paydown gains and losses on mortgage related and other asset backed securities are included in interest income in the Statement of Operations.
Joint Trading Account – The Fund may invest cash balances into a joint trading account that may be invested in one or more repurchase agreements.
Fund Share Valuation and Dividend Distributions to Shareholders – Orders for the Fund’s shares are executed in accordance with the investment instructions of the contract holders and plan participants. The NAV of the Fund’s shares is determined as of the close of business on each business day of the Exchange. The NAV is determined separately for each class of shares of the Fund by dividing the Fund’s net assets attributable to that class by the number of shares of the class outstanding. Each class of shares offered by the Fund has equal rights as to assets and voting privileges (except that shareholders of a class have exclusive voting rights regarding any matter relating solely to that class of shares). Income and non-class specific expenses are allocated daily to each class on the basis of the relative net assets of the class. Realized and unrealized gains and losses are allocated daily based on the relative net assets of each class of shares of the Fund.
Orders for the purchase of the Fund’s shares received prior to the close of the Exchange on any day the Exchange is open for business are priced at the NAV determined as of the close of the Exchange. Orders received after the close of the Exchange, or on a day on which the Exchange and/or the Fund is not open for business, are priced at the next determined NAV.
Dividends are declared pursuant to a policy adopted by the Company's Board of Directors based upon the investment performance of the Fund. The policy of the Fund is to pay dividends from net investment income and realized gains, if any, at least once a year.
Net investment income, dividends and distributions from net realized gains and capital are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP with respect to character and timing (see Federal Income Taxes: Distributions and Components of Distributable Earnings and Reclassification of Capital Accounts).
Securities and Other Investments:
Repurchase Agreements – A repurchase agreement is an agreement by which a counterparty agrees to sell an investment and agrees to repurchase the investment sold from the buyer at a mutually agreed upon time and price. During the period of the repurchase agreement, the counterparty will deposit cash and or securities in a third party custodial account to serve as collateral. At the time the Fund enters into a repurchase agreement, the value of the underlying collateral, including accrued interest, will be equal to or exceed the value of the repurchase agreement. Repurchase agreements expose the Fund to counterparty risk - that is, the risk that the counterparty will not fulfill its obligations. To minimize counterparty risk, the investments that serve to collateralize the repurchase agreement are held by the Fund’s custodian in book entry or physical form in the custodial account of the Fund or in a
17 |
Hartford Ultrashort Bond HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted) |
third party custodial account. Repurchase agreements are valued at cost plus accrued interest, which approximates fair value. Repurchase agreements have master netting arrangements which allow the Fund to offset amounts owed to a counterparty with amounts owed by the counterparty, including any collateral. Upon an event of default under a master repurchase agreement, the non-defaulting party may close out all transactions traded under such agreement and net amounts owed under each transaction to one net amount payable by one party to the other. Absent an event of default, the master repurchase agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty. The Fund, as shown on the Schedule of Investments, had outstanding repurchase agreements and related collateral as of December 31, 2014.
Illiquid and Restricted Investments – The Fund is permitted to invest up to 15% of its net assets in illiquid investments. Illiquid investments are those that may not be sold or disposed of in the ordinary course of business within seven days, at approximately the price used to determine the Fund’s NAV. The Fund may not be able to sell illiquid investments when its sub-adviser considers it desirable to do so or may have to sell such investments at a price that is lower than the price that could be obtained if the investments were more liquid. A sale of illiquid investments may require more time and may result in higher dealer discounts and other selling expenses than does the sale of those that are liquid. Illiquid investments also may be more difficult to value due to the unavailability of reliable market quotations for such investments, and an investment in them may have an adverse impact on the Fund’s NAV. The Fund may also purchase certain restricted investments that can only be resold to certain qualified investors and may be determined to be liquid pursuant to policies and guidelines established by the Company's Board of Directors. The Fund, as shown on the Schedule of Investments, had illiquid or restricted investments as of December 31, 2014.
Investments Purchased on a When-Issued or Delayed-Delivery Basis – Delivery and payment for investments that have been purchased by the Fund on a forward commitment, or when-issued or delayed-delivery basis, take place beyond the customary settlement period. The Fund may dispose of or renegotiate a delayed-delivery transaction after it is entered into, and may sell delayed-delivery investments before they are delivered, which may result in a realized gain or loss. During this period, such investments are subject to market fluctuations, and the Fund identifies investments segregated in its records with a value at least equal to the amount of the commitment. The Fund had no when-issued or delayed-delivery investments as of December 31, 2014.
Mortgage Related and Other Asset Backed Securities – The Fund may invest in mortgage related and other asset backed securities. These securities include mortgage pass-through securities, collateralized mortgage obligations, commercial mortgage backed securities, stripped mortgage backed securities, asset backed securities, collateralized debt obligations and other securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property. Mortgage related securities are created from pools of residential or commercial mortgage loans, including mortgage loans made by savings and loan institutions, mortgage bankers, commercial banks and other similar financial institutions. Asset backed securities are created from many types of assets, including auto loans, credit card receivables, home equity loans, and student loans. These securities provide a monthly payment that consists of both interest and principal payments. Interest payments may be determined by fixed or adjustable rates. The rate of pre-payments on underlying mortgages will affect the price and volatility of a mortgage related security, and may have the effect of shortening or extending the effective duration of the security relative to what was anticipated at the time of purchase. The timely payment of principal and interest of certain mortgage related securities is guaranteed by the full faith and credit of the United States Government. Mortgage related and other asset backed securities created and guaranteed by non-governmental issuers, including government-sponsored corporations, may be supported by various forms of insurance or guarantees, but there can be no assurance that the private insurers or guarantors can meet their obligations under the insurance policies or guarantee arrangements. The Fund, as shown on the Schedule of Investments, had outstanding mortgage related and other asset backed securities as of December 31, 2014.
Principal Risks:
Credit risk depends largely on the perceived financial health of bond issuers. In general, the credit rating is inversely related to the credit risk of the issuer. Higher rated bonds generally are deemed to have less credit risk, while lower or unrated bonds are deemed to have higher risk of default. The share price, yield and total return of a fund that holds securities with higher credit risk may be more volatile than those of a fund that holds bonds with lower credit risk. Similar to credit risk, the Fund may be exposed to counterparty risk, or the risk that an institution or other entity with which the Fund has unsettled or open transactions will default.
18 |
Hartford Ultrashort Bond HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
The Fund’s investments expose the Fund to various risks including, but not limited to, interest rate, prepayment and extension risks. Interest rate risk is the risk that fixed income securities will decline in value because of changes in interest rates. As nominal interest rates rise, the values of certain fixed income securities held by the Fund are likely to decrease. A nominal interest rate can be described as the sum of a real interest rate and an expected inflation rate. Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. Duration is useful primarily as a measure of the sensitivity of a fixed income security’s market price to interest rate (i.e., yield) movements. Rising interest rates may cause prepayments to occur at a slower than expected rate, thereby effectively lengthening the maturity of the security and making the security more sensitive to interest rate changes. Prepayment and extension risk are major risks of mortgage backed securities and certain asset backed securities. For certain asset backed securities, the actual maturity may be less than the stated maturity shown in the Schedule of Investments, if applicable. As a result, the timing of income recognition relating to these securities may vary based upon the actual maturity.
Federal Income Taxes:
Federal Income Taxes – For federal income tax purposes, the Fund intends to continue to qualify as a Regulated Investment Company ("RIC") under Subchapter M of the Internal Revenue Code (“IRC”) by distributing substantially all of its taxable net investment income and net realized capital gains to its shareholders and otherwise complying with the requirements of the IRC. The Fund has distributed substantially all of its income and capital gains in prior years, if applicable, and intends to distribute substantially all of its income and capital gains prior to the next fiscal year-end. Accordingly, no provision for federal income or excise taxes has been made in the accompanying financial statements. Distributions from short-term capital gains are treated as ordinary income distributions for federal income tax purposes.
Net Investment Income (Loss), Net Realized Gains (Losses) and Distributions – Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of losses deferred due to wash sale adjustments, foreign currency gains and losses, adjustments related to Passive Foreign Investment Companies ("PFICs"), Real Estate Investment Trusts ("REITs"), RICs, certain derivatives and partnerships. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund.
Components of Distributable Earnings – The Fund’s components of distributable earnings (deficit) on a tax basis at December 31, 2014, are as follows:
Amount | ||||
Undistributed Ordinary Income | $ | 2,122 | ||
Undistributed Long-Term Capital Gain | 32 | |||
Unrealized Depreciation* | (666 | ) | ||
Total Accumulated Earnings | $ | 1,488 |
* | Differences between book-basis and tax-basis unrealized appreciation (depreciation) may be attributable to the losses deferred due to wash sale adjustments, foreign currency gains and losses and adjustments related to PFICs, REITs, RICs, certain derivatives and partnerships. |
19 |
Hartford Ultrashort Bond HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Reclassification of Capital Accounts – The Fund may record reclassifications in its capital accounts. These reclassifications have no impact on the total net assets of the Fund. The reclassifications are a result of permanent differences between U.S. GAAP and tax accounting for such items as foreign currency, PFICs, expiration or utilization of capital loss carryforwards or net operating losses. Adjustments are made to reflect the impact these items have on current and future distributions to shareholders. Therefore, the source of the Fund’s distributions may be shown in the accompanying Statement of Changes in Net Assets as from undistributed net investment income, from accumulated net realized gains on investments or from capital depending on the type of book and tax differences that exist. For the year ended December 31, 2014, the Fund recorded reclassifications to increase (decrease) the accounts listed below:
Amount | ||||
Undistributed Net Investment Income (Loss) | $ | 131 | ||
Accumulated Net Realized Gain (Loss) | (131 | ) |
Capital Loss Carryforward – On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which made changes to the capital loss carryforward rules. The changes are effective for taxable years beginning after the date of enactment. Under the Act, funds are permitted to carry forward capital losses for an unlimited period. Additionally, capital loss carryforwards retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under prior regulation.
The Fund had no capital loss carryforward for U.S. federal income tax purposes as of December 31, 2014.
During the year ended December 31, 2014, the Fund utilized $4 of prior year short term capital loss carryforwards.
Accounting for Uncertainty in Income Taxes – The Fund has adopted financial reporting rules that require the Fund to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions. Generally, tax authorities can examine all tax returns filed for the last three years. The Fund does not have an examination in progress.
The Fund has reviewed all open tax years and major jurisdictions and concluded that these financial reporting rules had no effect on the Fund’s financial position or results of operations. There is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on the tax return for the fiscal year ended December 31, 2014. The Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Expenses:
Investment Management Agreement – Hartford Funds Management Company, LLC ("HFMC") serves as the Fund’s investment manager pursuant to an Investment Management Agreement with the Company. HFMC is an indirect wholly owned subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford"). The investment manager has overall investment supervisory responsibility for the Fund. In addition, the investment manager provides administrative personnel, services, equipment, facilities and office space for proper operation of the Fund. HFMC has contracted with Wellington Management Company, LLP ("Wellington Management") under a sub-advisory agreement for the provision of day-to-day investment management services to the Fund in accordance with the Fund’s investment objective and policies. The Fund pays a fee to the investment manager, a portion of which may be used to compensate Wellington Management.
20 |
Hartford Ultrashort Bond HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
The schedule below reflects the rates of compensation paid to the investment manager for investment management services rendered as of December 31, 2014; the rates are accrued daily and paid monthly:
Average Daily Net Assets | Annual Fee | |||
On first $5 billion | 0.4000% | |||
On next $5 billion | 0.3800% | |||
Over $10 billion | 0.3700% |
Accounting Services Agreement – Pursuant to the Fund Accounting Agreement between HFMC and the Company, on behalf of the Fund, HFMC provides accounting services to the Fund and receives monthly compensation based on the Fund’s average daily net assets at the rates set forth below. The Fund’s accounting services fees are accrued daily and paid monthly.
Average Daily Net Assets | Annual Fee | |||
All Assets | 0.010% |
Operating Expenses – Allocable expenses incurred by the Company are allocated to each Fund and allocated to classes within a Fund in proportion to the average daily net assets of the Fund and each class, except where allocation of certain expenses is more fairly made directly to the Fund or to specific classes within a Fund.
Fees Paid Indirectly – The Fund's custodian has agreed to reduce its fees when the Fund maintains cash on deposit in a non-interest-bearing custody account. For the year ended December 31, 2014, this amount, if any, is included in the Statement of Operations.
The ratio of expenses to average net assets in the accompanying financial highlights excludes the reduction in expenses related to fees paid indirectly. The annualized expense ratio after waivers for the period listed below reflecting the reduction for fees paid indirectly is as follows:
Year Ended December 31, 2014 | ||||
Class IA | 0.43% | |||
Class IB | 0.68 |
Distribution Plan for Class IB Shares – Hartford Funds Distributors, LLC (“HFD”), an indirect wholly owned subsidiary of The Hartford, is the principal underwriter and distributor of the Fund. The Company, on behalf of the Fund, has adopted a Distribution Plan pursuant to Rule 12b-1 of the 1940 Act for Class IB shares.
The Distribution Plan provides that the Fund may pay annually up to 0.25% of the average daily net assets of the Fund attributable to its Class IB shares for activities primarily intended to result in the sale of Class IB shares. The Board has the authority to suspend or reduce these payments at any point in time. Under the terms of the Distribution Plan and the principal underwriting agreement, the Fund is authorized to make payments monthly to the distributor that may be used to pay or reimburse entities providing distribution and shareholder servicing with respect to the Class IB shares for such entities’ fees or expenses incurred or paid in that regard. The distribution fees paid during the period can be found on the Statement of Operations. These fees are accrued daily and paid monthly or at such other intervals as the Board of Directors may determine.
Other Related Party Transactions – Certain officers of the Fund are directors and/or officers of HFMC and/or The Hartford or its subsidiaries. For the year ended December 31, 2014, a portion of the Fund's Chief Compliance Officer's compensation was paid by all the investment companies in the Hartford fund complex. The portion allocated to the Fund, as represented in other expenses on the Statement of Operations, was in the amount of $1. Hartford Administrative Services Company ("HASCO"), an indirect wholly owned subsidiary of The Hartford, provides transfer agent services to the Fund. Effective December 1, 2014, pursuant to a sub-transfer agency agreement between HASCO and Boston Financial Data Services, Inc. (“BFDS”), HASCO delegated certain transfer agent, dividend disbursing agent and shareholder servicing agent functions to BFDS. HASCO is compensated by the Fund based on the
21 |
Hartford Ultrashort Bond HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
number of classes plus out of pocket expenses for providing such services, a portion of which may be used to compensate BFDS. The amount paid to HASCO can be found in the Statement of Operations. These fees are accrued daily and paid monthly.
Investment Transactions:
For the year ended December 31, 2014, the cost of purchases and proceeds from sales of investment securities (excluding short-term investments) were as follows:
Excluding U.S. Government Obligations | U.S. Government Obligations | Total | ||||||||||
Cost of Purchases | $ | 380,569 | $ | — | $ | 380,569 | ||||||
Sales Proceeds | 557,550 | — | 557,550 |
Line of Credit:
The Fund is one of several Hartford Funds that participate in a $500 million committed revolving line of credit facility. The facility is to be used for temporary or emergency purposes. Under the arrangement, the funds are required to own securities having a market value in excess of 300% of the total bank borrowings. The interest rate on borrowings varies depending on the nature of the loan. The facility also requires a fee to be paid based on the amount of the commitment. This commitment fee is allocated to all the funds participating in the line of credit based on the average net assets of the funds. During the year ended December 31, 2014, the Fund did not have any borrowings under this facility.
Indemnifications:
Under the Company's organizational documents, the Company shall indemnify its officers and directors to the full extent required or permitted under Maryland General Corporation Law and the federal securities laws. In addition, the Company, on behalf of the Fund, may enter into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, as of the date of these financial statements, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Pending Legal Proceedings:
On February 25, 2011, Jennifer L. Kasilag, Louis Mellinger, Judith M. Menendez, Jacqueline M. Robinson, and Linda A. Russell filed a derivative lawsuit against Hartford Investment Financial Services, LLC (“HIFSCO”) (now known as HFD) on behalf of six Hartford retail mutual funds in the United States District Court for the District of New Jersey, alleging that HIFSCO received excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the 1940 Act when serving as investment manager and principal underwriter, respectively, to the Hartford retail mutual funds. Although this action was purportedly filed on behalf of certain of the Hartford Funds, none of the Hartford Funds is itself a defendant to the suit. HIFSCO moved to dismiss and, in September 2011, the motion was granted in part and denied in part, with leave to amend the complaint. In November 2011, plaintiffs filed an amended complaint on behalf of certain Hartford retail mutual funds, The Hartford Global Health Fund (now known as The Hartford Healthcare Fund), The Hartford Conservative Allocation Fund, The Hartford Growth Opportunities Fund, The Hartford Inflation Plus Fund, The Hartford Advisers Fund (now known as The Hartford Balanced Fund), and The Hartford Capital Appreciation Fund. Plaintiffs seek to rescind the investment management agreements and distribution plans between HIFSCO and these funds and to recover the total fees charged thereunder or, in the alternative, to recover any improper compensation HIFSCO received, in addition to lost earnings. HIFSCO filed a partial motion to dismiss the amended complaint and, in December 2012, the court dismissed without prejudice the claims regarding distribution fees and denied the motion with respect to the advisory fees claims. HIFSCO disputes the allegations and intends to defend vigorously.
In March 2014, the plaintiffs filed a new complaint that added as new plaintiffs The Hartford Floating Rate Fund and The Hartford Small Company Fund, two Hartford retail mutual funds, and named as a defendant HFMC, which assumed the role as investment manager to the funds as of January 2013. HFMC and HIFSCO dispute the allegations and intend to defend vigorously.
22 |
Hartford Ultrashort Bond HLS Fund
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
This action concerns the activities of HIFSCO in its capacity as investment manager and principal underwriter to the Hartford retail mutual funds and does not concern HIFSCO’s activities in its capacity as principal underwriter to the HLS funds. For this reason, no accrual for litigation relating to this matter has been recorded in the financial statements of the Fund.
Reverse Stock Split:
On October 21, 2013, a reverse stock split was declared for the Class IA and Class IB shares at a ten to one ratio. The effect of the reverse stock split was to divide the number of outstanding shares by the reverse split factor, with a corresponding increase in the net asset value per share. The split was executed at the closing rounded NAV as of the prior business day. This transaction did not change the net assets of the Fund and the total value of a shareholder’s investment in the Fund did not change as a result of the reverse stock split. Prior year values represented in the Statement of Changes in Net Assets have not been adjusted. Data presented in the Financial Highlights has been adjusted retroactively to account for the reverse stock split.
Recent Accounting Pronouncement:
In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, modifying Accounting Standards Codification Topic 860. The amended guidance changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. The guidance also requires new disclosures for certain transfers accounted for as sales and collateral supporting transactions that are accounted for as secured borrowings. ASU 2014-11 is effective for annual and interim periods beginning after December 15, 2014, except for the disclosures related to secured borrowings, which are effective for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The adoption of ASU 2014-11 is not expected to have a material impact on the Fund’s results of operations or financial position, but may impact the Fund’s disclosures.
Subsequent Event:
Effective on or after January 1, 2015, pursuant to an agreement between the Hartford Funds and State Street Bank and Trust Company ("State Street"), State Street replaced, or is scheduled to replace, JP Morgan Chase Bank, N.A. ("JP Morgan Chase") as the Fund's primary custodian. JP Morgan Chase may serve as custodian of certain Fund assets. In addition, on or after the same date, HFMC has delegated, or will delegate, certain accounting and administrative services functions to State Street. The costs and expenses of such delegation will be borne by HFMC, not by the Funds, and HFMC will compensate State Street for its services out of its own resources.
23 |
Hartford Ultrashort Bond HLS Fund
Financial Highlights
─ Selected Per-Share Data(A) ─ | ─ Ratios and Supplemental Data ─ | |||||||||||||||||||||||||||||||||||||||||||||||||||
Class | Net Asset Value at Beginning of Period | Net Investment Income (Loss) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Investment Operations | Dividends from Net Investment Income | Distributions from Realized Capital Gains | Total Dividends and Distributions | Net Asset Value at End of Period | Total Return(B) | Net Assets at End of Period (000s) | Ratio of Expenses to Average Net Assets Before Adjust- ments(C) | Ratio of Expenses to Average Net Assets After Adjust- ments(C) | Ratio of Net Investment Income (Loss) to Average Net Assets | |||||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 10.00 | $ | 0.02 | $ | (0.01 | ) | $ | 0.01 | $ | – | $ | – | $ | – | $ | 10.01 | 0.10 | % | $ | 745,597 | 0.43 | % | 0.43 | % | 0.23 | % | |||||||||||||||||||||||||
IB | 9.99 | – | (0.01 | ) | (0.01 | ) | – | – | – | 9.98 | (0.10 | ) | 121,168 | 0.68 | 0.68 | (0.02 | ) | |||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2013 (D),(E) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 10.00 | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | 10.00 | – | % | $ | 1,013,110 | 0.45 | % | 0.21 | % | (0.02 | )% | ||||||||||||||||||||||||||
IB | 10.00 | (0.01 | ) | – | (0.01 | ) | – | – | – | 9.99 | (0.10 | ) | 163,058 | 0.49 | 0.25 | (0.06 | ) | |||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2012 (D),(E) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 10.00 | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | 10.00 | – | % | $ | 1,603,657 | 0.42 | % | 0.18 | % | – | % | ||||||||||||||||||||||||||
IB | 10.00 | – | – | – | – | – | – | 10.00 | – | 272,464 | 0.42 | 0.18 | – | |||||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2011 (D),(E) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 10.00 | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | 10.00 | – | % | $ | 1,970,312 | 0.42 | % | 0.16 | % | – | % | ||||||||||||||||||||||||||
IB | 10.00 | – | – | – | – | – | – | 10.00 | – | 376,648 | 0.42 | 0.16 | – | |||||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2010 (D),(E) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 10.00 | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | 10.00 | – | % | $ | 2,086,014 | 0.43 | % | 0.22 | % | – | % | ||||||||||||||||||||||||||
IB | 10.00 | – | – | – | – | – | – | 10.00 | – | 419,519 | 0.43 | 0.22 | – |
(A) | Information presented relates to a share outstanding throughout the indicated period. Net investment income (loss) per share amounts are calculated based on average shares outstanding unless otherwise noted. |
(B) | The figures do not include sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees would lower the Fund's performance. |
(C) | Adjustments include waivers and reimbursements, if applicable. Ratios do not include fees paid indirectly (see Expenses in the accompanying Notes to Financial Statements). |
(D) | Net investment income (loss) per share amounts have been calculated using the SEC method. |
(E) | Per share amounts have been restated to reflect a reverse stock split effective October 21, 2013. Please see Notes to Financial Statements. |
Portfolio Turnover Rate for All Share Classes | ||||
For the Year Ended December 31, 2014 | 40 % | |||
For the Year Ended December 31, 2013 | 6 (A) | |||
For the Year Ended December 31, 2012 | N/A (B) | |||
For the Year Ended December 31, 2011 | N/A (B) | |||
For the Year Ended December 31, 2010 | N/A (B) |
(A) | Portfolio turnover shown is from October 21, 2013 (conversion date) through December 31, 2013. |
(B) | The Fund was managed as a money market fund and portfolio turnover was not calculated. |
24 |
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Hartford Series Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Hartford Ultrashort Bond HLS Fund (one of the portfolios constituting Hartford Series Fund, Inc. (the Funds)) as of December 31, 2014, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2014, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Hartford Ultrashort Bond HLS Fund of the Hartford Series Fund, Inc. at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Minneapolis, Minnesota
February 13, 2015
25 |
Hartford Ultrashort Bond HLS Fund
Directors and Officers (Unaudited)
The Board of Directors of the Company (the "Directors") appoints officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the Directors. Each Director serves until his or her death, resignation, or retirement or until the next annual meeting of shareholders is held or until his or her successor is elected and qualifies.
Directors and officers who are employed by or who have a financial interest in The Hartford Financial Services Group, Inc. ("The Hartford") are considered “interested” persons of the Fund pursuant to the 1940 Act. The "interested" Directors and officers are reflected in the chart below. Each Director serves as a director for The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., Hartford Series Fund, Inc., and Hartford HLS Series Fund II, Inc., and as a trustee for The Hartford Alternative Strategies Fund, which, as of December 31, 2014, collectively consist of 66 funds. Correspondence may be sent to Directors and officers c/o Hartford Funds, 5 Radnor Corporate Center, Suite 300, 100 Matsonford Road, Radnor, Pennsylvania 19087, except that correspondence to Mr. Annoni, Mr. Dressen and Ms. Quade may be sent to 500 Bielenberg Drive, Suite 500, Woodbury, Minnesota 55125.
The table below sets forth, for each Director and officer, his or her name, year of birth, current position with the Company and date first elected or appointed to Hartford Series Fund, Inc. ("HSF") and Hartford HLS Series Fund II, Inc. ("HSF2"), principal occupation, and, for Directors, other directorships held. The Fund’s Statement of Additional Information contains further information on the Directors and is available free of charge by calling 1-888-843-7824 or writing to: Hartford HLS Funds, c/o Hartford Life Insurance Company/Hartford Life and Annuity Insurance Company, P.O. Box 14293, Lexington, KY 40512-4293 for variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates; Hartford Funds, P.O. Box 55022, Boston, MA 02205-5022 for all shareholders except variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates.
Information on the aggregate remuneration paid to the directors of the Company can be found in the Statement of Operations herein. The Fund pays to The Hartford a portion of the Chief Compliance Officer’s compensation, but does not pay salaries or compensation to any of its other officers or Directors who are employed by The Hartford.
Non-Interested Directors
Hilary E. Ackermann (1956) Director since September 23, 2014
Ms. Ackermann served as Chief Risk Officer at Goldman Sachs Bank USA from October 2008 to November 2011 and serves as a Director of Dynegy, Inc., an independent power company, from October 2012 to present.
Lynn S. Birdsong (1946) Director since 2003, Chairman of the Investment Committee since 2014
Mr. Birdsong is a private investor. Mr. Birdsong currently serves as a Director of Aberdeen Global and Aberdeen Global II (investment funds) (September 2014 to present) and as an Independent Director of Nomura Partners Funds, Inc. (formerly, The Japan Fund) (April 2003 to present). Mr. Birdsong served as Director of the Sovereign High Yield Investment Company (April 2010 to September 2014). From 2003 to March 2005, Mr. Birdsong was an Independent Director of the Atlantic Whitehall Funds. From 1979 to 2002, Mr. Birdsong was a Managing Director of Zurich Scudder Investments, an investment management firm. During his employment with Scudder, Mr. Birdsong was an Interested Director of The Japan Fund. Mr. Birdsong served as Co-Chairman of the Investment Committee of The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., HSF, HSF2 and The Hartford Alternative Strategies Fund from 2005 to 2014.
Robert M. Gavin, Jr. (1940) Director since 2002 (HSF) and 1986 (HSF2), Chairman of the Board for each since 2004
Dr. Gavin is an educational consultant. Prior to September 1, 2001, he was President of Cranbrook Education Community and prior to July 1996, he was President of Macalester College, St. Paul, Minnesota.
Duane E. Hill (1945) Director since 2001 (HSF) and 2002 (HSF2), Chairman of the Nominating Committee since 2003
Mr. Hill is a Partner of TSG Ventures L.P., a private equity investment company. Mr. Hill is a former partner of TSG Capital Group, a private equity investment firm that served as sponsor and lead investor in leveraged buyouts of middle market companies.
Sandra S. Jaffee (1941) Director since 2005
Ms. Jaffee is the founder and Chief Executive Officer of a private company, Homeworks Concierge, LLC, which provides residential property management services in Westchester County, New York (January 2012 to present). Ms. Jaffee served as Chairman (2008 to 2009) and Chief Executive Officer of Fortent (formerly Searchspace Group), a leading provider of compliance/regulatory technology to financial institutions from August 2005 to August 2009. From August 2004 to August 2005, Ms. Jaffee served as an Entrepreneur in Residence with Warburg Pincus, a private equity firm. Prior to joining Warburg Pincus, Ms. Jaffee served as Executive Vice President at Citigroup, from September 1995 to July 2004, where she was President and Chief Executive Officer of Citibank’s Global Securities
26 |
Hartford Ultrashort Bond HLS Fund
Directors and Officers (Unaudited) – (continued)
Services (1995 to 2003). Ms. Jaffee served as a member of the Board of Directors of Broadridge Financial Solutions (November 2010 to November 2014). Ms. Jaffee currently serves as a member of the Board of Directors of Global Camps Africa (a non-profit organization) (January 2015 to present) as well as a Trustee of Muhlenberg College (September 2007 to present).
William P. Johnston (1944) Director since 2005, Chairman of the Compliance Committee since 2005
In June 2006, Mr. Johnston was appointed as Senior Advisor to The Carlyle Group, a global private equity and other alternative asset investment firm and currently serves as an Operating Executive. In July 2006, Mr. Johnston was elected to the Board of Directors of MultiPlan, Inc. and served as a Director (July 2006 to August 2010). In August 2007, Mr. Johnston was elected to the Board of Directors of LifeCare Holdings, Inc. and served as a Director (August 2007 to June 2013). In February 2008, Mr. Johnston was elected to the Board of Directors of HCR-ManorCare, Inc. In May 2006, Mr. Johnston was elected to the Supervisory Board of Fresenius Medical Care AG & Co. KGaA, after its acquisition of Renal Care Group, Inc. in March 2006. Mr. Johnston joined Renal Care Group in November 2002 as a member of the Board of Directors and served as Chairman of the Board from March 2003 through March 2006. From 2002 through 2013, Mr. Johnston served as a Board member of the Georgia O’Keefe Museum. From September 1987 to December 2002, Mr. Johnston was with Equitable Securities Corporation (and its successors, SunTrust Equitable Securities and SunTrust Robinson Humphrey) serving in various investment banking and managerial positions, including Managing Director and Head of Investment Banking, Chief Executive Officer and Vice Chairman.
Phillip O. Peterson (1944) Director since 2002 (HSF) and 2000 (HSF2), Chairman of the Audit Committee since 2002
Mr. Peterson is a mutual fund industry consultant. He was a partner of KPMG LLP (an accounting firm) until July 1999. Mr. Peterson joined William Blair Funds in February 2007 as a member of the Board of Trustees. From February 2012 to February 2014, Mr. Peterson served as a Trustee of Symetra Variable Mutual Funds. From January 2004 to April 2005, Mr. Peterson served as Independent President of the Strong Mutual Funds.
Lemma W. Senbet (1946) Director since 2005
Dr. Senbet is the William E. Mayer Chair Professor of Finance at the University of Maryland, Robert H. Smith School of Business. He was chair of the Finance Department of the University of Maryland, Robert H. Smith School of Business from 1998 to 2006. Since June 2013, he has been on leave from the University to serve as Executive Director of African Economic Research Consortium which focuses on economic policy research and training. Previously, he was a chaired professor of finance at the University of Wisconsin-Madison. Also, he was a Director of the Fortis Funds from March 2000 to July 2002. Dr. Senbet served as Director of the American Finance Association and President of the Western Finance Association. In 2006, Dr. Senbet was inducted Fellow of Financial Management Association International for his career-long distinguished scholarship and professional service.
Interested Directors and Officers
James E. Davey (1964) Director since 2012, President and Chief Executive Officer since 2010
Mr. Davey serves as Executive Vice President of Hartford Life Insurance Company (“HLIC”) and The Hartford. Additionally, Mr. Davey serves as Chairman of the Board, Manager and Senior Managing Director of Hartford Funds Distributors, LLC (“HFD”). He also currently serves as Director, Chairman of the Board, President and Senior Managing Director of Hartford Administrative Services Company (“HASCO”). Mr. Davey also serves as Manager, Chairman of the Board and Senior Managing Director for Hartford Funds Management Company, LLC (“HFMC”) and Director, Chairman of the Board and Senior Managing Director for Hartford Funds Management Group, Inc. ("HFMG"). Mr. Davey has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Davey joined The Hartford in 2002.
Lowndes A. Smith* (1939) Director since 1996 (HSF) and 2002 (HSF2), Co-Chairman of the Investment Committee since 2005
Mr. Smith served as Vice Chairman of The Hartford from February 1997 to January 2002, as President and Chief Executive Officer of Hartford Life, Inc. from February 1997 to January 2002, and as President and Chief Operating Officer of The Hartford Life Insurance Companies from January 1989 to January 2002. Mr. Smith serves as a Director of White Mountains Insurance Group Ltd. (October 2003 to current); One Beacon Insurance (October 2006 to current); Symetra Financial (August 2007 to current) and is a Managing Director of Whittington Gray Associates (January 2007 to current).
* Mr. Smith resigned as a Director of Hartford Mutual Funds, Inc., Hartford Mutual Funds II, Inc., HSF and HSF2 and as a Trustee of The Hartford Alternative Strategies Fund effective September 17, 2014.
27 |
Hartford Ultrashort Bond HLS Fund
Directors and Officers (Unaudited) – (continued)
Other Officers
Mark A. Annoni (1964) Vice President, Controller and Treasurer since 2012
Mr. Annoni currently serves as the Assistant Vice President of HLIC (February 2004 to present) and Senior Vice President of HFMG (December 2013 to present). Mr. Annoni has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Annoni joined The Hartford in 2001.
Michael R. Dressen (1963) AML Compliance Officer since 2011
Mr. Dressen currently serves as Assistant Vice President of HLIC. He also serves as Chief Compliance Officer and AML Compliance Officer of HASCO and as AML Officer of HFD. Mr. Dressen has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
Edward P. Macdonald (1967) Vice President, Secretary and Chief Legal Officer since 2005
Mr. Macdonald currently serves as Assistant Secretary, Executive Vice President and Deputy General Counsel of HFD, HASCO, HFMC and HFMG. He also serves as Vice President of HLIC. Mr. Macdonald has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Macdonald joined The Hartford in 2005.
Joseph G. Melcher (1973) Vice President and Chief Compliance Officer since 2013
Mr. Melcher currently serves as Executive Vice President of HFD, HFMG and HASCO. Mr. Melcher also currently serves as Executive Vice President and Chief Compliance Officer of HFMC. Mr. Melcher has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds since joining The Hartford in 2012. Prior to joining The Hartford, Mr. Melcher worked at Touchstone Investments, a member of the Western & Southern Financial Group, where he held the position of Vice President and Chief Compliance Officer from 2010 through 2012 and Assistant Vice President, Compliance from 2005 to 2010.
Vernon J. Meyer (1964) Vice President since 2006
Mr. Meyer currently serves as Senior Vice President of HLIC. He also currently serves as Managing Director and Chief Investment Officer of HFMC and Managing Director of HFMG. Mr. Meyer has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Meyer joined The Hartford in 2004.
Laura S. Quade (1969) Vice President since 2012
Ms. Quade currently serves as Vice President of HASCO, HFD and HFMG. She is the Head of Operations of HASCO and formerly served as Director, Enterprise Operations of HLIC. Ms. Quade has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Ms. Quade joined The Hartford in 2001.
Martin A. Swanson** (1962) Vice President since 2010
Mr. Swanson currently serves as Vice President of HLIC. Mr. Swanson also serves as Managing Director, Chief Marketing Officer and Principal of HFD and Managing Director of HFMG. Mr. Swanson has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
** Mr. Swanson resigned as an officer effective November 6, 2014.
HOW TO OBTAIN A COPY OF THE FUND’S PROXY VOTING POLICIES AND VOTING RECORDS (UNAUDITED)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information about how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov. The Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
28 |
Hartford Ultrashort Bond HLS Fund
Expense Example (Unaudited)
Your Fund's Expenses
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including investment management fees, distribution and/or service (12b-1) fees, if any, and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period of June 30, 2014 through December 31, 2014.
Actual Expenses
The first set of columns of the table below provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second set of columns of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as taxes, sales charges (loads), or fees which may be applied at the variable life insurance, variable annuity, or qualified retirement plan product level. Therefore, the second set of columns of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would be higher. Expenses are equal to the Fund's annualized expense ratios multiplied by average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
Actual return | Hypothetical (5% return before expenses) | |||||||||||||||||||||||||||||||||||
Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses paid during the period June 30, 2014 through December 31, 2014 | Annualized expense ratio | Days in the current 1/2 year | Days in the full year | ||||||||||||||||||||||||||||
Class IA | $ | 1,000.00 | $ | 999.00 | $ | 2.12 | $ | 1,000.00 | $ | 1,023.09 | $ | 2.14 | 0.42 | % | 184 | 365 | ||||||||||||||||||||
Class IB | $ | 1,000.00 | $ | 997.00 | $ | 3.37 | $ | 1,000.00 | $ | 1,021.83 | $ | 3.41 | 0.67 | 184 | 365 |
29 |
Hartford Ultrashort Bond HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited)
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of directors, including a majority of those directors who are not “interested persons” of the mutual fund, as defined in the 1940 Act (the “Independent Directors”), annually review and consider the continuation of the mutual fund’s investment advisory and sub-advisory agreements. At its meeting held on August 5-6, 2014, the Board of Directors (the “Board”) of Hartford Series Fund, Inc., including each of the Independent Directors, unanimously voted to approve the continuation of the investment management agreement for Hartford Ultrashort Bond HLS Fund (the “Fund”) with Hartford Funds Management Company, LLC (“HFMC”) and the continuation of the investment sub-advisory agreement between HFMC and the Fund’s sub-adviser, Wellington Management Company, LLP (the “Sub-adviser,” and together with HFMC, the “Advisers”) (collectively, the “Agreements”).
In the months preceding the August 5-6, 2014 meeting, the Board requested, received and reviewed written responses from the Advisers to questions posed to them on behalf of the Independent Directors and supporting materials relating to those questions and responses. The Board considered information furnished to the Board at its meetings throughout the year, as well as information specifically prepared in connection with the annual approval of the Agreements at the Board’s meetings held on June 17-18, 2014 and August 5-6, 2014. Information provided to the Board at its meetings throughout the year included, among other things, reports on Fund performance, legal and compliance matters, sales and marketing activity, shareholder services, and the other services provided to the Fund by the Advisers and their affiliates. The Board also received in-person presentations by Fund officers and representatives of HFMC at the Board’s meetings on June 17-18, 2014 and August 5-6, 2014 concerning the Agreements.
The Independent Directors, advised by independent legal counsel, engaged service providers to assist them with evaluating the Agreements with respect to the Fund. Lipper Inc. (“Lipper”), an independent provider of investment company data, was retained to provide the Board with reports on how the Fund’s contractual management fees, actual management fees, other non-management fees, overall expense ratios and investment performance compared to those of mutual funds with similar investment objectives. The Independent Directors also engaged an independent financial services consultant (the “Consultant”) to assist them in evaluating the Fund’s management fees, sub-advisory fees, other non-management fees, overall expense ratios and investment performance. In addition, the Consultant reviewed the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement.
In determining whether to continue the Agreements for the Fund, the members of the Board reviewed and evaluated information and factors they believed to be relevant and appropriate in light of the information that the Board deemed necessary and appropriate through the exercise of its reasonable business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination to continue the Agreements was based on a comprehensive consideration of all information provided to the Board throughout the year and specifically with respect to the continuation of the Agreements. A more detailed discussion of the factors the Board considered with respect to its approval of the Agreements is provided below.
Nature, Extent and Quality of Services Provided by the Advisers
The Board requested and considered information concerning the nature, extent and quality of the services provided to the Fund by the Advisers. The Board considered, among other things, the terms of the Agreements and the range of services provided by the Advisers. The Board considered the Advisers’ professional personnel who provide services to the Fund, including each Adviser’s ability and experience in attracting and retaining qualified personnel to service the Fund. The Board considered each Adviser’s reputation and overall financial strength, as well as its willingness to consider and implement organizational and operational changes designed to enhance services to the Hartford Funds. In addition, the Board considered the quality of each Adviser’s communications with the Board and responsiveness to Board inquiries and requests made from time to time with respect to the Fund and other Hartford Funds.
The Board also requested and evaluated information concerning each Adviser’s regulatory and compliance environment. In this regard, the Board requested and reviewed information on each Adviser’s compliance policies and procedures, compliance history, and a report from the Fund’s Chief Compliance Officer on each Adviser’s compliance with applicable laws and regulations, including responses to regulatory developments and compliance issues raised by regulators. The Board also noted the Advisers’ support of the Fund’s compliance control structure, particularly the resources devoted by the Advisers in support of the Fund’s obligations pursuant to Rule 38a-1 under the 1940 Act.
With respect to HFMC, the Board noted that under the Agreements, HFMC is responsible for the management of the Fund, including oversight of fund operations and service providers, as well as investment advisory services in connection with selecting, monitoring and supervising the Sub-adviser. The Board considered HFMC’s ongoing monitoring of people, process and performance, including its quarterly reviews of each of
30 |
Hartford Ultrashort Bond HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
the Hartford Funds, semi-annual meetings with the leaders of each Fund’s portfolio management team, and oversight of the Hartford Funds’ approximately 37 portfolio managers. The Board recognized that HFMC has demonstrated a record of making changes to the management and/or strategies of the Hartford Funds when warranted. The Board considered HFMC’s oversight of the Sub-adviser’s investment approach and results, process for monitoring best execution of portfolio trades by the Sub-adviser, and approach to risk management with respect to the Fund and the service providers to the Fund. The Board also considered HFMC’s oversight of compliance with the Fund’s objective and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over time led to an increase in the scope of HFMC’s services in this regard.
In addition, the Board considered HFMC’s ongoing commitment to review and rationalize the Hartford Funds product line-up and the expenses that HFMC had incurred in connection with fund combinations in recent years. The Board considered that HFMC or its affiliates are responsible for providing the Fund’s officers. The Board also noted that Hartford Life Insurance Company (“HLIC”) provides administrative services to the Fund. The Board considered its experiences with HFMC and HLIC with respect to each of these services.
With respect to the Sub-adviser, which provides certain day-to-day portfolio management services for the Fund, the Board considered the quality of the Fund’s portfolio manager, the Sub-adviser’s other investment personnel, its investment philosophy and process, investment research capabilities and resources, performance record, trade execution capabilities and experience. The Board considered the experience of the Fund’s portfolio manager, the number of accounts managed by the portfolio manager, and the Sub-adviser’s method for compensating the portfolio manager.
Based on these considerations, the Board concluded that it was satisfied with the nature, extent and quality of the services provided to the Fund by HFMC and the Sub-adviser.
Performance of the Fund and the Advisers
The Board considered the investment performance of the Fund. In this regard, the Board reviewed the performance of the Fund over different time periods presented in the materials and evaluated HFMC’s analysis of the Fund’s performance for these time periods. The Board considered information and materials provided to the Board by the Advisers concerning Fund performance, as well as information from Lipper comparing the investment performance of the Fund to an appropriate benchmark and universe of peer funds. The Board noted that the Fund had recently been converted from a money market fund, Hartford Money Market HLS Fund, on October 21, 2013. The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the period since the Fund’s conversion.
The Board considered the detailed investment analytics reports provided by Hartford Funds’ Investment Advisory Group throughout the year. These reports include, among other things, information on the Fund’s gross and net returns, the Fund’s investment performance relative to an appropriate benchmark and peer group, various statistics concerning the Fund’s portfolio, and a narrative summary of various factors affecting Fund performance. The Board considered the Advisers’ cooperation with the Investment Committee, which assists the Board in evaluating the performance of the Fund at periodic meetings throughout the year. The Board also considered the analysis provided by the Consultant relating to the Fund’s performance track record.
In light of all the considerations noted above, the Board concluded that it had continued confidence in HFMC’s and the Sub-adviser’s overall capabilities to manage the Fund.
Costs of the Services and Profitability of the Advisers
The Board reviewed information regarding HFMC’s cost to provide investment management and related services to the Fund and HFMC’s profitability, both overall and for the Fund, on a pre-tax basis without regard to distribution expenses. The Board also requested and reviewed information about the profitability to HFMC and its affiliates from all services provided to the Fund and all aspects of their relationship with the Fund. The Board also requested and received information relating to the operations and profitability of the Sub-adviser.
The Board considered the Consultant’s review of the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement, noting the Consultant’s view that Hartford Funds’ process for calculating and reporting Fund profitability is reasonable. In this regard, the Board noted that the Consultant performed a full review of this process in light of the recent restructuring of the Hartford Funds business and reported that the approach to analyzing Fund profitability, including the use of common expense allocation methodologies, is reasonable, sound and well within common industry practice.
31 |
Hartford Ultrashort Bond HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
Based on these considerations, the Board concluded that the profits anticipated to be realized by the Advisers and their affiliates from their relationships with the Fund would not be excessive.
Comparison of Fees and Services Provided by the Advisers
The Board considered comparative information with respect to the management fees to be paid by the Fund to HFMC and the total expense ratios of the Fund. The Board also considered comparative information with respect to the sub-advisory fees to be paid by HFMC to the Sub-adviser. In this regard, the Board requested and reviewed information from HFMC and the Sub-adviser relating to the management and sub-advisory fees, including the sub-advisory fee schedule for the Fund, and total operating expenses for the Fund. The Board considered that the management fee for the Fund includes the fee paid to HLIC for providing certain administrative services to the Fund. With respect to the sub-advisory fee schedule, the Board considered representations from HFMC and the Sub-adviser that the Sub-adviser’s fees were negotiated at arm’s length on a fund-by-fund basis. The Board also reviewed information from Lipper comparing the Fund’s contractual management fees, actual management fees and overall expense ratios relative to a group of funds selected by Lipper, in consultation with the Consultant, and a broader universe of funds selected by Lipper. The Board noted that the Fund’s contractual management fee and actual management fee were in the 1st quintile of its expense group, while its total expenses (less 12b-1 and shareholder service fees) were in the 2nd quintile.
While the Board recognized that comparisons between the Fund and peer funds may be imprecise, given the different service levels and characteristics of mutual funds and the different business models and cost structures of the Advisers, the comparative information provided by Lipper assisted the Board in evaluating the reasonableness of the Fund’s management and sub-advisory fees and total operating expenses. In addition, the Board considered the analysis and recommendations of the Consultant relating to the Fund’s management and sub-advisory fees and total operating expenses.
Based on these considerations, the Board concluded that the Fund’s fees and total operating expenses, in conjunction with the information about quality of services, profitability, economies of scale, and other matters discussed, were reasonable in light of the services provided.
Economies of Scale
The Board requested and considered information regarding the Advisers’ realization of economies of scale with respect to the Fund and whether the fee levels reflect these economies of scale for the benefit of the Fund’s shareholders. The Board reviewed the breakpoints in the management fee schedule for the Fund, which reduce fee rates as Fund assets grow over time. The Board recognized that a fund with assets beyond the highest breakpoint level will continue to benefit from economies of scale because additional assets are charged the lowest breakpoint fee resulting in lower overall effective management fee rates. The Board also recognized that a fee schedule that reaches a lower breakpoint quickly provides shareholders with the benefit of anticipated or potential economies of scale. The Board noted the effect of the sale and run-off of the variable annuity business on the HLS Funds.
The Board reviewed and evaluated materials from Lipper and the Consultant showing how management fee schedules of peer funds reflect economies of scale for the benefit of shareholders as a peer fund’s assets hypothetically increase over time. Based on information provided by HFMC, Lipper, and the Consultant, the Board recognized that there is no uniform methodology for establishing breakpoints or uniform pattern in asset levels that trigger breakpoints or the amounts of breakpoints triggered.
After considering all of the information available to it, the Board concluded that it was satisfied with the extent to which economies of scale would be shared for the benefit of the Fund’s shareholders based on currently available information and the effective advisory fees and expense ratios for the Fund at its current and reasonably anticipated asset levels. The Board noted, however, that it would continue to monitor future growth in Fund assets and the appropriateness of additional breakpoints.
Other Benefits
The Board considered other benefits to the Advisers and their affiliates from their relationships with the Fund, including the role of the Fund in supporting the variable life insurance and variable annuity products offered by The Hartford.
32 |
Hartford Ultrashort Bond HLS Fund
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
The Board noted that HLIC, an affiliate of HFMC, receives fees for providing certain administrative services to the Fund and that HFMC receives fees for fund accounting and related services from the Fund. The Board considered information on profits to HLIC and HFMC for such services. The Board also considered that Hartford Administrative Services Company (“HASCO”), the Fund’s transfer agent and an affiliate of HFMC, receives transfer agency compensation from the Fund, and the Board reviewed information on the profitability of the Fund’s transfer agency function to HASCO. The Board considered information provided by HASCO indicating that the transfer agent fees charged by HASCO to the Fund were fair and reasonable based on publicly available information.
The Board also considered that Hartford Funds Distributors, LLC (“HFD”), an affiliate of HFMC, serves as principal underwriter of the Fund. As principal underwriter, HFD receives 12b-1 fees from the Fund. The Board also noted that certain affiliates of HFD distribute shares of the Fund and receive compensation in that connection.
The Board considered the benefits, if any, to the Sub-adviser from any use of the Fund’s brokerage commissions to obtain soft dollar research, and representations from HFMC and the Sub-adviser that the Sub-adviser would not make any revenue-sharing payments or any other type of distribution payments to HFMC or its affiliates.
The Board considered the benefits to shareholders of being part of the Hartford Funds family of funds. The Board considered HFMC’s efforts to provide investors in the family with a broad range of investment styles and asset classes.
* * * *
Based upon its review of these various factors, among others, the Board concluded that it is in the best interests of the Fund and its shareholders for the Board to approve the Agreements for an additional year. In reaching this decision, the Board did not assign relative weights to the factors discussed above or deem any one or group of them to be controlling in and of themselves. In connection with their deliberations, the Independent Directors met separately in executive session on several occasions, with independent legal counsel and the Consultant, to review the relevant materials and consider their responsibilities under relevant laws and regulations.
33 |
Hartford Ultrashort Bond HLS Fund
Main Risks (Unaudited)
The main risks of investing in the Fund are described below.
Market, Selection and Strategy Risk: The Fund’s share price may fluctuate due to market risk and/or security selections that may underperform the market or relevant benchmarks. If the sub-adviser's investment strategy does not perform as expected, the Fund could underperform its peers or lose money. There is no guarantee the Fund will achieve its stated objective.
Fixed Income Risk: The Fund is subject to interest rate risk (the risk that the value of an investment decreases when interest rates rise), credit risk (the risk that the issuing company of a security is unable to pay interest and principal when due) and call risk (the risk that an investment may be redeemed early). These risks also apply to the Fund’s investments in U.S. government securities, which may not be guaranteed by the U.S. government.
Derivatives Risk: Investments in derivatives can be volatile. Potential risks include currency risk, leverage risk (the risk that small market movements may result in large changes in the value of an investment), liquidity risk, index risk, pricing risk, and counterparty risk (the risk that the counterparty may be unwilling or unable to honor its obligations).
Mortgage-Backed Securities Risk: Mortgage-backed securities are subject to interest rate risk, credit risk, prepayment risk, extension risk, and the risk that an investment’s value may be reduced or become worthless if it receives interest or income payments only after other investments in the same pool.
Reverse Repurchase Agreements and Dollar Rolls Risk: Reverse repurchase agreements and dollar rolls involve the risk that the market value of the securities that the Fund is committed to buy may decline below the repurchase price. These investments may also subject the Fund to the risk that the counterparty will not fulfill its obligations.
34 |
THIS PRIVACY POLICY IS NOT PART OF THIS REPORT
Privacy Policy and Practices of The Hartford Financial Services Group, Inc. and its Affiliates
(herein called “we, our and us”)
This Privacy Policy applies to our United States Operations
We value your trust. We are committed to the responsible: a) management; b) use; and c) protection; of Personal Information.
This notice describes how we collect, disclose, and protect Personal Information.
We collect Personal Information to: a) service your Transactions with us; and b) support our business functions.
We may obtain Personal Information from: a) You; b) your Transactions with us; and c) third parties such as a consumer-reporting agency.
Based on the type of product or service You apply for or get from us, Personal Information such as: a) your name; b) your address; c) your income; d) your payment; or e) your credit history; may be gathered from sources such as applications, Transactions, and consumer reports.
To serve You and service our business, we may share certain Personal Information. We will share Personal Information, only as allowed by law, with affiliates such as: a) our insurance companies; b) our employee agents; c) our brokerage firms; and d) our administrators.
As allowed by law, we may share Personal Financial Information with our affiliates to: a) market our products; or b) market our services; to You without providing You with an option to prevent these disclosures.
| We may also share Personal Information, only as allowed by law, with unaffiliated third parties including: a) independent agents; b) brokerage firms; c) insurance companies; d) administrators; and e) service providers; who help us serve You and service our business.
When allowed by law, we may share certain Personal Financial Information with other unaffiliated third parties who assist us by performing services or functions such as: a) taking surveys; b) marketing our products or services; or c) offering financial products or services under a joint agreement between us and one or more financial institutions.
We, and third parties we partner with, may track some of the pages You visit through the use of: a) cookies; b) pixel tagging; or c) other technologies; and currently do not process or comply with any web browser’s “do not track” signal or similar mechanism that indicates a request to disable online tracking of individual users who visit our websites or use our services.
We will not sell or share your Personal Financial Information with anyone for purposes unrelated to our business functions without offering You the opportunity to: a) “opt-out;” or b) “opt-in;” as required by law.
We only disclose Personal Health Information with: a) your proper written authorization; or b) as otherwise allowed or required by law.
Our employees have access to Personal Information in the course of doing their jobs, such as: a) underwriting policies; b) paying claims; c) developing new products; or d) advising customers of our products and services.
|
We use manual and electronic security procedures to maintain: a) the confidentiality; and b) the integrity of; Personal Information that we have. We use these procedures to guard against unauthorized access.
Some techniques we use to protect Personal Information include: a) secured files; b) user authentication; c) encryption; d) firewall technology; and e) the use of detection software.
We are responsible for and must: a) identify information to be protected; b) provide an adequate level of protection for that data; c) grant access to protected data only to those people who must use it in the performance of their job-related duties.
Employees who violate our Privacy Policy will be subject to discipline, which may include ending their employment with us.
At the start of our business relationship, we will give You a copy of our current Privacy Policy.
We will also give You a copy of our current Privacy Policy once a year if You maintain a continuing business relationship with us.
We will continue to follow our Privacy Policy regarding Personal Information even when a business relationship no longer exists between us.
| As used in this Privacy Notice:
Application means your request for our product or service.
Personal Financial Information means financial information such as: a) credit history; b) income; c) financial benefits; or d) policy or claim information.
Personal Health Information means health information such as: a) your medical records; or b) information about your illness, disability or injury.
Personal Information means information that identifies You personally and is not otherwise available to the public. It includes: a) Personal Financial Information; and b) Personal Health Information.
Transaction means your business dealings with us, such as: a) your Application; b) your request for us to pay a claim; and c) your request for us to take an action on your account.
You means an individual who has given us Personal Information in conjunction with: a) asking about; b) applying for; or c) obtaining; a financial product or service from us if the product or service is used mainly for personal, family, or household purposes.
|
This Privacy Policy is being provided on behalf of the following affiliates of The Hartford Financial Services Group, Inc.:
1stAGChoice, Inc.; Access CoverageCorp, Inc.; Access CoverageCorp Technologies, Inc.; American Maturity Life Insurance Company; Archway 60 R, LLC; Business Management Group, Inc.; DMS R, LLC; First State Insurance Company; Fountain Investors I LLC; Fountain Investors II LLC; Fountain Investors III LLC; Fountain Investors IV LLC; FTC Resolution Company LLC; Hart Re Group L.L.C.; Hartford Accident and Indemnity Company; Hartford Administrative Services Company; Hartford Casualty General Agency, Inc.; Hartford Casualty Insurance Company; Hartford Financial Services, LLC; Hartford Fire General Agency, Inc.; Hartford Fire Insurance Company; Hartford Funds Distributors, LLC; Hartford Funds Management Company, LLC; Hartford Funds Management Group, Inc.; Hartford Holdings, Inc.; Hartford HLS Series Fund II, Inc.; Hartford Insurance Company of Illinois; Hartford Insurance Company of the Midwest; Hartford Insurance Company of the Southeast; Hartford Integrated Technologies, Inc.; Hartford International Life Reassurance Corporation; Hartford Investment Management Company; Hartford Life and Accident Insurance Company; Hartford Life and Annuity Insurance Company; Hartford Life Insurance Company; Hartford Life, Inc.; Hartford Life International Holding Company; Hartford Life Private Placement, LLC; Hartford Lloyd’s Corporation; Hartford Lloyd’s Insurance Company; Hartford of Texas General Agency, Inc.; Hartford Residual Market, L.C.C.; Hartford Securities Distribution Company, Inc.; Hartford Series Fund, Inc.; Hartford Specialty Insurance Services of Texas, LLC; Hartford Strategic Investments, LLC; Hartford Underwriters General Agency, Inc.; Hartford Underwriters Insurance Company; Hartford-Comprehensive Employee Benefit Service Company; HDC R, LLC.; Heritage Holdings, Inc.; HIMCO Distribution Services Company; HIMCO Variable Insurance Trust; HLA LLC; HL Investment Advisors, LLC; Horizon Management Group, LLC; HRA Brokerage Services, Inc.; Lanidex Class B, LLC; New England Insurance Company; New England Reinsurance Corporation; Nutmeg Insurance Agency, Inc.; Nutmeg Insurance Company; Pacific Insurance Company, Limited; Planco, LLC; Property and Casualty Insurance Company of Hartford; Revere R, LLC; RVR R, LLC; Sentinel Insurance Company, Ltd.; Sunstone R, LLC; Symphony R, LLC; The Evergreen Group Incorporated; The Hartford Alternative Strategies Fund; The Hartford Mutual Funds, Inc.; The Hartford Mutual Funds II, Inc.; Trumbull Flood Management, L.L.C.; Trumbull Insurance Company; Twin City Fire Insurance Company.
HPP Revised February 2015
HARTFORD HLS FUNDS
P.O. Box 14293
Lexington, KY 40512-4293
HARTFORDFUNDS
hartfordfunds.com
Hartford HLS Funds are underwritten and distributed by Hartford Funds Distributors, LLC.
Hartford Series Fund, Inc. is not a subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford") but is underwritten, distributed by and advised by subsidiaries of The Hartford. Investments in Hartford Series Fund, Inc. are not guaranteed by The Hartford or any other entity.
This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution unless preceded or accompanied by a current prospectus for the Fund.
Investors should carefully consider the investment objectives, risks, charges, and expenses of Hartford Funds before investing. This and other information can be found in the prospectus and summary prospectus, which can be obtained by calling 888-843-7824 (or 800-279-1541 for institutional investors). Investors should read them carefully before they invest.
HLSAR-USB14 2-15 113549-4 Printed in U.S.A.
HARTFORDFUNDS
![]() | HARTFORD VALUE HLS FUND |
A MESSAGE FROM THE PRESIDENT
Dear Fellow Shareholders:
Thank you for investing in Hartford HLS Funds.
Market Review
Nearly six years into a bull market, U.S. equities (as represented by the S&P 500 Index ) notched another positive year in 2014, finishing with a 13.69% gain. Progress was smooth for most of the year, with stocks generally rising amid little volatility. In the fourth quarter, however, the price of oil declined by nearly 40%, returning volatility to the market and paring some of the year’s returns.
As we enter 2015, the price of oil will likely continue playing an important role in market progress, as its effects are widespread. If prices remain low, consumers should benefit by paying less at the gas pump, which increases the amount of money available for discretionary spending. In contrast, low prices may be a detriment to the oil and natural gas industry in the U.S., as well as to the economies of countries that rely more heavily on oil exports.
Central-bank policies will also continue to influence the markets. The U.S. economy has continued to show self-sustaining growth, which has prompted the U.S. Federal Reserve to wind down the quantitative easing programs it initiated after the global financial crisis. In addition, gradual increases in interest rates are expected to begin in 2015, another sign of positive recovery and a return to pre-crisis policy. But in Europe, a slow recovery and fears of deflation have prompted the start of European Central Bank’s own version of quantitative easing to spur growth.
The final weeks of 2014 provided a stark reminder of how unpredictable market movements can be, and how important it is to maintain a diversified portfolio that’s in line with your time horizon and risk tolerance. As we begin 2015, take time to review your portfolio and your overall investment strategy with your financial advisor.
With more than 40 mutual-fund strategies that span a variety of asset classes and investment goals, your financial advisor can work with you to choose options within our fund family that can help you navigate today’s markets with confidence.
Thank you again for investing with Hartford HLS Funds.
James Davey
President
Hartford HLS Funds
1 The S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
Table of Contents
This report is prepared for the general information of contract owners and qualified retirement plan participants. It is not an offer of contracts or of qualified retirement plans. It should not be used in connection with any offer, except in conjunction with the appropriate product prospectus which contains all pertinent information including the applicable sales, administrative and other charges.
The views expressed in the Fund’s Manager Discussion under ‘‘Why did the Fund perform this way?’’ and ‘‘What is the outlook?’’ are views of the Fund’s sub-adviser and portfolio management team through the end of the period and are subject to change based on market and other conditions. The Fund’s Manager Discussion is for informational purposes only and does not represent an offer, recommendation or solicitation to buy, hold or sell any security. The specific securities identified and described, if any, do not represent all of the securities purchased or sold and you should not assume that investments in the securities identified and discussed will be profitable.
Hartford Value HLS Fund inception 04/30/2001
(sub-advised by Wellington Management Company, LLP)
Investment objective – The Fund seeks long-term total return.
Performance Overview 12/31/04 - 12/31/14
The chart above represents the hypothetical growth of a $10,000 investment in Class IA. Growth results in classes other than Class IA will vary from what is seen above due to differences in the expenses charged to those share classes.
Average Annual Total Returns (as of 12/31/14)
1 Year | 5 Years | 10 Years | |
Value IA | 11.37% | 14.08% | 8.57% |
Value IB | 11.10% | 13.81% | 8.31% |
Russell 1000 Value Index | 13.45% | 15.42% | 7.30% |
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of the investment will fluctuate so that investors’ shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain performance data current to the most recent month-end, please visit our website www.hartfordfunds.com.
Total returns presented above were calculated using the Fund’s net asset value available to shareholders for sale or redemption of Fund shares on December 31, 2014, which may exclude investment transactions as of this date. All share class returns assume the reinvestment of all distributions at net asset value and the deduction of all fund expenses.
Russell 1000 Value Index is an unmanaged index that measures the performance of those Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth values. The Russell 1000 Index is an unmanaged index that measures the performance of the 1,000 largest companies in the Russell 3000 Index, which measures the performance of the 3,000 largest U.S. companies, based on total market capitalizations.
The index is unmanaged, and its results include reinvested dividends and/or distributions, but do not reflect the effect of sales charges, commissions, expenses or taxes.
You cannot invest directly in an index.
As shown in the Fund's current prospectus dated May 1, 2014, the total annual operating expense ratios for Class IA and Class IB were 0.76% and 1.01%, respectively. Actual expenses may be higher. Please see the accompanying Financial Highlights for expense ratios for the year ended December 31, 2014.
The chart and table do not reflect the deductions of taxes, sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees or expenses would lower the contract’s or plan’s performance.
All investments are subject to risk including the possible loss of principal. For a discussion of the Fund’s risks, please see the Main Risks section of this report. For more detailed information on the risks associated with an investment in the Fund, please see the prospectus.
2 |
Hartford Value HLS Fund |
Manager Discussion
December 31, 2014 (Unaudited)
Portfolio Managers | ||
Karen H. Grimes, CFA | W. Michael Reckmeyer, III, CFA | Ian R. Link, CFA |
Senior Vice President and Equity Portfolio Manager | Senior Vice President and Equity Portfolio Manager | Director and Equity Portfolio Manager |
How did the Fund perform?
The Class IA shares of the Hartford Value HLS Fund returned 11.37% for the twelve-month period ended December 31, 2014, underperforming the Fund’s benchmark, the Russell 1000 Value Index, which returned 13.45% for the same period. The Fund outperformed the 10.75% average return of the Lipper Large Cap Value Funds peer group, a group of funds with investment strategies similar to those of the Fund.
Why did the Fund perform this way?
U.S. equities surged during the period, despite bouts of significant volatility. After finishing their best year since 1997, U.S. stocks began 2014 with their worst month in nearly two years. Worries about an economic slowdown in China and general angst surrounding emerging markets overshadowed a fairly benign domestic environment. However, robust merger and acquisition activity, an uncontested increase in the debt ceiling from Congress, renewed signs of life in the housing market, and the best payroll gain in more than two years helped stoke investors' risk appetites in the first half of the period. A pullback in July ended a streak of five consecutive monthly gains. Fear gripped the market as heightened geopolitical risks, a potential Portuguese banking crisis, and worries of U.S. Federal Reserve (Fed) tightening took center stage. Stocks rebounded in August based on encouraging economic data, headlined by better-than-expected gross domestic product (GDP) growth and signs that the housing recovery still had legs. However, the reality of quantitative easing ending and the prospect of higher federal funds rates in mid-2015 contributed to increased risk aversion levels. Stocks rebounded again in October, hitting an all-time high on the heels of a positive earnings season and generally solid economic data. The rally continued in November after Republicans took control of the U.S. Senate but stocks pulled back slightly near month-end, led by weakness in the Energy sector associated with the significant decline in oil prices. In December, U.S. equities closed at an all-time high on December 29th but fell 1.4% during the final two trading days of the year. The Fed helped to support riskier assets at the end of the year after it stated it can be "patient" with regards to starting the process of bringing interest rates to normal levels. Returns also varied noticeably by market-cap, as small- and mid-cap stocks underperformed large-cap stocks.
In this environment, nine of the ten sectors within the Russell 1000 Value Index posted positive returns during the period. Information Technology (+29%), Utilities (+27%), and Healthcare (+23%) gained the most, while Energy (-7%), Telecommunication Services (+2%), and Materials (+4%) lagged on a relative basis.
The Fund’s underperformance versus the Russell 1000 Value Index was primarily driven by unfavorable stock selection within Financials, Information Technology, and Consumer Staples. Strong security selection within Materials and Consumer Discretionary partially offset underperformance in other sectors. Sector allocation, a residual of the bottom-up stock selection process, also detracted from performance, largely due to an underweight allocation to Utilities which offset the positive impact of an overweight to Information Technology. A frictional cash balance detracted in an upward trending market environment.
Among the top detractors from returns relative to the Russell 1000 Value Index were Southwestern Energy (Energy), Halliburton (Energy), and Marathon Oil (Energy). Shares of Southwestern Energy, a natural-gas focused exploration and production company, declined during the period as gas prices fell. Shares of Halliburton, a U.S.-based global oilfield services company, underperformed as investors seemed to question the value of the stock considering poor price trends and the proposed acquisition of drilling services provider Baker Hughes. Shares of Marathon Oil, a U.S.-based exploration and production company, fell during the period as the oil sector saw the sharpest sell-off in three years following the Organization of the Petroleum Exporting Countries (OPEC) decision not to cut production to stem declining oil prices. Chevron (Energy) also detracted on an absolute basis.
The largest contributors to benchmark-relative returns were Exxon Mobil (Energy), Covidien (Healthcare), and Lowe’s (Consumer Discretionary). Shares of Exxon Mobil, one of the world’s largest integrated oil and gas companies, fell during the period due to negative investor sentiment over energy stocks as oil prices tumbled in the wake of OPEC’s rejection of production cuts to support declining crude prices. Our relative underweight position in the benchmark constituent contributed to relative returns during the period. Shares of Covidien, a medical products, manufacturing, and distribution company, rose after it was announced that medical device giant Medtronic entered into a definitive agreement to acquire Covidien for $42.9 billion. Shares of Lowe’s, a U.S.-based home improvement retailer, rose during the period after the company reported better-than-expected third-quarter earnings and raised full-year guidance. Top absolute contributors during the period included Wells Fargo (Financials) and Intel (Information Technology).
Derivatives are not used in a significant manner in the Fund and did not have a material impact on performance during the period.
3 |
Hartford Value HLS Fund |
Manager Discussion – (continued)
December 31, 2014 (Unaudited)
What is the outlook?
We think the outlook for 2015 is mixed with a significant number of positive data points and several areas of the economy that give us pause. As we review portfolio performance and our positioning entering 2015, we reflect on commodity prices and central bank policy and consider the impacts on both the consumer and the broader economy.
The oil price decline has been a major focus for investors and a key contributor to equity market returns in recent months. Oil companies have started to reduce their capital expenditure budgets, and we believe this should lead to lower supply growth in 2015. With lower supply growth, we anticipate support for the commodity price, but demand trends will also play a key role. While the energy market has self-correcting mechanisms, the timing of these adjustments is unclear. In our view, a reduction in gasoline prices should serve as an effective tax break for the consumer. We believe that lower gas prices should lead to improvements in consumer confidence and consumer spending. In our opinion, increased mortgage activity by non-bank mortgage originators and improved credit standards among some lenders should also support consumer activity. We believe that the combination of lower gas prices and improved access to credit are likely to benefit low and middle-income consumers. Spending among these cohorts has been weak in recent periods, but recent trends appear to suggest an improving outlook. In addition to reducing gasoline prices and spurring consumer demand, we believe that the oil price decline should have far reaching effects on the global economy. In our view, countries that are highly dependent on oil exports (e.g. Russia, Libya, Venezuela) are likely to suffer in a low-oil-price environment, but net importers of oil (e.g. Europe, India, Japan, China), should benefit. On the whole, we view low oil prices as positive for global growth.
We continue to monitor central bank policy, recognizing that stimulus from quantitative easing has supported economic growth and equity markets. Investors appeared encouraged by the Fed’s addition of the terms “patient” and “data-driven” to language describing its approach to interest rates. We believe the Fed will focus most on core inflation, which is inflation measured excluding Consumer Price Index items that have volatile prices, in this environment and will wait until wage growth accelerates before raising rates.
As we enter 2015, we remain diligent in applying our process to seek to find companies that we believe are quality companies with superior total return potential and discounted valuations. We are optimistic that the current portfolio includes a range of positions with company-specific drivers and the potential to add value across a number of economic environments. Based on individual stock decisions, the Fund ended the period most overweight the Consumer Discretionary, Information Technology, and Materials sectors, and most underweight the Utilities, Consumer Staples, and Financials sectors relative to the Russell 1000 Value Index.
Diversification by Sector
as of December 31, 2014
Sector | Percentage of Net Assets | |||
Equity Securities | ||||
Consumer Discretionary | 12.1 | % | ||
Consumer Staples | 4.5 | |||
Energy | 10.1 | |||
Financials | 27.4 | |||
Health Care | 13.1 | |||
Industrials | 9.9 | |||
Information Technology | 13.3 | |||
Materials | 4.5 | |||
Services | 1.5 | |||
Utilities | 2.8 | |||
Total | 99.2 | % | ||
Short-Term Investments | 0.8 | |||
Other Assets and Liabilities | 0.0 | |||
Total | 100.0 | % |
A sector may be comprised of several industries. For Fund compliance purposes, the Fund may not use the same classification system and these sector classifications are used for reporting ease.
4 |
Hartford Value HLS Fund |
Schedule of Investments
December 31, 2014
(000’s Omitted)
Shares or Principal Amount | Market Value ╪ | |||||||
Common Stocks - 99.2% | ||||||||
Banks - 7.5% | ||||||||
185 | BB&T Corp. | $ | 7,193 | |||||
160 | PNC Financial Services Group, Inc. | 14,609 | ||||||
449 | Wells Fargo & Co. | 24,601 | ||||||
46,403 | ||||||||
Capital Goods - 9.9% | ||||||||
42 | 3M Co. | 6,958 | ||||||
131 | Eaton Corp. plc | 8,889 | ||||||
175 | Fortune Brands Home & Security, Inc. | 7,913 | ||||||
405 | General Electric Co. | 10,231 | ||||||
59 | Illinois Tool Works, Inc. | 5,555 | ||||||
91 | Ingersoll-Rand plc | 5,767 | ||||||
140 | Spirit Aerosystems Holdings, Inc. ● | 6,035 | ||||||
87 | United Technologies Corp. | 10,058 | ||||||
61,406 | ||||||||
Consumer Durables and Apparel - 3.3% | ||||||||
178 | Newell Rubbermaid, Inc. | 6,792 | ||||||
299 | Pulte Group, Inc. | 6,407 | ||||||
55 | PVH Corp. | 7,043 | ||||||
20,242 | ||||||||
Consumer Services - 0.5% | ||||||||
62 | Norwegian Cruise Line Holdings Ltd. ● | 2,901 | ||||||
Diversified Financials - 11.8% | ||||||||
65 | Ameriprise Financial, Inc. | 8,644 | ||||||
28 | BlackRock, Inc. | 10,107 | ||||||
282 | Citigroup, Inc. | 15,248 | ||||||
48 | Goldman Sachs Group, Inc. | 9,222 | ||||||
36 | Intercontinental Exchange, Inc. | 7,808 | ||||||
358 | JP Morgan Chase & Co. | 22,416 | ||||||
230 | Solar Cayman Ltd. ⌂■●† | 16 | ||||||
73,461 | ||||||||
Energy - 10.1% | ||||||||
63 | Anadarko Petroleum Corp. | 5,158 | ||||||
124 | Chevron Corp. | 13,876 | ||||||
76 | EOG Resources, Inc. | 6,960 | ||||||
114 | Exxon Mobil Corp. | 10,566 | ||||||
145 | Halliburton Co. | 5,705 | ||||||
216 | Marathon Oil Corp. | 6,114 | ||||||
64 | Occidental Petroleum Corp. | 5,186 | ||||||
26 | Pioneer Natural Resources Co. | 3,825 | ||||||
194 | Southwestern Energy Co. ● | 5,306 | ||||||
62,696 | ||||||||
Food and Staples Retailing - 1.4% | ||||||||
93 | CVS Health Corp. | 8,940 | ||||||
Food, Beverage and Tobacco - 3.1% | ||||||||
64 | Anheuser-Busch InBev N.V. ADR | 7,137 | ||||||
47 | Diageo plc ADR | 5,341 | ||||||
113 | Kraft Foods Group, Inc. | 7,073 | ||||||
19,551 | ||||||||
Health Care Equipment and Services - 4.6% | ||||||||
77 | Baxter International, Inc. | 5,644 | ||||||
112 | Covidien plc | 11,455 | ||||||
111 | UnitedHealth Group, Inc. | 11,260 | ||||||
28,359 | ||||||||
Insurance - 6.7% | ||||||||
93 | ACE Ltd. | 10,715 | ||||||
107 | American International Group, Inc. | 6,002 | ||||||
149 | Marsh & McLennan Cos., Inc. | 8,539 | ||||||
153 | MetLife, Inc. | 8,274 | ||||||
94 | Principal Financial Group, Inc. | 4,867 | ||||||
99 | Unum Group | 3,466 | ||||||
41,863 | ||||||||
Materials - 4.5% | ||||||||
155 | Axalta Coating Systems Ltd. ● | 4,025 | ||||||
149 | Dow Chemical Co. | 6,792 | ||||||
56 | E.I. DuPont de Nemours & Co. | 4,119 | ||||||
108 | International Paper Co. | 5,793 | ||||||
63 | Nucor Corp. | 3,074 | ||||||
222 | Steel Dynamics, Inc. | 4,386 | ||||||
28,189 | ||||||||
Media - 4.1% | ||||||||
108 | CBS Corp. Class B | 5,960 | ||||||
151 | Comcast Corp. Class A | 8,745 | ||||||
234 | Interpublic Group of Cos., Inc. | 4,866 | ||||||
143 | Thomson Reuters Corp. | 5,758 | ||||||
25,329 | ||||||||
Pharmaceuticals, Biotechnology and Life Sciences - 8.5% | ||||||||
47 | Amgen, Inc. | 7,526 | ||||||
99 | AstraZeneca plc ADR | 6,948 | ||||||
52 | Bristol-Myers Squibb Co. | 3,064 | ||||||
46 | Johnson & Johnson | 4,854 | ||||||
273 | Merck & Co., Inc. | 15,497 | ||||||
153 | Pfizer, Inc. | 4,765 | ||||||
28 | Roche Holding AG | 7,714 | ||||||
57 | Zoetis, Inc. | 2,447 | ||||||
52,815 | ||||||||
Real Estate - 1.4% | ||||||||
295 | Host Hotels & Resorts, Inc. REIT | 7,005 | ||||||
91 | Paramount Group, Inc. | 1,697 | ||||||
8,702 | ||||||||
Retailing - 4.2% | ||||||||
7 | AutoZone, Inc. ● | 4,464 | ||||||
70 | Home Depot, Inc. | 7,301 | ||||||
134 | Lowe's Cos., Inc. | 9,220 | ||||||
66 | Nordstrom, Inc. | 5,219 | ||||||
26,204 | ||||||||
Semiconductors and Semiconductor Equipment - 5.7% | ||||||||
114 | Analog Devices, Inc. | 6,339 | ||||||
374 | Intel Corp. | 13,555 | ||||||
481 | Marvell Technology Group Ltd. | 6,975 | ||||||
276 | Maxim Integrated Products, Inc. | 8,797 | ||||||
35,666 | ||||||||
Software and Services - 2.8% | ||||||||
188 | Microsoft Corp. | 8,729 | ||||||
337 | Symantec Corp. | 8,658 | ||||||
17,387 | ||||||||
Technology Hardware and Equipment - 4.8% | ||||||||
671 | Cisco Systems, Inc. | 18,660 | ||||||
387 | EMC Corp. | 11,517 | ||||||
30,177 | ||||||||
Telecommunication Services - 1.5% | ||||||||
196 | Verizon Communications, Inc. | 9,168 | ||||||
Utilities - 2.8% | ||||||||
89 | Edison International | 5,800 | ||||||
32 | NextEra Energy, Inc. | 3,443 |
The accompanying notes are an integral part of these financial statements.
5 |
Hartford Value HLS Fund |
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Shares or Principal Amount | Market Value ╪ | |||||||||||
Common Stocks - 99.2% - (continued) | ||||||||||||
Utilities - 2.8% - (continued) | ||||||||||||
148 | Northeast Utilities | $ | 7,946 | |||||||||
17,189 | ||||||||||||
Total Common Stocks | ||||||||||||
( Cost $420,041) | $ | 616,648 | ||||||||||
Total Long-Term Investments | ||||||||||||
(Cost $420,041) | $ | 616,648 | ||||||||||
Short-Term Investments - 0.8% | ||||||||||||
Repurchase Agreements - 0.8% | ||||||||||||
Bank of America Merrill Lynch Repurchase Agreement (maturing on 01/02/2015 in the amount of $5, collateralized by U.S. Treasury Note 0.75%, 2018, value of $5) | ||||||||||||
$ | 5 | 0.05%, 12/31/2014 | $ | 5 | ||||||||
Bank of America Merrill Lynch TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $26, collateralized by U.S. Treasury Note 2.50%, 2024, value of $26) | ||||||||||||
26 | 0.07%, 12/31/2014 | 26 | ||||||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $674, collateralized by U.S. Treasury Bond 3.88% - 5.25%, 2029 - 2040, U.S. Treasury Note 0.25% - 4.63%, 2015 - 2022, value of $687) | ||||||||||||
674 | 0.06%, 12/31/2014 | 674 | ||||||||||
Bank of Montreal TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $294, collateralized by FHLMC 2.00% - 5.50%, 2019 - 2044, FNMA 2.00% - 4.00%, 2024 - 2042, GNMA 3.00%, 2043, U.S. Treasury Bill 0.07%, 2015, value of $299) | ||||||||||||
294 | 0.07%, 12/31/2014 | 294 | ||||||||||
Barclays Capital TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $721, collateralized by U.S. Treasury Bond 3.63%, 2043, U.S. Treasury Note 0.88% - 2.00%, 2017 - 2020, value of $736) | ||||||||||||
721 | 0.05%, 12/31/2014 | 721 | ||||||||||
Citigroup Global Markets, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $1,289, collateralized by U.S. Treasury Bond 3.63% - 9.88%, 2015 - 2043, U.S. Treasury Note 0.25% - 2.75%, 2015 - 2022, value of $1,315) | ||||||||||||
1,289 | 0.06%, 12/31/2014 | 1,289 | ||||||||||
Deutsche Bank Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $209, collateralized by FHLMC 2.00% - 10.50%, 2015 - 2047, FNMA 2.00% - 9.50%, 2015 - 2049, GNMA 2.50% - 10.00%, 2016 - 2055, value of $213) | ||||||||||||
209 | 0.12%, 12/31/2014 | 209 | ||||||||||
RBS Securities, Inc. TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $55, collateralized by U.S. Treasury Note 0.38% - 2.13%, 2015 - 2016, value of $56) | ||||||||||||
55 | 0.07%, 12/31/2014 | 55 | ||||||||||
Societe Generale TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $613, collateralized by U.S. Treasury Bond 8.75%, 2020, U.S. Treasury Note 0.25% - 2.88%, 2015 - 2022, value of $626) | ||||||||||||
613 | 0.07%, 12/31/2014 | 613 | ||||||||||
TD Securities TriParty Repurchase Agreement (maturing on 01/02/2015 in the amount of $1,314, collateralized by FHLMC 3.00% - 4.00%, 2026 - 2044, FNMA 2.50% - 5.00%, 2025 - 2044, value of $1,340) | ||||||||||||
1,314 | 0.08%, 12/31/2014 | 1,314 | ||||||||||
5,200 | ||||||||||||
Total Short-Term Investments | ||||||||||||
(Cost $5,200) | $ | 5,200 | ||||||||||
Total Investments | ||||||||||||
(Cost $425,241) ��� | 100.0 | % | $ | 621,848 | ||||||||
Other Assets and Liabilities | — | % | 220 | |||||||||
Total Net Assets | 100.0 | % | $ | 622,068 |
The accompanying notes are an integral part of these financial statements.
6 |
Hartford Value HLS Fund |
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Note: Percentage of investments as shown is the ratio of the total market value to total net assets.
Prices of foreign equities that are principally traded on certain foreign markets may be adjusted daily pursuant to a fair value pricing service approved by the Board of Directors in order to reflect an adjustment for factors occurring after the close of certain foreign markets but before the close of the New York Stock Exchange.
Equity industry classifications used in this report are the Global Industry Classification Standard, which was developed by and is the exclusive property and service mark of MSCI, Inc. and Standard & Poor’s.
For Fund compliance purposes, the Fund may not use the same classification system shown in this report as these classifications are used for reporting ease.
▲ | At December 31, 2014, the cost of securities for federal income tax purposes was $428,803 and the aggregate gross unrealized appreciation and depreciation based on that cost were: |
Unrealized Appreciation | $ | 200,469 | ||
Unrealized Depreciation | (7,424 | ) | ||
Net Unrealized Appreciation | $ | 193,045 |
† | These securities are valued in good faith at fair value as determined under policies and procedures established by and under the supervision of the Board of Directors. At December 31, 2014, the aggregate fair value of these securities was $16, which rounds to zero percent of total net assets. This amount excludes securities that are principally traded in certain foreign markets and whose prices are adjusted pursuant to a third party pricing service methodology approved by the Board of Directors. |
● | Non-income producing. |
■ | Securities issued within terms of a private placement memorandum, exempt from registration under Rule 144A under the Securities Act of 1933, as amended, and may be sold only to qualified institutional buyers. Unless otherwise noted, these holdings are determined to be liquid. At December 31, 2014, the aggregate value of these securities was $16, which represents 0.0% of total net assets. |
⌂ | The following securities are considered illiquid. Illiquid securities are often purchased in private placement transactions, are often not registered under the Securities Act of 1933, as amended, and may have contractual restrictions on resale. Illiquid securities may lack a readily available market or their valuation has not changed for a certain period of time. |
Period Acquired | Shares/ Par | Security | Cost Basis | |||||||
03/2007 | 230 | Solar Cayman Ltd. - 144A | $ | 67 |
At December 31, 2014, the aggregate value of these securities was $16, which rounds to zero percent of total net assets.
╪ | See Significant Accounting Policies of accompanying Notes to Financial Statements regarding valuation of securities. |
GLOSSARY: (abbreviations used in preceding Schedule of Investments) | |
Other Abbreviations: | |
ADR | American Depositary Receipt |
FHLMC | Federal Home Loan Mortgage Corp. |
FNMA | Federal National Mortgage Association |
GNMA | Government National Mortgage Association |
REIT | Real Estate Investment Trust |
The accompanying notes are an integral part of these financial statements.
7 |
Hartford Value HLS Fund |
Schedule of Investments – (continued)
December 31, 2014
(000’s Omitted)
Investment Valuation Hierarchy Level Summary
December 31, 2014
Total | Level 1 ♦ | Level 2 ♦ | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Common Stocks ‡ | $ | 616,648 | $ | 608,918 | $ | 7,714 | $ | 16 | ||||||||
Short-Term Investments | 5,200 | – | 5,200 | – | ||||||||||||
Total | $ | 621,848 | $ | 608,918 | $ | 12,914 | $ | 16 |
♦ | For the year ended December 31, 2014, there were no transfers between Level 1 and Level 2. |
‡ | The Fund has all or primarily all of the equity securities categorized in a particular level. Refer to the Schedule of Investments for further industry breakout. |
Following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value:
Balance as of December 31, 2013 | Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Net Amortization | Purchases | Sales | Transfers Into Level 3 | Transfers Out of Level 3 | Balance as of December 31, 2014 | ||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||
Common Stocks | $ | 16 | $ | — | $ | — | * | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 16 | |||||||||||||||||
Total | $ | 16 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 16 |
* | Change in unrealized appreciation (depreciation) in the current period relating to assets still held at December 31, 2014 was zero. |
Note: | For purposes of reporting transfers between different hierarchy levels, both transfers in and out of each level, as applicable, are shown as if they occurred at the beginning of the period. |
The accompanying notes are an integral part of these financial statements.
8 |
Hartford Value HLS Fund |
Statement of Assets and Liabilities
December 31, 2014
(000’s Omitted)
Assets: | ||||
Investments in securities, at market value (cost $425,241) | $ | 621,848 | ||
Cash | — | |||
Receivables: | ||||
Fund shares sold | 20 | |||
Dividends and interest | 952 | |||
Total assets | 622,820 | |||
Liabilities: | ||||
Payables: | ||||
Fund shares redeemed | 598 | |||
Investment management fees | 102 | |||
Distribution fees | 6 | |||
Accrued expenses | 46 | |||
Total liabilities | 752 | |||
Net assets | $ | 622,068 | ||
Summary of Net Assets: | ||||
Capital stock and paid-in-capital | $ | 412,524 | ||
Undistributed net investment income | 855 | |||
Accumulated net realized gain | 12,092 | |||
Unrealized appreciation of investments and the translations of assets and liabilities denominated in foreign currency | 196,597 | |||
Net assets | $ | 622,068 | ||
Shares authorized | 800,000 | |||
Par value | $ | 0.001 | ||
Class IA: Net asset value per share | $ | 16.89 | ||
Shares outstanding | 30,998 | |||
Net assets | $ | 523,661 | ||
Class IB: Net asset value per share | $ | 16.88 | ||
Shares outstanding | 5,830 | |||
Net assets | $ | 98,407 |
The accompanying notes are an integral part of these financial statements.
9 |
Hartford Value HLS Fund |
Statement of Operations
For the Year Ended December 31, 2014
(000’s Omitted)
Investment Income: | ||||
Dividends | $ | 14,587 | ||
Interest | 3 | |||
Less: Foreign tax withheld | (107 | ) | ||
Total investment income, net | 14,483 | |||
Expenses: | ||||
Investment management fees | 4,674 | |||
Transfer agent fees | 6 | |||
Distribution fees - Class IB | 254 | |||
Custodian fees | 3 | |||
Accounting services fees | 64 | |||
Board of Directors' fees | 17 | |||
Audit fees | 27 | |||
Other expenses | 84 | |||
Total expenses (before fees paid indirectly) | 5,129 | |||
Commission recapture | (2 | ) | ||
Total fees paid indirectly | (2 | ) | ||
Total expenses, net | 5,127 | |||
Net Investment Income | 9,356 | |||
Net Realized Gain on Investments and Foreign Currency Transactions: | ||||
Net realized gain on investments | 67,489 | |||
Net realized loss on foreign currency contracts | (2 | ) | ||
Net realized gain on other foreign currency transactions | 3 | |||
Net Realized Gain on Investments and Foreign Currency Transactions | 67,490 | |||
Net Changes in Unrealized Depreciation of Investments and Foreign Currency Transactions: | ||||
Net unrealized depreciation of investments | (9,261 | ) | ||
Net unrealized depreciation on translation of other assets and liabilities in foreign currencies | (14 | ) | ||
Net Changes in Unrealized Depreciation of Investments and Foreign Currency Transactions | (9,275 | ) | ||
Net Gain on Investments and Foreign Currency Transactions | 58,215 | |||
Net Increase in Net Assets Resulting from Operations | $ | 67,571 |
The accompanying notes are an integral part of these financial statements.
10 |
Hartford Value HLS Fund |
Statement of Changes in Net Assets
(000’s Omitted)
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Operations: | ||||||||
Net investment income | $ | 9,356 | $ | 11,050 | ||||
Net realized gain on investments and foreign currency transactions | 67,490 | 76,579 | ||||||
Net unrealized appreciation (depreciation) of investments and foreign currency transactions | (9,275 | ) | 100,302 | |||||
Net Increase in Net Assets Resulting from Operations | 67,571 | 187,931 | ||||||
Distributions to Shareholders: | ||||||||
From net investment income | ||||||||
Class IA | (7,728 | ) | (9,100 | ) | ||||
Class IB | (1,210 | ) | (1,489 | ) | ||||
Total distributions | (8,938 | ) | (10,589 | ) | ||||
Capital Share Transactions: | ||||||||
Class IA | ||||||||
Sold | 33,648 | 40,796 | ||||||
Issued on reinvestment of distributions | 7,728 | 9,100 | ||||||
Redeemed | (118,336 | ) | (196,892 | ) | ||||
Total capital share transactions | (76,960 | ) | (146,996 | ) | ||||
Class IB | ||||||||
Sold | 2,241 | 13,072 | ||||||
Issued on reinvestment of distributions | 1,210 | 1,489 | ||||||
Redeemed | (23,487 | ) | (37,142 | ) | ||||
Total capital share transactions | (20,036 | ) | (22,581 | ) | ||||
Net decrease from capital share transactions | (96,996 | ) | (169,577 | ) | ||||
Net Increase (Decrease) in Net Assets | (38,363 | ) | 7,765 | |||||
Net Assets: | ||||||||
Beginning of period | 660,431 | 652,666 | ||||||
End of period | $ | 622,068 | $ | 660,431 | ||||
Undistributed (distributions in excess of) net investment income | $ | 855 | $ | 341 | ||||
Shares: | ||||||||
Class IA | ||||||||
Sold | 2,125 | 2,970 | ||||||
Issued on reinvestment of distributions | 454 | 602 | ||||||
Redeemed | (7,403 | ) | (14,071 | ) | ||||
Total share activity | (4,824 | ) | (10,499 | ) | ||||
Class IB | ||||||||
Sold | 139 | 945 | ||||||
Issued on reinvestment of distributions | 71 | 99 | ||||||
Redeemed | (1,473 | ) | (2,682 | ) | ||||
Total share activity | (1,263 | ) | (1,638 | ) |
The accompanying notes are an integral part of these financial statements.
11 |
Hartford Value HLS Fund |
Notes to Financial Statements
December 31, 2014
(000’s Omitted)
Organization:
Hartford Value HLS Fund (the "Fund") serves as an underlying investment option for certain variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company (“HLIC”) and its affiliates and certain qualified retirement plans. The Fund may also serve as an underlying investment option for certain variable annuity and variable life separate accounts of other insurance companies. Owners of variable annuity contracts and policyholders of variable life insurance contracts may choose the funds permitted in the variable insurance contract prospectus. In addition, participants in certain qualified retirement plans may choose the Fund if permitted by their plans.
Hartford Series Fund, Inc. (the “Company”) is an open-end registered management investment company comprised of fifteen portfolios. Financial statements for the Fund, a series of the Company, are included in this report.
The Company is organized under the laws of the State of Maryland and is registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (“1940 Act”). The Fund is a diversified open-end management investment company. The Fund is an investment company and applies specialized accounting and reporting under Accounting Standards Codification Topic 946, Financial Services - Investment Companies.
The Fund is divided into Class IA and Class IB shares. Each class is offered at the per share net asset value (“NAV”) without a sales charge and is subject to the same expenses, except that the Class IB shares are subject to distribution and service fees charged pursuant to a Distribution Plan adopted in accordance with Rule 12b-1 under the 1940 Act.
Significant Accounting Policies:
The following is a summary of significant accounting policies of the Fund in the preparation of its financial statements, which are in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The preparation of financial statements in accordance with U.S. GAAP may require 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
Determination of Net Asset Value – The NAV of each class of the Fund's shares is determined as of the close of regular trading (normally 4:00 p.m. Eastern Time) (the “NYSE Close”) on each day that the New York Stock Exchange (the “Exchange”) is open (“Valuation Date”). Information that becomes known to the Fund after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the NAV determined earlier that day.
Investment Valuation and Fair Value Measurements – For purposes of calculating the NAV, portfolio investments and other assets held by the Fund's portfolio for which market quotes are readily available are valued at market value. Market value is generally determined on the basis of last reported sales prices or official close price. If no sales are reported, market value is based on quotes obtained from a quotation reporting system, established market makers, or independent pricing services. If market prices are not readily available or are deemed unreliable, the Fund will use the fair value of the investment as determined in good faith under policies and procedures established by and under the supervision of the Company's Board of Directors. Market quotes are considered not readily available where there is an absence of current or reliable market-based data (e.g., trade information or indicative market quotes), including where events occur after the close of the relevant market, but prior to the NYSE Close, that materially affect the values of the Fund's portfolio investments or assets. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the investments trade do not open for trading for the entire day and no other market prices are available. In addition, prices of foreign equities that are principally traded on certain foreign markets may be adjusted daily pursuant to a fair value pricing service approved by the Board of Directors in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close. Investments that are primarily traded on foreign markets may trade on days that are not business days of the Fund. The value of the foreign investments in which the Fund invests may change on days when a shareholder will not be able to purchase or redeem shares of the Fund. Fair value pricing is subjective in nature and the use of fair value pricing by the Fund may cause the NAV of its shares to differ significantly from the NAV that would have been calculated using market prices at the close of the exchange on which a portfolio investment is primarily
12 |
Hartford Value HLS Fund |
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
traded. There can be no assurance that the Fund could obtain the fair market value assigned to an investment if the Fund were to sell the investment at approximately the time at which the Fund determines its NAV.
Investments valued in currencies other than U.S. dollars are converted to U.S. dollars using exchange rates obtained from independent pricing services for calculation of the NAV. As a result, the NAV of the Fund’s shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of investments traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that the NYSE is closed and the market value may change on days when an investor is not able to purchase, redeem or exchange shares of the Fund.
Foreign currency contracts represent agreements to exchange currencies on specific future dates at predetermined rates. Foreign currency contracts are valued using foreign currency exchange rates and forward rates as provided by an independent pricing service on the Valuation Date.
Financial instruments for which prices are not available from an independent pricing service may be valued using market quotations obtained from one or more dealers that make markets in the respective financial instrument in accordance with procedures established by the Company's Board of Directors.
U.S. GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants. The U.S. GAAP fair value measurement standards require disclosure of a fair value hierarchy for each major category of assets and liabilities. Various inputs are used in determining the fair value of the Fund’s investments. These inputs are summarized into three broad hierarchy levels. This hierarchy is based on whether the valuation inputs are observable or unobservable. These levels are:
Level 1 – Quoted prices in active markets for identical investments. Level 1 may include exchange traded instruments, such as domestic equities, some foreign equities, options, futures, mutual funds, exchange traded funds, rights and warrants.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar investments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 2 may include debt investments that are traded less frequently than exchange traded instruments and which are valued using independent pricing services; foreign equities, which are principally traded on certain foreign markets and are adjusted daily pursuant to a fair value pricing service in order to reflect an adjustment for the factors occurring after the close of certain foreign markets but before the NYSE Close; senior floating rate interests, which are valued using an aggregate of dealer bids; short-term investments, which are valued at amortized cost; and swaps, which are valued based upon the terms of each swap contract.
Level 3 – Significant unobservable inputs that are supported by limited or no market activity. Level 3 may include financial instruments whose values are determined using indicative market quotes or require significant management judgment or estimation. These unobservable valuation inputs may include estimates for current yields, maturity/duration, prepayment speed, and indicative market quotes for comparable investments along with other assumptions relating to credit quality, collateral value, complexity of the investment structure, general market conditions and liquidity. This category may include investments where trading has been halted or there are certain restrictions on trading. While these investments are priced using unobservable inputs, the valuation of these investments reflects the best available data and management believes the prices are a reasonable representation of exit price.
The Board of Directors of the Company generally reviews and approves the “Procedures for Valuation of Portfolio Securities” at least once a year. These procedures define how investments are to be valued, including the formation and activities of a Valuation Committee. The Valuation Committee is responsible for determining in good faith the fair value of investments when the value cannot be obtained from primary pricing services or alternative sources or if the valuation of an investment as provided by the primary pricing service or alternative source is believed not to reflect the investment’s fair value as of the Valuation Date. Voting members of the Valuation Committee include the Fund's Treasurer or designee and a Vice President of the investment manager or designee. An Assistant Vice President of the Fund with legal expertise or designee is also included on the Valuation Committee as a non-voting advisory member. In addition, the Fund’s Chief Compliance Officer shall designate a member of the compliance group to attend Valuation Committee meetings as a non-voting resource, to monitor for and provide guidance with
13 |
Hartford Value HLS Fund |
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
respect to compliance with these procedures. Two members of the Valuation Committee or their designees, representing different departments, shall constitute a quorum for purposes of permitting the Valuation Committee to take action. The Valuation Committee will consider all relevant factors in determining an investment’s fair value, and may seek the advice of the Fund’s sub-adviser, knowledgeable brokers, and legal counsel in making such determination. The Valuation Committee reports to the Audit Committee of the Company's Board of Directors. The Audit Committee receives quarterly written reports which include details of all fair-valued investments, including the reason for the fair valuation, and an indication, when possible, of the accuracy of the valuation by disclosing the next available reliable public price quotation or the disposition price of such investments (the “look-back” test). The Board of Directors then must consider for ratification all of the fair value determinations made during the previous quarter.
Valuation levels are not necessarily indicative of the risk associated with investing in such investments. Individual investments within any of the above mentioned asset classes may be assigned a different hierarchical level than those presented above, as individual circumstances dictate.
For additional information, refer to the Investment Valuation Hierarchy Level Summary and the Level 3 roll-forward reconciliation, if applicable, which is included in the Schedule of Investments.
Investment Transactions and Investment Income – Investment transactions are recorded as of the trade date (the date the order to buy or sell is executed) for financial reporting purposes. Investments purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Realized gains and losses are determined on the basis of identified cost.
Dividend income from domestic securities is accrued on the ex-dividend date. In general, dividend income from foreign securities is recorded on the ex-date; however, dividend notifications in certain foreign jurisdictions may not be available in a timely manner and as a result, the Fund will record the dividend as soon as the relevant details (i.e., rate per share, payment date, shareholders of record, etc.) are publicly available. Interest income, including amortization of premium, accretion of discounts, inflation adjustments and additional principal received in-kind in lieu of cash, is accrued on a daily basis.
Foreign Currency Transactions – Assets and liabilities denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates in effect on the valuation date. Purchases and sales of investments, income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions.
The Fund does not isolate that portion of portfolio investment valuation resulting from fluctuations in the foreign currency exchange rates from the fluctuations arising from changes in the market prices of investments held. Exchange rate fluctuations are included with the net realized and unrealized gain or loss on investments in the accompanying financial statements.
Net realized foreign exchange gains or losses arise from sales of foreign currencies and the difference between asset and liability amounts initially stated in foreign currencies and the U.S. dollar value of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of other assets and liabilities at the end of the reporting period, resulting from changes in the exchange rates.
Joint Trading Account – The Fund may invest cash balances into a joint trading account that may be invested in one or more repurchase agreements.
Fund Share Valuation and Dividend Distributions to Shareholders – Orders for the Fund’s shares are executed in accordance with the investment instructions of the contract holders and plan participants. The NAV of the Fund’s shares is determined as of the close of business on each business day of the Exchange. The NAV is determined separately for each class of shares of the Fund by dividing the Fund’s net assets attributable to that class by the number of shares of the class outstanding. Each class of shares offered by the Fund has equal rights as to assets and voting privileges (except that shareholders of a class have exclusive voting rights regarding any matter relating solely to that class of shares). Income and non-class specific expenses are allocated daily to each class on the basis of the relative net assets of the class. Realized and unrealized gains and losses are allocated daily based on the relative net assets of each class of shares of the Fund.
14 |
Hartford Value HLS Fund |
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Orders for the purchase of the Fund’s shares received prior to the close of the Exchange on any day the Exchange is open for business are priced at the NAV determined as of the close of the Exchange. Orders received after the close of the Exchange, or on a day on which the Exchange and/or the Fund is not open for business, are priced at the next determined NAV.
Dividends are declared pursuant to a policy adopted by the Company's Board of Directors based upon the investment performance of the Fund. The policy of the Fund is to pay dividends from net investment income and realized gains, if any, at least once a year.
Net investment income, dividends and distributions from net realized gains and capital are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP with respect to character and timing (see Federal Income Taxes: Distributions and Components of Distributable Earnings and Reclassification of Capital Accounts).
Securities and Other Investments:
Repurchase Agreements – A repurchase agreement is an agreement by which a counterparty agrees to sell an investment and agrees to repurchase the investment sold from the buyer at a mutually agreed upon time and price. During the period of the repurchase agreement, the counterparty will deposit cash and or securities in a third party custodial account to serve as collateral. At the time the Fund enters into a repurchase agreement, the value of the underlying collateral, including accrued interest, will be equal to or exceed the value of the repurchase agreement. Repurchase agreements expose the Fund to counterparty risk - that is, the risk that the counterparty will not fulfill its obligations. To minimize counterparty risk, the investments that serve to collateralize the repurchase agreement are held by the Fund’s custodian in book entry or physical form in the custodial account of the Fund or in a third party custodial account. Repurchase agreements are valued at cost plus accrued interest, which approximates fair value. Repurchase agreements have master netting arrangements which allow the Fund to offset amounts owed to a counterparty with amounts owed by the counterparty, including any collateral. Upon an event of default under a master repurchase agreement, the non-defaulting party may close out all transactions traded under such agreement and net amounts owed under each transaction to one net amount payable by one party to the other. Absent an event of default, the master repurchase agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty. The Fund, as shown on the Schedule of Investments, had outstanding repurchase agreements and related collateral as of December 31, 2014.
Illiquid and Restricted Investments – The Fund is permitted to invest up to 15% of its net assets in illiquid investments. Illiquid investments are those that may not be sold or disposed of in the ordinary course of business within seven days, at approximately the price used to determine the Fund’s NAV. The Fund may not be able to sell illiquid investments when its sub-adviser considers it desirable to do so or may have to sell such investments at a price that is lower than the price that could be obtained if the investments were more liquid. A sale of illiquid investments may require more time and may result in higher dealer discounts and other selling expenses than does the sale of those that are liquid. Illiquid investments also may be more difficult to value due to the unavailability of reliable market quotations for such investments, and an investment in them may have an adverse impact on the Fund’s NAV. The Fund may also purchase certain restricted investments that can only be resold to certain qualified investors and may be determined to be liquid pursuant to policies and guidelines established by the Company's Board of Directors. The Fund, as shown on the Schedule of Investments, had illiquid or restricted investments as of December 31, 2014.
Investments Purchased on a When-Issued or Delayed-Delivery Basis – Delivery and payment for investments that have been purchased by the Fund on a forward commitment, or when-issued or delayed-delivery basis, take place beyond the customary settlement period. The Fund may dispose of or renegotiate a delayed-delivery transaction after it is entered into, and may sell delayed-delivery investments before they are delivered, which may result in a realized gain or loss. During this period, such investments are subject to market fluctuations, and the Fund identifies investments segregated in its records with a value at least equal to the amount of the commitment. The Fund had no when-issued or delayed-delivery investments as of December 31, 2014.
Financial Derivative Instruments:
The following disclosures contain information on how and why the Fund uses derivative instruments, the credit-risk-related contingent features in certain derivative instruments and how derivative instruments affect the Fund’s financial position and results of operations. The location and fair value amounts of these instruments on the Statement of Assets and Liabilities and the realized gains and losses and
15 |
Hartford Value HLS Fund |
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
changes in unrealized gains and losses on the Statement of Operations, each categorized by type of derivative contract, are included in the following Additional Derivative Instrument Information footnote. The derivative instruments outstanding as of year-end are disclosed in the notes to the Schedule of Investments, if applicable. The amounts of realized gains and losses and changes in unrealized gains and losses on derivative instruments during the year are disclosed in the Statement of Operations.
Foreign Currency Contracts – The Fund may enter into foreign currency contracts that obligate the Fund to purchase or sell currencies at specified future dates. Foreign currency contracts are used to hedge the currency exposure associated with some or all of the Fund’s investments and/or as part of an investment strategy. Foreign currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. The Fund will record a realized gain or loss when the foreign currency contract is settled.
Foreign currency contracts involve elements of market risk in excess of the amounts reflected in the Statement of Assets and Liabilities. In addition, risks may arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of the contracts and from unanticipated movements in the value of the foreign currencies relative to the U.S. dollar. The Fund had no outstanding foreign currency contracts as of December 31, 2014.
Additional Derivative Instrument Information:
The volume of derivative activity was minimal during the year ended December 31, 2014.
The Effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2014:
Risk Exposure Category | ||||||||||||||||||||||||||||
Interest Rate | Foreign | Credit | Equity | Commodity | Other | Total | ||||||||||||||||||||||
Realized Loss on Derivatives Recognized as a Result of Operations: | ||||||||||||||||||||||||||||
Net realized loss on foreign currency contracts | $ | — | $ | (2 | ) | $ | — | $ | — | $ | — | $ | — | $ | (2 | ) | ||||||||||||
Total | $ | — | $ | (2 | ) | $ | — | $ | — | $ | — | $ | — | $ | (2 | ) |
Principal Risks:
The Fund may be exposed to counterparty risk, or the risk that an institution or other entity with which the Fund has unsettled or open transactions will default.
If the Fund invests directly in foreign currencies or in securities that trade in, and receive revenues in, foreign currencies, or in derivatives that provide exposure to foreign currencies, it will be subject to the risk that those currencies will decline in value relative to the base currency (U.S. dollars) of the Fund, or, in the case of hedging positions, that the Fund’s base currency will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities, such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad. As a result, the Fund’s investments in foreign currency denominated securities may reduce the returns of the Fund. The market values of equity securities, such as common stocks and preferred stocks, or equity related investments, such as futures and options, may decline due to general market conditions which are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. The market value of equity securities may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities and equity related investments generally have greater market price volatility than fixed income securities.
Federal Income Taxes:
Federal Income Taxes – For federal income tax purposes, the Fund intends to continue to qualify as a Regulated Investment Company (“RIC”) under Subchapter M of the Internal Revenue Code (“IRC”) by distributing substantially all of its taxable net
16 |
Hartford Value HLS Fund |
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
investment income and net realized capital gains to its shareholders and otherwise complying with the requirements of the IRC. The Fund has distributed substantially all of its income and capital gains in prior years, if applicable, and intends to distribute substantially all of its income and capital gains prior to the next fiscal year-end. Accordingly, no provision for federal income or excise taxes has been made in the accompanying financial statements. Distributions from short-term capital gains are treated as ordinary income distributions for federal income tax purposes.
Net Investment Income (Loss), Net Realized Gains (Losses) and Distributions – Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of losses deferred due to wash sale adjustments, foreign currency gains and losses, adjustments related to Passive Foreign Investment Companies ("PFICs"), Real Estate Investment Trusts ("REITs"), RICs, certain derivatives and partnerships. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund.
Distributions and Components of Distributable Earnings – The tax character of distributions paid by the Fund for the periods indicated is as follows (as adjusted for dividends payable, if applicable):
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||
Ordinary Income | $ | 8,938 | $ | 10,589 |
As of December 31, 2014, the Fund’s components of distributable earnings (deficit) on a tax basis are as follows:
Amount | ||||
Undistributed Ordinary Income | $ | 855 | ||
Undistributed Long-Term Capital Gain | 15,654 | |||
Unrealized Appreciation* | 193,035 | |||
Total Accumulated Earnings | $ | 209,544 |
* | Differences between book-basis and tax-basis unrealized appreciation (depreciation) may be attributable to the losses deferred due to wash sale adjustments, foreign currency gains and losses and adjustments related to PFICs, REITs, RICs, certain derivatives and partnerships. |
Reclassification of Capital Accounts – The Fund may record reclassifications in its capital accounts. These reclassifications have no impact on the total net assets of the Fund. The reclassifications are a result of permanent differences between U.S. GAAP and tax accounting for such items as foreign currency, PFICs, expiration or utilization of capital loss carryforwards or net operating losses. Adjustments are made to reflect the impact these items have on current and future distributions to shareholders. Therefore, the source of the Fund’s distributions may be shown in the accompanying Statement of Changes in Net Assets as from undistributed net investment income, from accumulated net realized gains on investments or from capital depending on the type of book and tax differences that exist. For the year ended December 31, 2014, the Fund recorded reclassifications to increase (decrease) the accounts listed below:
Amount | ||||
Undistributed Net Investment Income (Loss) | $ | 96 | ||
Accumulated Net Realized Gain (Loss) | (96 | ) |
Capital Loss Carryforward – On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which made changes to the capital loss carryforward rules. The changes are effective for taxable years beginning after the date of enactment. Under the Act, funds are permitted to carry forward capital losses for an unlimited period. Additionally, capital loss carryforwards retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under prior regulation.
The Fund had no capital loss carryforward for U.S. federal income tax purposes as of December 31, 2014.
During the year ended December 31, 2014, the Fund utilized $50,781 of prior year capital loss carryforwards.
17 |
Hartford Value HLS Fund |
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Accounting for Uncertainty in Income Taxes – The Fund has adopted financial reporting rules that require the Fund to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions. Generally, tax authorities can examine all tax returns filed for the last three years. The Fund does not have an examination in progress.
The Fund has reviewed all open tax years and major jurisdictions and concluded that these financial reporting rules had no effect on the Fund’s financial position or results of operations. There is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on the tax return for the fiscal year ended December 31, 2014. The Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Expenses:
Investment Management Agreement – Hartford Funds Management Company, LLC ("HFMC") serves as the Fund’s investment manager pursuant to an Investment Management Agreement with the Company. HFMC is an indirect wholly owned subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford"). The investment manager has overall investment supervisory responsibility for the Fund. In addition, the investment manager provides administrative personnel, services, equipment, facilities and office space for proper operation of the Fund. HFMC has contracted with Wellington Management Company, LLP ("Wellington Management") under a sub-advisory agreement for the provision of day-to-day investment management services to the Fund in accordance with the Fund’s investment objective and policies. The Fund pays a fee to the investment manager, a portion of which may be used to compensate Wellington Management.
The schedule below reflects the rates of compensation paid to the investment manager for investment management services rendered as of December 31, 2014; the rates are accrued daily and paid monthly:
Average Daily Net Assets | Annual Fee |
On first $250 million | 0.7750% |
On next $250 million | 0.7250% |
On next $500 million | 0.6750% |
On next $1.5 billion | 0.6250% |
On next $2.5 billion | 0.6200% |
On next $5 billion | 0.6150% |
Over $10 billion | 0.6100% |
Accounting Services Agreement – Pursuant to the Fund Accounting Agreement between HFMC and the Company, on behalf of the Fund, HFMC provides accounting services to the Fund and receives monthly compensation based on the Fund’s average daily net assets at the rates set forth below. The Fund’s accounting services fees are accrued daily and paid monthly.
Average Daily Net Assets | Annual Fee |
All Assets | 0.010% |
Operating Expenses – Allocable expenses incurred by the Company are allocated to each Fund and allocated to classes within a Fund in proportion to the average daily net assets of the Fund and each class, except where allocation of certain expenses is more fairly made directly to the Fund or to specific classes within a Fund.
Fees Paid Indirectly – The Company, on behalf of the Fund, has entered into agreements with State Street Global Markets, LLC and Russell Implementation Services, Inc. to partially recapture non-discounted trade commissions. Such rebates are used to pay a portion of the Fund's expenses. For the year ended December 31, 2014, this amount, if any, is included in the Statement of Operations.
18 |
Hartford Value HLS Fund |
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
The ratio of expenses to average net assets in the accompanying financial highlights excludes the reduction in expenses related to fees paid indirectly. The annualized expense ratio after waivers for the period listed below reflecting the reduction for fees paid indirectly is as follows:
Year Ended December 31, 2014 | |||
Class IA | 0.77% | ||
Class IB | 1.02 |
Distribution Plan for Class IB Shares – Hartford Funds Distributors, LLC (“HFD”), an indirect wholly owned subsidiary of The Hartford, is the principal underwriter and distributor of the Fund. The Company, on behalf of the Fund, has adopted a Distribution Plan pursuant to Rule 12b-1 of the 1940 Act for Class IB shares.
The Distribution Plan provides that the Fund may pay annually up to 0.25% of the average daily net assets of the Fund attributable to its Class IB shares for activities primarily intended to result in the sale of Class IB shares. The Board has the authority to suspend or reduce these payments at any point in time. Under the terms of the Distribution Plan and the principal underwriting agreement, the Fund is authorized to make payments monthly to the distributor that may be used to pay or reimburse entities providing distribution and shareholder servicing with respect to the Class IB shares for such entities’ fees or expenses incurred or paid in that regard. The distribution fees paid during the period can be found on the Statement of Operations. These fees are accrued daily and paid monthly or at such other intervals as the Board of Directors may determine.
Other Related Party Transactions – Certain officers of the Fund are directors and/or officers of HFMC and/or The Hartford or its subsidiaries. For the year ended December 31, 2014, a portion of the Fund's Chief Compliance Officer's compensation was paid by all the investment companies in the Hartford fund complex. The portion allocated to the Fund, as represented in other expenses on the Statement of Operations, was in the amount of $1. Hartford Administrative Services Company ("HASCO"), an indirect wholly owned subsidiary of The Hartford, provides transfer agent services to the Fund. Effective December 1, 2014, pursuant to a sub-transfer agency agreement between HASCO and Boston Financial Data Services, Inc. (“BFDS”), HASCO delegated certain transfer agent, dividend disbursing agent and shareholder servicing agent functions to BFDS. HASCO is compensated by the Fund based on the number of classes plus out of pocket expenses for providing such services, a portion of which may be used to compensate BFDS. The amount paid to HASCO can be found in the Statement of Operations. These fees are accrued daily and paid monthly.
Investment Transactions:
For the year ended December 31, 2014, the cost of purchases and proceeds from sales of investment securities (excluding short-term investments) were as follows:
Excluding U.S. Government Obligations | U.S. Government Obligations | Total | ||||||||||
Cost of Purchases | $ | 103,749 | $ | — | $ | 103,749 | ||||||
Sales Proceeds | 202,217 | — | 202,217 |
Line of Credit:
The Fund is one of several Hartford Funds that participate in a $500 million committed revolving line of credit facility. The facility is to be used for temporary or emergency purposes. Under the arrangement, the funds are required to own securities having a market value in excess of 300% of the total bank borrowings. The interest rate on borrowings varies depending on the nature of the loan. The facility also requires a fee to be paid based on the amount of the commitment. This commitment fee is allocated to all the funds participating in the line of credit based on the average net assets of the funds. During the year ended December 31, 2014, the Fund did not have any borrowings under this facility.
19 |
Hartford Value HLS Fund |
Notes to Financial Statements – (continued)
December 31, 2014
(000’s Omitted)
Indemnifications:
Under the Company's organizational documents, the Company shall indemnify its officers and directors to the full extent required or permitted under Maryland General Corporation Law and the federal securities laws. In addition, the Company, on behalf of the Fund, may enter into contracts that contain a variety of indemnifications. The Company's maximum exposure under these arrangements is unknown. However, as of the date of these financial statements, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Pending Legal Proceedings:
On February 25, 2011, Jennifer L. Kasilag, Louis Mellinger, Judith M. Menendez, Jacqueline M. Robinson, and Linda A. Russell filed a derivative lawsuit against Hartford Investment Financial Services, LLC (“HIFSCO”) (now known as HFD) on behalf of six Hartford retail mutual funds in the United States District Court for the District of New Jersey, alleging that HIFSCO received excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the 1940 Act when serving as investment manager and principal underwriter, respectively, to the Hartford retail mutual funds. Although this action was purportedly filed on behalf of certain of the Hartford Funds, none of the Hartford Funds is itself a defendant to the suit. HIFSCO moved to dismiss and, in September 2011, the motion was granted in part and denied in part, with leave to amend the complaint. In November 2011, plaintiffs filed an amended complaint on behalf of certain Hartford retail mutual funds, The Hartford Global Health Fund (now known as The Hartford Healthcare Fund), The Hartford Conservative Allocation Fund, The Hartford Growth Opportunities Fund, The Hartford Inflation Plus Fund, The Hartford Advisers Fund (now known as The Hartford Balanced Fund), and The Hartford Capital Appreciation Fund. Plaintiffs seek to rescind the investment management agreements and distribution plans between HIFSCO and these funds and to recover the total fees charged thereunder or, in the alternative, to recover any improper compensation HIFSCO received, in addition to lost earnings. HIFSCO filed a partial motion to dismiss the amended complaint and, in December 2012, the court dismissed without prejudice the claims regarding distribution fees and denied the motion with respect to the advisory fees claims. HIFSCO disputes the allegations and intends to defend vigorously.
In March 2014, the plaintiffs filed a new complaint that added as new plaintiffs The Hartford Floating Rate Fund and The Hartford Small Company Fund, two Hartford retail mutual funds, and named as a defendant HFMC, which assumed the role as investment manager to the funds as of January 2013. HFMC and HIFSCO dispute the allegations and intend to defend vigorously.
This action concerns the activities of HIFSCO in its capacity as investment manager and principal underwriter to the Hartford retail mutual funds and does not concern HIFSCO’s activities in its capacity as principal underwriter to the HLS funds. For this reason, no accrual for litigation relating to this matter has been recorded in the financial statements of the Fund.
Recent Accounting Pronouncement:
In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, modifying Accounting Standards Codification Topic 860. The amended guidance changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. The guidance also requires new disclosures for certain transfers accounted for as sales and collateral supporting transactions that are accounted for as secured borrowings. ASU 2014-11 is effective for annual and interim periods beginning after December 15, 2014, except for the disclosures related to secured borrowings, which are effective for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The adoption of ASU 2014-11 is not expected to have a material impact on the Fund’s results of operations or financial position, but may impact the Fund’s disclosures.
Subsequent Event:
Effective on or after January 1, 2015, pursuant to an agreement between the Hartford Funds and State Street Bank and Trust Company ("State Street"), State Street replaced, or is scheduled to replace, JP Morgan Chase Bank, N.A. ("JP Morgan Chase") as the Fund's primary custodian. JP Morgan Chase may serve as custodian of certain Fund assets. In addition, on or after the same date, HFMC has delegated, or will delegate, certain accounting and administrative services functions to State Street. The costs and expenses of such delegation will be borne by HFMC, not by the Funds, and HFMC will compensate State Street for its services out of its own resources.
20 |
Hartford Value HLS Fund |
Financial Highlights
─Selected Per-Share Data(A) ─ | ─ Ratios and Supplemental Data ─ | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Asset | Net | Net | Total from | Dividends | Distributions | Total | Net | Total | Net | Ratio of | Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 15.39 | $ | 0.24 | $ | 1.51 | $ | 1.75 | $ | (0.25 | ) | $ | – | $ | (0.25 | ) | $ | 16.89 | 11.37 | % | $ | 523,661 | 0.77 | % | 0.77 | % | 1.51 | % | ||||||||||||||||||||||||
IB | 15.38 | 0.20 | 1.51 | 1.71 | (0.21 | ) | – | (0.21 | ) | 16.88 | 11.10 | 98,407 | 1.02 | 1.02 | 1.26 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 11.86 | $ | 0.23 | $ | 3.55 | $ | 3.78 | $ | (0.25 | ) | $ | – | $ | (0.25 | ) | $ | 15.39 | 31.94 | % | $ | 551,350 | 0.76 | % | 0.76 | % | 1.66 | % | ||||||||||||||||||||||||
IB | 11.85 | 0.20 | 3.54 | 3.74 | (0.21 | ) | – | (0.21 | ) | 15.38 | 31.65 | 109,081 | 1.01 | 1.01 | 1.41 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2012 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 10.37 | $ | 0.26 | $ | 1.50 | $ | 1.76 | $ | (0.27 | ) | $ | – | $ | (0.27 | ) | $ | 11.86 | 16.99 | % | $ | 549,228 | 0.76 | % | 0.76 | % | 2.02 | % | ||||||||||||||||||||||||
IB | 10.36 | 0.23 | 1.50 | 1.73 | (0.24 | ) | – | (0.24 | ) | 11.85 | 16.69 | 103,438 | 1.01 | 1.01 | 1.77 | |||||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2011 (D) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 10.77 | $ | 0.20 | $ | (0.41 | ) | $ | (0.21 | ) | $ | (0.19 | ) | $ | – | $ | (0.19 | ) | $ | 10.37 | (1.96 | )% | $ | 591,278 | 0.75 | % | 0.75 | % | 1.65 | % | ||||||||||||||||||||||
IB | 10.76 | 0.17 | (0.41 | ) | (0.24 | ) | (0.16 | ) | – | (0.16 | ) | 10.36 | (2.20 | ) | 111,486 | 1.00 | 1.00 | 1.40 | ||||||||||||||||||||||||||||||||||
For the Year Ended December 31, 2010 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
IA | $ | 9.50 | $ | 0.13 | $ | 1.26 | $ | 1.39 | $ | (0.12 | ) | $ | – | $ | (0.12 | ) | $ | 10.77 | 14.67 | % | $ | 741,230 | 0.78 | % | 0.78 | % | 1.36 | % | ||||||||||||||||||||||||
IB | 9.50 | 0.11 | 1.25 | 1.36 | (0.10 | ) | – | (0.10 | ) | 10.76 | 14.38 | 154,731 | 1.03 | 1.03 | 1.11 |
(A) | Information presented relates to a share outstanding throughout the indicated period. Net investment income (loss) per share amounts are calculated based on average shares outstanding unless otherwise noted. |
(B) | The figures do not include sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees would lower the Fund's performance. |
(C) | Adjustments include waivers and reimbursements, if applicable. Ratios do not include fees paid indirectly (see Expenses in the accompanying Notes to Financial Statements). |
(D) | Net investment income (loss) per share amounts have been calculated using the SEC method. |
| Portfolio Turnover Rate for All Share Classes | |||
For the Year Ended December 31, 2014 | 14% | |||
For the Year Ended December 31, 2013 | 19 | |||
For the Year Ended December 31, 2012 | 22 | |||
For the Year Ended December 31, 2011 | 16 | |||
For the Year Ended December 31, 2010 | 47 (A) |
(A) | During the year ended December 31, 2010, the Fund incurred $269.8 million in sales associated with the transition of assets from Hartford Equity Income HLS Fund and Hartford Value Opportunities HLS Fund, which merged into the Fund on March 19, 2010. These sales were excluded from the portfolio turnover calculation. |
21 |
Report of Independent Registered Public Accounting Firm |
The Board of Directors and Shareholders of
Hartford Series Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Hartford Value HLS Fund (one of the portfolios constituting Hartford Series Fund, Inc. (the Funds)) as of December 31, 2014, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2014, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Hartford Value HLS Fund of the Hartford Series Fund, Inc. at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Minneapolis, Minnesota
February 13, 2015
22 |
Hartford Value HLS Fund |
Directors and Officers (Unaudited)
The Board of Directors of the Company (the "Directors") appoints officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the Directors. Each Director serves until his or her death, resignation, or retirement or until the next annual meeting of shareholders is held or until his or her successor is elected and qualifies.
Directors and officers who are employed by or who have a financial interest in The Hartford Financial Services Group, Inc. ("The Hartford") are considered “interested” persons of the Fund pursuant to the 1940 Act. The "interested" Directors and officers are reflected in the chart below. Each Director serves as a director for The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., Hartford Series Fund, Inc., and Hartford HLS Series Fund II, Inc., and as a trustee for The Hartford Alternative Strategies Fund, which, as of December 31, 2014, collectively consist of 66 funds. Correspondence may be sent to Directors and officers c/o Hartford Funds, 5 Radnor Corporate Center, Suite 300, 100 Matsonford Road, Radnor, Pennsylvania 19087, except that correspondence to Mr. Annoni, Mr. Dressen and Ms. Quade may be sent to 500 Bielenberg Drive, Suite 500, Woodbury, Minnesota 55125.
The table below sets forth, for each Director and officer, his or her name, year of birth, current position with the Company and date first elected or appointed to Hartford Series Fund, Inc. ("HSF") and Hartford HLS Series Fund II, Inc. ("HSF2"), principal occupation, and, for Directors, other directorships held. The Fund’s Statement of Additional Information contains further information on the Directors and is available free of charge by calling 1-888-843-7824 or writing to: Hartford HLS Funds, c/o Hartford Life Insurance Company/Hartford Life and Annuity Insurance Company, P.O. Box 14293, Lexington, KY 40512-4293 for variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates; Hartford Funds, P.O. Box 55022, Boston, MA 02205-5022 for all shareholders except variable annuity and variable life insurance separate accounts of Hartford Life Insurance Company and its affiliates.
Information on the aggregate remuneration paid to the directors of the Company can be found in the Statement of Operations herein. The Fund pays to The Hartford a portion of the Chief Compliance Officer’s compensation, but does not pay salaries or compensation to any of its other officers or Directors who are employed by The Hartford.
Non-Interested Directors
Hilary E. Ackermann (1956) Director since September 23, 2014
Ms. Ackermann served as Chief Risk Officer at Goldman Sachs Bank USA from October 2008 to November 2011 and serves as a Director of Dynegy, Inc., an independent power company, from October 2012 to present.
Lynn S. Birdsong (1946) Director since 2003, Chairman of the Investment Committee since 2014
Mr. Birdsong is a private investor. Mr. Birdsong currently serves as a Director of Aberdeen Global and Aberdeen Global II (investment funds) (September 2014 to present) and as an Independent Director of Nomura Partners Funds, Inc. (formerly, The Japan Fund) (April 2003 to present). Mr. Birdsong served as Director of the Sovereign High Yield Investment Company (April 2010 to September 2014). From 2003 to March 2005, Mr. Birdsong was an Independent Director of the Atlantic Whitehall Funds. From 1979 to 2002, Mr. Birdsong was a Managing Director of Zurich Scudder Investments, an investment management firm. During his employment with Scudder, Mr. Birdsong was an Interested Director of The Japan Fund. Mr. Birdsong served as Co-Chairman of the Investment Committee of The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., HSF, HSF2 and The Hartford Alternative Strategies Fund from 2005 to 2014.
Robert M. Gavin, Jr. (1940) Director since 2002 (HSF) and 1986 (HSF2), Chairman of the Board for each since 2004
Dr. Gavin is an educational consultant. Prior to September 1, 2001, he was President of Cranbrook Education Community and prior to July 1996, he was President of Macalester College, St. Paul, Minnesota.
Duane E. Hill (1945) Director since 2001 (HSF) and 2002 (HSF2), Chairman of the Nominating Committee since 2003
Mr. Hill is a Partner of TSG Ventures L.P., a private equity investment company. Mr. Hill is a former partner of TSG Capital Group, a private equity investment firm that served as sponsor and lead investor in leveraged buyouts of middle market companies.
Sandra S. Jaffee (1941) Director since 2005
Ms. Jaffee is the founder and Chief Executive Officer of a private company, Homeworks Concierge, LLC, which provides residential property management services in Westchester County, New York (January 2012 to present). Ms. Jaffee served as Chairman (2008 to 2009) and Chief Executive Officer of Fortent (formerly Searchspace Group), a leading provider of compliance/regulatory technology to financial institutions from August 2005 to August 2009. From August 2004 to August 2005, Ms. Jaffee served as an Entrepreneur in Residence with Warburg Pincus, a private equity firm. Prior to joining Warburg Pincus, Ms. Jaffee served as Executive Vice President at Citigroup, from September 1995 to July 2004, where she was President and Chief Executive Officer of Citibank’s Global Securities
23 |
Hartford Value HLS Fund |
Directors and Officers (Unaudited) – (continued)
Services (1995 to 2003). Ms. Jaffee served as a member of the Board of Directors of Broadridge Financial Solutions (November 2010 to November 2014). Ms. Jaffee currently serves as a member of the Board of Directors of Global Camps Africa (a non-profit organization) (January 2015 to present) as well as a Trustee of Muhlenberg College (September 2007 to present).
William P. Johnston (1944) Director since 2005, Chairman of the Compliance Committee since 2005
In June 2006, Mr. Johnston was appointed as Senior Advisor to The Carlyle Group, a global private equity and other alternative asset investment firm and currently serves as an Operating Executive. In July 2006, Mr. Johnston was elected to the Board of Directors of MultiPlan, Inc. and served as a Director (July 2006 to August 2010). In August 2007, Mr. Johnston was elected to the Board of Directors of LifeCare Holdings, Inc. and served as a Director (August 2007 to June 2013). In February 2008, Mr. Johnston was elected to the Board of Directors of HCR-ManorCare, Inc. In May 2006, Mr. Johnston was elected to the Supervisory Board of Fresenius Medical Care AG & Co. KGaA, after its acquisition of Renal Care Group, Inc. in March 2006. Mr. Johnston joined Renal Care Group in November 2002 as a member of the Board of Directors and served as Chairman of the Board from March 2003 through March 2006. From 2002 through 2013, Mr. Johnston served as a Board member of the Georgia O’Keefe Museum. From September 1987 to December 2002, Mr. Johnston was with Equitable Securities Corporation (and its successors, SunTrust Equitable Securities and SunTrust Robinson Humphrey) serving in various investment banking and managerial positions, including Managing Director and Head of Investment Banking, Chief Executive Officer and Vice Chairman.
Phillip O. Peterson (1944) Director since 2002 (HSF) and 2000 (HSF2), Chairman of the Audit Committee since 2002
Mr. Peterson is a mutual fund industry consultant. He was a partner of KPMG LLP (an accounting firm) until July 1999. Mr. Peterson joined William Blair Funds in February 2007 as a member of the Board of Trustees. From February 2012 to February 2014, Mr. Peterson served as a Trustee of Symetra Variable Mutual Funds. From January 2004 to April 2005, Mr. Peterson served as Independent President of the Strong Mutual Funds.
Lemma W. Senbet (1946) Director since 2005
Dr. Senbet is the William E. Mayer Chair Professor of Finance at the University of Maryland, Robert H. Smith School of Business. He was chair of the Finance Department of the University of Maryland, Robert H. Smith School of Business from 1998 to 2006. Since June 2013, he has been on leave from the University to serve as Executive Director of African Economic Research Consortium which focuses on economic policy research and training. Previously, he was a chaired professor of finance at the University of Wisconsin-Madison. Also, he was a Director of the Fortis Funds from March 2000 to July 2002. Dr. Senbet served as Director of the American Finance Association and President of the Western Finance Association. In 2006, Dr. Senbet was inducted Fellow of Financial Management Association International for his career-long distinguished scholarship and professional service.
Interested Directors and Officers
James E. Davey (1964) Director since 2012, President and Chief Executive Officer since 2010
Mr. Davey serves as Executive Vice President of Hartford Life Insurance Company (“HLIC”) and The Hartford. Additionally, Mr. Davey serves as Chairman of the Board, Manager and Senior Managing Director of Hartford Funds Distributors, LLC (“HFD”). He also currently serves as Director, Chairman of the Board, President and Senior Managing Director of Hartford Administrative Services Company (“HASCO”). Mr. Davey also serves as Manager, Chairman of the Board and Senior Managing Director for Hartford Funds Management Company, LLC (“HFMC”) and Director, Chairman of the Board and Senior Managing Director for Hartford Funds Management Group, Inc. ("HFMG"). Mr. Davey has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Davey joined The Hartford in 2002.
Lowndes A. Smith* (1939) Director since 1996 (HSF) and 2002 (HSF2), Co-Chairman of the Investment Committee since 2005
Mr. Smith served as Vice Chairman of The Hartford from February 1997 to January 2002, as President and Chief Executive Officer of Hartford Life, Inc. from February 1997 to January 2002, and as President and Chief Operating Officer of The Hartford Life Insurance Companies from January 1989 to January 2002. Mr. Smith serves as a Director of White Mountains Insurance Group Ltd. (October 2003 to current); One Beacon Insurance (October 2006 to current); Symetra Financial (August 2007 to current) and is a Managing Director of Whittington Gray Associates (January 2007 to current).
* Mr. Smith resigned as a Director of Hartford Mutual Funds, Inc., Hartford Mutual Funds II, Inc., HSF and HSF2 and as a Trustee of The Hartford Alternative Strategies Fund effective September 17, 2014.
24 |
Hartford Value HLS Fund |
Directors and Officers (Unaudited) – (continued)
Other Officers
Mark A. Annoni (1964) Vice President, Controller and Treasurer since 2012
Mr. Annoni currently serves as the Assistant Vice President of HLIC (February 2004 to present) and Senior Vice President of HFMG (December 2013 to present). Mr. Annoni has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Annoni joined The Hartford in 2001.
Michael R. Dressen (1963) AML Compliance Officer since 2011
Mr. Dressen currently serves as Assistant Vice President of HLIC. He also serves as Chief Compliance Officer and AML Compliance Officer of HASCO and as AML Officer of HFD. Mr. Dressen has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
Edward P. Macdonald (1967) Vice President, Secretary and Chief Legal Officer since 2005
Mr. Macdonald currently serves as Assistant Secretary, Executive Vice President and Deputy General Counsel of HFD, HASCO, HFMC and HFMG. He also serves as Vice President of HLIC. Mr. Macdonald has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Macdonald joined The Hartford in 2005.
Joseph G. Melcher (1973) Vice President and Chief Compliance Officer since 2013
Mr. Melcher currently serves as Executive Vice President of HFD, HFMG and HASCO. Mr. Melcher also currently serves as Executive Vice President and Chief Compliance Officer of HFMC. Mr. Melcher has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds since joining The Hartford in 2012. Prior to joining The Hartford, Mr. Melcher worked at Touchstone Investments, a member of the Western & Southern Financial Group, where he held the position of Vice President and Chief Compliance Officer from 2010 through 2012 and Assistant Vice President, Compliance from 2005 to 2010.
Vernon J. Meyer (1964) Vice President since 2006
Mr. Meyer currently serves as Senior Vice President of HLIC. He also currently serves as Managing Director and Chief Investment Officer of HFMC and Managing Director of HFMG. Mr. Meyer has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Meyer joined The Hartford in 2004.
Laura S. Quade (1969) Vice President since 2012
Ms. Quade currently serves as Vice President of HASCO, HFD and HFMG. She is the Head of Operations of HASCO and formerly served as Director, Enterprise Operations of HLIC. Ms. Quade has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Ms. Quade joined The Hartford in 2001.
Martin A. Swanson** (1962) Vice President since 2010
Mr. Swanson currently serves as Vice President of HLIC. Mr. Swanson also serves as Managing Director, Chief Marketing Officer and Principal of HFD and Managing Director of HFMG. Mr. Swanson has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
** Mr. Swanson resigned as an officer effective November 6, 2014.
HOW TO OBTAIN A COPY OF THE FUND’S PROXY VOTING POLICIES AND VOTING RECORDS (UNAUDITED)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information about how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available (1) without charge, upon request, by calling 888-843-7824 and (2) on the SEC’s website at http://www.sec.gov. The Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
25 |
Hartford Value HLS Fund |
Expense Example (Unaudited)
Your Fund's Expenses
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including investment management fees, distribution and/or service (12b-1) fees, if any, and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period of June 30, 2014 through December 31, 2014.
Actual Expenses
The first set of columns of the table below provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second set of columns of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as taxes, sales charges (loads), or fees which may be applied at the variable life insurance, variable annuity, or qualified retirement plan product level. Therefore, the second set of columns of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would be higher. Expenses are equal to the Fund's annualized expense ratios multiplied by average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
Actual return | Hypothetical (5% return before expenses) | |||||||||||||||||||||||||||||||||||
Beginning | Ending Account | Expenses paid during the period June 30, 2014 through December 31, 2014 | Beginning | Ending Account | Expenses paid | Annualized | Days | Days | ||||||||||||||||||||||||||||
Class IA | $ | 1,000.00 | $ | 1,047.00 | $ | 3.92 | $ | 1,000.00 | $ | 1,021.37 | $ | 3.87 | 0.76 | % | 184 | 365 | ||||||||||||||||||||
Class IB | $ | 1,000.00 | $ | 1,045.70 | $ | 5.21 | $ | 1,000.00 | $ | 1,020.11 | $ | 5.14 | 1.01 | 184 | 365 |
26 |
Hartford Value HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited)
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of directors, including a majority of those directors who are not “interested persons” of the mutual fund, as defined in the 1940 Act (the “Independent Directors”), annually review and consider the continuation of the mutual fund’s investment advisory and sub-advisory agreements. At its meeting held on August 5-6, 2014, the Board of Directors (the “Board”) of Hartford Series Fund, Inc., including each of the Independent Directors, unanimously voted to approve the continuation of the investment management agreement for Hartford Value HLS Fund (the “Fund”) with Hartford Funds Management Company, LLC (“HFMC”) and the continuation of the investment sub-advisory agreement between HFMC and the Fund’s sub-adviser, Wellington Management Company, LLP (the “Sub-adviser,” and together with HFMC, the “Advisers”) (collectively, the “Agreements”).
In the months preceding the August 5-6, 2014 meeting, the Board requested, received and reviewed written responses from the Advisers to questions posed to them on behalf of the Independent Directors and supporting materials relating to those questions and responses. The Board considered information furnished to the Board at its meetings throughout the year, as well as information specifically prepared in connection with the annual approval of the Agreements at the Board’s meetings held on June 17-18, 2014 and August 5-6, 2014. Information provided to the Board at its meetings throughout the year included, among other things, reports on Fund performance, legal and compliance matters, sales and marketing activity, shareholder services, and the other services provided to the Fund by the Advisers and their affiliates. The Board also received in-person presentations by Fund officers and representatives of HFMC at the Board’s meetings on June 17-18, 2014 and August 5-6, 2014 concerning the Agreements.
The Independent Directors, advised by independent legal counsel, engaged service providers to assist them with evaluating the Agreements with respect to the Fund. Lipper Inc. (“Lipper”), an independent provider of investment company data, was retained to provide the Board with reports on how the Fund’s contractual management fees, actual management fees, other non-management fees, overall expense ratios and investment performance compared to those of mutual funds with similar investment objectives. The Independent Directors also engaged an independent financial services consultant (the “Consultant”) to assist them in evaluating the Fund’s management fees, sub-advisory fees, other non-management fees, overall expense ratios and investment performance. In addition, the Consultant reviewed the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement.
In determining whether to continue the Agreements for the Fund, the members of the Board reviewed and evaluated information and factors they believed to be relevant and appropriate in light of the information that the Board deemed necessary and appropriate through the exercise of its reasonable business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination to continue the Agreements was based on a comprehensive consideration of all information provided to the Board throughout the year and specifically with respect to the continuation of the Agreements. A more detailed discussion of the factors the Board considered with respect to its approval of the Agreements is provided below.
Nature, Extent and Quality of Services Provided by the Advisers
The Board requested and considered information concerning the nature, extent and quality of the services provided to the Fund by the Advisers. The Board considered, among other things, the terms of the Agreements and the range of services provided by the Advisers. The Board considered the Advisers’ professional personnel who provide services to the Fund, including each Adviser’s ability and experience in attracting and retaining qualified personnel to service the Fund. The Board considered each Adviser’s reputation and overall financial strength, as well as its willingness to consider and implement organizational and operational changes designed to enhance services to the Hartford Funds. In addition, the Board considered the quality of each Adviser’s communications with the Board and responsiveness to Board inquiries and requests made from time to time with respect to the Fund and other Hartford Funds.
The Board also requested and evaluated information concerning each Adviser’s regulatory and compliance environment. In this regard, the Board requested and reviewed information on each Adviser’s compliance policies and procedures, compliance history, and a report from the Fund’s Chief Compliance Officer on each Adviser’s compliance with applicable laws and regulations, including responses to regulatory developments and compliance issues raised by regulators. The Board also noted the Advisers’ support of the Fund’s compliance control structure, particularly the resources devoted by the Advisers in support of the Fund’s obligations pursuant to Rule 38a-1 under the 1940 Act.
With respect to HFMC, the Board noted that under the Agreements, HFMC is responsible for the management of the Fund, including oversight of fund operations and service providers, as well as investment advisory services in connection with selecting, monitoring and supervising the Sub-adviser. The Board considered HFMC’s ongoing monitoring of people, process and performance, including its quarterly reviews of each of
27 |
Hartford Value HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
the Hartford Funds, semi-annual meetings with the leaders of each Fund’s portfolio management team, and oversight of the Hartford Funds’ approximately 37 portfolio managers. The Board recognized that HFMC has demonstrated a record of making changes to the management and/or strategies of the Hartford Funds when warranted. The Board considered HFMC’s oversight of the Sub-adviser’s investment approach and results, process for monitoring best execution of portfolio trades by the Sub-adviser, and approach to risk management with respect to the Fund and the service providers to the Fund. The Board also considered HFMC’s oversight of compliance with the Fund’s objective and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over time led to an increase in the scope of HFMC’s services in this regard.
In addition, the Board considered HFMC’s ongoing commitment to review and rationalize the Hartford Funds product line-up and the expenses that HFMC had incurred in connection with fund combinations in recent years. The Board considered that HFMC or its affiliates are responsible for providing the Fund’s officers. The Board also noted that Hartford Life Insurance Company (“HLIC”) provides administrative services to the Fund. The Board considered its experiences with HFMC and HLIC with respect to each of these services.
With respect to the Sub-adviser, which provides certain day-to-day portfolio management services for the Fund, the Board considered the quality of the Fund’s portfolio managers, the Sub-adviser’s other investment personnel, its investment philosophy and process, investment research capabilities and resources, performance record, trade execution capabilities and experience. The Board considered the experience of the Fund’s portfolio managers, the number of accounts managed by the portfolio managers, and the Sub-adviser’s method for compensating the portfolio managers.
Based on these considerations, the Board concluded that it was satisfied with the nature, extent and quality of the services provided to the Fund by HFMC and the Sub-adviser.
Performance of the Fund and the Advisers
The Board considered the investment performance of the Fund. In this regard, the Board reviewed the performance of the Fund over different time periods presented in the materials and evaluated HFMC’s analysis of the Fund’s performance for these time periods. The Board considered information and materials provided to the Board by the Advisers concerning Fund performance, as well as information from Lipper comparing the investment performance of the Fund to an appropriate benchmark and universe of peer funds. The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and the 3rd quintile for the 3- and 5-year periods. The Board also noted that the Fund’s performance was in line with its benchmark for the 1-year period and below its benchmark for the 3- and 5-year periods. The Board considered that, in response to questions concerning the Fund’s performance, HFMC stated that it has confidence in the Fund’s portfolio management team and investment strategy.
The Board considered the detailed investment analytics reports provided by Hartford Funds’ Investment Advisory Group throughout the year. These reports include, among other things, information on the Fund’s gross and net returns, the Fund’s investment performance relative to an appropriate benchmark and peer group, various statistics concerning the Fund’s portfolio, and a narrative summary of various factors affecting Fund performance. The Board considered the Advisers’ cooperation with the Investment Committee, which assists the Board in evaluating the performance of the Fund at periodic meetings throughout the year. The Board also considered the analysis provided by the Consultant relating to the Fund’s performance track record.
In light of all the considerations noted above, the Board concluded that it had continued confidence in HFMC’s and the Sub-adviser’s overall capabilities to manage the Fund.
Costs of the Services and Profitability of the Advisers
The Board reviewed information regarding HFMC’s cost to provide investment management and related services to the Fund and HFMC’s profitability, both overall and for the Fund, on a pre-tax basis without regard to distribution expenses. The Board also requested and reviewed information about the profitability to HFMC and its affiliates from all services provided to the Fund and all aspects of their relationship with the Fund. The Board also requested and received information relating to the operations and profitability of the Sub-adviser.
The Board considered the Consultant’s review of the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement, noting the Consultant’s view that Hartford Funds’ process for calculating and reporting Fund profitability is reasonable. In this regard, the Board noted that the Consultant performed a full review of this process in light of the recent restructuring of the
28 |
Hartford Value HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
Hartford Funds business and reported that the approach to analyzing Fund profitability, including the use of common expense allocation methodologies, is reasonable, sound and well within common industry practice.
Based on these considerations, the Board concluded that the profits anticipated to be realized by the Advisers and their affiliates from their relationships with the Fund would not be excessive.
Comparison of Fees and Services Provided by the Advisers
The Board considered comparative information with respect to the management fees to be paid by the Fund to HFMC and the total expense ratios of the Fund. The Board also considered comparative information with respect to the sub-advisory fees to be paid by HFMC to the Sub-adviser. In this regard, the Board requested and reviewed information from HFMC and the Sub-adviser relating to the management and sub-advisory fees, including the sub-advisory fee schedule for the Fund, and total operating expenses for the Fund. The Board considered that the management fee for the Fund includes the fee paid to HLIC for providing certain administrative services to the Fund. With respect to the sub-advisory fee schedule, the Board considered representations from HFMC and the Sub-adviser that the Sub-adviser’s fees were negotiated at arm’s length on a fund-by-fund basis. The Board also reviewed information from Lipper comparing the Fund’s contractual management fees, actual management fees and overall expense ratios relative to a group of funds selected by Lipper, in consultation with the Consultant, and a broader universe of funds selected by Lipper. The Board noted that the Fund’s contractual management fee was in the 3rd quintile of its expense group, while its actual management fee and total expenses (less 12b-1 and shareholder service fees) were in the 4th quintile.
While the Board recognized that comparisons between the Fund and peer funds may be imprecise, given the different service levels and characteristics of mutual funds and the different business models and cost structures of the Advisers, the comparative information provided by Lipper assisted the Board in evaluating the reasonableness of the Fund’s management and sub-advisory fees and total operating expenses. In addition, the Board considered the analysis and recommendations of the Consultant relating to the Fund’s management and sub-advisory fees and total operating expenses.
Based on these considerations, the Board concluded that the Fund’s fees and total operating expenses, in conjunction with the information about quality of services, profitability, economies of scale, and other matters discussed, were reasonable in light of the services provided.
Economies of Scale
The Board requested and considered information regarding the Advisers’ realization of economies of scale with respect to the Fund and whether the fee levels reflect these economies of scale for the benefit of the Fund’s shareholders. The Board reviewed the breakpoints in the management fee schedule for the Fund, which reduce fee rates as Fund assets grow over time. The Board recognized that a fund with assets beyond the highest breakpoint level will continue to benefit from economies of scale because additional assets are charged the lowest breakpoint fee resulting in lower overall effective management fee rates. The Board also recognized that a fee schedule that reaches a lower breakpoint quickly provides shareholders with the benefit of anticipated or potential economies of scale. The Board noted the effect of the sale and run-off of the variable annuity business on the HLS Funds.
The Board reviewed and evaluated materials from Lipper and the Consultant showing how management fee schedules of peer funds reflect economies of scale for the benefit of shareholders as a peer fund’s assets hypothetically increase over time. Based on information provided by HFMC, Lipper, and the Consultant, the Board recognized that there is no uniform methodology for establishing breakpoints or uniform pattern in asset levels that trigger breakpoints or the amounts of breakpoints triggered.
After considering all of the information available to it, the Board concluded that it was satisfied with the extent to which economies of scale would be shared for the benefit of the Fund’s shareholders based on currently available information and the effective advisory fees and expense ratios for the Fund at its current and reasonably anticipated asset levels. The Board noted, however, that it would continue to monitor future growth in Fund assets and the appropriateness of additional breakpoints.
Other Benefits
The Board considered other benefits to the Advisers and their affiliates from their relationships with the Fund, including the role of the Fund in supporting the variable life insurance and variable annuity products offered by The Hartford.
29 |
Hartford Value HLS Fund |
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
The Board noted that HLIC, an affiliate of HFMC, receives fees for providing certain administrative services to the Fund and that HFMC receives fees for fund accounting and related services from the Fund. The Board considered information on profits to HLIC and HFMC for such services. The Board also considered that Hartford Administrative Services Company (“HASCO”), the Fund’s transfer agent and an affiliate of HFMC, receives transfer agency compensation from the Fund, and the Board reviewed information on the profitability of the Fund’s transfer agency function to HASCO. The Board considered information provided by HASCO indicating that the transfer agent fees charged by HASCO to the Fund were fair and reasonable based on publicly available information.
The Board also considered that Hartford Funds Distributors, LLC (“HFD”), an affiliate of HFMC, serves as principal underwriter of the Fund. As principal underwriter, HFD receives 12b-1 fees from the Fund. The Board also noted that certain affiliates of HFD distribute shares of the Fund and receive compensation in that connection.
The Board considered benefits to the Sub-adviser from its use of the Fund’s brokerage commissions to obtain soft dollar research, and representations from HFMC and the Sub-adviser that the Sub-adviser would not make any revenue-sharing payments or any other type of distribution payments to HFMC or its affiliates.
The Board considered the benefits to shareholders of being part of the Hartford Funds family of funds. The Board considered HFMC’s efforts to provide investors in the family with a broad range of investment styles and asset classes.
* * * *
Based upon its review of these various factors, among others, the Board concluded that it is in the best interests of the Fund and its shareholders for the Board to approve the Agreements for an additional year. In reaching this decision, the Board did not assign relative weights to the factors discussed above or deem any one or group of them to be controlling in and of themselves. In connection with their deliberations, the Independent Directors met separately in executive session on several occasions, with independent legal counsel and the Consultant, to review the relevant materials and consider their responsibilities under relevant laws and regulations.
30 |
Hartford Value HLS Fund |
Main Risks (Unaudited)
The main risks of investing in the Fund are described below.
Market, Selection and Strategy Risk: The Fund’s share price may fluctuate due to market risk and/or security selections that may underperform the market or relevant benchmarks. If the sub-adviser's investment strategy does not perform as expected, the Fund could underperform its peers or lose money. There is no guarantee the Fund will achieve its stated objective.
Value Investing Risk: Value investments are considered to be undervalued, but they may never attain their potential value. Value-style investing falls in and out of favor, which may result in periods of underperformance.
Foreign Investment Risk: Investments in foreign securities may be riskier than investments in U.S. securities. Potential risks include the risks of illiquidity, increased price volatility, less government regulation, less extensive and less frequent accounting and other reporting requirements, unfavorable changes in currency exchange rates, and economic and political disruptions.
31 |
THIS PRIVACY POLICY IS NOT PART OF THIS REPORT
Privacy Policy and Practices of The Hartford Financial Services Group, Inc. and its Affiliates
(herein called “we, our and us”)
This Privacy Policy applies to our United States Operations
We value your trust. We are committed to the responsible: a) management; b) use; and c) protection; of Personal Information.
This notice describes how we collect, disclose, and protect Personal Information.
We collect Personal Information to: a) service your Transactions with us; and b) support our business functions.
We may obtain Personal Information from: a) You; b) your Transactions with us; and c) third parties such as a consumer-reporting agency.
Based on the type of product or service You apply for or get from us, Personal Information such as: a) your name; b) your address; c) your income; d) your payment; or e) your credit history; may be gathered from sources such as applications, Transactions, and consumer reports.
To serve You and service our business, we may share certain Personal Information. We will share Personal Information, only as allowed by law, with affiliates such as: a) our insurance companies; b) our employee agents; c) our brokerage firms; and d) our administrators.
As allowed by law, we may share Personal Financial Information with our affiliates to: a) market our products; or b) market our services; to You without providing You with an option to prevent these disclosures.
| We may also share Personal Information, only as allowed by law, with unaffiliated third parties including: a) independent agents; b) brokerage firms; c) insurance companies; d) administrators; and e) service providers; who help us serve You and service our business.
When allowed by law, we may share certain Personal Financial Information with other unaffiliated third parties who assist us by performing services or functions such as: a) taking surveys; b) marketing our products or services; or c) offering financial products or services under a joint agreement between us and one or more financial institutions.
We, and third parties we partner with, may track some of the pages You visit through the use of: a) cookies; b) pixel tagging; or c) other technologies; and currently do not process or comply with any web browser’s “do not track” signal or similar mechanism that indicates a request to disable online tracking of individual users who visit our websites or use our services.
We will not sell or share your Personal Financial Information with anyone for purposes unrelated to our business functions without offering You the opportunity to: a) “opt-out;” or b) “opt-in;” as required by law.
We only disclose Personal Health Information with: a) your proper written authorization; or b) as otherwise allowed or required by law.
Our employees have access to Personal Information in the course of doing their jobs, such as: a) underwriting policies; b) paying claims; c) developing new products; or d) advising customers of our products and services.
|
We use manual and electronic security procedures to maintain: a) the confidentiality; and b) the integrity of; Personal Information that we have. We use these procedures to guard against unauthorized access.
Some techniques we use to protect Personal Information include: a) secured files; b) user authentication; c) encryption; d) firewall technology; and e) the use of detection software.
We are responsible for and must: a) identify information to be protected; b) provide an adequate level of protection for that data; c) grant access to protected data only to those people who must use it in the performance of their job-related duties.
Employees who violate our Privacy Policy will be subject to discipline, which may include ending their employment with us.
At the start of our business relationship, we will give You a copy of our current Privacy Policy.
We will also give You a copy of our current Privacy Policy once a year if You maintain a continuing business relationship with us.
We will continue to follow our Privacy Policy regarding Personal Information even when a business relationship no longer exists between us.
| As used in this Privacy Notice:
Application means your request for our product or service.
Personal Financial Information means financial information such as: a) credit history; b) income; c) financial benefits; or d) policy or claim information.
Personal Health Information means health information such as: a) your medical records; or b) information about your illness, disability or injury.
Personal Information means information that identifies You personally and is not otherwise available to the public. It includes: a) Personal Financial Information; and b) Personal Health Information.
Transaction means your business dealings with us, such as: a) your Application; b) your request for us to pay a claim; and c) your request for us to take an action on your account.
You means an individual who has given us Personal Information in conjunction with: a) asking about; b) applying for; or c) obtaining; a financial product or service from us if the product or service is used mainly for personal, family, or household purposes.
|
This Privacy Policy is being provided on behalf of the following affiliates of The Hartford Financial Services Group, Inc.:
1stAGChoice, Inc.; Access CoverageCorp, Inc.; Access CoverageCorp Technologies, Inc.; American Maturity Life Insurance Company; Archway 60 R, LLC; Business Management Group, Inc.; DMS R, LLC; First State Insurance Company; Fountain Investors I LLC; Fountain Investors II LLC; Fountain Investors III LLC; Fountain Investors IV LLC; FTC Resolution Company LLC; Hart Re Group L.L.C.; Hartford Accident and Indemnity Company; Hartford Administrative Services Company; Hartford Casualty General Agency, Inc.; Hartford Casualty Insurance Company; Hartford Financial Services, LLC; Hartford Fire General Agency, Inc.; Hartford Fire Insurance Company; Hartford Funds Distributors, LLC; Hartford Funds Management Company, LLC; Hartford Funds Management Group, Inc.; Hartford Holdings, Inc.; Hartford HLS Series Fund II, Inc.; Hartford Insurance Company of Illinois; Hartford Insurance Company of the Midwest; Hartford Insurance Company of the Southeast; Hartford Integrated Technologies, Inc.; Hartford International Life Reassurance Corporation; Hartford Investment Management Company; Hartford Life and Accident Insurance Company; Hartford Life and Annuity Insurance Company; Hartford Life Insurance Company; Hartford Life, Inc.; Hartford Life International Holding Company; Hartford Life Private Placement, LLC; Hartford Lloyd’s Corporation; Hartford Lloyd’s Insurance Company; Hartford of Texas General Agency, Inc.; Hartford Residual Market, L.C.C.; Hartford Securities Distribution Company, Inc.; Hartford Series Fund, Inc.; Hartford Specialty Insurance Services of Texas, LLC; Hartford Strategic Investments, LLC; Hartford Underwriters General Agency, Inc.; Hartford Underwriters Insurance Company; Hartford-Comprehensive Employee Benefit Service Company; HDC R, LLC.; Heritage Holdings, Inc.; HIMCO Distribution Services Company; HIMCO Variable Insurance Trust; HLA LLC; HL Investment Advisors, LLC; Horizon Management Group, LLC; HRA Brokerage Services, Inc.; Lanidex Class B, LLC; New England Insurance Company; New England Reinsurance Corporation; Nutmeg Insurance Agency, Inc.; Nutmeg Insurance Company; Pacific Insurance Company, Limited; Planco, LLC; Property and Casualty Insurance Company of Hartford; Revere R, LLC; RVR R, LLC; Sentinel Insurance Company, Ltd.; Sunstone R, LLC; Symphony R, LLC; The Evergreen Group Incorporated; The Hartford Alternative Strategies Fund; The Hartford Mutual Funds, Inc.; The Hartford Mutual Funds II, Inc.; Trumbull Flood Management, L.L.C.; Trumbull Insurance Company; Twin City Fire Insurance Company.
HPP Revised February 2015
HARTFORD HLS FUNDS | |
P.O. Box 14293 | |
Lexington, KY 40512-4293 | |
HARTFORDFUNDS
hartfordfunds.com
Hartford HLS Funds are underwritten and distributed by Hartford Funds Distributors, LLC.
Hartford Series Fund, Inc. is not a subsidiary of The Hartford Financial Services Group, Inc. ("The Hartford") but is underwritten, distributed by and advised by subsidiaries of The Hartford. Investments in Hartford Series Fund, Inc. are not guaranteed by The Hartford or any other entity.
This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution unless preceded or accompanied by a current prospectus for the Fund.
Investors should carefully consider the investment objectives, risks, charges, and expenses of Hartford Funds before investing. This and other information can be found in the prospectus and summary prospectus, which can be obtained by calling 888-843-7824 (or 800-279-1541 for institutional investors). Investors should read them carefully before they invest.
HLSAR-V14 2-15 113557-4 Printed in U.S.A.
Item 2. Code of Ethics.
(a) | The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. A copy of the code of ethics is filed herewith. |
(c) | There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description. |
(d) | The registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item’s instructions. |
Item 3. Audit Committee Financial Expert.
The Board of Directors of the Registrant has designated Phillip O. Peterson as an Audit Committee Financial Expert. Mr. Peterson is considered by the Board to be an independent director.
Item 4. Principal Accountant Fees and Services.
(a) | Audit Fees: The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were: |
$439,560 for the fiscal year ended December 31, 2013; $306,140 for the fiscal year ended December 31, 2014;
(b) | Audit Related Fees: The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item were: |
$13,567 for the fiscal year ended December 31, 2013; $9,148 for the fiscal year ended December 31, 2014. Audit-related services are principally in connection with Rule 17Ad-13 under the Securities and Exchange Act of 1934.
(c) | Tax Fees: The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning were: |
$134,165 for the fiscal year ended December 31, 2013; $77,244 for the fiscal year ended December 31, 2014. Tax-related services are principally in connection with, but not limited to, general tax services and Passive Foreign Investment Company (PFIC) analysis.
(d) | All Other Fees: The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item were: |
$0 for the fiscal year ended December 31, 2013; $0 for the fiscal year ended December 31, 2014.
(e) | (1) The Pre-Approval Policies and Procedures (the “Policy”) adopted by the Audit Committee of the Registrant (also, the “Fund”) sets forth the procedures pursuant to which services performed by the Independent Auditor for the Registrant may be pre-approved. The following are some main provisions from the Policy. |
1. | The Audit Committee must pre-approve all audit services and non-audit services that the Independent Auditor provides to the Fund. |
2. | The Audit Committee must pre-approve any engagement of the Independent Auditor to provide non-audit services to any Service Affiliate (which is defined to include any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Fund) during the period of the Independent Auditor’s engagement to provide audit services to the Fund, if the non-audit services to the Service Affiliate directly impact the Fund’s operations and financial reporting. |
3. | The Audit Committee shall pre-approve certain non-audit services to the Fund and its Service Affiliates pursuant to procedures set forth in the Policy. |
4. | The Audit Committee, from time to time, may designate one or more of its members who are Independent Directors (each a “Designated Member”) to consider, on the Audit Committee’s behalf, any non-audit services, whether to the Fund or to any Service Affiliate, that have not been pre-approved by the Audit Committee. In considering any requested non-audit services or proposed material change in such services, the Designated Member shall not authorize services which would exceed $50,000 in fees for such services. Any action by the Designated Member in approving a requested non-audit service shall be reported to the Audit Committee not later than at its next scheduled meeting. |
5. | The Independent Auditor may not provide specified prohibited non-audit services set forth in the Policy to the Fund, the Fund’s investment adviser, the Service Affiliates or any other member of the investment company complex. |
(e) | (2) One hundred percent of the services described in items 4(b) through 4(d) were approved in accordance with the Audit Committee's Pre-Approval Policy. As a result, none of such services was approved pursuant to paragraph (c) (7) (i) (c) of Rule 2-01 of Regulation S-X. |
(f) | Not applicable. |
(g) | The aggregate non-audit fees billed by the registrant’s accountant for services rendered to the registrant, and rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant were: |
$2,701,266 for the fiscal year ended December 31, 2013; $1,433,983 for the fiscal year ended December 31, 2014.
(h) | The registrant’s audit committee of the board of directors has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence. |
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments
(a) | The Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the annual report filed under Item 1 of this form. |
(b) | Not applicable. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board of directors since registrant last provided disclosure in response to this requirement.
Item 11. Controls and Procedures.
(a) | The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are generally effective to provide reasonable assurance, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). |
(b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant’s second fiscal quarter of the period covered by this report that have materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. Exhibits.
(a)(1) Code of Ethics
(a)(2) Separate certifications for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the 1940 Act (17 CFR 270.30a-2(a)) and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HARTFORD SERIES FUND, INC. | |||
Date: February 11, 2015 | By: | /s/ James E. Davey | |
James E. Davey, President and | |||
Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: February 11, 2015 | By: | /s/ James E. Davey | |
James E. Davey, President and | |||
Chief Executive Officer |
Date: February 11, 2015 | By: | /s/ Mark A. Annoni | |
Mark A. Annoni, Vice President, | |||
Treasurer and Controller |