FILE NO. 33-58862
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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Post-Effective Amendment No. 5
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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HL FUNDING COMPANY, INC.
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(Exact name of registrant as specified in its charter)
CONNECTICUT 06-1362143
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(State or other jurisdiction of (I.R.S. Employer Number)
Identification incorporation or
Organization)
6355
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(Primary Standard Industrial Classification Code Number)
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P.O. Box 2999
Hartford, Connecticut 06104-2999
(Address of Principal Executive Office)
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Rodney J. Vessels
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Counsel
ITT Hartford Life Insurance Companies
P.O. Box 2999, Hartford, Connecticut 06104-2999
(203) 843-8847
(Name, address, and telephone number of agent for service)
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Approximate date of commencement of proposed sale to the public:
The program covered by this registration statement is to be issued from time to
time after the effective date of this registration statement.
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. /X/
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CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title of Each Class Amount to Offering Aggregate Amount of
of Securities to be be Price Offering Registration
Registered Registered per Unit Price Fee
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Programs to Fund
Insurance Premiums 75 million shares * 75,000,000 Paid
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<FN>
* The maximum aggregate offering price is estimated solely for the purpose of
determining the registration fee. The amount being registered and the proposed
maximum offering price per unit are not applicable in that these contracts are
not issued in predetermined amounts or units.
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HL FUNDING CO. INC.
Cross Reference Sheet Pursuant to
Regulation S-K, Item 501(b)
FORM S-1 ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus . . . . . . . . . . . . . . . . . Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus. . . . . . . . . . . . . Inside Front Cover
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges . . . . . Not Applicable
4. Use of Proceeds. . . . . . . . . . . . . . . Not Applicable
5. Determination of Offering Price. . . . . . . Not Applicable
6. Dilution . . . . . . . . . . . . . . . . . . Not Applicable
7. Selling Security Holders . . . . . . . . . . Not Applicable
8. Plan of Distribution . . . . . . . . . . . . Distribution of Contracts
9. Description of Securities to be Registered . Description of Contracts
10. Interests and Named Experts and Counsel. . . Legal Matters & Experts
11. Information with Respect to the Registrant . The Company and its
Affiliates; Financing of the
Programs by the Company; Legal
Matters
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities. . . . . . . . . . . . . . . . . Undertakings
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PROSPECTUS
HL FUNDING Distributed by: Hartford Equity Sales Company
COMPANY, INC. P.O. Box 2999
P.O. Box 2999 Hartford, CT 06104-2999
Hartford, CT 06104-2999 Telephone: (203) 843-8889
Telephone: (203) 843-8213
PROGRAMS FOR COORDINATING THE
USE OF MUTUAL FUND SHARES AS COLLATERAL TO FINANCE INSURANCE PREMIUMS
The securities offered in this Prospectus are personalized programs which
coordinate the use of mutual fund shares as collateral to finance insurance
premiums over a term of years. HL Funding programs (the "Programs") are offered
and administered by HL Funding Company, Inc. (the "Company"). They involve (1)
use of mutual fund shares as collateral to secure loans, and (2) use of the loan
proceeds to pay insurance premiums over the life of a Program.
The Programs are intended to provide an option for the financing of premiums
to persons who (1) have already determined that they have a need for insurance
(2) have decided to purchase a particular insurance product(s) and (3) already
own, or intend to acquire, mutual fund shares to use as collateral for such
financing.
Appreciation, if any in the value of mutual fund shares may aid in
offsetting the principal and accumulated interest on the loans which must be
paid upon termination of the Program. However, there can be no assurance that
this objective will be achieved, since the Programs also involve the risk of an
actual decline in the net asset value of the mutual fund shares.
A person who purchases a Program (a "Participant") must pay his outstanding
indebtedness to the Company upon termination of the Program, which is usually
the end of the tenth program year (unless extended at the option of the
Company). Additionally, a Program will automatically terminate and the loans
will become immediately due and payable if the value of the mutual fund shares
purchased in connection with the Program declines below applicable margin and
collateral maintenance requirements. Accordingly, a prospective Participant
should carefully consider whether the risks involved in borrowing funds through
a Program to purchase insurance is more beneficial to the prospective
Participant than paying the premiums directly.
The Company is offering $75 million worth of Programs for sale to the public
by means of this Prospectus. The total amount of securities offered hereunder
will be equal to the aggregate amount of the initial insurance premiums paid on
behalf of all Participants after the effective date of this Prospectus.
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THE PROGRAMS DESCRIBED IN THIS PROSPECTUS INVOLVE SUBSTANTIAL RISKS
WHICH COULD RESULT IN SIGNIFICANT LOSSES TO PARTICIPANTS. ACCORDINGLY,
PERSONS CONTEMPLATING ENTERING INTO A PROGRAM ARE URGED TO READ AND
CONSIDER THE DISCUSSION OF "RISK FACTORS" IN THIS PROSPECTUS.
THE COMPANY RESERVES THE RIGHT TO DETERMINE IF A PROSPECTIVE PARTICIPANT
MAY PARTICIPATE IN THE PROGRAMS.
THE COMPANY RESERVES THE RIGHT AT ANY TIME TO SUSPEND OR LIMIT THE PUBLIC
OFFERING OF THE PROGRAMS.
A DECLINE IN THE VALUE OF THE MUTUAL FUND SHARES PLEDGED AS COLLATERAL FOR
A PROGRAM MAY RESULT IN A REQUEST TO FURNISH ADDITIONAL SHARES AS COLLATERAL,
WHICH, IF NOT FURNISHED, MAY RESULT IN TERMINATION OF THE PROGRAM AND THE
LIQUIDATION OF THE COLLATERAL.
PROSPECTIVE PARTICIPANTS SHOULD READ THE PROSPECTUSES FOR THE APPLICABLE
MUTUAL FUNDS AND VARIABLE LIFE INSURANCE POLICIES, IF ANY, TO BE USED IN
CONNECTION WITH THE PROGRAMS BEFORE ENTERING INTO THE PROGRAMS.
UPON TERMINATION OF A PROGRAM, ALL OUTSTANDING LOANS MUST BE REPAID AND, IF
ANY SUBSEQUENT PREMIUMS ARE DUE, THEY MUST BE PAID FROM OTHER SOURCES.
ALTHOUGH A PROGRAM ITSELF INVOLVES NO SALES LOADS, PARTICIPANTS MAY BE
ASSESSED SALES LOADS UPON THE PURCHASE OF MUTUAL FUND SHARES AS WELL AS UPON THE
PURCHASE OF INSURANCE. THE SALES LOADS FOR THE SALES OF MUTUAL FUNDS MAY RANGE
FROM 0% TO 8.5% OF THE OFFERING PRICE, WHILE THE SALES LOADS FOR THE SALE OF
INSURANCE CONTRACTS MAY RANGE FROM 0% TO 90.00% OF THE PREMIUM. THESE SALES
LOADS WOULD APPLY WHETHER OR NOT THOSE MUTUAL FUNDS OR INSURANCE POLICIES WERE
PURCHASED IN CONNECTION WITH THE PROGRAMS.
PARTICIPANTS NEED NOT PURCHASE MUTUAL FUND SHARES IF THEY ALREADY OWN
SUFFICIENT MUTUAL FUND SHARES WHICH ARE ELIGIBLE TO BE PLEDGED AS COLLATERAL.
EVEN IF THE PURCHASE OF MUTUAL FUND SHARES IS NECESSARY FOR A PARTICIPANT TO
HAVE SUFFICIENT SHARES AVAILABLE TO BE PLEDGED IN CONNECTION WITH A PROGRAM,
SUCH SHARES NEED NOT BE PURCHASED FROM THE SAME REGISTERED REPRESENTATIVE OR
BROKER/DEALER WHO IS OFFERING THE PROGRAMS AND/OR THE INSURANCE PRODUCTS TO BE
FINANCED BY THE PROGRAMS.
THE INTEREST RATE IN A PROGRAM WILL NOT BE LESS THAN 6% PER ANNUM, NOR
EXCEED THREE PERCENTAGE POINTS ABOVE THE PRIME, OR BASE RATE, AS QUOTED IN THE
WALL STREET JOURNAL.
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. PERSONS SHOULD CONSULT THIS
PROSPECTUS AND ANY SUPPLEMENT THERETO FOR ADDITIONAL INFORMATION (IF ANY)
REQUIRED BY STATE LAW. IN ADDITION, THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING OF ANY MUTUAL FUND SHARES OR INSURANCE PRODUCTS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus Dated: May 1, 1995
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TABLE OF CONTENTS
Page
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The Company and its Affiliates . . . . . . . . . . . . . . . . . .
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . .
The Hartford Equity Sales Company, Inc.. . . . . . . . . . . . .
The Insurance Companies. . . . . . . . . . . . . . . . . . . . .
Interest in Mutual Funds . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . .
Suitability of a Program. . . . . . . . . . . . . . . . . . . . .
Risk of Decline in Value of Mutual Fund Shares. . . . . . . . . .
Restriction on Redemption of Mutual Fund Shares . . . . . . . . .
Risk of Termination for Failure to Maintain Collateral and Margin
Requirements . . . . . . . . . . . . . . . . . . . . . . . . .
Risk of Failure to Qualify for Insurance. . . . . . . . . . . . .
Risk of Loss on Early Termination . . . . . . . . . . . . . . . .
Risk That the Company Will Not Be Able to Obtain Financing . . .
Risk of Adverse Determination Under State Law . . . . . . . . . .
Disadvantages of Cancelling Existing Insurance . . . . . . . . .
Cash Surrender Value of an Insurance Policy Offered in
Connection with a Program . . . . . . . . . . . . . . . . . . .
Risk Associated with Using Borrowed Funds . . . . . . . . . . . .
Tax Considerations. . . . . . . . . . . . . . . . . . . . . . . .
Summary of Charges . . . . . . . . . . . . . . . . . . . . . . . .
The Programs . . . . . . . . . . . . . . . . . . . . . . . . . . .
General; Distribution of Programs. . . . . . . . . . . . . . . .
Determination of Suitability . . . . . . . . . . . . . . . . . .
Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of Insurance . . . . . . . . . . . . . . . . . . . .
Agency Agreement and Limited Power of Attorney . . . . . . . . .
Insurance Premium Loans to Participants . . . . . . . . . . . .
Additional Mutual Fund Shares. . . . . . . . . . . . . . . . . .
Status Reports . . . . . . . . . . . . . . . . . . . . . . . . .
Program Modification . . . . . . . . . . . . . . . . . . . . . .
Partial Payment of Indebtedness . . . . . . . . . . . . . . . .
Termination. . . . . . . . . . . . . . . . . . . . . . . . . . .
Rights of Participants . . . . . . . . . . . . . . . . . . . . .
Financing of the Programs by the Company . . . . . . . . . . . .
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . .
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available Information. . . . . . . . . . . . . . . . . . . . . . .
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THE COMPANY AND ITS AFFILIATES
1. THE COMPANY
The Company is a corporation formed in the State of Connecticut on February
8, 1993. The Company is a wholly-owned subsidiary and an affiliate of Hartford
Life Insurance Company ("Hartford Life"), which is ultimately controlled by ITT
Corporation.
The Company's principal executive offices are located at 200 Hopmeadow
Street, Simsbury, CT 06089 and its telephone number is (203) 843-8213.
All administrative duties of the Company are performed by personnel employed
by the Company or its affiliates.
The administrative costs of issuing and maintaining the Programs are
expected to be offset by: a) fees charged to Program Participants, b) interest
charged to Participants for insurance premium loans to the extent that the
interest charged exceeds the cost to the Company of obtaining funds to finance
the Programs; and c) interest income earned on investments.
The Company is not a registered investment company under the Investment
Company Act of 1940, nor does it participate in the management or supervision of
any of the mutual funds that may be used in connection with the Programs.
This Prospectus relates only to the Programs described herein. No offer is
made hereby of any security representing an interest in the Company or any of
its affiliates and, therefore, Participants will have no voting rights or
ownership interests in, and will not share in the profits or losses of the
Company or any of its affiliates.
2. HARTFORD EQUITY SALES COMPANY, INC. ("HESCO")
HESCO is a broker-dealer incorporated in Connecticut and is a member of the
National Association of Securities Dealers, Inc. HESCO's common stock is wholly
owned by Hartford Life.
The Programs are offered through HESCO or other, independent broker-dealers.
HESCO is the principal underwriter of variable life and variable annuity
contracts issued by Hartford Life and Hartford Life and Accident Insurance
Company ("HL&A") (each, an "Insurance Company," and collectively, "The Insurance
Companies"). The premiums for certain of those contracts may be financed by the
Programs. Currently, HESCO does not offer mutual fund shares.
3. THE INSURANCE COMPANIES
The policies that may be financed by the Programs include various insurance
policies offered by the Insurance Companies. The Insurance Companies write many
types of insurance products. These products include group pensions, variable
annuities, as well as individual and group life insurance products. The
Insurance Companies also write accident and health policies.
Hartford Life was originally incorporated under the laws of Massachusetts
June 5, 1902. It was subsequently redomiciled to Connecticut. It is a stock
life insurance company engaged in the business of
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writing health and life insurance, both ordinary and group, in all states of the
United States and the District of Columbia. The offices of Hartford Life are
located in Simsbury Connecticut; however, its mailing address is P.O. Box 2999,
Hartford CT 06104-2999.
HL&A was incorporated under the laws of Connecticut on February 14, 1967.
It is a stock life insurance company engaged in the business of writing health
and life insurance, both ordinary and group, in the District of Columbia and all
states of the United States, except New York. The offices of HL&A are located
in Simsbury, Connecticut; however, its mailing address is P.O. Box 2999,
Hartford, CT 06104-2999.
HL&A is the parent of Hartford Life Insurance Company. HL&A is ultimately
100% owned by Hartford Fire Insurance Company, one of the largest multiple lines
insurance carriers in the United States and a subsidiary of ITT Hartford
Insurance Company, a wholly-owned subsidiary of ITT Corporation.
The Insurance Companies' policies may be sold in connection with the
Programs by agents who are also registered representatives of broker-dealers.
4. INTEREST IN MUTUAL FUNDS
Broker-dealers offering the Programs may have dealer agreements with the
various mutual funds whose shares may be purchased for use in connection with
the Programs, and may receive commissions for sales efforts in their behalf.
Participants need not purchase mutual fund shares if they already own
sufficient mutual fund shares which are eligible to be pledged as collateral.
Even if the purchase of mutual fund shares is necessary for a Participant to
have sufficient shares available to be pledged in connection with a Program,
such shares need not be purchased from the same registered representative or
broker-dealer who is offering the programs and/or the insurance products to be
financed by the Programs.
None of the mutual funds that may be used in connection with the Programs or
their sponsors, managers or distributors has any interest in the Programs. None
of the mutual funds that may be used in connection with the Programs assumes any
responsibility for the soundness of the Programs or the operations, policies,
representations or conduct of the Company. No fund that may be used in
connection with the Programs is the owner of record of 10% or more of the
outstanding stock of ITT Corporation.
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RISK FACTORS
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1. SUITABILITY OF A PROGRAM
No person should enter into a Program unless his financial circumstances
warrant and he expects to be able to maintain the Program over its entire
ten-year life. Individual financial circumstances may, of course, change from
time to time and, in the event of an adverse change, the ability of a person to
maintain a Program may be impaired. A prospective Participant should also
consider his ability to continue to pay insurance premiums after the ten-year
life of a Program.
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Persons who may be in a position to pay insurance premiums in cash, should
give particular attention to the interest and other costs involved in a Program.
All prospective Participants should consider to what extent, and on what terms,
they may themselves be able to arrange loans independently to finance insurance
premium payments. Prospective Participants should consult their legal,
financial, and/or tax adviser regarding the suitability of entering into the
Programs.
In addition, the collateral requirements of the Programs may require
regular purchases of mutual fund shares over a period of several years in order
for a Participant to continue his Program. (See "The Programs Determination of
Suitability," page 11.)
2. RISK OF DECLINE IN VALUE OF MUTUAL FUND SHARES
A feature of the Programs to potential Participants is the possibility of
using the appreciated value of mutual fund shares (as well as dividends or
capital gains distributions thereon) to help defray, at the end of the ten-year
period, or at an earlier termination, principal and accumulated interest charges
on the loans used to purchase insurance. However, appreciation depends on the
actual performance of the particular mutual fund(s) used in connection with a
given Program. Because of the unpredictability of the market conditions, any
given fund may actually decline rather than appreciate in value. If the value
of the fund(s) shares used in connection with a particular Participant's Program
declines below the Company's applicable collateral maintenance requirements, the
Program will automatically terminate and the loans will become immediately due
and payable. However, under certain circumstances as described in 4(b)(ii)
below, a Participant may be given the opportunity to assign additional shares or
make a cash payment to reduce Account Indebtedness. In no event, however, will
the Participant be obligated to purchase additional mutual fund shares. It is
just one option in certain circumstances to keep the program from terminating.
(See "The Programs--Insurance Premium Loans to Participants.")
3. RESTRICTION ON REDEMPTION OF MUTUAL FUND SHARES
Mutual fund shares pledged as collateral and necessary to maintain the
margin requirements described below may not be redeemed by the Participants
until termination of the Program, and then only to the extent the value of such
collateral exceeds the Account Indebtedness. (See "The Programs -- Insurance
Premium Loans to Participants -- Margin and Collateral Requirements; and --
Termination.")
4. RISK OF TERMINATION FOR FAILURE TO MAINTAIN COLLATERAL AND MARGIN
REQUIREMENTS
Failure to maintain the appropriate collateral and margin requirements may
result in an involuntary termination of a Program without prior notice to the
Participant. Certain collateral and margin requirements have been imposed by the
Company in order to comply with federal regulations and to insure sufficient
collateral for the Company's loans to Participants. These requirements are more
fully described under "The Programs--Insurance Premium Loans to Participants,
page_____." The following summary is qualified in its entirety by reference to
that portion of the Prospectus.
(a) 31-day Holding Period for Qualified Shares
To be eligible for use in connection with a Program, the shares must
(i) have been held for 31 days; and
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(ii) be maintained in an account in which capital gains and dividend
distributions are required to be reinvested.
Mutual fund shares held in an Account (as defined under "The
Program--Agency Agreement and Limited Power of Attorney," page
_____.) which are properly available for use as collateral within a
Program, as described above, are referred to herein as "Qualified
Shares."
If mutual fund shares which have already been held for 31 days are
exchanged to purchase shares of another fund within the same mutual
fund complex, the 31 day holding period requirement does not apply
to the newly purchased shares.
(b) Margin Requirements
The Company imposes the following specific requirements:
(i) 250% REQUIREMENT FOR NEW FINANCING-Initial premium loans, and
any new financing of additional premiums on policy renewal
dates, must be secured by Qualified Shares having a value of at
least 250% of the new credit extended to a Participant in order
to finance a premium. If the 250% renewal requirement is not
met, the Company intends not to renew the loan and reserves the
right to terminate the Program.
(ii) 150% OF ACCOUNT INDEBTEDNESS AT RENEWAL DATE-At the time of
renewal, if the value of Qualified Shares pledged with the
Company does not exceed 150% of the Participant's accumulated
debt, interest, and other charges owed to the Company (the
"Account Indebtedness"), the Company intends not to renew the
loan unless additional Qualified Shares are pledged or the
Account Indebtedness is reduced. If Qualified Shares available
for pledge are being held by the Company as custodian for the
Participant, it will pledge such shares with itself, in
accordance with the Agency Agreement and Limited Power of
Attorney required to be executed by a Participant prior to
initiation of a Program (the "Agency Agreement"),in order to
meet the 150% requirement. If additional shares are needed, the
Company may, but is not obligated to, give notice to a
Participant (in order to allow the Participant to provide
additional Qualified Shares or reduce the Account Indebtedness)
before it refuses to renew the loan and terminates the Program.
(iii) 130% REQUIREMENT BETWEEN RENEWAL DATES-If, at any time during
the term of a Program, the value of a Participant's Qualified
Shares declines below 130% of the Account Indebtedness, the
Company intends to, without prior notice to the Participant,
terminate the Program, redeem the shares necessary to satisfy
the Account Indebtedness, and return the excess shares, if any,
to the Participant.
THE COMPANY HAS NO OBLIGATION TO PROVIDE NOTICE TO THE PARTICIPANT THAT THE
APPLICABLE MARGIN REQUIREMENT HAS BEEN VIOLATED AND THAT HIS PROGRAM WILL BE
TERMINATED. IN ADDITION, THE TOTAL VALUE OF THE PARTICIPANT'S SHARES AT THE TIME
OF REDEMPTION MAY BE SIGNIFICANTLY LESS THAN THE APPLICABLE MARGIN REQUIREMENT.
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5. RISK OF FAILURE TO QUALIFY FOR INSURANCE
The Company cannot give any assurance that any proposed insured under a
policy to be purchased in connection with a Program, will qualify for insurance.
If a prospective Participant purchases mutual fund shares for use as
Program collateral prior to being approved for insurance, and such approval is
not obtained, he would be unable to use such shares in connection with a
Program. Accordingly, prospective Participants making such pre-approval
purchase of shares to be used in connection with a Program should keep in mind
that they may find themselves owning mutual fund shares, susceptible to a
decrease in value, which could not be used for the purpose for which they were
purchased. In that regard, prospective Participants should be aware that
individuals proposed for insurance who have had medical problems, or who have
been denied insurance in the past, or who are in higher risk groups, may bear a
much greater risk for the Insurance Companies and may not be issued an insurance
policy or may have to pay additional premiums.
6. RISK OF LOSS ON EARLY TERMINATION
Although a Program is voluntary and may be terminated at any time upon
written request by a Participant, it should not be concluded that it may be
terminated without loss. Termination of a Program in its early stages is more
likely to lead to a loss in a Participant's investment if mutual fund sales
loads are incurred in any purchase of mutual fund shares acquired for use in the
Programs. Furthermore, in the of event of an early termination of a Program, the
cash value, if any, of an insurance policy used in connection with the Program
may be minimal and might not be available if the Participant is not the owner of
the policy. A Participant also would pay a $100 termination fee and a $25
liquidation charge per mutual fund for early termination. On the other hand, a
termination in the latter stages of the Program will result in increased
interest expense and administrative fees which the Participant must pay. (See
"Summary of Charges"
page _____.)
Termination of a Program (either at the option of a Participant, or by the
Company) does not affect the insurance policy financed by a Program. However,
upon such termination, an alternative means of financing the premiums for such
insurance must be obtained.
7. RISK THAT THE COMPANY WILL NOT BE ABLE TO OBTAIN FINANCING
The continuance of the Program is dependent upon the Company's ability to
provide, or arrange for the financing, on commercially reasonable terms, of
insurance premiums for Participants. At present, it is anticipated that Hartford
Life, an affiliate of the Company, will directly provide the funds necessary to
the Company's financing of the Programs or, alternatively, will arrange for such
funds to be provided. A Participant should carefully consider the Company's
ability to provide future loans and the consequences of its inability to do so.
Moreover, although the Company's present financing arrangement does not include
the assignment of a Participant's mutual fund shares to the lender as security,
the Agency Agreement does authorize the Company to assign a Participant's mutual
fund shares to any lender as collateral security for the Company's obligation
pursuant to any financing arrangements. If any such assignment takes place and
the Company subsequently defaults on an obligation for which the Participant's
mutual fund shares have been pledged as security, the mutual fund shares may be
redeemed by the entity to which the obligation is owed. A Participant should
carefully consider the extent to which the rights of an entity that might
receive such an assignment would have priority over his interests in the pledged
mutual fund shares.
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Furthermore, a financing entity may cease to provide funds to the Company
if the Company is in default under its agreements. In this event, or any time
the Company is unable to obtain financing, Programs will be terminated on their
renewal dates. The Company is under no contractual obligation to continue to
make loans on future Program renewal dates; however, it intends to continue
making such loans as long as funds are available to it on commercially
reasonable terms.
8. RISK OF ADVERSE DETERMINATION UNDER STATE LAW
The Company cannot predict whether, or the extent to which, Programs
commenced in a state may have to be terminated as a result of a later
determination by that state that the Programs contravene any state statute or
regulation.
9. DISADVANTAGES OF CANCELLING EXISTING INSURANCE
Although the only insurance policies currently available for purchase by
Participants in the Programs are those issued by the Insurance Companies, the
purchase of a policy in connection with a Program does not require the surrender
or cancellation of existing insurance policies. Before an existing insurance
policy is surrendered or cancelled in connection with the purchase of a new
policy, the following should be carefully considered:
(a) The amount of the premium for an existing policy may be less than
called for by a new policy. Any replacement of the same type of policy
may result in a higher premium rate based upon the insured's then
attained age.
(b) Since selling costs and other initial costs of life insurance policies
affect the cash value increases, if any, in the earlier policy years,
the replacement of an old policy by a new one results in the
policyholder's sustaining these costs (principally agents'
commissions) twice.
(c) Life insurance policies are contestable by the issuer for periods from
one to two years and are voided by suicide during those periods. These
provisions would apply for similar periods in any new policy
notwithstanding the fact that they had expired on existing policies.
(d) All of the policies offered in connection with the Programs are
non-participating, and therefore no dividends will be payable thereon.
Existing policies, on the other hand, may have participating features.
(e) It is unlikely that the cash surrender value of a comparable new
policy will equal the cash value of an existing policy had it remained
in force and effect.
(f) Comparison should be made between settlement options available in the
policies offered in connection with the Programs and those provided in
existing policies.
(g) Comparison should also be made between any riders, such as those which
provide disability income benefits or which guarantee conversion
privileges, contained in policies offered in connection with the
Programs and those provided in existing policies.
(h) Although health insurance policies are not available for use in
connection with the Programs, they may be in the future. In that
regard, health insurance policies may exclude coverage for
pre-existing
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health conditions for a certain period of time or restrict rights to
renew policies in future years. These restrictions may not be included
in existing policies or may no longer apply.
(i) A Participant may not be able to procure a new insurance policy at all
if there has been a significant change in his health.
10. CASH SURRENDER VALUE OF AN INSURANCE POLICY OFFERED IN CONNECTION WITH A
PROGRAM
The cash surrender value, if any, of an insurance policy offered in
connection with a Program may not provide sufficient proceeds to pay the full
amount of a Participant's Account Indebtedness, but may be used to reduce the
Account Indebtedness if available to the Participant by terms of the policy.
Cash surrender values that are available also may be applied to reduce the
amount of premiums due during any period in which a Participant's ability to
maintain a Program might otherwise be impaired. Some insurance policies will
have no cash surrender value at any time, while others, may have minimal or no
cash surrender value during their early years. The cash surrender value of a
policy offered in connection with the Program will depend upon the age of the
insured at the time the policy is issued and the amount and type of insurance.
11. RISKS ASSOCIATED WITH USING BORROWED FUNDS
Participation in a Program involves special risks in that the costs
associated with a Program may exceed the return on mutual fund shares pledged as
collateral. In order to offset the interest, service charges and administrative
fees a Participant incurs in a Program, without any additional investment on his
part, his mutual fund shares must yield dividends or capital gains
distributions, or experience growth to an extent in excess of such interest,
charges and fees. There is no assurance that this result will be attained. If
this result is not attained, the Participant may need to make additional
investments in mutual fund shares in order to avoid a termination of a Program
pursuant to the requirements set forth in "The Program -- Insurance Premium
Loans To Participants -- Margin and Collateral Requirements."
Additional special risks are involved where a Program is used to finance
premiums for a variable life insurance product. In that case, borrowed funds
secured by mutual fund shares that are susceptible to a decrease in value, are
used to purchase (albeit indirectly) units of the policy's underlying mutual
fund shares, which are also susceptible to a decrease in value.
12. TAX CONSIDERATIONS
The following are certain tax considerations which should be considered
prior to the initiation of a Program. These considerations are included for
general information and are not meant to be a description of all potential tax
matters related to the purchase of a Program or the underlying insurance, or to
the use (including any purchase) of mutual fund shares in connection with a
Program. Prospective Participants should consult their own tax advisers with
respect to tax matters, including the effect of state tax laws.
(a) Loan interest generally is not deductible for the purpose of
determining an individual's taxable income.
(b) Participants will be liable for federal income taxes and state
taxes (if applicable) on dividends and capital gains
distributions on their mutual fund shares even though they are
automatically reinvested in additional shares as required by the
Program, unless the Program was
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established as part of a tax qualified retirement plan which
allows for tax-deferred accumulations.
(c) A Program established as part of a tax-qualified retirement plan
may result in unrelated business taxable income to said plan on
the accumulation value or proceeds of policies used in a Program.
(d) An involuntary termination of a Program may result in the
recognition of ordinary income or capital gains or losses which
the Participant might otherwise have wished to defer.
SUMMARY OF CHARGES
Purchasers should read the prospectuses for the mutual funds used, and variable
life insurance products offered in connection with the Programs before
initiating a Program.
1. SALES CHARGES - The total amount of sales charges relating to the Programs
will vary with the mutual funds used, and insurance policies purchased in
connection with a particular Program. Mutual fund shares purchased by
Participants for use in connection with Programs may have "front-end" sales
charges that range up to 8.50% of the offering price of the shares. Front-end
sales charges on insurance contracts may range from 0% to 90% of the premium for
a particular contract. Prospective Participants are advised that some mutual
funds and insurance contracts which do not have a "front-end" sales charge may
have a "back-end" sales charge upon redemption of the shares or surrender of the
contracts. These sales charges would apply whether the mutual fund shares and
insurance contracts are purchased in connection with, or independent of a
Program.
2. INTEREST - The mutual fund shares are pledged to secure loans to a
Participant, plus interest accruing thereon. Interest rates on a Participant's
Account Indebtedness are subject to change at any time during the Program at
the discretion of the Company, but are always subject to maximum permissible
interest rates under state law. The Agency Agreement provides that the interest
rate on a Program will not be less than 6% per annum, nor exceed three
percentage points above the prime, or base rate, as quoted in THE WALL STREET
JOURNAL. Such interest increases may occur without prior notice to the
Participants and may become effective immediately.
3. PLACEMENT FEE, ANNUAL ADMINISTRATIVE FEE, AND SPECIAL CHARGES - The Company
charges a one-time placement fee of $25 for each insurance policy issued in
connection with the Programs. The placement fee is due at the time the Company
determines that a prospective Participant has qualified for a Program (including
approval of the insurance application by an Insurance Company). In addition, the
Company will charge a fee of $25 for adding a policy to an existing Program.
An annual administrative fee is also charged by the Company for its
services under the Agency Agreement to cover the reasonable cost of
administering the Programs. The annual administrative fee is $50 and is due upon
the initiation, and on each anniversary date of the initiation of a Program, and
may be paid in a lump sum for the entire ten-year period at a reduced rate,
currently $390. Unless the Participant pays the annual administrative fee in
cash, the Company, at its discretion, may pay the fee from proceeds realized
from the redemption of mutual fund shares or by adding the fee to the
Participant's Account Indebtedness.
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Charges will also be made for certain special services. The current charges
are $25 for each of the following services on a per fund and per policy basis
and are due upon the rendering of the service: (i) returned check charge
(protested check); (ii) transfer of registration of shares; (iii) reduction of
loan balance; (iv) conversion from one premium mode to another; (v) transfer of
money from one fund to another; (vi) policy conversion; (vii) policy change;
(viii) redemption of shares; and (ix) other exceptional transactions requested
by the Participant. These charges are payable by a Participant in cash or, at
the Company's discretion, from proceeds realized from the redemption of mutual
fund shares or by adding the fee to the Participant's Account Indebtedness. The
Company reserves the right to adjust these charges at any time and from time to
time.
The charges, commissions and fees described above do not include certain
fees which are charged by:
(i) the Insurance Companies and are found in the
(a) policies of the applicable product, and
(b) prospectuses of any variable life product offered in
connection with the Programs, and
(ii) the mutual funds used in connection with the Programs, and are
described in the prospectuses of such funds.
4. TERMINATION FEE; LIQUIDATION CHARGE - The Company will charge a termination
fee of $100 when a Program is terminated by either the Participant or the
Company, except for termination at the end of ten years. A Participant also will
be charged a $25 liquidation charge per fund whenever a fund is liquidated,
regardless of whether the Program is being terminated, except for termination at
the end of ten years. These fees are based upon the Company's administrative
costs for processing terminations and liquidations.
5. INSURANCE COMMISSIONS - The Insurance Companies pay commissions to agents
for policies sold in connection with the Programs. All insurance commissions are
included in the annual premiums paid by the Participants. The first year's sales
commissions range from 3% to a maximum of 84.5% of the first year's premium and
0% to a maximum of 8% of the annual premium for subsequent years. Commissions
are paid to the agent whether the policy was sold in connection with, or
independent of a Program.
6. NO UNDERWRITERS' FEES - No underwriting discounts, commissions, or fees are
paid in connection with the sale of the Programs themselves (as distinct from
certain of the mutual fund shares and insurance policies that may be purchased
in connection with the Programs).
THE PROGRAMS
1. GENERAL; DISTRIBUTION OF PROGRAMS
The securities offered by this Prospectus are personalized programs which
coordinate the use of mutual fund shares as collateral to finance insurance
premiums over a period of ten years, commencing with the due date of the initial
premium advanced under the Program.
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The Company does not offer or finance the purchase of equity securities.
This Prospectus relates only to the Programs described herein. No offer is made
hereby of any security representing an interest in the Company or any of its
affiliates. Participants will have no voting rights or ownership interests in,
and will not share in profits or losses of either the Company or any of its
affiliates.
The Programs are neither distributed through underwriters nor traded in
securities markets. Unlike other securities, Participants may not sell or trade
their Programs. Rather, the Programs must be held for the ten year period
unless terminated earlier. They are offered only through registered
representatives (the "Representatives") of broker-dealers with which the Company
and the Insurance Companies have agreements.
The Representatives are required to be licensed to sell both mutual funds
and insurance, as well as to offer the Programs themselves. As licensed agents
of at least one of the Insurance Companies, they are authorized to sell various
forms of life, accident, and health insurance.
The Representatives offer the Programs on a best-efforts basis. Certain
broker-dealers may receive .50% of the first year annual premium financed in
connection with the Program as compensaton for supervision of the sale of the
Programs by the registered representatives associated with such broker-dealers.
Broker-dealers typically receive a commission on the sale of mutual fund shares,
including any that may be purchased for use in connection with a Program. A
portion of any commission received by the broker-dealer is paid to the
Representative. In his capacity as a licensed insurance agent, the
Representative also receives commissions from one of the Insurance Companies on
insurance sold in connection with a Program. (See "Summary of Charges,"
page ____.)
2. DETERMINATION OF SUITABILITY
Prior to sale of a Program, the broker-dealer is required to make an
independent assessment as to whether the entire transaction, including the loan
arrangement, is suitable for the prospective Participant; this in no way
relieves the prospective Participant from the responsibility of making his own
considered determination as to whether a particular Program is suitable for him.
In addition, a Representative may, without obligation, provide a Participant
with a written proposal prepared by the Company setting forth in detail, among
other things, the nature and extent of the prospective obligations, fees and
charges of the Program. Since the interest rate may fluctuate and mutual fund
shares used in the future may vary, the actual fees and charges may differ from
those shown in the proposal. (See "Summary of Charges," page _____ and "The
Programs--Insurance Premium Loans to Participants," page_____.)
At the request of a Participant, a Representative is required to review his
Program at any time during the term thereof, upon submission of appropriate
current data, in order to permit a Participant to determine continued
suitability. The Participant is free to adopt or reject any suggested changes.
Depending on the changes adopted, the costs and expenses of a revised Program
may be more or less than those of the original Program.
3. MUTUAL FUNDS
(a) Types of Mutual Funds That May Be Used.
Mutual fund shares that may be used in connection with the Programs include
the shares of open-end
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investment companies registered under the Investment Company Act of 1940, which
provide for automatic reinvestment of dividends and capital gains distributions.
Some mutual fund shares purchased are subject to "front-end" sales charges from
which a broker-dealer is paid its commissions. Many funds which do not have a
"front-end" sales charge will charge a "back-end" sales charge upon redemption
of the shares, in which the amount is contingent on the number of years the
Participant has held the shares. Prospectuses for any mutual fund shares that
may be purchased for use in connection with a Program should be obtained through
a Representative.
The mutual funds that may be used in connection with the Programs have
portfolio securities which have been selected by the management of each fund on
the basis of its belief as to either potential dividend income or capital
appreciation or both. Certain of the mutual funds have portfolios which are
selected from the common stocks and/or debt instruments of large, well-known,
publicly held corporations with established records of dividend and/or interest
payments. The portfolio stocks included in certain other mutual funds generally
afford lower yields and pay smaller or no dividends since their major objective
is capital appreciation. Instead, earnings, if any, may be reinvested by the
issuers of such securities for purposes of their expansion, research and the
general development of their operations. The element of risk connected with such
an investment may, therefore, be higher than that experienced with a more
conservative portfolio of securities having higher yields and lower
price-earnings ratios. The investment policy, objectives, performance history,
and the qualifications of the management of each mutual fund whose shares may be
used in connection with the Programs, as well as the sales charges and details
as to the automatic reinvestment plans, are required to be set forth in the
prospectuses and statements of additional information ("S.A.I.") of the
respective funds. Mutual fund investments are, of course, subject to the market
fluctuations and risks inherent in any investment in securities. There is no
assurance that the objectives of any of the mutual funds which may be used in
connection with the Programs will be realized, nor are any representations as to
their performance made in this prospectus. If a prospective Participant elects
to purchase mutual fund shares for use in connection with a Program, he should
choose the mutual fund or funds which are most suitable for his particular
needs, and reference should be made to the specific fund prospectus and S.A.I.
for information on its investment objectives and policies, sales charges, and
other relevant information about such fund.
(b) Minimum Required Amount of Pledged Shares
If a Participant decides to begin a Program, the Participant is required to
pledge mutual fund shares in an amount equal to at least 250% of the initial
insurance premium. The minimum value of mutual fund shares required to be
pledged initially is $2,500-250% of the minimum $1,000 annual premium required
for an insurance policy's eligibility for use in connection with a Program.
Unless the pledged shares appreciate in value in an amount sufficient to cover
the margin requirements applicable to subsequent premiums, of which there can be
no assurance, additional shares will be required to be pledged in connection
with subsequent premiums due during the term of a Program. (See "The
Programs -- Insurance Loans to Participants -- Margin and Collateral
Requirements," page _____.)
Prospective Participants who plan to purchase mutual fund shares for use in
connection with a Program are cautioned that the minimum investment required by
certain mutual funds may exceed the $2,500 minimum value of pledged shares
required to begin a Program.
-18-
(c) Shares Eligible for Use.
In connection with a Program, a prospective Participant may use mutual fund
shares already owned, or may purchase shares specifically for use in connection
with a Program. In either case, to be eligible for use, the shares must be of
funds which provide for reinvestment of dividends and capital gains
distributions. During the term of a Program, such reinvestment of dividends and
distributions will be required, and the shares purchased pursuant thereto shall
become part of the collateral.
Ordinary income dividends generally are reinvested either at net asset
value or at the public offering price, which usually includes the sales charge.
Capital gains distributions generally are reinvested at net asset value. If a
service charge is applicable, it is assessed irrespective of the Program.
In addition to the reinvestment requirement, to be Qualified Shares
eligible for use in connection with a Program, the shares must have been held by
the prospective Participant for at least 31 days.
If a prospective Participant elects to purchase mutual fund shares for use
as collateral in connection with a Program, such shares need not be purchased
until he is approved for insurance. However, such shares would not be eligible
for use in connection with a Program until 31 days after such purchase.
(d) Company Administrative and Confirmation Requirements
The only mutual funds which may be used in connection with the Programs are
those which agree to use the Company's administrative and confirmation
requirements.
4. ACQUISITION OF INSURANCE
A Program allows a Participant to purchase insurance by financing the
premiums through a loan secured by his mutual fund shares. The minimum annual
premium required for an insurance policy's eligibility for use in connection
with a Program is $1,000.
Insurance available for purchase in connection with a Program may vary from
state to state, depending on which of the Insurance Companies are licensed to
sell insurance in a particular jurisdiction, and whether that jurisdiction has
approved a particular insurance product.
Generally, most policy forms issued by the Insurance Companies are
available for purchase in connection with a Program. These include interest
sensitive life, universal life, and variable life. The Insurance Companies
continually offer new types of policies which, at the option of the Company, may
be available for use in connection with the Programs. All policies issued by
the Insurance Companies are non-participating. Generally, the life insurance
contracts contain the following features: (i) INCONTESTABILITY--the policies are
incontestable after a period of two years from the date of issue except as to
any additional benefits covered by a rider in the event of accidental death or
disability, or a waiver of premium (see below); (ii) SUICIDE--if within two
years from the date of issue, or less if so provided by the laws of a particular
state, the insured dies by suicide, the amount payable under the policy is
limited to the amount of the premiums which have been paid; (iii) CHANGE OF
BENEFICIARY--the owner of the policy may change the beneficiary under the policy
at any time by written notice to the issuing insurance company; (iv) AUTOMATIC
PREMIUM LOAN OPTION--any premium not paid by the end of the grace period (31 or
61 days) is automatically paid by a policy loan (which is unrelated to a
Program) if there is a sufficient cash value; (v) NONFORFEITURE OPTIONS--upon
-19-
failure to continue a required premium payment, the owner of the policy may
surrender the policy for its cash value, if any, or elect to receive paid up
life insurance of a reduced face amount, or extended term insurance in the
original face amount, but for a limited period of time; and (vi) SETTLEMENT
OPTIONS--providing for various methods pursuant to which the owner of the policy
may choose to have the proceeds of the policy paid, upon the insured's death.
Certain life policies issued by the Insurance Companies provide for
interest, based on current interest rate levels, to be credited to the cash
value element or account value of the policies. The Insurance Companies may
adjust the interest rate as economic conditions change. Also, the variable life
policies issued by the Insurance Companies provide for an accumulation of cash
value based on the investment experience of the underlying funds in which the
premiums are invested.
Because the build-up of cash value within these types of policies may vary,
there is a possibility that the policy may become paid-up before the Program's
ten year termination. In this case, the Program may terminate at the Company's
option. In the event of such termination, as discussed below, a Participant's
Account Indebtedness must be paid within seven business days after notice of
termination. However, if the Company opts not to terminate the Program, the
Account Indeptedness will continue to accrue interest (and applicable collateral
requirements must be met), but no further loans will be made to the Participant.
If the Program is so extended, there may be no need to provide additional
collateral, although the Participant may continue investing in mutual fund
shares.
Also, since there is no guarantee of an increase in cash value with a
variable life policy, it is possible that the policy would lapse by its terms
during the course of the Program. Please see the prospectus of any variable
life policy purchased in connection with a Program for further information.
Policyholders of insurance policies that may be purchased in connection
with the Programs which have cash values may borrow against these cash values.
Such loans outstanding as of the date of this Prospectus generally bear interest
at a rate of 8% per annum. Certain policies provide for a variable loan interest
rate. A prospective Participant should inquire as to the policy loan interest
rate provision of the policy to be used in connection with the Program.
Participants should also consider that loans taken out of some life insurance
policies may be subject to income and other taxes and should consult their tax
advisers for further information. Policy loans may be available to a Participant
to reduce the unpaid balance of his Account Indebtedness or to purchase
additional mutual fund shares in the event of an impending involuntary
termination of his Program due to insufficient collateral.
No fees charged at the initiation of a Program apply to insurance. Thus,
no conditional receipt for insurance coverage will be issued; that is, the
Participant will be without insurance coverage until (i) the application for
insurance is approved and (ii) the mutual fund shares to be used as collateral
have been held for at least 31 days. If, however, a Participant wishes to
conditionally obtain insurance coverage prior to completion of the underwriting
process and is eligible for such conditional coverage under rules in effect for
that Insurance Company, he may pay the appropriate binding amount as determined
by the rules of the Insurance Company in order to conditionally obtain coverage.
Such conditional insurance coverage may not be available in all cases.
Maximum limits with respect to the amount of life insurance available in
connection with a Program shall be determined by the Insurance Companies.
However, the Insurance Companies will not allow any amount greater than that
which, in its opinion, is suitable to the particular needs of the proposed
insured and financial abilities of the prospective policyowner.
-20-
The amount of the premium which is due on any insurance contract will, of
course, vary with the size and type of the policy, the age of the insured, and
the extent of any additional benefits desired, such as: (i) waiver of premium in
the event of disability so that the policy will remain in force without payment
of premium; (ii) double indemnity in the event of accidental death as the result
of bodily injury; (iii) supplemental term insurance coverage; or (iv) disability
income protection. The basic effect of using term insurance is that for any
given premium the death benefit is substantially increased while the cash value
accumulated is either greatly reduced or eliminated.
5. AGENCY AGREEMENT AND LIMITED POWER OF ATTORNEY
An Agency Agreement is executed by a Participant contemporaneously with the
assignment of mutual fund shares to be used as collateral in the Program. It is
also signed by the Company and is thereafter effective until terminated by the
Participant or the Company. Upon giving written notice, a Participant may
terminate the Agency Agreement at any time, which automatically results in
termination of a Program, but the Company may do so only for reasons discussed
under "The Programs--Termination," page _____.
Under the Agency Agreement, the Participant assigns to the Company an account or
accounts (the "Account(s)") in which shares to be used as collateral are
maintained. The Company then effects registration of the Account(s) in its
name, or that of its assignee, as custodian for the Participant under the Agency
Agreement. Shares (selected at the Company's discretion) in the Account(s) are
then deemed pledged to the extent required, as described under "Margin and
Collateral Requirements," page _____, as security for loans to pay premiums and
unpaid Program-related charges, and the interest thereon.
If at any time the redemption value of all the Qualified Shares held in the
Participant's Account exceeds 250% of the Participant's Account Indebtedness,
the Participant may, upon written request to the Company, have such excess
returned to him. Shares are valued at their net asset value for redemption value
purposes.
In addition, under the Agency Agreement, the Company, as attorney-in-fact
of the Participant, has the power to:
(a) effect loans to Participants to pay insurance premiums and
administrative fees, if not paid in cash, as they become due or excess premiums
as agreed to by the Company; and
(b) pledge the Participant's mutual fund shares securing his Account
Indebtedness, if necessary to third parties, for the purpose of obtaining funds
to finance the Programs.
After execution of the Agency Agreement, no further notice is given to a
Participant prior to the loans made by the Company to a Participant.
The foregoing is a summary of certain provisions of the Agency Agreement.
Prospective Participants are advised to review the Agency Agreement in its
entirety prior to initiating a Program.
6. INSURANCE PREMIUM LOANS TO PARTICIPANTS
(a) Loans Under the Agency Agreement
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Upon issuance of a policy by an Insurance Company and contingent upon
acceptance of the policy by the Participant, the Company makes a loan to the
Participant under the Agency Agreement in an amount equal to the selected
premium. The Participant's Account(s) is then assigned to the Company to secure
the loan.
As each premium becomes due, a new loan equal to such premium, plus any
fees and accrued interest, if not paid in cash, is made. This loan becomes part
of the Participant's Account Indebtedness and accrues interest from the premium
due date. It is intended that such loans will recur each premium due date until
the expiration of ten years after the due date of the initial premium advanced
under the Program, unless the Program is terminated sooner. Thus, interest, as
well as principal, is borrowed, and all mutual fund shares pledged in connection
with the Program having redemption value of up to 250% of the Participant's
Account Indebtedness are used as collateral for such loans. Shares representing
any excess in redemption value over 250% of the Participant's Account
Indebtedness are not required to be pledged as collateral.
Pursuant to the Agency Agreement, except as described under "Termination,"
page _____, the Company will renew a Participant's Program at the due date for
the insurance premium, in accordance with the same Program terms and conditions
(including but not limited to the "Margin and Collateral Requirements" discussed
below) for a period of time ending as of the due date of the next insurance
premium. For example, if the insurance premium payment mode is annual, the
renewal of the Program will be for a period of one year. Until the Program is
terminated, it is intended that such loans will be extended over the life of the
Program.
(b) Margin and Collateral Requirements
Under SEC Rule 11d1-2, any mutual fund shares used to secure premium loans
must have been owned by the Participant for a minimum holding period of 31 days
before credit secured by such mutual fund shares is extended to the Participant.
The holding period applies to all purchases of mutual fund shares, whether to
secure initial premiums, renewals, or to meet margin requirements unless such
purchases were made in exchange for shares of another fund within the same
mutual fund complex which had already been owned for 31 days .
The Company's present policy is to make an initial loan not to exceed 40%
of the value of the mutual fund shares pledged as security, 50% is the maximum
credit allowed by Regulation G (adopted by the Federal Reserve Board and
applicable to loans made under the Programs). If the Federal Reserve Board
should increase margin requirements beyond the Company's requirement, a
Participant would be required to pledge more securities to finance the premiums
due and to maintain the ratio required to prevent involuntary termination of the
plan. It is possible that such increased margin requirements might require the
Company to discontinue offering the Programs and terminate Programs then
outstanding. It is also possible that periods may exist when the Federal Reserve
Board margin regulations will preclude the financing of additional premiums.
As a matter of policy, independent of Federal regulations, the Company
currently requires Participants to provide Qualified Shares with values
exceeding the amount of their indebtedness by specific margins in
three different situations: at initiation, at renewal, and between renewal
dates.
(i) INITIATION REQUIREMENT--Each initial loan by the Company to pay
insurance premiums must be secured by Qualified Shares which have a value of at
least 250% of the premium to be financed.
-22-
Accordingly, a Participant must pledge Qualified Shares having a value of at
least $2,500.00 to initiate a Program to finance an insurance policy or policies
with an annual premium of $1,000.00, the minimum annual premium which can be
financed in connection with a Program.
(ii) MAINTENANCE MARGIN REQUIREMENT--The Company requires Participants to
maintain Qualified Shares with a value of at least 130% of Account Indebtedness
at all times. The Company intends to terminate Programs that fail to maintain
the 130% requirement. The Company currently intends to notify a Participant of a
decline in value in his mutual fund shares, although it is not required and
undertakes no obligation to do so. If the value of shares pledged with the
Company declines below 130% of a Participant's Account Indebtedness, the entire
Account Indebtedness will automatically become due and payable, and the Company
intends to terminate such Programs and sell or redeem the pledged shares, which
are in the Company's name, necessary to satisfy the debt, all without notice to
the Participant. The Company intends to act promptly but accepts no
responsibility for any loss incurred by a Participant due to a reduction in the
value of mutual fund shares arising from delays in redemption which are beyond
the control of the Company. Any shares not required to be redeemed to satisfy
the Account Indebtedness will be released from pledge and returned to the
Participant.
The Company intends to enforce its rights whenever the 130% requirement is
breached. If the Company is holding additional Qualified Shares available for
pledge, it will deem additional shares pledged in order to maintain a
Participant's 130% margin requirement. No mutual fund shares pledged to the
Company to secure payment of one Participant's Account Indebtedness may be
redeemed in order to satisfy the payment of another Participant's Account
Indebtedness.
(iii) ACCOUNT INDEBTEDNESS AT RENEWAL--At the time of renewal, a
Participant must have Qualified Shares pledged to the Company equal to at least
150% of the Participant's Account Indebtedness. The 150% renewal requirement may
be met in one of four ways: (a) a Participant's Qualified Shares already deemed
pledged in the Program may have a value in excess of 150% of the Account
Indebtedness; (b) if the Company is holding additional Qualified Shares
available for pledge as custodian for the Participant under the Agency
Agreement, then the Company may automatically pledge sufficient additional
shares to cover the 150% requirement; (c) if the Company is not holding enough
Qualified Shares, then the Participant may make the necessary shares available
for pledge by adding to the Account(s) shares that will have been owned at least
31 days prior to the renewal date; or (d) a Participant may make a cash payment
to reduce the Account Indebtedness to no more than 66.66% of the value of the
shares pledged in the Program.
If the 150% margin requirement is not met in one of these four ways, prior to
the renewal of a loan, the Company intends to terminate the Program. The Company
may notify a Participant 31 days prior to a renewal date if it appears that the
150% requirement may not be met, but the Company is under no obligation to
provide such notice.
(iv) RENEWAL LOAN MARGIN REQUIREMENT--The Company requires, at renewal,
that a new premium loan be secured by Qualified Shares which have not been
previously pledged to the Program. The new Qualified Shares must have a value
of at least 250% of the new premium loan. If Qualified Shares are not available
to be pledged by the Company as custodian for the Participant, then the
Participant must provide additional Qualified Shares with a value of at least
250% of the new premium loan before another premium loan will be extended.
-23-
(c) A Participant's Personal Deficiency Resulting from the Loans
THE LOANS WHICH THE COMPANY MAKES TO PARTICIPANTS TO FINANCE INSURANCE
PREMIUMS ARE MADE WITHOUT RECOURSE. CONSEQUENTLY, A PARTICIPANT WILL NOT BE
RESPONSIBLE FOR PAYMENT OF A DEFICIENCY IN THE EVENT THE VALUE OF THE PLEDGED
SHARES IS NOT SUFFICIENT TO PAY HIS ENTIRE ACCOUNT INDEBTEDNESS. A PARTICIPANT
SHOULD NOT INFER FROM THIS THAT A PROGRAM WILL NOT RESULT IN A LOSS TO HIM. THE
APPRECIATION IN VALUE OF MUTUAL FUND SHARES AND THE COSTS AND EXPENSES OF THE
PROGRAM (INCLUDING INTEREST AND FEES) ALL WILL HAVE A BEARING ON WHETHER THE
PARTICIPANT INCURS A LOSS IN A PROGRAM.
7. ADDITIONAL MUTUAL FUND SHARES
A Participant is under no obligation to purchase or otherwise make
available mutual fund shares once a Program is initiated, except to the extent
necessary to meet the margin and collateral requirements described above.
Failure to make additional shares available may result in termination of a
Participant's Program since the amount of collateral required to secure a
Participant's Account Indebtedness will increase correspondingly with the amount
of each borrowing. Similarly, failure to purchase or otherwise make available
additional mutual fund shares in order to prevent a decline in the aggregate
redemption value of the pledged shares below 130% of a Participant's Account
Indebtedness will result in a sale of existing collateral and termination of the
Participant's Program. Accordingly, to the extent they do not already own mutual
fund shares available for use as collateral, Participants generally will be
required to make investments, some as often as monthly, in shares which are
transferred into the name of the Company as custodian for the Participant and
held until they become Qualified Shares. These Qualified Shares then will be
deemed to be pledged to the Company if the value of the shares previously
pledged with the Company declines below the margin and collateral requirements.
8. STATUS REPORTS
The Company, upon request, will furnish to each Participant annually a
statement of his Program account indicating the amount of his Account
Indebtedness and a current prospectus of the Company with respect to the
Programs. Current prospectuses and any other required reports with respect to
any variable life insurance policy will be forwarded to the policy owner
directly by the issuing Insurance Company. The Company will, at any time upon
request, furnish a Participant with a statement of the total redemption value of
his pledged shares compared with his Account Indebtedness. The Company may
charge up to $25 per such request in excess of four requests per calendar year.
Annual reports of the Company containing financial statements reported upon by
independent auditors will also be furnished to Participants at any time upon
request.
9. PROGRAM MODIFICATION
Subject to the minimum premium requirement of $1,000.00 annually and the
Insurance Companies' administrative guidelines, the amount of insurance and the
premium(s) to be financed may be reduced. If increased insurance protection is
desired, a Participant may add, subject to the Company's approval, a new policy,
but only within six weeks of the annual anniversary date of his Program. The
cost of acquisition (including the placement fee) must be paid by a Participant
upon the issuance of a new policy. If a Participant
-24-
who is also the owner of the insurance policy, the premiums for which are
financed by a Program, desires to terminate the Program or modify the insurance
protection, he may be able to surrender the policy (providing it has sufficient
cash value) and obtain extended term coverage (if available), an insurance
policy with reduced coverage, or a paid-up policy for a reduced amount.
A Participant may substitute as collateral shares of one mutual fund for
those of another. This may be accomplished in one of two ways: (i) transferring
monies from one fund into the Account to another fund in the Account or (ii)
assigning another mutual fund account to the Company by transferring
registration of that account. The Company assesses charges in connection with
each of the foregoing means of collateral substitution to redeem shares of one
mutual fund so that a Participant may purchase another mutual fund's shares. See
"Summary of Charges," page _____. Presently there is no limit on the number of
times a Participant may modify his Program; however, the Company reserves the
right at any time to limit the number of times a Participant may modify his
Program.
10. PARTIAL PAYMENT OF ACCOUNT INDEBTEDNESS
A Participant may at any time prior to the termination of a Program elect
to pay the interest in his Account Indebtedness in cash or to repay in cash the
Account Indebtedness in full or in part, provided that all applicable fees and
charges as described herein are paid. However, partial payment of Account
Indebtedness is not permitted in the event the 130% maintenance margin
requirement described above is not met, since in such event, the Program will be
terminated by the Company. If the Account Indebtedness is paid in full, the
Program will terminate.
11. TERMINATION
Programs are entirely voluntary and may be terminated at any time by a
Participant, upon written notice mailed to the Company. A Program may be
terminated by the Company upon the occurrence of any of the
following: (i) the death of all Participants in that Program; (ii) termination
of all policies in that Program; (iii) failure to meet minimum collateral
requirements due to a decline in the value of the mutual fund shares or an
increase in the Account Indebtedness; (iv) failure to meet the minimum annual
premium requirement unless waived by the Company to the extent permitted by law;
(v) failure to provide sufficient collateral to secure loans for premiums due
under the Program; (vi) inability of the Company to provide or arrange for
financing of premiums; (vii) failure of the Participant's bank to honor checks
made payable to the Company from the Participant's bank account. A Participant
should clearly understand that in the event of any of the above circumstances a
Program may be terminated by the Company without prior notice to the
Participant. Programs shall be terminated not later than ten years from the due
date of the initial premium financed (unless extended at the option of the
Company).
The Company intends to provide notice of a Program's termination to a
Participant in a timely fashion so as to provide the Participant with enough
time to pay the premiums on his insurance policy to prevent it
from being cancelled.
If a Participant terminates his Program, he must pay his Account
Indebtedness in full, including interest to the date of payment. The Company
also charges a $100 termination fee and a $25 liquidation charge per mutual fund
unless the termination is at the end of the tenth year of the Program. If the
Company terminates a Program with prior notice to a Participant, the Participant
must pay his Account Indebtedness within seven
-25-
business days after a notice of termination. In either case, if a Participant's
Account Indebtedness is not paid, the Company has the right to redeem as many of
the Participant's Qualified Shares as necessary to pay his debt.
To pay his Account Indebtedness, a Participant may: (i) redeem his mutual
fund shares only and independently continue the insurance; (ii) redeem such
shares and, if he has the right, borrow on or withdraw from the cash surrender
value, if any, of the insurance policy, thereby independently keeping the policy
in force (however, the cash value of the insurance policy alone will usually not
provide adequate funds to liquidate all of the accumulated indebtedness); (iii)
retire the debt from funds unrelated to the mutual fund shares or the insurance
policy and independently continue the policy; (iv) redeem his mutual fund shares
and surrender his life insurance policy for its cash surrender value, if any; or
(v) retain his mutual fund shares and, if he has the right, surrender the
insurance policy for its cash surrender value, if any.
The continuance of the Program is dependent upon the Company's ability to
provide, or to arrange for, the financing of insurance premiums for
Participants. A Participant's Program may be involuntarily terminated if such
financing cannot be obtained by the Company. (See "The Program--Financing of the
Programs by the Company," page _____.)
Termination of a program (either at the option of a Participant, or by the
Company) does not affect the insurance policy financed by a Program. However,
upon such termination, an alternative means of financing the premiums for such
insurance must be obtained.
A Participant must maintain certain margin and collateral requirements in
order to avoid termination of his Program. See "The Programs--Insurance Premium
Loans to Participants," page _____.)
12. RIGHTS OF PARTICIPANTS
(a) Program Rights
Participants in the Programs have certain rights in connection with the
Programs themselves (as distinct from the mutual funds shares used, and
insurance offered in connection with the Programs). These rights include the
right to receive status reports, the right to modify a Program, and the right to
terminate a Program entirely. (See generally "The Programs--Status Reports"
page_____; --"Program Modification" page _____; and --Termination," page _____.)
However, Participants are not stockholders in the Company or any of its
affiliates and have no voting rights or other interests therein.
(b) Voting of Mutual Fund Shares
The mutual fund(s) used by a Participant in connection with a Program will
be requested by the Company to advise him of any meeting where his shares may be
voted and furnish him with a proxy statement and appropriate voting forms. It is
the responsibility of the Participant to complete and return the proxy statement
in order to vote his mutual fund shares. The Company will vote the Participant's
shares in the Account(s) only if the Participant gives the Company specific
written instructions accompanied by a signed proxy. If such instructions and the
signed proxy are not received, the Company will take no action with respect to
voting the Participant's shares.
-26-
13. FINANCING OF THE PROGRAMS BY THE COMPANY
The Company's funds for financing the Programs are currently obtained
through finance arrangements with Hartford Life, an affiliate of the Company
and, may, in the future, be obtained from other affiliated or unaffiliated
sources of funds (the "Arrangements"). The Company anticipates that funds will
be made available at favorable commercial rates which are subject to change in
accordance with the Arrangements. The Arrangements may contain minimum
collateral requirements coextensive with the minimum collateral requirements for
Participants set forth herein. If the value of any Participant's shares pledged
to the Company declines below 130% of the Company's indebtedness, Hartford Life
and any other sources of funds, in addition to the Company's rights described
above, may demand that the Company sell or redeem shares from that Participant's
Program which does not meet the Company's margin and collateral requirements and
liquidate that portion of the Company's indebtedness.
Under the Arrangements, the failure of the Company to fulfill its
obligations may give one of the other parties to the Arrangements the right to
terminate the obligation to provide future funding. In this event, the Company
may decide not to renew any Programs by making further loans to Participants,
and may redeem the Qualified Shares to satisfy its obligations.
If the Company is unable to borrow or obtain funds at a reasonable cost in
the future or to continue to arrange for funds under the Arrangements for the
purpose of financing loans to Participants for the payment of insurance
premiums, it may cease to continue offering the Programs. In addition, its
ability to renew existing loans may be impaired to the point of terminating,
without prior notice to Participants, all Programs at their loan renewal dates.
The Company is under no contractual obligation to continue to make loans on
future Program renewal dates; however, it intends to continue making such loans
as long as funds are available to it on commercially reasonable terms.
The Company may in the future borrow funds from affiliated or
non-affiliated companies. There is no assurance that (i) the Company will obtain
financing from non-affiliated companies upon terms, conditions and rates as
favorable as those from affiliated companies; (ii) all future material
affiliated transactions and loans will be generally available on terms no less
favorable to the Company than those from unaffiliated third parties;(iii) all
future material affiliated transactions and loans, and any forgiveness of loans,
will be approved by a majority of the Company's Board of Directors.
LEGAL MATTERS
LITIGATION
In the ordinary course of business, legal proceedings involving the Company
periodically may arise. Currently, the Company is not the subject of any pending
legal proceedings.
-27-
EXPERTS
The audited financial statements for the Company included in this Prospectus and
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report herein, and are included herein
in reliance upon the authority of said firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission
(the"Commission") a Registration Statement under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Programs offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto. For further information with
respect to the Company and the Programs offered hereby, reference is hereby made
to the Registration Statement and the exhibits and schedules filed as a part
thereof. Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement, or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved. The Registration Statement may be
inspected, without charge, at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and at the following regional offices at the Commission: 13th Floor,
Seven World Trade Center, New York, New York 10048; and Suite 1400, Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661-2511. Copies of all or
any portion of the Registration Statement may be obtained from the Public
Reference Section of the Commission, at 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of prescribed fees.
The Company will become subject to the information and reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith will file periodic reports, proxy statements
and other information with the Commission. Such reports and other information
to be filed by the Company with the Commission will be available for inspection
at the above Commission offices.
The Company will furnish, upon request, holders of the Programs annual
reports containing audited financial statements following the end of the fiscal
year as well as quarterly reports containing unaudited consolidated financial
statements for the first three quarters of each fiscal year following the end of
each such quarter.
[LETTERHEAD - ARTHUR ANDERSEN LLP]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder and Board of Directors of HL Funding Company, Inc.:
We have audited the accompanying balance sheets of HL Funding Company, Inc. as
of December 31, 1994 and 1993, and the related statements of income (loss),
stockholder's equity and cash flows for the year then ended and for the period
from inception, February 8, 1993, to December 31, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HL Funding Company, Inc. as of
December 31, 1994 and 1993, and the results of its operations and its cash
flows for the year then ended and for the period from inception, February 8,
1993, to December 31, 1993, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
March 3, 1995
F-2
HL FUNDING COMPANY, INC.
STATEMENTS OF INCOME (LOSS)
For the Period
For the Year Ended from Inception
December 31, (February 8, 1993) to
1994 December 31, 1993
------------------ ---------------------
Revenues:
Net Interest Income from Hartford
Liquid Asset Trust $ 8,347 $ 464
Other Income 427 0
------------------ ---------------------
8,774 464
Expenses:
Accounting and Administrative Services 266,612 0
Legal and State Fees 51,776 0
Other Operating Expenses 65,501 0
------------------ ---------------------
Total Expenses 383,889 0
------------------ ---------------------
Income (Loss) before tax (375,115) 464
Income Tax Expense (Benefit) (131,290) 162
------------------ ---------------------
Net Income (Loss) $ (243,825) $ 302
------------------ ---------------------
------------------ ---------------------
The accompanying notes are an integral part of these financial statements.
F-3
HL FUNDING COMPANY, INC.
BALANCE SHEETS
As of December 31,
ASSETS 1994 1993
---------------- ----------------
Cash $ 3,641 $ 1,000
Investment in Hartford Liquid Asset Trust 617,866 3,641
Premium loans receivable 18,473 0
Prepaid SEC registration fees 23,438 23,438
Interest receivable on loans 177 0
Intercompany Receivable 0 727
Organizational costs 67,939 93,407
Federal income tax receivable 115,288 0
Deferred tax asset 16,002 0
---------------- ----------------
Total Assets $ 862,824 $ 122,213
---------------- ----------------
---------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Intercompany payable $ 337,874 $ 21,749
Intercompany loan payable 18,473 0
Federal income tax payable 0 162
---------------- ----------------
Total Liabilities 356,347 21,911
---------------- ----------------
Common stock, 100 shares authorized,
$1 par value, issued and
outstanding 100 shares 100 100
Capital surplus 749,900 99,900
Retained earnings (deficit) (243,523) 302
---------------- ----------------
Total Stockholder's Equity 506,477 100,302
---------------- ----------------
Total Liabilities and Stockholder's Equity $ 862,824 $ 122,213
---------------- ----------------
---------------- ----------------
The accompanying notes are an integral part of these financial statements.
F-4
HL FUNDING COMPANY, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
Total
Common Capital Retained Stockholder's
Stock Surplus Earnings (Deficit) Equity
-------------- -------------- ------------------ -------------
Balance February 8, 1993 $ - $ - $ - $ -
Capital contribution and stock issuance 100 99,900 - 100,000
Net income - - 302 302
-------------- -------------- ---------------- -------------
Balance December 31, 1993 100 99,900 302 100,302
-------------- -------------- ---------------- -------------
Net income (loss) - - (243,825) (243,825)
Capital contribution - 650,000 - 650,000
-------------- -------------- ---------------- -------------
Balance December 31, 1994 $ 100 $ 749,900 $ (243,523) $ 506,477
-------------- -------------- ---------------- -------------
The accompanying notes are an integral part of these financial statements.
F-5
HL FUNDING COMPANY, INC.
STATEMENTS OF CASH FLOWS
For the Period
For the Year Ended from Inception
December 31, (February 8, 1993) to
1994 December 31, 1993
------------------- ---------------------
OPERATING ACTIVITIES:
Net income (loss) $ (243,825) $ 302
Adjustments to net income:
Amortization of organizational costs 25,468 0
Decrease (Increase) in intercompany accounts 316,852 21,022
Decrease (Increase) in other assets and liabilities (177) (23,438)
Decrease (Increase) in Federal income tax receivable (115,288) 0
Decrease (Increase) in deferred tax asset (16,002) 0
Increase (Decrease) in Federal income tax payable (162) 162
------------------- ---------------------
Cash an cash equivalent (used for) provided by operating activities (33,134) (1,952)
------------------- ---------------------
INVESTING ACTIVITIES:
Premium loans (18,473) 0
Organizational costs 0 (93,407)
------------------- ---------------------
Cash and cash equivalent (used for) provided by investing activities (18,473) (93,407)
------------------- ---------------------
FINANCING ACTIVITIES:
Intercompany loans 18,473 0
Hartford Life capital contributions 650,000 100,000
------------------- ---------------------
Cash and cash equivalent (used for) provided by financing activities 668,473 100,000
------------------- ---------------------
Net increase in cash and cash equivalents 616,866 4,641
Cash and cash equivalent at beginning of period 4,641 0
------------------- ---------------------
Cash and cash equivalent at end of period $ 621,507 $ 4,641
------------------- ---------------------
------------------- ---------------------
The accompanying notes are an integral part of these financial statements.
F-6
HL FUNDING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1 - ORGANIZATION
HL Funding Company, Inc. (HLFC) is a corporation formed in the state of
Connecticut on February 8, 1993. HLFC is a wholly owned subsidiary of Hartford
Life Insurance Company (HLIC). All of the outstanding shares of HLIC are
ultimately owned by Hartford Fire Insurance Company (Hartford Fire), which is
owned by ITT Hartford Group, Inc., a subsidiary of ITT Corporation (ITT). On
March 26, 1993 HLFC issued 100 shares ($1 par) of stock to HLIC for $1,000 per
share. On May 28, 1993, and September 30, 1994, additional capital
contributions of $99,900 and $650,000, respectively, were made by HLIC.
HLFC offers and administers programs whereby participants obtain life insurance
coverage from HLIC and Hartford Life and Accident Insurance Company. Under the
programs, insurance premiums are paid on behalf of participants through a series
of loans from HLFC. Loans to participants are secured by participants'
ownership in shares of regulated investment companies. Premium loans receivable
are funded with proceeds from a loan arrangement with HLIC. Programs can be up
to ten years in length. Upon program conclusion, loan balances and accrued
interest become due.
The administrative costs of issuing and maintaining the programs are expected to
be offset by: a) fees charged to program participants; b) interest charged to
participants for insurance premium loans to the extent that the interest charged
exceeds the cost to HLFC of obtaining funds to finance the programs; and c)
interest income earned on investments held by HLFC. Through December 31, 1994,
three programs were sold.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles.
REVENUES AND EXPENSES -
Interest and fees from investments and premium loans receivable are recognized
as revenue when earned. Expenses, which are primarily allocated from
affiliates, are recognized when incurred.
ORGANIZATIONAL COSTS -
Organizational costs include software development and are amortized over a three
year period.
INVESTMENT IN HARTFORD LIQUID ASSET TRUST -
Investment in Hartford Liquid Asset Trust is considered a cash equivalent.
NOTE 3 - TRANSACTIONS WITH AFFILIATES
HLIC provides administrative services to HLFC, including use of its facilities
and personnel, and allocates a portion of its expense to HLFC.
F-7
HLFC invested the capital contributions in the Hartford Liquid Asset Trust.
Pursuant to the terms of the Trust Agreement, the purpose of the Trust is to
invest funds in a less costly manner in assets which achieve a high level of
current income as well as maintain liquidity and preserve capital. The Trust
investments are restricted to cash and investments having a stated maturity
date of 12 months or less from the date of purchase. Interest earned by the
Trust is allocated to each participant based on their pro-rata share of
principle contributions.
HLFC's funds for financing the programs are currently obtained through a
promissory note agreement with HLIC. The agreement allows HLIC to advance to
HLFC funds in an amount of up to $7,000,000. The interest rate for the note is
equal to the 90 day LIBOR plus 125 basis points. The rate was 6.75% at
December 31, 1994.
NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Premium loans receivable and intercompany loan payable amounts reflected in the
balance sheet approximate fair value.
NOTE 5 - INCOME TAXES
HLFC is included in ITT's consolidated U.S. Federal income tax return and remits
to (receives from) ITT a current income tax provision (benefit) computed in
accordance with the tax sharing arrangements between ITT and its subsidiaries.
The effective tax rate in 1994 and 1993 approximated the U.S. Statutory tax rate
of 35%. The provision (benefit) for income taxes was as follows:
1994 1993
---------- ----------
Current $(115,288) $162
Deferred (16,002) -
---------- ----------
$(131,290) $162
---------- ----------
---------- ----------
The deferred tax asset at December 31, 1994, was due to expenses capitalized for
tax purposes until the start of business of HLFC. Income taxes paid were $162
and $0 in 1994 and 1993, respectively.
F-8
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Not applicable.
Item 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VIII, Section 1 of the By-laws of Hartford Funding Company,
Inc. provides for indemnification of Directors and Officers as
follows:
"Section 12. Indemnification. Each Director, Officer or employee of
the Company, and his heirs, executors or administrators, shall be
indemnified or reimbursed by the Company for all expenses necessarily
incurred by him in connection with the defense or reasonable
settlement of any action, suit or proceeding in which he is made a
party by reason of his being or having been a Director, Officer or
employee of the Company, or of any other company which he was serving
as a Director or Officer at the request of the Company, except in
relation to matters as to which such Director, Officer or employee is
finally adjudged in such action, suit or proceeding to be liable for
negligence or misconduct in the performance of the duties of such
Director, Officer or employee. The foregoing right of indemnification
or reimbursement shall not be exclusive of any other rights to which
he may be entitled under any statute, by-law, agreement, vote of
stockholders or otherwise.
Item 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit
Number Description Method of Filing
------- ----------- ----------------
1 Underwriting Agreement Filed with this
Registration Statement
3(a) Articles of Incorporation Filed with this
Registration Statement
3(b) By-laws Filed with this
Registration Statement
4 Agency Agreement and Limited Filed with this
Power of Attorney (Revised) Registration Statement
-2-
Exhibit
Number Description Method of Filing
------- ----------- ----------------
10 Loan Agreement between Filed with this
Hartford Life Insurance Registration Statement
Company and HL Funding
Company, Inc.
23 Consents of experts Filed with this
Registration Statement
25 Power of Attorney Filed with this
Registration Statement
Item 17 UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
i. To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
ii. To reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement;
iii. To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement, including (but
not limited to) any addition or deletion of a managing
underwriter;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the registration statement is on Form S-3 or Form
S-8, and the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the registration pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof.
-3-
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, fo purposes
of determining any liability under the Securities Act of 1933,
each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 (and where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
Hrtfrd Funding Co.
-4-
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Hartford, State of
Connecticut on this _____ day of ___________________, 1995.
HL FUNDING COMPANY, INC.
*By: *By:
-------------------------------------- ---------------------
Thomas M. Marra, Senior Vice President Rodney J. Vessels
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
Lowndes A. Smith
President, Chairman
Director *
John P. Ginnetti *By:
Senior Vice President, ----------------------------
Director* Rodney J. Vessels
Attorney-in-Fact
Donald J. Znamierowski Dated:
Vice President,
Principal Financial Officer,
Director *
George R. Jay
Controller, Director*
Donald E. Waggaman
Treasurer, Director *