Report of Independent Registered Public Accounting Firm
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The Board of Directors and Shareholders of
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Hartford HLS Series Fund II, Inc.
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We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Hartford Growth Opportunities HLS Fund (one of the portfolios constituting Hartford HLS
Series Fund II, Inc. (the Funds)) as of December 31, 2013, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’
management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We
were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities
owned as of December 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures where
replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial position of Hartford Growth Opportunities HLS Fund of
the Hartford HLS Series Fund II, Inc. at December 31, 2013, the results of its operations for the year then ended, the changes
in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with U.S. generally accepted accounting principles.
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Minneapolis, MN
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February 17, 2014
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Hartford Growth Opportunities HLS Fund
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Directors and Officers (Unaudited)
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The Board of Directors of the Company appoints
officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the directors. Each
director serves until his or her death, resignation, or retirement or until the next annual meeting of shareholders is held or
until his or her successor is elected and qualifies.
Directors and officers who are employed
by or who have a financial interest in The Hartford are considered “interested” persons of the Fund pursuant to the
1940 Act. Each officer and two of the Company’s directors, as noted in the chart below, are “interested” persons
of the Fund. Each director serves as a director for The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., Hartford
Series Fund, Inc., Hartford HLS Series Fund II, Inc., and as a trustee for The Hartford Alternative Strategies Fund, which, as
of December 31, 2013, collectively consist of 91 funds. Correspondence may be sent to directors and officers c/o Hartford Funds,
5 Radnor Corporate Center, Suite 300, 100 Matsonford Road, Radnor, Pennsylvania 19087, except that correspondence to Mr. Annoni,
Mr. Dressen and Ms. Quade may be sent to 500 Bielenberg Drive, Woodbury, Minnesota 55125.
The table below sets forth, for each director
and officer, his or her name, year of birth, current position with the Company and date first elected or appointed to Hartford
Series Fund, Inc. (“HSF”), and Hartford HLS Series Fund II, Inc. (“HSF2”), principal occupation, and, for
directors, other directorships held. The Fund’s Statement of Additional Information contains further information on the directors
and is available free of charge by calling 1-800-862-6668 or writing to Hartford HLS Funds, c/o Hartford Life Insurance Company,
Hartford Life and Annuity Insurance Company, P.O. Box 14293, Lexington, KY 40512-4293.
Information on the aggregate remuneration
paid to the directors of the Company can be found in the Statement of Operations herein. The Fund pays to The Hartford a portion
of the Chief Compliance Officer’s compensation, but does not pay salaries or compensation to any of their other officers
or directors who are employed by The Hartford.
Non-Interested Directors
Lynn S. Birdsong
(1946) Director
since 2003, Co-Chairman of the Investment Committee since 2005
Mr. Birdsong is a private investor.
Mr. Birdsong currently serves as a Director of the Sovereign High Yield Investment Company (April 2010 to current). Mr. Birdsong
currently serves as an Independent Director of Nomura Partners Funds, Inc. (formerly, The Japan Fund) (April 2003 to current).
From 2003 to March 2005, Mr. Birdsong was an Independent Director of the Atlantic Whitehall Funds. From 1979 to 2002, Mr. Birdsong
was a Managing Director of Zurich Scudder Investments, an investment management firm. During his employment with Scudder, Mr. Birdsong
was an Interested Director of The Japan Fund. From January 1981 through December 2013, Mr. Birdsong was a partner in Birdsong Company,
an advertising specialty firm.
Robert M. Gavin, Jr.
(1940) Director
since 2002 (HSF) and 1986 (HSF2), Chairman of the Board since 2004
Dr. Gavin is an educational
consultant. Prior to September 1, 2001, he was President of Cranbrook Education Community and prior to July 1996, he was President
of Macalester College, St. Paul, Minnesota.
Duane E. Hill
(1945) Director since
2001 (HSF) and 2002 (HSF2), Chairman of the Nominating Committee since 2003
Mr. Hill is a Partner of TSG
Ventures L.P., a private equity investment company. Mr. Hill is a former partner of TSG Capital Group, a private equity investment
firm that served as sponsor and lead investor in leveraged buyouts of middle market companies.
Sandra S. Jaffee
(1941) Director
since 2005
Ms. Jaffee is the founder and
Chief Executive Officer of a private company, Homeworks Concierge, LLC, which provides residential property management services
in Westchester County, New York (January 2012 to present). Ms. Jaffee served as Chairman (2008 to 2009) and Chief Executive Officer
of Fortent (formerly Searchspace Group), a leading provider of compliance/regulatory technology to financial institutions from
August 2005 to August 2009. Ms. Jaffee currently serves as a member of the Board of Directors of Broadridge Financial Solutions
as well as a Trustee of Muhlenberg College.
Hartford Growth Opportunities HLS Fund
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Directors and Officers (Unaudited) – (continued)
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William P. Johnston
(1944) Director
since 2005, Chairman of the Compliance Committee since 2005
In June 2006, Mr. Johnston was
appointed as Senior Advisor to The Carlyle Group, a global private equity and other alternative asset investment firm and currently
serves as an Operating Executive. In July 2006, Mr. Johnston was elected to the Board of Directors of MultiPlan, Inc. and served
as a Director (July 2006 to August 2010). In August 2007, Mr. Johnston was elected to the Board of Directors of LifeCare Holdings,
Inc. and served as a Director (August 2007 to June 2013). In February 2008, Mr. Johnston was elected to the Board of Directors
of HCR-ManorCare, Inc. In May 2006, Mr. Johnston was elected to the Supervisory Board of Fresenius Medical Care AG & Co. KGaA,
after its acquisition of Renal Care Group, Inc. in March 2006. Mr. Johnston joined Renal Care Group in November 2002 as a member
of the Board of Directors and served as Chairman of the Board from March 2003 through March 2006. From 2002 through 2013, Mr. Johnston
served as a Board member of the Georgia O’Keefe Museum. From September 1987 to December 2002, Mr. Johnston was with Equitable
Securities Corporation (and its successors, SunTrust Equitable Securities and SunTrust Robinson Humphrey) serving in various investment
banking and managerial positions, including Managing Director and Head of Investment Banking, Chief Executive Officer and Vice
Chairman.
Phillip O. Peterson
(1944) Director
since 2002 (HSF) and 2000 (HSF2), Chairman of the Audit Committee since 2002
Mr. Peterson is a mutual fund
industry consultant. He was a partner of KPMG LLP (an accounting firm) until July 1999. Mr. Peterson joined William Blair Funds
in February 2007 as a member of the Board of Trustees. Mr. Peterson also joined the Board of Trustees of Symetra Variable Mutual
Funds Trust as a trustee in February 2012.
Lemma W. Senbet
(1946) Director
since 2005
Dr. Senbet is the William E.
Mayer Chair Professor of Finance and Founding Director, Center for Financial Policy, at the University of Maryland, Robert H. Smith
School of Business. He was chair of the Finance Department of the University of Maryland, Robert H. Smith School of Business from
1998 to 2006. Since June 2013, he has been on leave from the University to serve as Executive Director of African Economic Research
Consortium which focuses on economic policy research and training. Previously, he was a chaired professor of finance at the University
of Wisconsin-Madison. Also, he was a Director of the Fortis Funds from March 2000 to July 2002. Dr. Senbet served as Director of
the American Finance Association and President of the Western Finance Association. In 2006, Dr. Senbet was inducted Fellow of Financial
Management Association International for his career-long distinguished scholarship and professional service.
Interested Directors and Officers
James E. Davey
(1964) Director since
2012, President and Chief Executive Officer since 2010
Mr. Davey serves as Executive
Vice President of Hartford Life Insurance Company (“HLIC”) and The Hartford Financial Services Group, Inc. Additionally,
Mr. Davey serves as Chairman of the Board, Manager and Senior Managing Director of Hartford Funds Distributors, LLC (“HFD”).
He also currently serves as Director, Chairman of the Board, President and Senior Managing Director of Hartford Administrative
Services Company (“HASCO”). Mr. Davey also serves as Manager, Chairman of the Board and Senior Managing Director for
Hartford Funds Management Company, LLC (“HFMC”). Mr. Davey joined The Hartford in 2002.
Lowndes A. Smith
(1939) Director
since 1996 (HSF) and 2002 (HSF2), Co-Chairman of the Investment Committee since 2005
Mr. Smith served as Vice Chairman
of The Hartford from February 1997 to January 2002, as President and Chief Executive Officer of Hartford Life, Inc. from February
1997 to January 2002, and as President and Chief Operating Officer of The Hartford Life Insurance Companies from January 1989 to
January 2002. Mr. Smith serves as a Director of White Mountains Insurance Group Ltd. (October 2003 to current); One Beacon Insurance
(October 2006 to current); Symetra Financial (August 2007 to current) and is a Managing Director of Whittington Gray Associates
(January 2007 to current).
Other Officers
Mark A. Annoni
(1964) Vice President,
Controller and Treasurer since 2012
Mr. Annoni currently serves
as the Assistant Vice President of HLIC (February 2004 to present).
Michael R. Dressen
(1963) AML Compliance
Officer since 2011
Mr. Dressen currently serves
as Assistant Vice President of HLIC. He also serves as Chief Compliance Officer and AML Compliance Officer of HASCO and as AML
Officer of HFD. Mr. Dressen has served in various positions within The Hartford and its subsidiaries in connection with the operation
of the Hartford Funds.
Edward P. Macdonald
(1967) Vice
President, Secretary and Chief Legal Officer since 2005
Mr. Macdonald currently serves
as Assistant Secretary, Executive Vice President and Deputy General Counsel of HFD, HASCO and HFMC. He also serves as Vice President
of HLIC. Mr. Macdonald has served in various positions within The Hartford and its subsidiaries in connection with the operation
of the Hartford Funds. Mr. Macdonald joined The Hartford in 2005.
Joseph G. Melcher
(1973) Vice President
and Chief Compliance Officer since 2013
Mr. Melcher currently serves
as Executive Vice President of HASCO and HFD. Mr. Melcher also currently serves as Executive Vice President and Chief Compliance
Officer of HFMC. Mr. Melcher has served in various positions within The Hartford and its subsidiaries in connection with the operation
of the Hartford Funds since joining The Hartford in 2012. Prior to joining The Hartford, Mr. Melcher worked at Touchstone Investments,
a member of the Western & Southern Financial Group, where he held the position of Vice President and Chief Compliance Officer
from 2010 through 2012 and Assistant Vice President, Compliance from 2005 to 2010.
Vernon J. Meyer
(1964) Vice President
since 2006
Mr. Meyer currently serves as
Senior Vice President of HLIC. He also currently serves as Managing Director and Chief Investment Officer of HFMC. Mr. Meyer has
served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr.
Meyer joined The Hartford in 2004.
Laura S. Quade
(1969) Vice President
since 2012
Ms. Quade currently serves as
Vice President of HASCO and HFD. She is the Head of Operations of HASCO and also serves as Director, Enterprise Operations of HLIC.
Ms. Quade has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford
Funds.
Martin A. Swanson
(1962) Vice President
since 2010
Mr. Swanson currently serves
as Vice President of HLIC. Mr. Swanson also serves as Managing Director, Chief Marketing Officer and Principal of HFD. Mr. Swanson
has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
HOW TO OBTAIN A COPY OF THE FUND’S
PROXY VOTING POLICIES AND VOTING RECORDS
(UNAUDITED)
A description of the policies and procedures
that the Fund uses to determine how to vote proxies relating to portfolio securities and information about how the Fund voted proxies
relating to portfolio securities during the most recent twelve-month period ended June 30 are available (1) without charge, upon
request, by calling 800-862-6668 and (2) on the SEC’s website at http://www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS INFORMATION
(UNAUDITED)
The Fund files a complete schedule of portfolio
holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available
(1) without charge, upon request, by calling 800-862-6668 and (2) on the SEC’s website at http://www.sec.gov. The Form N-Q
may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public
Reference Room may be obtained by calling 1-800-SEC-0330.
Hartford Growth Opportunities HLS Fund
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Expense Example (Unaudited)
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Your Fund's Expenses
As a shareholder of the Fund, you incur
two types of costs: (1) transaction costs and (2) ongoing costs, including investment management fees, distribution and/or service
(12b-1) fees, if any, and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars)
of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based
on an investment of $1,000 invested at the beginning of the period and held for the period of June 30, 2013 through December 31,
2013.
Actual Expenses
The first set of columns of the table below
provides information about actual account values and actual expenses. You may use the information in this column, together with
the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for
example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the line under the heading
entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison
Purposes
The second set of columns of the table
below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in
the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads)
and CDSC. Therefore, the second set of columns of the table is useful in comparing ongoing costs only, and will not help you determine
the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would be
higher. Expenses are equal to the Fund's annualized expense ratios multiplied by average account value over the period, multiplied
by 184/365 (to reflect the one-half year period).
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Actual
return
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Hypothetical
(5% return before expenses)
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Beginning
Account Value
June 30, 2013
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Ending
Account Value
December 31,
2013
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Expenses
paid
during the period
June 30, 2013
through
December 31, 2013
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Beginning
Account Value
June 30, 2013
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Ending
Account Value
December 31,
2013
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Expenses
paid
during the period
June 30, 2013
through
December 31, 2013
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Annualized
expense
ratio
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Days
in
the
current
1/2
year
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Days
in the
full
year
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Class IA
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$
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1,000.00
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$
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1,209.70
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$
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3.62
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$
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1,000.00
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$
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1,021.93
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$
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3.31
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0.65
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%
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184
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365
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Class IB
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$
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1,000.00
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$
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1,208.30
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$
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5.01
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$
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1,000.00
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$
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1,020.67
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$
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4.59
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0.90
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%
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184
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365
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Hartford Growth Opportunities HLS Fund
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Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited)
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Section 15(c) of the Investment Company
Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of directors, including a majority
of those directors who are not “interested persons” of the mutual fund, as defined in the 1940 Act (the “Independent
Directors”), annually review and consider the continuation of the mutual fund’s investment advisory and sub-advisory
agreements. At its meeting held on August 6-7, 2013, the Board of Directors (the “Board”) of Hartford HLS Series Fund
II, Inc., including each of the Independent Directors, unanimously voted to approve the continuation of the investment management
agreement for Hartford Growth Opportunities HLS Fund (the “Fund”) with Hartford Funds Management Company, LLC (“HFMC”)
and the continuation of the investment sub-advisory agreement between HFMC and the Fund’s sub-adviser, Wellington Management
Company, LLP (the “Sub-adviser,” and together with HFMC, the “Advisers”) (collectively, the “Agreements”).
In the months preceding the August 6-7,
2013 meeting, the Board requested, received, and reviewed written responses from the Advisers to questions posed to them on behalf
of the Independent Directors and supporting materials relating to those questions and responses. The Board considered information
furnished to the Board at its meetings throughout the year, as well as information specifically prepared in connection with the
annual approval of the Agreements at the Board’s meetings held on June 18-19, 2013 and August 6-7, 2013. Information
provided to the Board at its meetings throughout the year included, among other things, reports on Fund performance, legal and
compliance matters, sales and marketing activity, shareholder services, and the other services provided to the Fund by the Advisers
and their affiliates. The Board also received in-person presentations by Fund officers and representatives of HFMC at the Board’s
meetings on June 18-19, 2013 and August 6-7, 2013 concerning the Agreements.
The Independent Directors, advised by independent
legal counsel, engaged two service providers to assist them with evaluating the Agreements with respect to the Fund. Lipper Inc.
(“Lipper”), an independent provider of investment company data, was retained to provide the Board with reports on how
the Fund’s contractual management fees, actual management fees, other non-management fees, overall expense ratios and investment
performance compared to those of mutual funds with similar investment objectives. The Independent Directors also engaged an independent
financial services consulting firm (the “Consultant”) to assist them in evaluating the Fund’s management fees,
sub-advisory fees, other non-management fees, overall expense ratios and investment performance. In addition, the Consultant reviewed
the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement.
In determining whether to continue the
Agreements for the Fund, the members of the Board reviewed and evaluated information and factors they believed to be relevant and
appropriate in light of the information that the Board deemed necessary and appropriate through the exercise of its reasonable
business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination
to continue the Agreements was based on a comprehensive consideration of all information provided to the Board throughout the year
and specifically with respect to the continuation of the Agreements. A more detailed discussion of the factors the Board considered
with respect to its approval of the Agreements is provided below.
Nature, Extent, and Quality of Services
Provided by the Advisers
The Board requested and considered information
concerning the nature, extent, and quality of the services provided to the Fund by the Advisers. The Board considered, among other
things, the terms of the Agreements and the range of services provided by the Advisers. The Board considered the Advisers’
professional personnel who provide services to the Fund, including each Adviser’s ability and experience in attracting and
retaining qualified personnel to service the Fund. The Board considered each Adviser’s reputation and overall financial strength,
as well as its willingness to consider and implement organizational and operational changes designed to improve services to the
Fund. In addition, the Board considered the quality of each Adviser’s communications with the Board and responsiveness to
Board inquiries.
The Board also requested and evaluated
information concerning each Adviser’s regulatory and compliance environment. In this regard, the Board requested and reviewed
information on each Adviser’s compliance policies and procedures, compliance history, and a report from the Fund’s
Chief Compliance Officer on each Adviser’s compliance with applicable laws and regulations, including responses to regulatory
developments and compliance issues raised by regulators. The Board also noted the Advisers’ support of the Fund’s compliance
control structure, particularly the resources devoted by the Advisers in support of the Fund’s obligations pursuant to Rule 38a-1
under the 1940 Act.
Hartford Growth Opportunities HLS Fund
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Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
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With respect to HFMC, the Board noted that
under the Agreements, HFMC is responsible for the management of the Fund, including overseeing fund operations and service providers,
as well as investment advisory services in connection with selecting, monitoring and supervising the Sub-adviser. The Board considered
HFMC’s ongoing monitoring of people, process and performance, including its quarterly reviews of each of the Hartford Funds,
semi-annual meetings with the leaders of each Fund’s portfolio management team, and oversight of the Funds’ approximately
40 portfolio managers. The Board recognized that HFMC has demonstrated a record of making changes to the management and/or strategies
of the Funds when warranted. The Board considered HFMC’s oversight of the Sub-adviser’s investment approach and results,
process for monitoring best execution of portfolio trades by the Sub-adviser, and approach to risk management with respect to the
Fund and the service providers to the Fund. The Board also considered HFMC’s oversight of compliance with the Fund’s
objective and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over
time led to an increase in the scope of HFMC’s services in this regard.
In addition, the Board considered HFMC’s
ongoing commitment to review and rationalize the Hartford Funds product line-up and the expenses that HFMC had incurred in connection
with fund combinations in recent years. The Board considered that HFMC or its affiliates are responsible for providing the Fund’s
officers. The Board also noted that Hartford Life Insurance Company (“HLIC”) provides administrative services to the
Fund. The Board considered its experiences with HFMC and HLIC with respect to each of these services.
With respect to the Sub-adviser, who provides
day-to-day portfolio management services, the Board considered the quality of the Fund’s portfolio managers, the Sub-adviser’s
other investment personnel, its investment philosophy and process, investment research capabilities and resources, performance
record, trade execution capabilities and experience. The Board considered the experience of the Fund’s portfolio managers,
the number of accounts managed by the portfolio managers, and the Sub-adviser’s method for compensating the portfolio managers.
Based on these considerations, the Board
concluded that it was satisfied with the nature, extent and quality of the services provided to the Fund by HFMC and the Sub-adviser.
Performance of the Fund and the Advisers
The Board considered the investment performance
of the Fund. In this regard, the Board reviewed the performance of the Fund over different time periods presented in the materials
and evaluated HFMC’s analysis of the Fund’s performance for these time periods. The Board considered information and
materials provided to the Board by the Advisers concerning Fund performance, as well as information from Lipper comparing the investment
performance of the Fund to an appropriate benchmark and universe of peer funds. The Board noted that the Fund’s performance
was in the 1
st
quintile of its performance universe for the 1-year period, the 3
rd
quintile for the 3-year
period and the 4
th
quintile for the 5-year period. The Board also noted that the Fund’s performance was above
its benchmark for the 1-year period, in line with its benchmark for the 3-year period and below its benchmark for the 5-year period.
The Board considered the detailed investment
analytics reports provided by Hartford Funds’ Investment Advisory Group throughout the year. These reports include, among
other things, information on the Fund’s gross and net returns, the Fund’s investment performance relative to an appropriate
benchmark and peer group, various statistics concerning the Fund’s portfolio, and a narrative summary of various factors
affecting Fund performance. The Board considered the Advisers’ cooperation with the Investment Committee, which assists the
Board in evaluating the performance of the Fund at periodic meetings throughout the year. The Board also considered the analysis
provided by the Consultant relating to the Fund’s performance track record.
In light of all the considerations noted
above, the Board concluded that it had continued confidence in HFMC’s and the Sub-adviser’s overall capabilities to
manage the Fund.
Costs of the Services and Profitability
of the Advisers
The Board reviewed information regarding
HFMC’s cost to provide investment management and related services to the Fund and HFMC’s profitability, both overall
and for the Fund, on a pre-tax basis without regard to distribution expenses. The Board also requested and reviewed information
about the profitability to HFMC and its affiliates from all services provided to the Fund and
all aspects of their relationship with
the Fund. The Board also requested and received information relating to the operations and profitability of the Sub-adviser.
The Board considered the Consultant’s
review of the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement,
noting the Consultant’s view that Hartford Funds’ process for calculating and reporting Fund profitability is reasonable.
In this regard, the Board noted that the Consultant had previously performed a full review of this process and reported that such
process is sound and well within common industry practice.
Based on these considerations, the Board
concluded that the profits anticipated to be realized by the Advisers and their affiliates from their relationships with the Fund
would not be excessive.
Comparison of Fees and Services Provided
by the Advisers
The Board considered comparative information
with respect to the management fees to be paid by the Fund to HFMC and the total expense ratios of the Fund. The Board also considered
comparative information with respect to the sub-advisory fees to be paid by HFMC to the Sub-adviser. In this regard, the Board
requested and reviewed information from HFMC and the Sub-adviser relating to the management and sub-advisory fees, including the
sub-advisory fee schedule for the Fund, and total operating expenses for the Fund. The Board considered that the management fee
for the Fund includes the fee paid to HLIC for providing certain administrative services to the Fund. With respect to the sub-advisory
fee schedule, the Board considered representations from HFMC and the Sub-adviser that the Sub-adviser’s fees were negotiated
at arm’s length. The Board also reviewed information from Lipper comparing the Fund’s contractual management fees,
actual management fees and overall expense ratios relative to a group of funds selected by Lipper, in consultation with the Consultant,
and a broader universe of funds selected by Lipper. The Board noted that the Fund’s contractual management fee, actual management
fee and total expenses (less 12b-1 and shareholder service fees) were in the 2
nd
quintile of its expense group.
While the Board recognized that comparisons
between the Fund and peer funds are imprecise, given the differing service levels and characteristics of mutual funds and the different
business models and cost structures of the Advisers, the comparative information provided by Lipper assisted the Board in evaluating
the reasonableness of the Fund’s management and sub-advisory fees and total operating expenses. In addition, the Board considered
the analysis and recommendations of the Consultant relating to the Fund’s management and sub-advisory fees and total operating
expenses.
Based on these considerations, the Board
concluded that the Fund’s fees and total operating expenses, in conjunction with the information about quality of services,
profitability, economies of scale, and other matters discussed, were reasonable in light of the services provided.
Economies of Scale
The Board requested and considered information
regarding the Advisers’ realization of economies of scale with respect to the Fund and whether the fee levels reflect these
economies of scale for the benefit of the Fund’s shareholders. The Board reviewed the breakpoints in the management fee schedule
for the Fund, which reduce fee rates as Fund assets grow over time. The Board recognized that a fund with assets beyond the last
breakpoint level will continue to benefit from economies of scale because additional assets are charged the lowest breakpoint fee
resulting in lower overall effective management fee rates. The Board also recognized that a fee schedule that reaches a lower breakpoint
quickly provides shareholders with the benefit of anticipated or potential economies of scale. The Board noted the effect of the
sale and run-off of the variable annuity business on the HLS Funds.
The Board reviewed and evaluated materials
from Lipper showing how management fee schedules of peer funds reflect economies of scale for the benefit of shareholders as a
peer fund’s assets hypothetically increase over time. Based on information provided by HFMC, Lipper, and the Consultant,
the Board recognized that there is no uniform methodology for establishing breakpoints or uniform pattern in asset levels that
trigger breakpoints or the amounts of breakpoints triggered.
After considering all of the information
available to it, the Board concluded that it was satisfied with the extent to which economies of scale would be shared for the
benefit of the Fund’s shareholders based on currently available information and the
Hartford Growth Opportunities HLS Fund
|
Approval of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
|
effective advisory fees and expense ratios
for the Fund at its current and reasonably anticipated asset levels. The Board noted, however, that it would continue to monitor
future growth in Fund assets and the appropriateness of additional breakpoints.
Other Benefits
The Board considered other benefits to
the Advisers and their affiliates from their relationships with the Fund, including the role of the Fund in supporting the variable
life insurance and variable annuity products offered by The Hartford.
The Board reviewed information noting that
HLIC, an affiliate of HFMC, receives fees for providing certain administrative services to the Fund and that HFMC receives fees
for fund accounting and related services from the Fund. The Board considered information on profits to HLIC and HFMC for such services.
The Board also considered that Hartford Administrative Services Company (“HASCO”), the Fund’s transfer agent
and an affiliate of HFMC, receives transfer agency compensation from the Fund, and the Board reviewed information on the profitability
of the Fund’s transfer agency function to HASCO. The Board considered information provided by HASCO indicating that the transfer
agent fees charged by HASCO to the Fund were fair and reasonable based on publicly available information.
The Board also considered that Hartford
Funds Distributors, LLC (“HFD”), an affiliate of HFMC, serves as principal underwriter of the Fund. As principal underwriter,
HFD receives 12b-1 fees from the Fund. The Board also noted that certain affiliates of HFD distribute shares of the Fund and receive
compensation in that connection.
The Board considered benefits to the Sub-adviser
from its use of the Fund’s brokerage commissions to obtain soft dollar research, and representations from HFMC and the Sub-adviser
that the Sub-adviser would not make any revenue-sharing payments or any other type of distribution payments to HFMC or its affiliates.
The Board considered the benefits to shareholders
of being part of the Hartford Funds family of funds. The Board considered HFMC’s efforts to provide investors in the family
with a broad range of investment styles and asset classes.
* * * *
Based upon its review of these various
factors, among others, the Board concluded that it is in the best interests of the Fund and its shareholders for the Board to approve
the Agreements for an additional year. In reaching this decision, the Board did not assign relative weights to the factors discussed
above or deem any one or group of them to be controlling in and of themselves. In connection with their deliberations, the Independent
Directors met separately in executive session on several occasions, with independent legal counsel and the Consultant, to review
the relevant materials and consider their responsibilities under relevant laws and regulations.
Hartford Growth Opportunities HLS Fund
|
Main Risks (Unaudited)
|
The main risks of investing in the Fund
are described below.
Market, Selection, and Strategy Risk:
The Fund’s share price may fluctuate due to market risk and/or security selections that may underperform the market or relevant
benchmarks. If the sub-adviser’s investment strategy does not perform as expected, the Fund could underperform its peers
or lose money. There is no guarantee the Fund will achieve its stated objective.
Growth Investing Risk
: Growth investments
can be volatile, and may fail to increase earnings or grow as quickly as anticipated. Growth-style investing falls in and out of
favor, which may result in periods of underperformance.
Foreign Investment Risk
: Foreign
investments can be riskier than U.S. investments. Potential risks include currency risk that may result from unfavorable exchange
rates, liquidity risk if decreased demand for a security makes it difficult to sell at the desired price, and risks that stem from
substantially lower trading volume on foreign markets.
Mid-cap Stock Risk
: Mid-cap stocks
are generally more volatile and risky and may be less liquid than large-cap stocks because they may have limited operating histories,
narrow product lines, and focus on niche markets.
Active Trading Risk:
Actively trading
investments may result in higher costs (thus affecting performance).
THIS PRIVACY POLICY IS NOT PART OF
THIS REPORT
Privacy Policy and Practices of The
Hartford Financial Services Group, Inc. and its Affiliates
(herein called “we,
our, and us”)
This
Privacy Policy applies to our United States Operations
We value your trust. We are committed to the responsible:
a) management;
b) use; and
c) protection;
of
Personal Information
.
This notice describes how we collect, disclose, and
protect
Personal Information
.
We collect
Personal Information
to:
a) service your
Transactions
with us; and
b) support our business functions.
We may obtain
Personal Information
from:
a)
You
;
b) your
Transactions
with us; and
c) third parties such as a consumer-reporting agency.
Based on the type of product or service
You
apply for or get from us,
Personal Information
such as:
a) your name;
b) your address;
c) your income;
d) your payment; or
e) your credit history;
may be gathered from sources such as applications,
Transactions
, and consumer reports.
To serve
You
and service our business, we may
share certain
Personal Information.
We will share
Personal Information
, only as allowed by law, with affiliates such
as:
a) our insurance companies;
b) our employee agents;
c) our brokerage firms; and
d) our administrators.
As allowed by law, we may share
Personal
Financial Information
with our affiliates to:
a) market our products; or
b) market our services;
to
You
without providing
You
with an option to prevent these disclosures.
|
We may also share
Personal Information
,
only as allowed by law, with unaffiliated third parties including:
a) independent agents;
b) brokerage firms;
c) insurance companies;
d) administrators; and
e) service providers;
who help us serve
You
and service our business.
When allowed by law, we may share
certain
Personal Financial Information
with other unaffiliated third parties who assist us by performing services or functions
such as:
a) taking surveys;
b) marketing our products or services; or
c) offering financial products or services under a joint agreement between us and one or more financial institutions.
We, and third parties we partner
with, may track some
of the pages You visit through
the use of:
a) cookies;
b) pixel tagging; or
c) other technologies;
and currently do not process or
comply with any web browser’s “do not track” signal or similar mechanism that indicates a request to disable
online tracking of individual users who visit our websites or use our services.
We will not sell or share your
Personal Financial Information
with anyone for purposes unrelated to our business functions without offering
You
the opportunity to:
a) “opt-out;” or
b) “opt-in;”
as required by law.
We only disclose
Personal Health
Information
with:
a) your proper written authorization; or
b) as otherwise allowed or required by law.
Our employees have access
to
Personal Information
in the course of doing their jobs, such as:
a) underwriting policies;
b) paying claims;
c) developing new products; or
d) advising customers of our products and services.
|
We use manual and electronic security procedures to
maintain:
a) the confidentiality; and
b) the integrity of;
Personal Information
that we have. We use these
procedures to guard against unauthorized access.
Some techniques we use to protect
Personal Information
include:
a) secured files;
b) user authentication;
c) encryption;
d) firewall technology; and
e) the use of detection software.
We are responsible for and must:
a) identify information to be protected;
b) provide an adequate level of protection for that
data;
c) grant access to protected data only to those people
who must use it in the performance of their job-related duties.
Employees who violate our Privacy Policy will be subject
to discipline, which may include ending their employment with us.
At the start of our business relationship, we will
give
You
a copy of our current Privacy Policy.
We will also give
You
a copy of our current
Privacy Policy once a year if
You
maintain a continuing business relationship with us.
We will continue to follow our Privacy Policy regarding
Personal Information
even when a business relationship no longer exists between us.
|
As used in this Privacy Notice:
Application
means
your request for our product or service.
Personal Financial Information
means financial information such as:
a) credit history;
b) income;
c) financial benefits; or
d) policy or claim information.
Personal Health Information
means health information such as:
a) your medical records; or
b) information about your illness, disability or injury.
Personal Information
means information that identifies
You
personally and is not otherwise available to the public. It includes:
a)
Personal Financial Information
; and
b)
Personal Health Information
.
Transaction
means
your business dealings with us, such as:
a) your
Application
;
b) your request for us to pay a claim; and
c) your request for us to take an action on your account.
You
means
an individual who has given us
Personal Information
in conjunction with:
a) asking about;
b) applying for; or
c) obtaining;
a financial product or service from us if the product or service is used mainly for personal, family, or household purposes.
|
This Privacy Policy is being provided
on behalf of the following affiliates of The Hartford Financial Services Group, Inc.:
1stAGChoice, Inc.; Access CoverageCorp,
Inc.; Access CoverageCorp Technologies, Inc.; American Maturity Life Insurance Company; Archway 60 R, LLC; Business Management
Group, Inc.; Catalyst360, LLC; Champlain Life Reinsurance Company; DMS R, LLC; Eloy R, LLC; Ersatz Corporation; First State Insurance
Company; Hartford Accident and Indemnity Company; Hartford Administrative Services Company; Hartford Casualty General Agency, Inc.;
Hartford Casualty Insurance Company; Hartford-Comprehensive Employee Benefit Service Company; Hartford Equity Sales Company, Inc.;
Hartford Fire General Agency, Inc.; Hartford Fire Insurance Company; Hartford Funds Management Company, LLC; Hartford Funds Management
Group, Inc.; Hartford HLS Series Fund II, Inc.; Hartford Insurance Company of Illinois; Hartford Insurance Company of the Midwest;
Hartford Insurance Company of the Southeast; Hartford Integrated Technologies, Inc.; Hartford International Life Reassurance Corporation;
Hartford Funds Distributors, LLC; Hartford Investment Management Company; Hartford Life and Accident Insurance Company; Hartford
Life and Annuity Insurance Company; Hartford Life Insurance Company; Hartford Life Private Placement, LLC; Hartford Lloyd’s
Corporation; Hartford Lloyd’s Insurance Company; Hartford Mezzanine Investors I, LLC; Hartford Residual Market, L.C.C.; Hartford
Retirement Services, LLC; Hartford Securities Distribution Company, Inc.; Hartford Series Fund, Inc.; Hartford Specialty Insurance
Services of Texas, LLC; Hartford Strategic Investments, LLC; Hartford Underwriters Insurance Company; Hartford Technology Services
Company, L.L.C.; Hartford of Texas General Agency, Inc.; Hartford Underwriters General Agency, Inc.; HARTRE Company, L.C.C.; HL
Investment Advisors, LLC; HLA LLC; Horizon Management Group, LLC; HRA Brokerage Services, Inc.; Lanidex Class B, LLC; M-CAP Insurance
Agency, LLC; New England Insurance Company; New England Reinsurance Corporation; Nutmeg Insurance Agency, Inc.; Nutmeg Insurance
Company; Pacific Insurance Company, Limited; Planco, LLC: Property and Casualty Insurance Company of Hartford; Revere R, LLC; RVR
R, LLC; Sentinel Insurance Company, Ltd.; Sunstone R, LLC; Symphony R, LLC; The Evergreen Group Incorporated; The Hartford Alternative
Strategies Fund; The Hartford Mutual Funds, Inc.; The Hartford Mutual Funds II, Inc.; Trumbull Flood Management, L.L.C.; Trumbull
Insurance Company; Twin City Fire Insurance Company; White River Life Reinsurance Company.
HPP Revised December 2013
HARTFORD
HLS FUNDS
c/o
The Hartford Wealth Management - Global Annuities
P.O.
Box 14293
Lexington,
KY 40512-4293
HARTFORD
FUNDS
hartfordfunds.com
Hartford HLS Series Fund II, Inc. is underwritten
and distributed by Hartford Funds Distributors, LLC.
Hartford HLS Series Fund II, Inc. inception
dates range from 1987 to date. Hartford HLS Series Fund II, Inc. is not a subsidiary of The Hartford Financial Services Group,
Inc. ("The Hartford") but is underwritten, distributed by and advised by subsidiaries of The Hartford. Investments in
Hartford HLS Series Fund II, Inc. are not guaranteed by The Hartford or any other entity.
This report is submitted for the general
information of the shareholders of the Fund. It is not authorized for distribution unless preceded or accompanied by a current
prospectus for the Fund.
Investors should carefully consider the investment
objectives, risks, charges, and expenses of Hartford Funds before investing. This and other information can be found in the prospectus
and summary prospectus, which can be obtained by calling 888-843-7824 (retail) or 877-836-5854 (institutional). Investors should
read them carefully before they invest.
HLSAR-GO13 2-14 113542-2 Printed in U.S.A ©2013
The Hartford, Hartford, CT 06115
HARTFORD
FUNDS
|
|
HARTFORD SMALLCAP
GROWTH HLS FUND
2013 Annual
Report
|
A
MESSAGE FROM THE PRESIDENT
Dear Fellow Shareholders:
Thank you for investing in Hartford
HLS Funds.
Market Review
U.S.
equities (as represented by the S&P 500 Index) generated their strongest year since 1997 in 2013, rising 32.39% for the
year. During the fourth quarter, equities rose without looking back, pushing the S&P 500 Index and the Dow Jones
Industrial Average to new all-time highs. Despite previously cheering delays to quantitative-easing tapering, the stock
market received an additional boost at the end of the year following the U.S. Federal Reserve’s (Fed) announcement of a
$10-billion-a-month reduction in bond purchases beginning in January.
The
Fed’s decision to begin tapering its bond purchases is generally considered a vote of confidence in the recovering U.S. economy.
Consumer spending has stabilized, the housing market is showing steady improvement, the unemployment rate is slowly declining and
economic growth clocked in at a healthy 4.1% in the third quarter. Equities have also recovered since the market low in March 2009:
The S&P 500 Index has gained 173% from the market low through December 31, 2013.
Signs of improvement
are also visible outside the U.S. Europe appears to have begun its own economic recovery, and emerging markets have reversed their
recent lackluster performance. Fiscal policy continues to wield significant influence in today’s economy and central banks
across the globe are maintaining their accommodative stances, including the appointment of Janet Yellen, who is widely expected
to continue current monetary policies, to succeed Ben Bernanke as U.S. Federal Reserve chairman.
It’s
important to stay abreast of domestic and international economic developments while balancing your individual investment goals.
Meeting with your financial advisor on a regular basis to examine your current investment strategy can help you determine whether
you are on the right track:
|
•
|
Is your portfolio fully diversified with an appropriate mix of stocks and bonds?
|
|
•
|
Is your portfolio incorporating both domestic and international holdings to take advantage of the
global economic recovery?
|
|
•
|
Are your investments still in line with your risk tolerance and investment time horizon?
|
Your financial advisor can help you
choose options within our fund family to navigate today’s markets with confidence.
Thank you again for investing with Hartford
HLS Funds.
James Davey
President
Hartford HLS Funds
1
The S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
2
The Dow Jones Industrial Average
is an unmanaged, price-weighted index of 30 of the largest, most widely held stocks traded on the New York Stock Exchange.
Hartford SmallCap Growth HLS Fund
Table of Contents
This report is prepared for
the general information of contract owners and qualified retirement plan participants. It is not an offer of contracts or of qualified
retirement plans. It should not be used in connection with any offer, except in conjunction with the appropriate product prospectus
which contains all pertinent information including the applicable sales, administrative and other charges.
The views expressed in the Fund’s
Manager Discussion under ‘‘Why did the Fund perform this way?’’ and ‘‘What is the outlook?’’
are views of the Fund’s sub-adviser and portfolio management team through the end of the period and are subject to change
based on market and other conditions. The Fund’s Manager Discussion is for informational purposes only and does not represent
an offer, recommendation or solicitation to buy, hold or sell any security. The specific securities identified and described, if
any, do not represent all of the securities purchased or sold and you should not assume that investments in the securities identified
and discussed will be profitable.
Hartford SmallCap Growth HLS Fund
inception 05/02/1994
(sub-advised by Wellington Management Company, LLP)
Investment objective –
Seeks long-term capital
appreciation.
Performance Overview
12/31/03 - 12/31/13
The chart above represents the hypothetical growth of a $10,000
investment in Class IA. Growth results in classes other than Class IA will vary from what is seen above due to differences in
the expenses charged to those share classes.
Average Annual Total Returns
(as of 12/31/13)
|
|
1 Year
|
|
5 Years
|
|
10 Years
|
SmallCap Growth IA
|
|
|
44.87%
|
|
|
26.11%
|
|
|
10.37%
|
SmallCap Growth IB
|
|
|
44.50%
|
|
|
25.79%
|
|
|
10.10%
|
Russell 2000 Growth Index
|
|
|
43.30%
|
|
|
22.58%
|
|
|
9.41%
|
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES
NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of the investment will fluctuate so that investors’
shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the
performance data quoted. To obtain performance data current to the most recent month-end, please visit our website at www.hartfordfunds.com.
Total returns presented above were calculated using the Fund’s
net asset value available to shareholders for sale or redemption of Fund shares on December 31, 2013, which may exclude investment
transactions as of this date. All share class returns assume the reinvestment of all distributions at net asset value and the deduction
of all fund expenses.
Russell 2000 Growth Index
is an unmanaged index of those
Russell 2000 Index growth companies with higher price-to-book ratios and higher forecasted growth values. (The Russell 2000 Index
is a broad-based unmanaged index comprised of 2,000 of the smallest U.S.-domiciled company common stocks (on the basis of capitalization)
that are traded in the United States on the New York Stock Exchange, NYSE MKT LLC and Nasdaq.)
You cannot invest directly in an index.
As of the Fund's current prospectus dated May 1, 2013, the total
annual operating expense ratios for Class IA and Class IB were 0.67% and 0.92%, respectively. Actual expenses may be higher. Please
see the accompanying Financial Highlights for expense ratios for the year ended December 31, 2013.
For additional information regarding the prior performance history
of the Fund, please see the section entitled “Performance Notes” in the Fund’s prospectus.
The chart and table do not reflect the deductions of taxes,
sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan
product level. Any such additional sales charges or other fees or expenses would lower the contract’s or plan’s performance.
All investments are subject to risk including the possible loss
of principal. For a discussion of the Fund’s risks, please see the Main Risks section of this report. For more detailed information
on the risks associated with an investment in the Fund, please see the prospectus.
Hartford
SmallCap Growth HLS Fund
Manager Discussion
December
31, 2013
(Unaudited
)
Portfolio Managers
|
|
Mammen Chally,
CFA
|
David J. Elliot,
CFA
|
Vice President and Equity Portfolio Manager
|
Vice President, Co-Director of Quantitative Investments, Director of Quantitative Portfolio Management, and Portfolio Manager
|
|
|
How did the Fund perform?
The Class IA shares of the Hartford SmallCap Growth HLS Fund
returned 44.87% for the twelve-month period ended December 31, 2013, outperforming the Fund’s benchmark, the Russell 2000
Growth Index, which returned 43.30% for the same period. The Fund also outperformed the 42.29% average return of the Variable Products-Underlying
Funds Lipper Small-Cap Growth Funds peer group, a group of funds with investment strategies similar to those of the Fund.
Why did the Fund perform this way?
U.S. equities reached another all-time high in December and
finished 2013 with a gain of 32.4%, as measured by the S&P 500 Index, the Index’s best return since 1997. The rally in
U.S. equities began on the first trading day of the year after a last-minute compromise by the U.S. Congress averted the fiscal
cliff. Optimism surrounding the fiscal reprieve was furthered during the first quarter by better-than-expected corporate earnings,
a robust housing market, and a steadily improving employment picture. Solid gains in April and the first part of May paused following
comments by U.S. Federal Reserve (Fed) Chairman Ben Bernanke that suggested the Fed might begin to slow quantitative easing sooner
than investors anticipated. Nonetheless, equities resumed their ascent in the third quarter as the surprising “no taper”
decision by the Federal Open Market Committee eased near-term concerns about rapidly rising interest rates derailing the recovery.
Additionally, accommodative rhetoric from the European Central Bank, along with encouraging data in China and further evidence
of a European economic recovery, contributed to a broad-based global equity rally that extended through the end of the year. In
December, the year ended with an optimistic tone as investors cheered the elimination of two market overhangs: the timing of Fed
tapering and the threat of another US government shutdown in early 2014.
Small cap stocks (+39%) outperformed mid cap
stocks (+34%) and large cap stocks (+32%) during the period, as measured by the Russell 2000, S&P MidCap 400, and S&P 500
Indices, respectively. Growth (+34%) stocks outperformed value (+33%) stocks during the period, as measured by the Russell 3000
Growth and Russell 3000 Value Indices. All ten sectors in the Russell 2000 Growth Index had positive returns during the period.
The Health Care (+52%), Consumer Staples (+48%), and Telecommunication Services (+46%) sectors performed best, while Utilities
(+12%), Materials (+27%), and Financials (+34%) lagged on a relative basis.
The Fund’s outperformance relative to the benchmark was
driven by strong stock selection in the Industrials, Consumer Discretionary, and Health Care sectors, which offset weaker selection
in the Information Technology and Energy sectors. Sector allocation, which is a result of bottom-up security selection, detracted
from performance during the period due in part to a modest overweight to Utilities. A modest cash position also detracted from
relative results in an upward trending market.
The top absolute and relative contributors to performance were
Ubiquiti Networks (Information Technology), Nu Skin Enterprises (Consumer Staples), and Fifth & Pacific (Consumer Discretionary).
Ubiquiti Networks designs, manufactures, and sells broadband wireless solutions worldwide. Shares rose as the firm reported better-than-expected
revenue and earnings for the second quarter of 2013. Additionally, management significantly increased revenue and earnings guidance
for the third quarter. Shares of Nu Skin Enterprises, a personal care and nutritional supplement company specializing in anti-aging
treatments, increased due to a strong launch for the company's ageLoc TR90 weight management system. The company also reported
strong third quarter results, driven by growth in China, and increased its guidance for fiscal 2014. Fifth & Pacific is a designer
of retail-based premium apparel and accessories brands. Results exceeded market expectations with new data indicating a stabilization
of corporate costs and strong wholesale growth at Kate Spade and Lucky Jeans.
Top relative detractors included DFC Global (Financials), Model
N (Information Technology), and Elizabeth Arden (Consumer Staples). Shares of DFC Global, a provider of alternative financial services,
declined due to investor concerns about the impact of potential regulatory reform and higher costs associated with investments
in growth. Shares of Model N, a provider of revenue management solutions for the life science and technology industries, declined
during the period after the company lowered its 2014 fiscal year revenue outlook due to sales execution issues, along with the
departure of its head of sales. Shares of Elizabeth Arden, a beauty products company, declined after management issued disappointing
earnings guidance for the fiscal second quarter.
Hartford
SmallCap Growth HLS Fund
Manager Discussion – (continued)
December
31, 2013 (Unaudited)
Top detractors from absolute returns during the period also
included Aruba Networks (Information Technology) and AVEO Pharmaceuticals (Health Care).
Derivatives are not used in a significant manner in this Fund
and did not have a material impact on performance during the period.
What is the outlook?
We believe the U.S. economy is poised for continued moderate
growth, which is in line with consensus expectations at this point. In our view, real gross domestic product (GDP) and Institute
of Supply Management (ISM) manufacturing data both point to a fairly healthy outlook, housing remains constructive, and the employment
picture is grudgingly improving. We are also encouraged by rising levels of capacity utilization, which we believe will lead to
increased capital expenditures in 2014 and benefit corporate earnings in future years. We believe the fiscal drag from last year
should abate on a year over year basis and the Fed is likely to remain accommodative with a zero interest rate policy through 2014
and only modest tapering of bond buying throughout the year. We believe that disruption related to the Affordable Care Act (Obama
Care), rising interest rates, and only average valuation support, given the strong equity market this past year, are the biggest
domestic risks.
Despite the strong run in equity markets and the more than 44%
return in the Fund in 2013, we continue to find what we believe are attractively valued stocks with the characteristics we seek.
We are optimistic about the outlook for the U.S. economy and for equity markets, and we continue to monitor policy decisions and
economic trends that may impact our holdings. We remain consistent in adhering to our disciplined portfolio construction process
that is designed to allow us to assess risk, weight individual positions accordingly, and in the process build a portfolio that
focuses largely on stock selection for generating benchmark relative outperformance.
As a result of bottom-up stock selection, the Fund’s
top overweights at the end of the period included Industrials, Consumer Discretionary, and Materials. Health Care, Information
Technology, and Consumer Staples sectors constituted the greatest underweights, relative to the benchmark, in the Fund at the
end of the period.
Diversification by Sector
as of December 31, 2013
Sector
|
|
Percentage of
Net Assets
|
|
Equity Securities
|
|
|
|
|
Consumer Discretionary
|
|
|
17.5
|
%
|
Consumer Staples
|
|
|
4.4
|
|
Energy
|
|
|
4.4
|
|
Financials
|
|
|
7.5
|
|
Health Care
|
|
|
19.0
|
|
Industrials
|
|
|
17.6
|
|
Information Technology
|
|
|
22.8
|
|
Materials
|
|
|
5.7
|
|
Services
|
|
|
0.4
|
|
Total
|
|
|
99.3
|
%
|
Short-Term Investments
|
|
|
1.3
|
|
Other Assets and Liabilities
|
|
|
(0.6
|
)
|
Total
|
|
|
100.0
|
%
|
A sector may be comprised of several industries. For
Fund compliance purposes, the Fund may not use the same classification system and these sector classifications are used for reporting
ease.
Hartford
SmallCap Growth HLS Fund
Schedule of Investments
December 31, 2013
(000’s Omitted)
Shares or Principal Amount
|
|
Market Value ╪
|
|
COMMON STOCKS - 99.3%
|
|
|
|
|
|
Automobiles and Components - 1.5%
|
|
|
|
|
|
193
|
|
|
Dana Holding Corp.
|
|
$
|
3,785
|
|
|
84
|
|
|
Tenneco Automotive, Inc. ●
|
|
|
4,768
|
|
|
22
|
|
|
Tower International, Inc. ●
|
|
|
469
|
|
|
|
|
|
|
|
|
9,022
|
|
|
|
|
|
Banks - 2.0%
|
|
|
|
|
|
99
|
|
|
EverBank Financial Corp.
|
|
|
1,821
|
|
|
79
|
|
|
First Merchants Corp.
|
|
|
1,791
|
|
|
48
|
|
|
Flushing Financial Corp.
|
|
|
1,001
|
|
|
124
|
|
|
MGIC Investment Corp. ●
|
|
|
1,046
|
|
|
16
|
|
|
Nationstar Mortgage Holdings, Inc. ●
|
|
|
576
|
|
|
21
|
|
|
Ocwen Financial Corp. ●
|
|
|
1,142
|
|
|
72
|
|
|
Radian Group, Inc.
|
|
|
1,021
|
|
|
76
|
|
|
Umpqua Holdings Corp.
|
|
|
1,446
|
|
|
38
|
|
|
Wintrust Financial Corp.
|
|
|
1,749
|
|
|
|
|
|
|
|
|
11,593
|
|
|
|
|
|
Capital Goods - 11.1%
|
|
|
|
|
|
58
|
|
|
A.O. Smith Corp.
|
|
|
3,150
|
|
|
95
|
|
|
AAON, Inc.
|
|
|
3,045
|
|
|
43
|
|
|
Aceto Corp.
|
|
|
1,075
|
|
|
27
|
|
|
Acuity Brands, Inc.
|
|
|
2,944
|
|
|
104
|
|
|
Aircastle Ltd.
|
|
|
1,987
|
|
|
38
|
|
|
Albany International Corp. Class A
|
|
|
1,351
|
|
|
114
|
|
|
Altra Industrial Motion Corp.
|
|
|
3,918
|
|
|
4
|
|
|
American Science & Engineering, Inc.
|
|
|
302
|
|
|
39
|
|
|
Applied Industrial Technologies, Inc.
|
|
|
1,902
|
|
|
41
|
|
|
Astronics Corp. ●
|
|
|
2,067
|
|
|
2
|
|
|
Astronics Corp. Class B ●
|
|
|
89
|
|
|
40
|
|
|
AZZ, Inc.
|
|
|
1,973
|
|
|
20
|
|
|
Belden, Inc.
|
|
|
1,386
|
|
|
28
|
|
|
Chart Industries, Inc. ●
|
|
|
2,679
|
|
|
8
|
|
|
Coleman Cable, Inc.
|
|
|
215
|
|
|
16
|
|
|
DXP Enterprises, Inc. ●
|
|
|
1,843
|
|
|
38
|
|
|
EnerSys, Inc.
|
|
|
2,684
|
|
|
15
|
|
|
Esterline Technologies Corp. ●
|
|
|
1,512
|
|
|
10
|
|
|
Franklin Electric Co., Inc.
|
|
|
435
|
|
|
24
|
|
|
General Cable Corp.
|
|
|
718
|
|
|
4
|
|
|
Gorman Rupp Co.
|
|
|
117
|
|
|
113
|
|
|
GrafTech International Ltd. ●
|
|
|
1,265
|
|
|
63
|
|
|
Heico Corp.
|
|
|
3,676
|
|
|
18
|
|
|
John Bean Technologies Corp.
|
|
|
525
|
|
|
28
|
|
|
Lennox International, Inc.
|
|
|
2,352
|
|
|
18
|
|
|
Lindsay Corp.
|
|
|
1,527
|
|
|
108
|
|
|
Meritor, Inc. ●
|
|
|
1,121
|
|
|
72
|
|
|
Moog, Inc. Class A ●
|
|
|
4,902
|
|
|
201
|
|
|
Mueller Water Products, Inc.
|
|
|
1,883
|
|
|
10
|
|
|
National Presto Industries, Inc. ●
|
|
|
781
|
|
|
15
|
|
|
Proto Laboratories, Inc. ●
|
|
|
1,075
|
|
|
39
|
|
|
Sun Hydraulics Corp.
|
|
|
1,599
|
|
|
123
|
|
|
Taser International, Inc. ●
|
|
|
1,960
|
|
|
25
|
|
|
Teledyne Technologies, Inc. ●
|
|
|
2,290
|
|
|
25
|
|
|
Trex Co., Inc. ●
|
|
|
2,012
|
|
|
35
|
|
|
Trimas Corp. ●
|
|
|
1,403
|
|
|
35
|
|
|
Woodward, Inc.
|
|
|
1,583
|
|
|
20
|
|
|
Xerium Technologies, Inc. ●
|
|
|
337
|
|
|
|
|
|
|
|
|
65,683
|
|
|
|
|
|
Commercial and Professional Services - 3.8%
|
|
|
|
|
|
17
|
|
|
Barrett Business Services, Inc.
|
|
|
1,595
|
|
|
105
|
|
|
Deluxe Corp.
|
|
|
5,456
|
|
|
33
|
|
|
Exponent, Inc.
|
|
|
2,541
|
|
|
62
|
|
|
GP Strategies Corp. ●
|
|
|
1,854
|
|
|
20
|
|
|
Huron Consulting Group, Inc. ●
|
|
|
1,236
|
|
|
21
|
|
|
Kforce, Inc.
|
|
|
430
|
|
|
74
|
|
|
On Assignment, Inc. ●
|
|
|
2,589
|
|
|
49
|
|
|
RPX Corp. ●
|
|
|
828
|
|
|
58
|
|
|
Steelcase, Inc.
|
|
|
918
|
|
|
33
|
|
|
Sykes Enterprises, Inc. ●
|
|
|
715
|
|
|
17
|
|
|
UniFirst Corp.
|
|
|
1,787
|
|
|
39
|
|
|
Wageworks, Inc. ●
|
|
|
2,300
|
|
|
|
|
|
|
|
|
22,249
|
|
|
|
|
|
Consumer Durables and Apparel - 4.2%
|
|
|
|
|
|
40
|
|
|
Arctic Cat, Inc.
|
|
|
2,284
|
|
|
61
|
|
|
Brunswick Corp.
|
|
|
2,827
|
|
|
17
|
|
|
Ethan Allen Interiors, Inc.
|
|
|
523
|
|
|
93
|
|
|
Fifth & Pacific Cos., Inc. ●
|
|
|
2,967
|
|
|
54
|
|
|
Iconix Brand Group, Inc. ●
|
|
|
2,156
|
|
|
68
|
|
|
La-Z-Boy, Inc.
|
|
|
2,117
|
|
|
73
|
|
|
Nautilus Group, Inc. ●
|
|
|
611
|
|
|
21
|
|
|
Polaris Industries, Inc.
|
|
|
3,118
|
|
|
105
|
|
|
Skullcandy, Inc. ●
|
|
|
756
|
|
|
114
|
|
|
Steven Madden Ltd. ●
|
|
|
4,187
|
|
|
13
|
|
|
Sturm Ruger & Co., Inc.
|
|
|
979
|
|
|
58
|
|
|
Taylor Morrison Home Corp. ●
|
|
|
1,313
|
|
|
37
|
|
|
Vince Holding Corp. ●
|
|
|
1,135
|
|
|
|
|
|
|
|
|
24,973
|
|
|
|
|
|
Consumer Services - 5.9%
|
|
|
|
|
|
21
|
|
|
American Public Education, Inc. ●
|
|
|
896
|
|
|
102
|
|
|
Bloomin' Brands, Inc. ●
|
|
|
2,445
|
|
|
75
|
|
|
Boyd Gaming Corp. ●
|
|
|
842
|
|
|
32
|
|
|
Bridgepoint Education, Inc. ●
|
|
|
563
|
|
|
45
|
|
|
Brinker International, Inc.
|
|
|
2,095
|
|
|
19
|
|
|
Buffalo Wild Wings, Inc. ●
|
|
|
2,831
|
|
|
40
|
|
|
Caesars Entertainment Corp. ●
|
|
|
851
|
|
|
34
|
|
|
Capella Education Co.
|
|
|
2,234
|
|
|
73
|
|
|
Cheesecake Factory, Inc.
|
|
|
3,504
|
|
|
74
|
|
|
Del Frisco's Restaurant Group, Inc. ●
|
|
|
1,738
|
|
|
42
|
|
|
Domino's Pizza, Inc.
|
|
|
2,896
|
|
|
16
|
|
|
Grand Canyon Education, Inc. ●
|
|
|
711
|
|
|
93
|
|
|
Ignite Restaurant Group, Inc. ●
|
|
|
1,163
|
|
|
25
|
|
|
ITT Educational Services, Inc. ●
|
|
|
829
|
|
|
47
|
|
|
Marriott Vacations Worldwide Corp. ●
|
|
|
2,502
|
|
|
42
|
|
|
Multimedia Games Holding Co., Inc. ●
|
|
|
1,314
|
|
|
78
|
|
|
Sotheby's Holdings
|
|
|
4,175
|
|
|
15
|
|
|
Strayer Education, Inc. ●
|
|
|
510
|
|
|
91
|
|
|
Texas Roadhouse, Inc.
|
|
|
2,535
|
|
|
|
|
|
|
|
|
34,634
|
|
|
|
|
|
Diversified Financials - 1.5%
|
|
|
|
|
|
7
|
|
|
Credit Acceptance Corp. ●
|
|
|
923
|
|
|
93
|
|
|
DFC Global Corp. ●
|
|
|
1,069
|
|
|
87
|
|
|
HFF, Inc. ●
|
|
|
2,339
|
|
|
39
|
|
|
Portfolio Recovery Associates, Inc. ●
|
|
|
2,043
|
|
|
16
|
|
|
Regional Management Corp. ●
|
|
|
543
|
|
|
15
|
|
|
Springleaf Holdings, Inc. ●
|
|
|
369
|
|
|
56
|
|
|
Wisdomtree Investment, Inc. ●
|
|
|
987
|
|
|
10
|
|
|
World Acceptance Corp. ●
|
|
|
858
|
|
|
|
|
|
|
|
|
9,131
|
|
|
|
|
|
Energy - 4.4%
|
|
|
|
|
|
158
|
|
|
Abraxas Petroleum Corp. ●
|
|
|
519
|
|
|
37
|
|
|
Athlon Energy, Inc. ●
|
|
|
1,132
|
|
The accompanying notes are an integral part of these financial
statements.
Hartford
SmallCap Growth HLS Fund
Schedule of Investments – (continued)
December 31, 2013
(000’s Omitted)
Shares or Principal Amount
|
|
Market Value ╪
|
|
COMMON STOCKS - 99.3% - (continued)
|
|
|
|
|
|
Energy - 4.4% - (continued)
|
|
|
|
|
|
19
|
|
|
Bonanza Creek Energy, Inc. ●
|
|
$
|
822
|
|
|
23
|
|
|
Carrizo Oil & Gas, Inc. ●
|
|
|
1,043
|
|
|
23
|
|
|
CVR Energy, Inc.
|
|
|
999
|
|
|
18
|
|
|
Delek U.S. Holdings, Inc.
|
|
|
630
|
|
|
142
|
|
|
Energy XXI (Bermuda) Ltd.
|
|
|
3,855
|
|
|
44
|
|
|
EPL Oil & Gas, Inc. ●
|
|
|
1,250
|
|
|
46
|
|
|
Gastar Exploration Inc. ●
|
|
|
320
|
|
|
69
|
|
|
Goodrich Petroleum Corp. ●
|
|
|
1,168
|
|
|
251
|
|
|
ION Geophysical Corp. ●
|
|
|
830
|
|
|
99
|
|
|
Jones Energy, Inc. ●
|
|
|
1,437
|
|
|
5
|
|
|
Matrix Service Co. ●
|
|
|
121
|
|
|
56
|
|
|
PBF Energy, Inc.
|
|
|
1,746
|
|
|
10
|
|
|
REX American Resources Corp. ●
|
|
|
447
|
|
|
96
|
|
|
Rex Energy Corp. ●
|
|
|
1,887
|
|
|
53
|
|
|
Rosetta Resources, Inc. ●
|
|
|
2,556
|
|
|
13
|
|
|
Seacor Holdings, Inc. ●
|
|
|
1,199
|
|
|
32
|
|
|
SemGroup Corp.
|
|
|
2,078
|
|
|
144
|
|
|
Vaalco Energy, Inc. ●
|
|
|
990
|
|
|
23
|
|
|
Western Refining, Inc.
|
|
|
992
|
|
|
|
|
|
|
|
|
26,021
|
|
|
|
|
|
Food and Staples Retailing - 1.7%
|
|
|
|
|
|
79
|
|
|
Casey's General Stores, Inc.
|
|
|
5,542
|
|
|
42
|
|
|
Natural Grocers by Vitamin Cottage, Inc. ●
|
|
|
1,786
|
|
|
239
|
|
|
Rite Aid Corp. ●
|
|
|
1,212
|
|
|
165
|
|
|
Supervalu, Inc. ●
|
|
|
1,204
|
|
|
|
|
|
|
|
|
9,744
|
|
|
|
|
|
Food, Beverage and Tobacco - 1.1%
|
|
|
|
|
|
92
|
|
|
Darling International, Inc. ●
|
|
|
1,921
|
|
|
13
|
|
|
Lancaster Colony Corp.
|
|
|
1,155
|
|
|
92
|
|
|
Pilgrim's Pride Corp. ●
|
|
|
1,501
|
|
|
25
|
|
|
TreeHouse Foods, Inc. ●
|
|
|
1,752
|
|
|
|
|
|
|
|
|
6,329
|
|
|
|
|
|
Health Care Equipment and Services - 9.4%
|
|
|
|
|
|
39
|
|
|
ABIOMED, Inc. ●
|
|
|
1,048
|
|
|
21
|
|
|
Addus Homecare Corp. ●
|
|
|
476
|
|
|
58
|
|
|
Align Technology, Inc. ●
|
|
|
3,292
|
|
|
23
|
|
|
Anika Therapeutics, Inc. ●
|
|
|
866
|
|
|
5
|
|
|
Atrion Corp.
|
|
|
1,589
|
|
|
45
|
|
|
Centene Corp. ●
|
|
|
2,636
|
|
|
25
|
|
|
Computer Programs & Systems, Inc.
|
|
|
1,545
|
|
|
73
|
|
|
Corvel Corp. ●
|
|
|
3,390
|
|
|
55
|
|
|
Cyberonics, Inc. ●
|
|
|
3,592
|
|
|
19
|
|
|
Cynosure, Inc. Class A ●
|
|
|
502
|
|
|
87
|
|
|
Dexcom, Inc. ●
|
|
|
3,087
|
|
|
33
|
|
|
Ensign Group, Inc.
|
|
|
1,465
|
|
|
69
|
|
|
Gentiva Health Services, Inc. ●
|
|
|
856
|
|
|
123
|
|
|
Globus Medical, Inc. ●
|
|
|
2,475
|
|
|
83
|
|
|
HealthSouth Corp.
|
|
|
2,778
|
|
|
14
|
|
|
Heartware International, Inc. ●
|
|
|
1,311
|
|
|
29
|
|
|
ICU Medical, Inc. ●
|
|
|
1,839
|
|
|
45
|
|
|
Magellan Health Services, Inc. ●
|
|
|
2,684
|
|
|
14
|
|
|
Masimo Corp. ●
|
|
|
412
|
|
|
32
|
|
|
Medidata Solutions, Inc. ●
|
|
|
1,964
|
|
|
27
|
|
|
Molina Healthcare, Inc. ●
|
|
|
932
|
|
|
51
|
|
|
NuVasive, Inc. ●
|
|
|
1,655
|
|
|
12
|
|
|
Omnicell, Inc. ●
|
|
|
299
|
|
|
80
|
|
|
Orthofix International N.V. ●
|
|
|
1,826
|
|
|
21
|
|
|
Providence Service Corp. ●
|
|
|
532
|
|
|
113
|
|
|
Quality Systems, Inc.
|
|
|
2,380
|
|
|
55
|
|
|
Team Health Holdings ●
|
|
|
2,502
|
|
|
52
|
|
|
Triple-S Management Corp., Class B ●
|
|
|
1,017
|
|
|
61
|
|
|
U.S. Physical Therapy, Inc.
|
|
|
2,141
|
|
|
102
|
|
|
Vascular Solutions, Inc. ●
|
|
|
2,352
|
|
|
29
|
|
|
Wellcare Health Plans, Inc. ●
|
|
|
2,052
|
|
|
|
|
|
|
|
|
55,495
|
|
|
|
|
|
Household and Personal Products - 1.6%
|
|
|
|
|
|
49
|
|
|
Elizabeth Arden, Inc. ●
|
|
|
1,728
|
|
|
20
|
|
|
Inter Parfums, Inc.
|
|
|
730
|
|
|
20
|
|
|
Medifast, Inc. ●
|
|
|
520
|
|
|
23
|
|
|
Nu Skin Enterprises, Inc. Class A
|
|
|
3,193
|
|
|
72
|
|
|
Prestige Brands Holdings, Inc. ●
|
|
|
2,585
|
|
|
12
|
|
|
Usana Health Sciences, Inc. ●
|
|
|
892
|
|
|
|
|
|
|
|
|
9,648
|
|
|
|
|
|
Insurance - 2.2%
|
|
|
|
|
|
13
|
|
|
American Equity Investment Life Holding Co.
|
|
|
346
|
|
|
43
|
|
|
Amerisafe, Inc.
|
|
|
1,832
|
|
|
36
|
|
|
AmTrust Financial Services, Inc.
|
|
|
1,162
|
|
|
16
|
|
|
Argo Group International Holdings Ltd.
|
|
|
739
|
|
|
9
|
|
|
eHealth, Inc. ●
|
|
|
395
|
|
|
8
|
|
|
Enstar Group Ltd. ●
|
|
|
1,070
|
|
|
65
|
|
|
Greenlight Capital Re Ltd. Class A ●
|
|
|
2,194
|
|
|
12
|
|
|
HCI Group, Inc.
|
|
|
621
|
|
|
66
|
|
|
Maiden Holdings Ltd.
|
|
|
725
|
|
|
64
|
|
|
Montpelier Re Holdings Ltd.
|
|
|
1,868
|
|
|
37
|
|
|
Protective Life Corp.
|
|
|
1,871
|
|
|
|
|
|
|
|
|
12,823
|
|
|
|
|
|
Materials - 5.7%
|
|
|
|
|
|
16
|
|
|
Advanced Emissions Solutions, Inc. ●
|
|
|
841
|
|
|
13
|
|
|
AEP Industries, Inc. ●
|
|
|
687
|
|
|
24
|
|
|
Cabot Corp.
|
|
|
1,243
|
|
|
10
|
|
|
Clearwater Paper Corp. ●
|
|
|
525
|
|
|
69
|
|
|
Ferro Corp. ●
|
|
|
889
|
|
|
32
|
|
|
FutureFuel Corp.
|
|
|
502
|
|
|
34
|
|
|
Globe Specialty Metals, Inc.
|
|
|
609
|
|
|
153
|
|
|
Gold Resource Corp.
|
|
|
694
|
|
|
250
|
|
|
Graphic Packaging Holding Co. ●
|
|
|
2,399
|
|
|
183
|
|
|
Headwaters, Inc. ●
|
|
|
1,795
|
|
|
30
|
|
|
Innospec, Inc.
|
|
|
1,377
|
|
|
33
|
|
|
KapStone Paper & Packaging Corp. ●
|
|
|
1,849
|
|
|
60
|
|
|
Landec Corp. ●
|
|
|
732
|
|
|
49
|
|
|
Minerals Technologies, Inc.
|
|
|
2,949
|
|
|
1
|
|
|
Newmarket Corp.
|
|
|
437
|
|
|
62
|
|
|
Olin Corp.
|
|
|
1,777
|
|
|
22
|
|
|
OM Group, Inc. ●
|
|
|
794
|
|
|
148
|
|
|
Omnova Solutions, Inc. ●
|
|
|
1,346
|
|
|
91
|
|
|
PolyOne Corp.
|
|
|
3,208
|
|
|
52
|
|
|
Schweitzer-Mauduit International, Inc.
|
|
|
2,676
|
|
|
39
|
|
|
Silgan Holdings, Inc.
|
|
|
1,889
|
|
|
124
|
|
|
SunCoke Energy, Inc. ●
|
|
|
2,833
|
|
|
34
|
|
|
Walter Energy, Inc.
|
|
|
569
|
|
|
29
|
|
|
Worthington Industries, Inc.
|
|
|
1,233
|
|
|
|
|
|
|
|
|
33,853
|
|
|
|
|
|
Media - 0.3%
|
|
|
|
|
|
79
|
|
|
Entravision Communications Corp. Class A
|
|
|
480
|
|
|
10
|
|
|
Global Sources Ltd. ●
|
|
|
81
|
|
|
14
|
|
|
Shutterstock, Inc. ●
|
|
|
1,188
|
|
|
|
|
|
|
|
|
1,749
|
|
The accompanying notes are an integral part of these financial
statements.
Shares or Principal Amount
|
|
Market Value ╪
|
|
COMMON STOCKS - 99.3% - (continued)
|
|
|
|
|
|
Pharmaceuticals, Biotechnology and Life Sciences - 9.6%
|
|
|
|
|
|
15
|
|
|
Acadia Pharmaceuticals, Inc. ●
|
|
$
|
370
|
|
|
44
|
|
|
Acorda Therapeutics, Inc. ●
|
|
|
1,271
|
|
|
43
|
|
|
Agenus, Inc. ●
|
|
|
115
|
|
|
38
|
|
|
Agios Pharmaceuticals, Inc. ●
|
|
|
911
|
|
|
53
|
|
|
Alkermes plc ●
|
|
|
2,164
|
|
|
29
|
|
|
Alnylam Pharmaceuticals, Inc. ●
|
|
|
1,850
|
|
|
29
|
|
|
AMAG Pharmaceuticals, Inc. ●
|
|
|
711
|
|
|
82
|
|
|
Anacor Pharmaceuticals, Inc. ●
|
|
|
1,376
|
|
|
20
|
|
|
Arena Pharmaceuticals, Inc. ●
|
|
|
116
|
|
|
103
|
|
|
Bruker Corp. ●
|
|
|
2,036
|
|
|
160
|
|
|
Cadence Pharmaceuticals, Inc. ●
|
|
|
1,448
|
|
|
11
|
|
|
Cumberland Pharmaceuticals, Inc. ●
|
|
|
56
|
|
|
134
|
|
|
Cytokinetics, Inc. ●
|
|
|
872
|
|
|
79
|
|
|
Durata Therapeutics, Inc. ●
|
|
|
1,013
|
|
|
106
|
|
|
Emergent Biosolutions, Inc. ●
|
|
|
2,437
|
|
|
258
|
|
|
Exelixis, Inc. ●
|
|
|
1,579
|
|
|
36
|
|
|
Genomic Health, Inc. ●
|
|
|
1,051
|
|
|
53
|
|
|
Hyperion Therapeutics, Inc. ●
|
|
|
1,069
|
|
|
89
|
|
|
Immunogen, Inc. ●
|
|
|
1,302
|
|
|
279
|
|
|
Immunomedics, Inc. ●
|
|
|
1,282
|
|
|
39
|
|
|
Impax Laboratories, Inc. ●
|
|
|
970
|
|
|
54
|
|
|
Infinity Pharmaceuticals, Inc. ●
|
|
|
739
|
|
|
93
|
|
|
Ironwood Pharmaceuticals, Inc. ●
|
|
|
1,079
|
|
|
47
|
|
|
Isis Pharmaceuticals, Inc. ●
|
|
|
1,881
|
|
|
45
|
|
|
Lannet, Inc. ●
|
|
|
1,496
|
|
|
69
|
|
|
Luminex Corp. ●
|
|
|
1,337
|
|
|
87
|
|
|
Medicines Co. ●
|
|
|
3,358
|
|
|
68
|
|
|
NPS Pharmaceuticals, Inc. ●
|
|
|
2,055
|
|
|
89
|
|
|
PAREXEL International Corp. ●
|
|
|
4,018
|
|
|
376
|
|
|
PDL Biopharma, Inc.
|
|
|
3,178
|
|
|
38
|
|
|
Portola Pharmaceuticals, Inc. ●
|
|
|
976
|
|
|
38
|
|
|
Pozen, Inc.
|
|
|
306
|
|
|
15
|
|
|
Puma Biotechnology, Inc. ●
|
|
|
1,569
|
|
|
39
|
|
|
Questcor Pharmaceuticals, Inc.
|
|
|
2,096
|
|
|
80
|
|
|
Repligen Corp. ●
|
|
|
1,090
|
|
|
21
|
|
|
Salix Pharmaceuticals Ltd. ●
|
|
|
1,887
|
|
|
76
|
|
|
Sarepta Therapeutics, Inc. ●
|
|
|
1,556
|
|
|
161
|
|
|
Sciclone Pharmaceuticals, Inc. ●
|
|
|
811
|
|
|
32
|
|
|
Sucampo Pharmaceuticals, Inc. Class A ●
|
|
|
297
|
|
|
113
|
|
|
Synta Pharmaceuticals Corp. ●
|
|
|
591
|
|
|
50
|
|
|
Tesaro, Inc. ●
|
|
|
1,403
|
|
|
118
|
|
|
Xenoport, Inc. ●
|
|
|
676
|
|
|
71
|
|
|
XOMA Corp. ●
|
|
|
475
|
|
|
|
|
|
|
|
|
56,873
|
|
|
|
|
|
Real Estate - 1.8%
|
|
|
|
|
|
37
|
|
|
Altisource Residential Corp.
|
|
|
1,122
|
|
|
126
|
|
|
Apollo Residential Mortgage, Inc. REIT
|
|
|
1,865
|
|
|
44
|
|
|
Coresite Realty Corp. REIT
|
|
|
1,421
|
|
|
115
|
|
|
Glimcher Realty Trust REIT
|
|
|
1,075
|
|
|
67
|
|
|
Ramco-Gershenson Properties Trust REIT
|
|
|
1,062
|
|
|
95
|
|
|
Sabra Healthcare REIT, Inc.
|
|
|
2,475
|
|
|
131
|
|
|
Sunstone Hotel Investors, Inc. REIT
|
|
|
1,752
|
|
|
|
|
|
|
|
|
10,772
|
|
|
|
|
|
Retailing - 5.6%
|
|
|
|
|
|
26
|
|
|
ANN, Inc. ●
|
|
|
932
|
|
|
45
|
|
|
Buckle (The), Inc.
|
|
|
2,379
|
|
|
6
|
|
|
Cato Corp.
|
|
|
175
|
|
|
18
|
|
|
Children's Place Retail Stores, Inc. ●
|
|
|
997
|
|
|
36
|
|
|
Core-Mark Holding Co., Inc.
|
|
|
2,723
|
|
|
40
|
|
|
DSW, Inc.
|
|
|
1,713
|
|
|
50
|
|
|
Express, Inc. ●
|
|
|
932
|
|
|
42
|
|
|
Five Below, Inc. ●
|
|
|
1,803
|
|
|
42
|
|
|
Francescas Holding Corp. ●
|
|
|
766
|
|
|
26
|
|
|
Group 1 Automotive, Inc.
|
|
|
1,830
|
|
|
28
|
|
|
Hhgregg, Inc. ●
|
|
|
386
|
|
|
79
|
|
|
HSN, Inc.
|
|
|
4,918
|
|
|
38
|
|
|
Kirklands, Inc. ●
|
|
|
897
|
|
|
24
|
|
|
Lumber Liquidators Holdings, Inc. ●
|
|
|
2,459
|
|
|
75
|
|
|
Nutrisystem, Inc.
|
|
|
1,236
|
|
|
152
|
|
|
Office Depot, Inc. ●
|
|
|
801
|
|
|
115
|
|
|
Orbitz Worldwide, Inc. ●
|
|
|
829
|
|
|
17
|
|
|
Overstock.com, Inc. ●
|
|
|
532
|
|
|
64
|
|
|
PetMed Express, Inc.
|
|
|
1,070
|
|
|
218
|
|
|
Pier 1 Imports, Inc.
|
|
|
5,039
|
|
|
21
|
|
|
Select Comfort Corp. ●
|
|
|
449
|
|
|
|
|
|
|
|
|
32,866
|
|
|
|
|
|
Semiconductors and Semiconductor Equipment - 2.5%
|
|
|
|
|
|
34
|
|
|
Cirrus Logic, Inc. ●
|
|
|
687
|
|
|
81
|
|
|
Entropic Communications, Inc. ●
|
|
|
380
|
|
|
201
|
|
|
GT Advanced Technologies, Inc. ●
|
|
|
1,753
|
|
|
128
|
|
|
Kulicke & Soffa Industries, Inc. ●
|
|
|
1,704
|
|
|
77
|
|
|
Nanometrics, Inc. ●
|
|
|
1,467
|
|
|
231
|
|
|
Silicon Image, Inc. ●
|
|
|
1,420
|
|
|
230
|
|
|
SunEdison, Inc. ●
|
|
|
3,005
|
|
|
46
|
|
|
SunPower Corp. ●
|
|
|
1,380
|
|
|
146
|
|
|
TriQuint Semiconductor, Inc. ●
|
|
|
1,215
|
|
|
56
|
|
|
Ultratech Stepper, Inc. ●
|
|
|
1,611
|
|
|
|
|
|
|
|
|
14,622
|
|
|
|
|
|
Software and Services - 16.3%
|
|
|
|
|
|
57
|
|
|
Advent Software, Inc.
|
|
|
1,998
|
|
|
77
|
|
|
Aspen Technology, Inc. ●
|
|
|
3,200
|
|
|
48
|
|
|
AVG Technologies N.V. ●
|
|
|
831
|
|
|
64
|
|
|
Blackhawk Network Holdings, Inc. ●
|
|
|
1,613
|
|
|
13
|
|
|
Brightcove, Inc. ●
|
|
|
182
|
|
|
111
|
|
|
Carbonite, Inc. ●
|
|
|
1,312
|
|
|
43
|
|
|
Cass Information Systems, Inc.
|
|
|
2,880
|
|
|
24
|
|
|
Commvault Systems, Inc. ●
|
|
|
1,790
|
|
|
16
|
|
|
comScore, Inc. ●
|
|
|
464
|
|
|
36
|
|
|
Comverse, Inc. ●
|
|
|
1,389
|
|
|
94
|
|
|
CSG Systems International, Inc.
|
|
|
2,764
|
|
|
33
|
|
|
Cvent, Inc. ●
|
|
|
1,209
|
|
|
20
|
|
|
Demandware, Inc. ●
|
|
|
1,290
|
|
|
61
|
|
|
Dice Holdings, Inc. ●
|
|
|
445
|
|
|
91
|
|
|
Digital River, Inc. ●
|
|
|
1,674
|
|
|
76
|
|
|
Egain Communications Corp. ●
|
|
|
773
|
|
|
46
|
|
|
Ellie Mae, Inc. ●
|
|
|
1,243
|
|
|
62
|
|
|
Exlservice Holdings, Inc. ●
|
|
|
1,699
|
|
|
48
|
|
|
Fair Isaac, Inc.
|
|
|
2,991
|
|
|
48
|
|
|
Fleetmatics Group Ltd. ●
|
|
|
2,057
|
|
|
60
|
|
|
Global Cash Access, Inc. ●
|
|
|
601
|
|
|
59
|
|
|
Heartland Payment Systems, Inc.
|
|
|
2,926
|
|
|
146
|
|
|
Higher One Holdings, Inc. ●
|
|
|
1,430
|
|
|
32
|
|
|
Imperva, Inc. ●
|
|
|
1,552
|
|
|
58
|
|
|
j2 Global, Inc.
|
|
|
2,920
|
|
|
59
|
|
|
Manhattan Associates, Inc. ●
|
|
|
6,971
|
|
|
154
|
|
|
Mitek Systems, Inc. ●
|
|
|
914
|
|
|
74
|
|
|
Model N, Inc. ●
|
|
|
871
|
|
|
87
|
|
|
Netscout Systems, Inc. ●
|
|
|
2,569
|
|
|
23
|
|
|
NIC, Inc.
|
|
|
560
|
|
|
61
|
|
|
Opentable, Inc. ●
|
|
|
4,859
|
|
The accompanying notes are an integral part of these financial
statements.
Hartford
SmallCap Growth HLS Fund
Schedule of Investments – (continued)
December 31, 2013
(000’s Omitted)
Shares or Principal Amount
|
|
Market Value ╪
|
|
COMMON STOCKS - 99.3% - (continued)
|
|
|
|
|
|
Software and Services - 16.3% - (continued)
|
|
|
|
|
|
62
|
|
|
Pegasystems, Inc.
|
|
$
|
3,069
|
|
|
92
|
|
|
PTC, Inc. ●
|
|
|
3,252
|
|
|
22
|
|
|
Rosetta Stone, Inc. ●
|
|
|
265
|
|
|
155
|
|
|
Sapient Corp. ●
|
|
|
2,691
|
|
|
24
|
|
|
Silver Spring Networks, Inc. ●
|
|
|
502
|
|
|
50
|
|
|
Solarwinds, Inc. ●
|
|
|
1,909
|
|
|
22
|
|
|
Solera Holdings, Inc.
|
|
|
1,535
|
|
|
35
|
|
|
SS&C Technologies Holdings, Inc. ●
|
|
|
1,554
|
|
|
24
|
|
|
Stamps.com, Inc. ●
|
|
|
1,010
|
|
|
167
|
|
|
Synacor, Inc. ●
|
|
|
408
|
|
|
32
|
|
|
Syntel, Inc. ●
|
|
|
2,883
|
|
|
204
|
|
|
TiVo, Inc. ●
|
|
|
2,670
|
|
|
41
|
|
|
Travelzoo, Inc. ●
|
|
|
868
|
|
|
32
|
|
|
Tyler Corp. ●
|
|
|
3,268
|
|
|
35
|
|
|
Unisys Corp. ●
|
|
|
1,178
|
|
|
80
|
|
|
ValueClick, Inc. ●
|
|
|
1,863
|
|
|
39
|
|
|
Vistaprint N.V. ●
|
|
|
2,240
|
|
|
75
|
|
|
WebMD Health Corp. ●
|
|
|
2,945
|
|
|
32
|
|
|
WEX, Inc. ●
|
|
|
3,132
|
|
|
80
|
|
|
XO Group, Inc. ●
|
|
|
1,195
|
|
|
|
|
|
|
|
|
96,414
|
|
|
|
|
|
Technology Hardware and Equipment - 4.0%
|
|
|
|
|
|
38
|
|
|
Alliance Fiber Optic Product, Inc.
|
|
|
576
|
|
|
82
|
|
|
Aruba Networks, Inc. ●
|
|
|
1,459
|
|
|
23
|
|
|
Audience, Inc. ●
|
|
|
272
|
|
|
80
|
|
|
Calix, Inc. ●
|
|
|
775
|
|
|
57
|
|
|
CDW Corp. of Delaware
|
|
|
1,337
|
|
|
66
|
|
|
Ciena Corp. ●
|
|
|
1,570
|
|
|
12
|
|
|
Coherent, Inc. ●
|
|
|
876
|
|
|
73
|
|
|
Comtech Telecommunications Corp.
|
|
|
2,289
|
|
|
28
|
|
|
FEI Co.
|
|
|
2,495
|
|
|
67
|
|
|
Oplink Communications, Inc. ●
|
|
|
1,238
|
|
|
57
|
|
|
Plantronics, Inc.
|
|
|
2,646
|
|
|
27
|
|
|
Plexus Corp. ●
|
|
|
1,147
|
|
|
35
|
|
|
QLogic Corp. ●
|
|
|
412
|
|
|
54
|
|
|
Silicon Graphics International Corp. ●
|
|
|
717
|
|
|
84
|
|
|
Ubiquiti Networks, Inc. ●
|
|
|
3,876
|
|
|
28
|
|
|
ViaSat, Inc. ●
|
|
|
1,742
|
|
|
|
|
|
|
|
|
23,427
|
|
|
|
|
|
Telecommunication Services - 0.4%
|
|
|
|
|
|
59
|
|
|
IDT Corp. Class B
|
|
|
1,051
|
|
|
64
|
|
|
Inteliquent, Inc.
|
|
|
729
|
|
|
39
|
|
|
magicJack VocalTec Ltd. ●
|
|
|
468
|
|
|
|
|
|
|
|
|
2,248
|
|
|
|
|
|
Transportation - 2.7%
|
|
|
|
|
|
17
|
|
|
Alaska Air Group, Inc.
|
|
|
1,233
|
|
|
10
|
|
|
Allegiant Travel Co.
|
|
|
1,033
|
|
|
76
|
|
|
Avis Budget Group, Inc. ●
|
|
|
3,059
|
|
|
62
|
|
|
Celadon Group, Inc.
|
|
|
1,200
|
|
|
125
|
|
|
Hawaiian Holdings, Inc. ●
|
|
|
1,204
|
|
|
98
|
|
|
Heartland Express, Inc.
|
|
|
1,929
|
|
|
65
|
|
|
Marten Transport Ltd.
|
|
|
1,317
|
|
|
16
|
|
|
Park-Ohio Holdings Corp. ●
|
|
|
828
|
|
|
54
|
|
|
Republic Airways Holdings, Inc. ●
|
|
|
581
|
|
|
31
|
|
|
SkyWest, Inc.
|
|
|
461
|
|
|
33
|
|
|
Spirit Airlines, Inc. ●
|
|
|
1,494
|
|
|
63
|
|
|
Swift Transportation Co. ●
|
|
|
1,408
|
|
|
|
|
|
|
|
|
15,747
|
|
|
|
|
|
Total common stocks
|
|
|
|
|
|
|
|
|
(cost $442,197)
|
|
$
|
585,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
|
|
|
|
|
|
|
|
(cost $442,197)
|
|
$
|
585,916
|
|
|
|
|
|
|
|
|
|
|
SHORT-TERM INVESTMENTS - 1.3%
|
|
|
|
|
|
Repurchase Agreements - 1.3%
|
|
|
|
|
|
|
|
|
Bank of America Merrill Lynch TriParty
Repurchase Agreement (maturing on
01/02/2014 in the amount of $394,
collateralized by GNMA 4.00%, 2043,
value of $402)
|
|
|
|
|
$
|
394
|
|
|
0.005%, 12/31/2013
|
|
$
|
394
|
|
|
|
|
|
Bank of Montreal TriParty Repurchase
Agreement (maturing on 01/02/2014 in the
amount of $379, collateralized by FNMA
1.58% - 4.50%, 2020 - 2043, U.S. Treasury
Note 0.25% - 4.00%, 2015 - 2020, value of
$386)
|
|
|
|
|
|
379
|
|
|
0.01%, 12/31/2013
|
|
|
379
|
|
|
|
|
|
Bank of Montreal TriParty Repurchase
Agreement (maturing on 01/02/2014 in the
amount of $1,342, collateralized by
FHLMC 3.00% - 5.00%, 2019 - 2043,
FNMA 0.76% - 6.00%, 2016 - 2043,
GNMA 1.50% - 5.25%, 2028 - 2043, value
of $1,368)
|
|
|
|
|
|
1,342
|
|
|
0.02%, 12/31/2013
|
|
|
1,342
|
|
|
|
|
|
Barclays Capital TriParty Repurchase
Agreement (maturing on 01/02/2014 in the
amount of $1,210, collateralized by U.S.
Treasury Note 0.50% - 2.25%, 2017, value
of $1,234)
|
|
|
|
|
|
1,210
|
|
|
0.01%, 12/31/2013
|
|
|
1,210
|
|
|
|
|
|
Citigroup Global Markets, Inc. TriParty
Repurchase Agreement (maturing on
01/02/2014 in the amount of $2,177,
collateralized by U.S. Treasury Bond 3.88%
- 8.13%, 2021 - 2040, U.S. Treasury Note
0.25% - 3.38%, 2014 - 2020, value of
$2,221)
|
|
|
|
|
|
2,177
|
|
|
0.01%, 12/31/2013
|
|
|
2,177
|
|
|
|
|
|
RBS Securities, Inc. TriParty Repurchase
Agreement (maturing on 01/02/2014 in the
amount of $707, collateralized by U.S.
Treasury Note 0.25% - 1.00%, 2015 - 2017,
value of $722)
|
|
|
|
|
|
707
|
|
|
0.01%, 12/31/2013
|
|
|
707
|
|
|
|
|
|
TD Securities TriParty Repurchase Agreement
(maturing on 01/02/2014 in the amount of
$1,698, collateralized by FFCB 0.20% -
0.50%, 2015 - 2016, FHLMC 0.38% -
5.25%, 2014 - 2042, FNMA 0.50% - 7.13%,
2014 - 2043, value of $1,732)
|
|
|
|
|
|
1,698
|
|
|
0.01%, 12/31/2013
|
|
|
1,698
|
|
The accompanying notes are an integral part of these financial
statements.
Shares or Principal Amount
|
|
|
|
|
|
|
Market Value ╪
|
|
SHORT-TERM INVESTMENTS - 1.3% - (continued)
|
|
|
|
|
|
|
|
|
|
Repurchase Agreements - 1.3% - (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
UBS Securities, Inc. Repurchase Agreement
(maturing on 01/02/2014 in the amount of
$15, collateralized by U.S. Treasury Note
2.13%, 2015, value of $15)
|
|
|
|
|
|
|
|
|
$
|
15
|
|
|
0.01%, 12/31/2013
|
|
|
|
|
|
$
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
7,922
|
|
|
|
|
|
Total short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
(cost $7,922)
|
|
|
|
|
|
$
|
7,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
|
|
|
|
|
|
|
|
|
|
(cost $450,119) ▲
|
|
|
100.6
|
%
|
|
$
|
593,838
|
|
|
|
|
|
Other assets and liabilities
|
|
|
(0.6
|
)%
|
|
|
(3,699
|
)
|
|
|
|
|
Total net assets
|
|
|
100.0
|
%
|
|
$
|
590,139
|
|
|
Note:
|
Percentage of investments as shown is the ratio of the total market value to total net assets.
|
|
▲
|
At December 31, 2013, the cost of securities for federal income tax purposes was $452,680 and the aggregate gross unrealized appreciation and depreciation based on that cost were:
|
Unrealized Appreciation
|
|
$
|
155,351
|
|
Unrealized Depreciation
|
|
|
(14,193
|
)
|
Net Unrealized Appreciation
|
|
$
|
141,158
|
|
╪
|
See Significant Accounting Policies of accompanying Notes to Financial Statements regarding valuation of securities.
|
GLOSSARY:
(abbreviations used in preceding Schedule of Investments)
|
|
Other Abbreviations:
|
FFCB
|
Federal Farm Credit Bank
|
FHLMC
|
Federal Home Loan Mortgage Corp.
|
FNMA
|
Federal National Mortgage Association
|
GNMA
|
Government National Mortgage Association
|
REIT
|
Real Estate Investment Trust
|
The accompanying notes are an integral
part of these financial statements.
Hartford
SmallCap Growth HLS Fund
Investment Valuation Hierarchy Level
Summary
December 31, 2013
(000’s Omitted)
|
|
Total
|
|
|
Level 1 ♦
|
|
|
Level 2 ♦
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stocks ‡
|
|
$
|
585,916
|
|
|
$
|
585,916
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Short-Term Investments
|
|
|
7,922
|
|
|
|
–
|
|
|
|
7,922
|
|
|
|
–
|
|
Total
|
|
$
|
593,838
|
|
|
$
|
585,916
|
|
|
$
|
7,922
|
|
|
$
|
–
|
|
♦
|
For the year ended December 31, 2013, there were no transfers between Level 1 and Level 2.
|
‡
|
The Fund has all or primarily all of the equity securities categorized in a particular level. Refer to the Schedule of Investments for further industry breakout.
|
Note:
|
For purposes of reporting transfers between different hierarchy levels, both transfers in and out of each level, as applicable, are shown as if they occurred at the beginning of the period.
|
The accompanying notes are an integral part
of these financial statements.
Hartford
SmallCap Growth HLS Fund
Statement of Assets and Liabilities
December
31, 2013
(000’s Omitted)
Assets:
|
|
|
|
|
Investments in securities, at market value (cost $450,119)
|
|
$
|
593,838
|
|
Cash
|
|
|
2
|
|
Receivables:
|
|
|
|
|
Investment securities sold
|
|
|
9,489
|
|
Fund shares sold
|
|
|
144
|
|
Dividends and interest
|
|
|
288
|
|
Total assets
|
|
|
603,761
|
|
Liabilities:
|
|
|
|
|
Payables:
|
|
|
|
|
Investment securities purchased
|
|
|
13,089
|
|
Fund shares redeemed
|
|
|
378
|
|
Investment management fees
|
|
|
80
|
|
Distribution fees
|
|
|
7
|
|
Accrued expenses
|
|
|
68
|
|
Total liabilities
|
|
|
13,622
|
|
Net assets
|
|
$
|
590,139
|
|
Summary of Net Assets:
|
|
|
|
|
Capital stock and paid-in-capital
|
|
$
|
321,664
|
|
Undistributed net investment income
|
|
|
463
|
|
Accumulated net realized gain
|
|
|
124,293
|
|
Unrealized appreciation of investments
|
|
|
143,719
|
|
Net assets
|
|
$
|
590,139
|
|
Shares authorized
|
|
|
700,000
|
|
Par value
|
|
$
|
0.001
|
|
Class IA:
Net asset value
per share
|
|
$
|
32.60
|
|
Shares outstanding
|
|
|
14,302
|
|
Net assets
|
|
$
|
466,173
|
|
Class IB:
Net asset value
per share
|
|
$
|
32.17
|
|
Shares outstanding
|
|
|
3,854
|
|
Net assets
|
|
$
|
123,966
|
|
The accompanying notes are an integral part
of these financial statements.
Hartford
SmallCap Growth HLS Fund
Statement of Operations
For
the Year Ended December 31, 2013
(000’s Omitted)
Investment Income:
|
|
|
|
|
Dividends
|
|
$
|
4,617
|
|
Interest
|
|
|
4
|
|
Total investment income, net
|
|
|
4,621
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
Investment management fees
|
|
|
3,456
|
|
Transfer agent fees
|
|
|
6
|
|
Distribution fees - Class IB
|
|
|
338
|
|
Custodian fees
|
|
|
2
|
|
Accounting services fees
|
|
|
67
|
|
Board of Directors' fees
|
|
|
15
|
|
Audit fees
|
|
|
15
|
|
Other expenses
|
|
|
165
|
|
Total expenses (before fees paid indirectly)
|
|
|
4,064
|
|
Commission recapture
|
|
|
(12
|
)
|
Custodian fee offset
|
|
|
—
|
|
Total fees paid indirectly
|
|
|
(12
|
)
|
Total expenses, net
|
|
|
4,052
|
|
Net Investment Income
|
|
|
569
|
|
|
|
|
|
|
Net Realized Gain on Investments:
|
|
|
|
|
Net realized gain on investments
|
|
|
127,766
|
|
Net Realized Gain on Investments
|
|
|
127,766
|
|
|
|
|
|
|
Net Changes in Unrealized Appreciation of Investments:
|
|
|
|
|
Net unrealized appreciation of investments
|
|
|
76,169
|
|
Net Changes in Unrealized Appreciation of Investments
|
|
|
76,169
|
|
Net Gain on Investments
|
|
|
203,935
|
|
Net Increase in Net Assets Resulting from Operations
|
|
$
|
204,504
|
|
The accompanying notes are an integral part
of these financial statements.
Hartford
SmallCap Growth HLS Fund
Statement of Changes in Net Assets
(000’s Omitted)
|
|
For the
Year Ended
December 31,
2013
|
|
|
For the
Year Ended
December 31,
2012
|
|
Operations:
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
569
|
|
|
$
|
1,875
|
|
Net realized gain on investments
|
|
|
127,766
|
|
|
|
82,934
|
|
Net unrealized appreciation of investments
|
|
|
76,169
|
|
|
|
2,044
|
|
Net Increase in Net Assets Resulting from Operations
|
|
|
204,504
|
|
|
|
86,853
|
|
Distributions to Shareholders:
|
|
|
|
|
|
|
|
|
From net investment income
|
|
|
|
|
|
|
|
|
Class IA
|
|
|
(1,597
|
)
|
|
|
—
|
|
Class IB
|
|
|
(114
|
)
|
|
|
—
|
|
Total from net investment income
|
|
|
(1,711
|
)
|
|
|
—
|
|
From net realized gain on investments
|
|
|
|
|
|
|
|
|
Class IA
|
|
|
(48,773
|
)
|
|
|
—
|
|
Class IB
|
|
|
(14,438
|
)
|
|
|
—
|
|
Total from net realized gain on investments
|
|
|
(63,211
|
)
|
|
|
—
|
|
Total distributions
|
|
|
(64,922
|
)
|
|
|
—
|
|
Capital Share Transactions:
|
|
|
|
|
|
|
|
|
Class IA
|
|
|
|
|
|
|
|
|
Sold
|
|
|
63,889
|
|
|
|
36,617
|
|
Issued on reinvestment of distributions
|
|
|
50,370
|
|
|
|
—
|
|
Redeemed
|
|
|
(131,828
|
)
|
|
|
(120,147
|
)
|
Total capital share transactions
|
|
|
(17,569
|
)
|
|
|
(83,530
|
)
|
Class IB
|
|
|
|
|
|
|
|
|
Sold
|
|
|
19,411
|
|
|
|
15,962
|
|
Issued on reinvestment of distributions
|
|
|
14,552
|
|
|
|
—
|
|
Redeemed
|
|
|
(78,559
|
)
|
|
|
(48,247
|
)
|
Total capital share transactions
|
|
|
(44,596
|
)
|
|
|
(32,285
|
)
|
Net decrease from capital share transactions
|
|
|
(62,165
|
)
|
|
|
(115,815
|
)
|
Net Increase (Decrease) in Net Assets
|
|
|
77,417
|
|
|
|
(28,962
|
)
|
Net Assets:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
512,722
|
|
|
|
541,684
|
|
End of period
|
|
$
|
590,139
|
|
|
$
|
512,722
|
|
Undistributed (distribution in
excess of) net investment income
|
|
$
|
463
|
|
|
$
|
1,858
|
|
Shares:
|
|
|
|
|
|
|
|
|
Class IA
|
|
|
|
|
|
|
|
|
Sold
|
|
|
2,158
|
|
|
|
1,514
|
|
Issued on reinvestment of distributions
|
|
|
1,726
|
|
|
|
—
|
|
Redeemed
|
|
|
(4,451
|
)
|
|
|
(4,993
|
)
|
Total share activity
|
|
|
(567
|
)
|
|
|
(3,479
|
)
|
Class IB
|
|
|
|
|
|
|
|
|
Sold
|
|
|
670
|
|
|
|
668
|
|
Issued on reinvestment of distributions
|
|
|
505
|
|
|
|
—
|
|
Redeemed
|
|
|
(2,668
|
)
|
|
|
(2,030
|
)
|
Total share activity
|
|
|
(1,493
|
)
|
|
|
(1,362
|
)
|
The accompanying notes are an integral part of these financial
statements.
Hartford
SmallCap Growth HLS Fund
Notes to Financial Statements
December 31, 2013
(000’s Omitted)
Hartford SmallCap Growth HLS
Fund (the “Fund”) serves as an underlying investment option for certain variable annuity and variable life insurance
separate accounts of Hartford Life Insurance Company (“HLIC”) and its affiliates and certain qualified retirement plans.
The Fund may also serve as an underlying investment option for certain variable annuity and variable life separate accounts of
other insurance companies. Owners of variable annuity contracts and policyholders of variable life insurance contracts may choose
the funds permitted in the variable insurance contract prospectus. In addition, participants in certain qualified retirement plans
may choose the Fund if permitted by their plans.
Hartford HLS Series Fund II,
Inc. (the “Company”) is an open-end registered management investment company comprised of four portfolios. Financial
statements for the Fund, a series of the Company, are included in this report.
The Company is organized under
the laws of the State of Maryland and is registered with the Securities and Exchange Commission (“SEC”) under the Investment
Company Act of 1940, as amended (“1940 Act”). The Fund’s portfolio managers are Mammen Chally (48.92%) and David
J. Elliot (51.08%). The Fund is a diversified open-end management investment company.
The Fund is divided into Class
IA and Class IB shares. Each class is offered at the per share net asset value (“NAV”) without a sales charge and is
subject to the same expenses, except that the Class IB shares are subject to distribution and service fees charged pursuant to
a Distribution Plan adopted in accordance with Rule 12b-1 under the 1940 Act.
|
2.
|
Significant Accounting Policies:
|
The following is a summary of
significant accounting policies of the Fund in the preparation of its financial statements, which are in accordance with United
States Generally Accepted Accounting Principles (“U.S. GAAP”). The preparation of financial statements in accordance
with U.S. GAAP may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases
and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
|
a)
|
Determination of Net Asset Value
– The NAV of each class of the Fund’s shares
is determined as of the close of regular trading (normally 4:00 p.m. Eastern Time) (the “NYSE Close”) on each day that
the New York Stock Exchange (the “Exchange”) is open (“Valuation Date”). Information that becomes known
to the Fund after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the NAV determined
earlier that day.
|
|
b)
|
Investment Valuation and Fair Value Measurements
– For purposes of calculating the
NAV, portfolio investments and other assets held by the Fund's portfolio for which market quotes are readily available are valued
at market value. Market value is generally determined on the basis of last reported sales prices or official close price. If no
sales are reported, market value is based on quotes obtained from a quotation reporting system, established market makers, or independent
pricing services. If market prices are not readily available or are deemed unreliable, the Fund will use the fair value of the
investment as determined in good faith under policies and procedures established by and under the supervision of the Company’s
Board of Directors. Market quotes are considered not readily available where there is an absence of current or reliable market-based
data (e.g., trade information or indicative market quotes), including where events occur after the close of the relevant market,
but prior to the NYSE Close, that materially affect the values of the Fund’s portfolio investments or assets. In addition,
market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which
the investments trade do not open for trading for the entire day and no other market prices are available. In addition, prices
of foreign equities that are principally traded on certain foreign markets may be adjusted daily pursuant to a fair value pricing
service approved by the Board of Directors in order to reflect an adjustment for the factors occurring after the close of certain
foreign markets but before the NYSE Close. Investments that are primarily traded on foreign markets may trade on days that are
not business days of the Fund. The value of the foreign investments in which the Fund invests may change on days when a shareholder
will not be able to
|
purchase or redeem shares of the Fund. Fair value pricing is subjective in nature and the use of fair value
pricing by the Fund may cause the NAV of its shares to differ significantly from the NAV that would have been calculated using
market prices at the close of the exchange on which a portfolio investment is primarily traded. There can be no assurance that
the Fund could obtain the fair market value assigned to an investment if the Fund were to sell the investment at approximately
the time at which the Fund determines its NAV.
Financial instruments for which
prices are not available from an independent pricing service may be valued using market quotations obtained from one or more dealers
that make markets in the respective financial instrument in accordance with procedures established by the Company’s Board
of Directors.
U.S. GAAP defines fair value
as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market
participants. The U.S. GAAP fair value measurement standards require disclosure of a fair value hierarchy for each major category
of assets and liabilities. Various inputs are used in determining the fair value of the Fund’s investments. These inputs
are summarized into three broad hierarchy levels. This hierarchy is based on whether the valuation inputs are observable or unobservable.
These levels are:
|
·
|
Level 1 – Quoted prices in active markets for identical investments. Level 1 may include
exchange traded instruments, such as domestic equities, some foreign equities, options, futures, mutual funds, exchange traded
funds, rights and warrants.
|
|
·
|
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar
investments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable
market data. Level 2 may include debt investments that are traded less frequently than exchange traded instruments and which are
valued using independent pricing services; foreign equities, which are principally traded on certain foreign markets and are adjusted
daily pursuant to a fair value pricing service in order to reflect an adjustment for the factors occurring after the close of certain
foreign markets but before the NYSE Close; senior floating rate interests, which are valued using an aggregate of dealer bids;
short-term investments, which are valued at amortized cost; and swaps, which are valued based upon the terms of each swap contract.
|
|
·
|
Level 3 – Significant unobservable inputs that are supported by limited or no market activity.
Level 3 may include financial instruments whose values are determined using indicative market quotes or require significant management
judgment or estimation. These unobservable valuation inputs may include estimates for current yields, maturity/duration, prepayment
speed, and indicative market quotes for comparable investments along with other assumptions relating to credit quality, collateral
value, complexity of the investment structure, general market conditions and liquidity. This category may include investments where
trading has been halted or there are certain restrictions on trading. While these investments are priced using unobservable inputs,
the valuation of these investments reflects the best available data and management believes the prices are a reasonable representation
of exit price.
|
The Board of Directors of the Company
generally reviews and approves the “Procedures for Valuation of Portfolio Securities” on an annual basis. These procedures
define how investments are to be valued, including the formation and activities of a Valuation Committee. The Valuation Committee
is responsible for determining in good faith the fair value of investments when the value cannot be obtained from primary pricing
services or alternative sources or if the valuation of an investment as provided by the primary pricing service or alternative
source is believed not to reflect the investment’s fair value as of the Valuation Date. Voting members of the Valuation Committee
include the Fund’s Treasurer or designee and a Vice President of the investment manager or designee. An Assistant Vice President
of the Fund with legal expertise or designee is also included on the Valuation Committee as a non-voting advisory member. In addition,
the Fund’s Chief Compliance Officer shall designate a member of the compliance group to attend Valuation Committee meetings
as a non-voting resource, to monitor for and provide guidance with respect to compliance with these procedures. Two members of
the Valuation Committee or their designees, representing different departments, shall constitute a quorum for purposes of permitting
the Valuation Committee to take action. The Valuation Committee will consider all
Hartford
SmallCap Growth HLS Fund
Notes to Financial Statements –
(continued)
December 31, 2013
(000’s Omitted)
relevant factors in determining
an investment’s fair value, and may seek the advice of the Fund’s sub-adviser, knowledgeable brokers, and legal counsel
in making such determination. The Valuation Committee reports to the Audit Committee of the Company’s Board of Directors.
The Audit Committee receives quarterly written reports which include details of all fair-valued investments, including the reason
for the fair valuation, and an indication, when possible, of the accuracy of the valuation by disclosing the next available reliable
public price quotation or the disposition price of such investments (the “look-back” test). The Board of Directors
then must consider for ratification all of the fair value determinations made during the previous quarter.
Valuation levels are not necessarily
indicative of the risk associated with investing in such investments. Individual investments within any of the above mentioned
asset classes may be assigned a different hierarchical level than those presented above, as individual circumstances dictate.
For additional information, refer
to the Investment Valuation Hierarchy Level Summary and the Level 3 roll-forward reconciliation, if applicable, which follow the
Schedule of Investments.
|
c)
|
Investment Transactions and Investment Income
–
Investment transactions are
recorded as of the trade date (the date the order to buy or sell is executed) for financial reporting purposes. Investments purchased
or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Realized gains and losses
are determined on the basis of identified cost.
|
Dividend income from domestic
securities is accrued on the ex-dividend date. In general, dividend income from foreign securities is recorded on the ex-date;
however, dividend notifications in certain foreign jurisdictions may not be available in a timely manner and as a result, the Fund
will record the dividend as soon as the relevant details (i.e., rate per share, payment date, shareholders of record, etc.) are
publicly available. Interest income, including amortization of premium, accretion of discounts and additional principal received
in-kind in lieu of cash, is accrued on a daily basis.
|
d)
|
Joint Trading Account
– The Fund may invest cash balances into a joint trading account
that may be invested in one or more repurchase agreements.
|
|
e)
|
Fund Share Valuation and Dividend Distributions to Shareholders
– Orders for the Fund’s
shares are executed in accordance with the investment instructions of the contract holders and plan participants. The NAV of the
Fund’s shares is determined as of the close of business on each business day of the Exchange. The NAV is determined separately
for each class of shares of the Fund by dividing the Fund’s net assets attributable to that class by the number of shares
of the class outstanding. Each class of shares offered by the Fund has equal rights as to assets and voting privileges (except
that shareholders of a class have exclusive voting rights regarding any matter relating solely to that class of shares). Income
and non-class specific expenses are allocated daily to each class on the basis of the relative net assets of the class. Realized
and unrealized gains and losses are allocated daily based on the relative net assets of each class of shares of the Fund.
|
Orders for the purchase of the
Fund’s shares received prior to the close of the Exchange on any day the Exchange is open for business are priced at the
NAV determined as of the close of the Exchange. Orders received after the close of the Exchange, or on a day on which the Exchange
and/or the Fund is not open for business, are priced at the next determined NAV.
Dividends are declared pursuant
to a policy adopted by the Company’s Board of Directors based upon the investment performance of the Fund. The policy of
the Fund is to pay dividends from net investment income and realized gains, if any, at least once a year.
Distributions from net investment
income, net realized gains and capital are determined in accordance with federal income tax regulations, which may differ from
U.S. GAAP with respect to character and timing. These differences may include, but are not limited to, losses deferred due to wash
sale adjustments, foreign currency gains and losses,
adjustments related to Passive Foreign Investment Companies (“PFICs”),
Real Estate Investment Trusts (“REITs”), Regulated Investment Companies (“RICs”), certain derivatives and
partnerships. Permanent book and federal income tax basis differences relating to shareholder distributions will result in reclassifications
to certain of the Fund’s capital accounts (see Federal Income Taxes: Reclassification of Capital Accounts note).
|
3.
|
Securities and Other Investments:
|
|
a)
|
Repurchase Agreements
– A repurchase agreement is an agreement by which a counterparty
agrees to sell an investment and agrees to repurchase the investment sold from the buyer at a mutually agreed upon time and price.
During the period of the repurchase agreement, the counterparty will deposit cash and or securities in a third party custodial
account to serve as collateral. At the time the Fund enters into a repurchase agreement, the value of the underlying collateral,
including accrued interest, will be equal to or exceed the value of the repurchase agreement. Repurchase agreements expose the
Fund to counterparty risk - that is, the risk that the counterparty will not fulfill its obligations. To minimize counterparty
risk, the investments that serve to collateralize the repurchase agreement are held by the Fund’s custodian in book entry
or physical form in the custodial account of the Fund or in a third party custodial account. Repurchase agreements are valued at
cost plus accrued interest, which approximates fair value. Repurchase agreements have master netting arrangements which allow the
Fund to offset amounts owed to a counterparty with amounts owed by the counterparty, including any collateral. Upon an event of
default under a master repurchase agreement, the non-defaulting party may close out all transactions traded under such agreement
and net amounts owed under each transaction to one net amount payable by one party to the other. Absent an event of default, the
master repurchase agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets
and Liabilities across transactions between the Fund and the applicable counterparty. The Fund, as shown on the Schedule of Investments,
had outstanding repurchase agreements and related collateral as of December 31, 2013.
|
|
b)
|
Illiquid and Restricted Investments
– The Fund is permitted to invest up to 15% of
its net assets in illiquid investments. Illiquid investments are those that may not be sold or disposed of in the ordinary course
of business within seven days, at approximately the price used to determine the Fund’s NAV. The Fund may not be able to sell
illiquid investments when its sub-adviser considers it desirable to do so or may have to sell such investments at a price that
is lower than the price that could be obtained if the investments were more liquid. A sale of illiquid investments may require
more time and may result in higher dealer discounts and other selling expenses than does the sale of those that are liquid. Illiquid
investments also may be more difficult to value due to the unavailability of reliable market quotations for such investments, and
an investment in them may have an adverse impact on the Fund’s NAV. The Fund may also purchase certain restricted investments
that can only be resold to certain qualified investors and may be determined to be liquid pursuant to policies and guidelines established
by the Company’s Board of Directors. The Fund had no illiquid or restricted investments as of December 31, 2013.
|
The Fund may be exposed to counterparty
risk, or the risk that an institution or other entity with which the Fund has unsettled or open transactions will default.
The market values of equity securities,
such as common stocks and preferred stocks, or equity related investments, such as futures and options, may decline due to general
market conditions which are not specifically related to a particular company, such as real or perceived adverse economic conditions,
changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally.
The market value of equity securities may also decline due to factors which affect a particular industry or industries, such as
labor shortages or increased production costs and competitive conditions within an industry. Equity securities and equity related
investments generally have greater market price volatility than fixed income securities.
Hartford
SmallCap Growth HLS Fund
Notes to Financial Statements –
(continued)
December 31, 2013
(000’s Omitted)
|
a)
|
Federal Income Taxes
–
For federal income tax purposes, the Fund intends to continue to qualify as a RIC under
Subchapter M of the Internal Revenue Code (“IRC”) by distributing substantially
all of its taxable net investment income and net realized capital gains to its shareholders
and otherwise complying with the requirements of the IRC. The Fund has distributed substantially
all of its income and capital gains in prior years, if applicable, and intends to distribute
substantially all of its income and capital gains prior to the next fiscal year-end.
Accordingly, no provision for federal income or excise taxes has been made in the accompanying
financial statements. Distributions from short-term capital gains are treated as ordinary
income distributions for federal income tax purposes.
|
|
b)
|
Net Investment Income (Loss),
Net Realized Gains (Losses) and Distributions
–
Net investment income
(loss) and net realized gains (losses) may differ for financial statement and tax purposes
primarily because of losses deferred due to wash sale adjustments, foreign currency gains
and losses, adjustments related to PFICs, REITs, RICs, certain derivatives and partnerships.
The character of distributions made during the year from net investment income or net
realized gains may differ from their ultimate characterization for federal income tax
purposes. Also, due to the timing of dividend distributions, the fiscal year in which
amounts are distributed may differ from the year that the income or realized gains (losses)
were recorded by the Fund.
|
|
c)
|
Distributions and Components
of Distributable Earnings
– The tax character of distributions paid by the
Fund for the periods indicated is as follows (as adjusted for dividends payable, if applicable):
|
|
|
For the Year Ended
December 31, 2013
|
|
|
For the Year Ended
December 31, 2012
|
|
Ordinary Income
|
|
$
|
1,711
|
|
|
$
|
—
|
|
Long-Term Capital Gains*
|
|
|
63,211
|
|
|
|
—
|
|
|
*
|
The Fund designates these distributions as long-term
capital dividends pursuant to IRC Sec. 852(b)(3)(C).
|
As of December 31, 2013, the
Fund’s components of distributable earnings (deficit) on a tax basis were as follows:
|
|
Amount
|
|
Undistributed Ordinary Income
|
|
$
|
37,253
|
|
Undistributed Long-Term Capital Gain
|
|
|
90,064
|
|
Unrealized Appreciation*
|
|
|
141,158
|
|
Total Accumulated Earnings
|
|
$
|
268,475
|
|
|
*
|
Differences between book-basis and tax-basis unrealized appreciation (depreciation) may be attributable to the losses deferred due to wash sale adjustments, foreign currency gains and losses, adjustments related to PFICs, REITs, RICs, certain derivatives and partnerships.
|
|
d)
|
Reclassification of Capital Accounts
– The Fund may record reclassifications in its
capital accounts. These reclassifications have no impact on the total net assets of the Fund. The reclassifications are a result
of permanent differences between U.S. GAAP and tax accounting for such items as foreign currency, PFICs, expiration or utilization
of capital loss carryforwards or net operating losses. Adjustments are made to reflect the impact these items have on current and
future distributions to shareholders. Therefore, the source of the Fund’s distributions may be shown in the accompanying
Statement of Changes in Net Assets as from undistributed net investment income, from accumulated net realized gains on investments
or from capital depending on the type of book and tax differences that exist. For the year ended December 31, 2013, the Fund recorded
reclassifications to increase (decrease) the accounts listed below:
|
|
|
Amount
|
|
Undistributed Net Investment Income (Loss)
|
|
$
|
(253
|
)
|
Accumulated Net Realized Gain (Loss)
|
|
|
253
|
|
|
e)
|
Capital Loss Carryforward
– On December 22, 2010, the Regulated Investment Company
Modernization Act of 2010 (the “Act”) was enacted, which made changes to the capital loss carryforward rules. The changes
are effective for taxable years beginning after the date of enactment. Under the Act, funds are permitted to carry forward capital
losses for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized
prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule,
pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital loss carryforwards
retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted
under prior regulation.
|
The Fund had no capital
loss carryforward for U.S. federal income tax purposes as of December 31, 2013.
|
f)
|
Accounting for Uncertainty in Income Taxes
– The Fund has adopted financial reporting
rules that require the Fund to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions.
Generally, tax authorities can examine all tax returns filed for the last three years. The Fund does not have an examination in
progress.
|
The Fund has reviewed all open
tax years and major jurisdictions and concluded that these financial reporting rules had no effect on the Fund’s financial
position or results of operations. There is no tax liability resulting from unrecognized tax benefits relating to uncertain income
tax positions taken or expected to be taken on the tax return for the fiscal year ended December 31, 2013. The Fund is also not
aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly
change in the next twelve months.
|
a)
|
Investment Management Agreement
– Hartford Funds Management Company, LLC (“HFMC”),
an indirect wholly owned subsidiary of The Hartford Financial Services Group, Inc. (“The Hartford”), serves as investment
manager to the Fund pursuant to an Investment Management Agreement with the Company. The investment manager has overall investment
supervisory responsibility for the Fund. In addition, the investment manager provides administrative personnel, services, equipment,
facilities and office space for proper operation of the Fund. The investment manager has contracted with Wellington Management
Company, LLP (“Wellington Management”) under a sub-advisory agreement for the provision of day-to-day investment management
services to the Fund in accordance with the Fund’s investment objective and policies. The Fund pays a fee to the investment
manager, a portion of which may be used to compensate Wellington Management.
|
Hartford
SmallCap Growth HLS Fund
Notes to Financial Statements –
(continued)
December 31, 2013
(000’s Omitted)
The schedule below reflects the
rates of compensation paid to HFMC for investment management services rendered as of December 31, 2013; the rates are accrued daily
and paid monthly.
Average Daily Net Assets
|
|
|
Annual Fee
|
On first $100 million
|
|
|
0.700%
|
On next $4.9 billion
|
|
|
0.600%
|
On next $5 billion
|
|
|
0.580%
|
Over $10 billion
|
|
|
0.570%
|
|
b)
|
Accounting Services Agreement –
Pursuant to the Fund Accounting Agreement between
HFMC and the Company, on behalf of the Fund, HFMC provides accounting services to the Fund and receives monthly compensation based
on the Fund’s average daily net assets at the rates set forth below. The Fund’s accounting services fees are accrued
daily and paid monthly.
|
Average Daily Net Assets
|
|
|
Annual Fee
|
On first $5 billion
|
|
|
0.012%
|
Over $5 billion
|
|
|
0.010%
|
|
c)
|
Operating Expenses
– Allocable expenses incurred by the Company are allocated to each
Fund and allocated to classes within a Fund in proportion to the average daily net assets of the Fund and each class, except where
allocation of certain expenses is more fairly made directly to the Fund or to specific classes within a Fund.
|
|
d)
|
Fees Paid Indirectly
– The Company, on behalf of the Fund, has entered into agreements
with State Street Global Markets, LLC and Russell Implementation Services, Inc. to partially recapture non-discounted trade commissions.
Such rebates are used to pay a portion of the Fund’s expenses. In addition, the Fund’s custodian bank has agreed to
reduce its fees when the Fund maintains cash on deposit in a non-interest-bearing custody account. For the year ended December
31, 2013, these amounts, if any, are included in the Statement of Operations.
|
The ratio of expenses to average
net assets in the accompanying financial highlights excludes the reduction in expenses related to fees paid indirectly. The annualized
expense ratio after waivers for the period listed below reflecting the reduction for fees paid indirectly is as follows:
|
|
Year Ended
December 31, 2013
|
|
Class IA
|
|
|
0.66
|
%
|
Class IB
|
|
|
0.91
|
|
|
e)
|
Distribution Plan for Class IB shares
– Effective June 14, 2013, Hartford Investment
Financial Services, LLC was renamed Hartford Funds Distributors, LLC (“HFD”). HFD, a wholly owned, ultimate subsidiary
of The Hartford, serves as the Fund’s principal underwriter and distributor. The Company, on behalf of the Fund, has adopted
a Distribution Plan pursuant to Rule 12b-1 of the 1940 Act to compensate the distributor, HFD, from assets attributable to the
Class IB shares for services rendered and expenses borne in connection with activities primarily intended to result in the sale
of the Class IB shares, subject to the review and approval of the Company’s Board of Directors.
|
The Distribution Plan provides
that the Fund may pay annually up to 0.25% of the average daily net assets of the Fund attributable to its Class IB shares for
activities primarily intended to result in the sale of Class IB shares. The Board has the authority to suspend or reduce these
payments at any point in time. Under the terms of the Distribution Plan and the principal underwriting agreement, the Fund is authorized
to make payments monthly to the distributor that may be used
to pay or compensate entities providing distribution and shareholder
servicing with respect to the Class IB shares for such entities’ fees or expenses incurred or paid in that regard. These
fees are accrued daily and paid monthly.
|
f)
|
Other Related Party Transactions
– Certain officers of the Fund are directors and/or
officers of the investment manager and/or The Hartford or its subsidiaries. For the year ended December 31, 2013, a portion of
the Fund’s Chief Compliance Officer’s salary was paid by all the investment companies in the Hartford fund complex.
The portion allocated to the Fund was in the amount of $1. Hartford Administrative Services Company (“HASCO”), an indirect
wholly owned subsidiary of The Hartford, provides transfer agent services to the Fund. HASCO was compensated on a per account basis
for providing such services. The amount paid to HASCO can be found in the Statement of Operations. These fees are accrued daily
and paid monthly.
|
|
g)
|
Payment from Affiliate
– In July of 2007, The Hartford entered into a settlement with
the Attorneys General of the states of New York, Connecticut and Illinois relating to market timing and the company's individual
variable annuity contracts in which certain payments would be made directly to the variable annuity contract holders. The distribution
plan provided that unclaimed money from the settlement would be distributed to certain HLS Funds that are investment options through
a Hartford individual variable annuity contract. The unclaimed money was distributed to the Fund on September 18, 2009.
|
The total return in the accompanying
financial highlights includes a payment from an affiliate. Had the payment from the affiliate been excluded, the impact and total
return for the period listed below would have been as follows:
|
|
For the Year Ended December 31, 2009
|
|
|
|
Class IA
|
|
|
Class IB
|
|
Impact from Payment from Affiliate for Attorneys General Settlement
|
|
|
0.01
|
%
|
|
|
0.01
|
%
|
Total Return Excluding Payment from Affiliate
|
|
|
35.37
|
%
|
|
|
35.04
|
%
|
|
7.
|
Investment Transactions:
|
For the year ended December
31, 2013, the Fund's aggregate purchases and sales of investment securities (excluding short-term investments) were as follows:
|
|
Amount
|
|
Cost of Purchases Excluding U.S. Government Obligations
|
|
$
|
445,363
|
|
Sales Proceeds Excluding U.S. Government Obligations
|
|
|
571,969
|
|
The Fund is one of several Hartford
funds that participate in a $500 million committed revolving line of credit facility. The facility is to be used for temporary
or emergency purposes. Under the arrangement, the funds are required to own securities having a market value in excess of 300%
of the total bank borrowings. The interest rate on borrowings varies depending on the nature of the loan. The facility also requires
a fee to be paid based on the amount of the commitment. This commitment fee is allocated to all of the funds participating in the
line of credit based on the average net assets of the funds. During the year ended December 31, 2013, the Fund did not have any
borrowings under this facility.
|
9.
|
Industry Classifications:
|
Other than the industry classifications
“Other Investment Pools and Funds” and “Exchange Traded Funds,” equity industry classifications used in
this report are the Global Industry Classification Standard, which was developed by and is the exclusive property and service mark
of MSCI, Inc. and Standard & Poor’s.
Hartford
SmallCap Growth HLS Fund
Notes to Financial Statements –
(continued)
December 31, 2013
(000’s Omitted)
Under the Company’s organizational
documents, the Company shall indemnify its officers and directors to the full extent required or permitted under Maryland General
Corporation Law and the federal securities laws. In addition, the Company, on behalf of the Fund, may enter into contracts that
contain a variety of indemnifications. The Company’s maximum exposure under these arrangements is unknown. However, as of
the date of these financial statements, the Company has not had prior claims or losses pursuant to these contracts and expects
the risk of loss to be remote.
|
11.
|
Pending Legal Proceedings:
|
On February 25, 2011, Jennifer
L. Kasilag, Louis Mellinger, Judith M. Menendez, Jacqueline M. Robinson, and Linda A. Russell filed a derivative lawsuit against
Hartford Investment Financial Services, LLC (“HIFSCO”)(now known as Hartford Funds Distributors, LLC) on behalf of
six Hartford retail mutual funds in the United States District Court for the District of New Jersey, alleging that HIFSCO received
excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the 1940 Act when
serving as investment manager and principal underwriter, respectively, to the Hartford retail mutual funds. HIFSCO moved to dismiss
and, in September 2011, the motion was granted in part and denied in part, with leave to amend the complaint. In November 2011,
plaintiffs filed an amended complaint on behalf of certain Hartford retail mutual funds, The Hartford Global Health Fund (now known
as The Hartford Healthcare Fund), The Hartford Conservative Allocation Fund, The Hartford Growth Opportunities Fund, The Hartford
Inflation Plus Fund, The Hartford Advisers Fund (now known as The Hartford Balanced Fund), and The Hartford Capital Appreciation
Fund. Plaintiffs seek to rescind the investment management agreements and distribution plans between HIFSCO and these funds and
to recover the total fees charged thereunder or, in the alternative, to recover any improper compensation HIFSCO received, in addition
to lost earnings. HIFSCO filed a partial motion to dismiss the amended complaint and, in December 2012, the court dismissed without
prejudice the claims regarding distribution fees and denied the motion with respect to the advisory fees claims. HIFSCO disputes
the allegations and intends to defend the advisory fee claims vigorously.
This action concerns the activities
of HIFSCO in its capacity as investment manager and principal underwriter to the Hartford retail mutual funds and does not concern
HIFSCO’s activities in its capacity as principal underwriter to the HLS funds. For this reason, no accrual for litigation
relating to this matter has been recorded in the financial statements of the Fund.
Hartford
SmallCap Growth HLS Fund
Financial
Highlights
|
|
─
Selected Per-Share Data(A) ─
|
|
|
─
Ratios and Supplemental Data ─
|
|
Class
|
|
Net Asset
Value at
Beginning
of Period
|
|
|
Net
Investment
Income
(Loss)
|
|
|
Net
Realized
and
Unrealized
Gain (Loss)
on
Investments
|
|
|
Total from
Investment
Operations
|
|
|
Dividends
from Net
Investment
Income
|
|
|
Distributions
from
Realized
Capital
Gains
|
|
|
Total
Dividends
and
Distributions
|
|
|
Net
Asset
Value at
End of
Period
|
|
|
Total
Return(B)
|
|
|
Net
Assets at
End of
Period
(000s)
|
|
|
Ratio of
Expenses
to
Average
Net
Assets
Before
Adjust-
ments(C)
|
|
|
Ratio of
Expenses
to
Average
Net
Assets
After
Adjust-
ments(C)
|
|
|
Ratio of
Net
Investment
Income
(Loss) to
Average
Net Assets
|
|
For the Year Ended December 31, 2013
|
IA
|
|
$
|
25.44
|
|
|
$
|
0.05
|
|
|
$
|
10.92
|
|
|
$
|
10.97
|
|
|
$
|
(0.12
|
)
|
|
$
|
(3.69
|
)
|
|
$
|
(3.81
|
)
|
|
$
|
32.60
|
|
|
|
44.87
|
%
|
|
$
|
466,173
|
|
|
|
0.67
|
%
|
|
|
0.67
|
%
|
|
|
0.16
|
%
|
IB
|
|
|
25.14
|
|
|
|
(0.02
|
)
|
|
|
10.77
|
|
|
|
10.75
|
|
|
|
(0.03
|
)
|
|
|
(3.69
|
)
|
|
|
(3.72
|
)
|
|
|
32.17
|
|
|
|
44.50
|
|
|
|
123,966
|
|
|
|
0.92
|
|
|
|
0.92
|
|
|
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2012 (D)
|
IA
|
|
$
|
21.67
|
|
|
$
|
0.11
|
|
|
$
|
3.66
|
|
|
$
|
3.77
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
25.44
|
|
|
|
17.40
|
%
|
|
$
|
378,318
|
|
|
|
0.67
|
%
|
|
|
0.67
|
%
|
|
|
0.41
|
%
|
IB
|
|
|
21.47
|
|
|
|
0.04
|
|
|
|
3.63
|
|
|
|
3.67
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
25.14
|
|
|
|
17.10
|
|
|
|
134,404
|
|
|
|
0.92
|
|
|
|
0.92
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2011 (D)
|
IA
|
|
$
|
21.37
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.32
|
|
|
$
|
0.30
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
21.67
|
|
|
|
1.42
|
%
|
|
$
|
397,662
|
|
|
|
0.67
|
%
|
|
|
0.67
|
%
|
|
|
(0.07
|
)%
|
IB
|
|
|
21.22
|
|
|
|
(0.07
|
)
|
|
|
0.32
|
|
|
|
0.25
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
21.47
|
|
|
|
1.17
|
|
|
|
144,022
|
|
|
|
0.92
|
|
|
|
0.92
|
|
|
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2010 (D)
|
IA
|
|
$
|
15.65
|
|
|
$
|
–
|
|
|
$
|
5.72
|
|
|
$
|
5.72
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
21.37
|
|
|
|
36.56
|
%
|
|
$
|
467,888
|
|
|
|
0.68
|
%
|
|
|
0.68
|
%
|
|
|
0.03
|
%
|
IB
|
|
|
15.58
|
|
|
|
(0.04
|
)
|
|
|
5.68
|
|
|
|
5.64
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
21.22
|
|
|
|
36.21
|
|
|
|
164,123
|
|
|
|
0.93
|
|
|
|
0.93
|
|
|
|
(0.22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2009 (D)
|
IA
|
|
$
|
11.57
|
|
|
$
|
0.01
|
|
|
$
|
4.08
|
|
|
$
|
4.09
|
|
|
$
|
(0.01
|
)
|
|
$
|
–
|
|
|
$
|
(0.01
|
)
|
|
$
|
15.65
|
|
|
|
35.39
|
%(E)
|
|
$
|
408,754
|
|
|
|
0.68
|
%
|
|
|
0.68
|
%
|
|
|
0.06
|
%
|
IB
|
|
|
11.53
|
|
|
|
(0.03
|
)
|
|
|
4.08
|
|
|
|
4.05
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
15.58
|
|
|
|
35.06
|
(E)
|
|
|
140,368
|
|
|
|
0.93
|
|
|
|
0.93
|
|
|
|
(0.19
|
)
|
(A)
|
Information presented relates to a share outstanding throughout the indicated period. Net investment income (loss) per share amounts are calculated based on average shares outstanding unless otherwise noted.
|
(B)
|
The figures do not include sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees would lower the Fund's performance.
|
(C)
|
Adjustments include waivers and reimbursements, if applicable. Ratios do not include fees paid indirectly (see Expenses in the accompanying Notes to Financial Statements).
|
(D)
|
Net investment income (loss) per share amounts have been calculated using the SEC method.
|
(E)
|
Total return without the inclusion of the Payment from (to) Affiliate can be found in Expenses in the accompanying Notes to Financial Statements.
|
|
|
Portfolio Turnover
Rate for
All Share Classes
|
|
For the Year Ended December 31, 2013
|
|
|
81
|
%
|
For the Year Ended December 31, 2012
|
|
|
85
|
|
For the Year Ended December 31, 2011
|
|
|
62
|
|
For the Year Ended December 31, 2010
|
|
|
66
|
|
For the Year Ended December 31, 2009
|
|
|
73
|
|
Report
of Independent Registered Public Accounting Firm
The
Board of Directors and Shareholders of
Hartford HLS Series Fund II, Inc.
We have audited the accompanying statement
of assets and liabilities, including the schedule of investments, of Hartford SmallCap Growth HLS Fund (one of the portfolios constituting
Hartford HLS Series Fund II, Inc. (the Funds)) as of December 31, 2013, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility
of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We
were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities
owned as of December 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures where
replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements
and financial highlights referred to above present fairly, in all material respects, the financial position of Hartford SmallCap
Growth HLS Fund of the Hartford HLS Series Fund II, Inc. at December 31, 2013, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
|
|
Minneapolis, MN
February 17, 2014
|
Hartford
SmallCap Growth HLS Fund
Directors and Officers (Unaudited)
The Board of Directors of the Company appoints
officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the directors. Each
director serves until his or her death, resignation, or retirement or until the next annual meeting of shareholders is held or
until his or her successor is elected and qualifies.
Directors and officers who are employed
by or who have a financial interest in The Hartford are considered “interested” persons of the Fund pursuant to the
1940 Act. Each officer and two of the Company’s directors, as noted in the chart below, are “interested” persons
of the Fund. Each director serves as a director for The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., Hartford
Series Fund, Inc., Hartford HLS Series Fund II, Inc., and as a trustee for The Hartford Alternative Strategies Fund, which, as
of December 31, 2013, collectively consist of 91 funds. Correspondence may be sent to directors and officers c/o Hartford Funds,
5 Radnor Corporate Center, Suite 300, 100 Matsonford Road, Radnor, Pennsylvania 19087, except that correspondence to Mr. Annoni,
Mr. Dressen and Ms. Quade may be sent to 500 Bielenberg Drive, Woodbury, Minnesota 55125.
The table below sets forth, for each director
and officer, his or her name, year of birth, current position with the Company and date first elected or appointed to Hartford
Series Fund, Inc. (“HSF”), and Hartford HLS Series Fund II, Inc. (“HSF2”), principal occupation, and, for
directors, other directorships held. The Fund’s Statement of Additional Information contains further information on the directors
and is available free of charge by calling 1-800-862-6668 or writing to Hartford HLS Funds, c/o Hartford Life Insurance Company,
Hartford Life and Annuity Insurance Company, P.O. Box 14293, Lexington, KY 40512-4293.
Information on the aggregate remuneration
paid to the directors of the Company can be found in the Statement of Operations herein. The Fund pays to The Hartford a portion
of the Chief Compliance Officer’s compensation, but does not pay salaries or compensation to any of their other officers
or directors who are employed by The Hartford.
Non-Interested Directors
Lynn S. Birdsong
(1946) Director since 2003, Co-Chairman
of the Investment Committee since 2005
Mr. Birdsong is a private investor.
Mr. Birdsong currently serves as a Director of the Sovereign High Yield Investment Company (April 2010 to current). Mr. Birdsong
currently serves as an Independent Director of Nomura Partners Funds, Inc. (formerly, The Japan Fund) (April 2003 to current).
From 2003 to March 2005, Mr. Birdsong was an Independent Director of the Atlantic Whitehall Funds. From 1979 to 2002, Mr. Birdsong
was a Managing Director of Zurich Scudder Investments, an investment management firm. During his employment with Scudder, Mr. Birdsong
was an Interested Director of The Japan Fund. From January 1981 through December 2013, Mr. Birdsong was a partner in Birdsong Company,
an advertising specialty firm.
Robert M. Gavin, Jr.
(1940) Director
since 2002 (HSF) and 1986 (HSF2), Chairman of the Board since 2004
Dr. Gavin is an educational
consultant. Prior to September 1, 2001, he was President of Cranbrook Education Community and prior to July 1996, he was President
of Macalester College, St. Paul, Minnesota.
Duane E. Hill
(1945) Director since
2001 (HSF) and 2002 (HSF2), Chairman of the Nominating Committee since 2003
Mr. Hill is a Partner of TSG
Ventures L.P., a private equity investment company. Mr. Hill is a former partner of TSG Capital Group, a private equity investment
firm that served as sponsor and lead investor in leveraged buyouts of middle market companies.
Sandra S. Jaffee
(1941) Director
since 2005
Ms. Jaffee is the founder and
Chief Executive Officer of a private company, Homeworks Concierge, LLC, which provides residential property management services
in Westchester County, New York (January 2012 to present). Ms. Jaffee served as Chairman (2008 to 2009) and Chief Executive Officer
of Fortent (formerly Searchspace Group), a leading provider of compliance/regulatory technology to financial institutions from
August 2005 to August 2009. Ms. Jaffee currently serves as a member of the Board of Directors of Broadridge Financial Solutions
as well as a Trustee of Muhlenberg College.
The
Hartford SmallCap Growth HLS Fund
Directors
and Officers (Unaudited) – (continued)
William P. Johnston
(1944) Director
since 2005, Chairman of the Compliance Committee since 2005
In June 2006, Mr. Johnston was
appointed as Senior Advisor to The Carlyle Group, a global private equity and alternative asset investment firm and currently serves
as an Operating Executive. In July 2006, Mr. Johnston was elected to the Board of Directors of MultiPlan, Inc. and served as a
Director (July 2006 to August 2010). In August 2007, Mr. Johnston was elected to the Board of Directors of LifeCare Holdings, Inc.
and served as a Director (August 2007 to June 2013). In February 2008, Mr. Johnston was elected to the Board of Directors of HCR-ManorCare,
Inc. In May 2006, Mr. Johnston was elected to the Supervisory Board of Fresenius Medical Care AG & Co. KGaA, after its acquisition
of Renal Care Group, Inc. in March 2006. Mr. Johnston joined Renal Care Group in November 2002 as a member of the Board of Directors
and served as Chairman of the Board from March 2003 through March 2006. From 2002 through 2013, Mr. Johnston served as a Board
member of the Georgia O’Keefe Museum. From September 1987 to December 2002, Mr. Johnston was with Equitable Securities Corporation
(and its successors, SunTrust Equitable Securities and SunTrust Robinson Humphrey) serving in various investment banking and managerial
positions, including Managing Director and Head of Investment Banking, Chief Executive Officer and Vice Chairman.
Phillip O. Peterson
(1944) Director
since 2002 (HSF) and 2000 (HSF2), Chairman of the Audit Committee since 2002
Mr. Peterson is a mutual fund
industry consultant. He was a partner of KPMG LLP (an accounting firm) until July 1999. Mr. Peterson joined William Blair Funds
in February 2007 as a member of the Board of Trustees. Mr. Peterson also joined the Board of Trustees of Symetra Variable Mutual
Funds Trust as a trustee in February 2012.
Lemma W. Senbet
(1946) Director
since 2005
Dr. Senbet is the William E.
Mayer Chair Professor of Finance and Founding Director, Center for Financial Policy, at the University of Maryland, Robert H. Smith
School of Business. He was chair of the Finance Department of the University of Maryland, Robert H. Smith School of Business from
1998 to 2006. Since June 2013, he has been on leave from the University to serve as Executive Director of African Economic Research
Consortium which focuses on economic policy research and training. Previously, he was a chaired professor of finance at the University
of Wisconsin-Madison. Also, he was a Director of the Fortis Funds from March 2000 to July 2002. Dr. Senbet served as Director of
the American Finance Association and President of the Western Finance Association. In 2006, Dr. Senbet was inducted Fellow of Financial
Management Association International for his career-long distinguished scholarship and professional service.
Interested Directors and Officers
James E. Davey
(1964) Director since
2012, President and Chief Executive Officer since 2010
Mr. Davey serves as Executive
Vice President of Hartford Life Insurance Company (“HLIC”) and The Hartford Financial Services Group, Inc. Additionally,
Mr. Davey serves as Chairman of the Board, Manager and Senior Managing Director of Hartford Funds Distributors, LLC (“HFD”).
He also currently serves as Director, Chairman of the Board, President and Senior Managing Director of Hartford Administrative
Services Company (“HASCO”). Mr. Davey also serves as Manager, Chairman of the Board and Senior Managing Director for
Hartford Funds Management Company, LLC (“HFMC”). Mr. Davey joined The Hartford in 2002.
Lowndes A. Smith
(1939) Director
since 1996 (HSF) and 2002 (HSF2), Co-Chairman of the Investment Committee since 2005
Mr. Smith served as Vice Chairman
of The Hartford from February 1997 to January 2002, as President and Chief Executive Officer of Hartford Life, Inc. from February
1997 to January 2002, and as President and Chief Operating Officer of The Hartford Life Insurance Companies from January 1989 to
January 2002. Mr. Smith serves as a Director of White Mountains Insurance Group Ltd. (October 2003 to current); One Beacon Insurance
(October 2006 to current); Symetra Financial (August 2007 to current) and is a Managing Director of Whittington Gray Associates
(January 2007 to current).
Other Officers
Mark A. Annoni
(1964) Vice President,
Controller and Treasurer since 2012
Mr. Annoni currently serves
as the Assistant Vice President of HLIC (February 2004 to present).
Michael R. Dressen
(1963) AML Compliance
Officer since 2011
Mr. Dressen currently serves
as Assistant Vice President of HLIC. He also serves as Chief Compliance Officer and AML Compliance Officer of HASCO and as AML
Officer of HFD. Mr. Dressen has served in various positions within The Hartford and its subsidiaries in connection with the operation
of the Hartford Funds.
Edward P. Macdonald
(1967) Vice
President, Secretary and Chief Legal Officer since 2005
Mr. Macdonald currently serves
as Assistant Secretary, Executive Vice President and Deputy General Counsel of HFD, HASCO and HFMC. He also serves as Vice President
of HLIC. Mr. Macdonald has served in various positions within The Hartford and its subsidiaries in connection with the operation
of the Hartford Funds. Mr. Macdonald joined The Hartford in 2005.
Joseph
G. Melcher
(1973) Vice President and Chief Compliance Officer since 2013
Mr. Melcher currently serves
as Executive Vice President of HASCO and HFD. Mr. Melcher also currently serves as Executive Vice President and Chief Compliance
Officer of HFMC. Mr. Melcher has served in various positions within The Hartford and its subsidiaries in connection with the operation
of the Hartford Funds since joining The Hartford in 2012. Prior to joining The Hartford, Mr. Melcher worked at Touchstone Investments,
a member of the Western & Southern Financial Group, where he held the position of Vice President and Chief Compliance Officer
from 2010 through 2012 and Assistant Vice President, Compliance from 2005 to 2010.
Vernon J. Meyer
(1964) Vice President
since 2006
Mr. Meyer currently serves as
Senior Vice President of HLIC. He also currently serves as Managing Director and Chief Investment Officer of HFMC. Mr. Meyer has
served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr.
Meyer joined The Hartford in 2004.
Laura S. Quade
(1969) Vice President
since 2012
Ms. Quade currently serves as
Vice President of HASCO and HFD. She is the Head of Operations of HASCO and also serves as Director, Enterprise Operations of HLIC.
Ms. Quade has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford
Funds.
Martin A. Swanson
(1962) Vice President since 2010
Mr. Swanson currently serves
as Vice President of HLIC. Mr. Swanson also serves as Managing Director, Chief Marketing Officer and Principal of HFD. Mr. Swanson
has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
HOW TO OBTAIN A COPY OF THE FUND’S
PROXY VOTING POLICIES AND VOTING RECORDS (UNAUDITED)
A description of the policies and procedures
that the Fund uses to determine how to vote proxies relating to portfolio securities and information about how the Fund voted
proxies relating to portfolio securities during the most recent twelve-month period ended June 30 are available (1) without charge,
upon request, by calling 800-862-6668 and (2) on the SEC’s website at http://www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS INFORMATION
(UNAUDITED)
The Fund files a complete schedule of portfolio
holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available
(1) without charge, upon request, by calling 800-862-6668 and (2) on the SEC’s website at http://www.sec.gov. The Form N-Q
may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public
Reference Room may be obtained by calling 1-800-SEC-0330.
Hartford
SmallCap Growth HLS Fund
Expense
Example (Unaudited)
Your Fund's Expenses
As a shareholder of the Fund, you incur
two types of costs: (1) transaction costs and (2) ongoing costs, including investment management fees, distribution and/or service
(12b-1) fees, if any, and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars)
of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based
on an investment of $1,000 invested at the beginning of the period and held for the period of June 30, 2013 through December 31,
2013.
Actual Expenses
The first set of columns of the table below
provides information about actual account values and actual expenses. You may use the information in this column, together with
the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for
example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the line under the heading
entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second set of columns of the table
below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in
the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads)
and CDSC. Therefore, the second set of columns of the table is useful in comparing ongoing costs only, and will not help you determine
the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would be
higher. Expenses are equal to the Fund's annualized expense ratios multiplied by average account value over the period, multiplied
by 184/365 (to reflect the one-half year period).
|
|
Actual
return
|
|
|
Hypothetical
(5% return before expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Account Value
June 30, 2013
|
|
|
Ending
Account Value
December 31,
2013
|
|
|
Expenses
paid
during the period
June 30, 2013
through
December 31, 2013
|
|
|
Beginning
Account Value
June 30, 2013
|
|
|
Ending
Account Value
December 31,
2013
|
|
|
Expenses
paid
during the period
June 30, 2013
through
December 31, 2013
|
|
|
Annualized
expense
ratio
|
|
|
|
Days in
the
current
1/2
year
|
|
|
|
Days
in the
full
year
|
|
Class IA
|
|
$
|
1,000.00
|
|
|
$
|
1,227.70
|
|
|
$
|
3.73
|
|
|
$
|
1,000.00
|
|
|
$
|
1,021.85
|
|
|
$
|
3.39
|
|
|
|
0.67
|
%
|
|
|
184
|
|
|
|
365
|
|
Class IB
|
|
$
|
1,000.00
|
|
|
$
|
1,226.10
|
|
|
$
|
5.14
|
|
|
$
|
1,000.00
|
|
|
$
|
1,020.59
|
|
|
$
|
4.66
|
|
|
|
0.92
|
%
|
|
|
184
|
|
|
|
365
|
|
Hartford
SmallCap Growth HLS Fund
Approval
of Investment Management and Investment Sub-Advisory Agreements (Unaudited)
Section 15(c) of the Investment Company
Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of directors, including a majority
of those directors who are not “interested persons” of the mutual fund, as defined in the 1940 Act (the “Independent
Directors”), annually review and consider the continuation of the mutual fund’s investment advisory and sub-advisory
agreements. At its meeting held on August 6-7, 2013, the Board of Directors (the “Board”) of Hartford HLS Series Fund
II, Inc., including each of the Independent Directors, unanimously voted to approve the continuation of the investment management
agreement for Hartford SmallCap Growth HLS Fund (the “Fund”) with Hartford Funds Management Company, LLC (“HFMC”)
and the continuation of the investment sub-advisory agreement between HFMC and the Fund’s sub-adviser, Wellington Management
Company, LLP (the “Sub-adviser,” and together with HFMC, the “Advisers”) (collectively, the “Agreements”).
In the months preceding the August 6-7,
2013 meeting, the Board requested, received, and reviewed written responses from the Advisers to questions posed to them on behalf
of the Independent Directors and supporting materials relating to those questions and responses. The Board considered information
furnished to the Board at its meetings throughout the year, as well as information specifically prepared in connection with the
annual approval of the Agreements at the Board’s meetings held on June 18-19, 2013 and August 6-7, 2013. Information
provided to the Board at its meetings throughout the year included, among other things, reports on Fund performance, legal and
compliance matters, sales and marketing activity, shareholder services, and the other services provided to the Fund by the Advisers
and their affiliates. The Board also received in-person presentations by Fund officers and representatives of HFMC at the Board’s
meetings on June 18-19, 2013 and August 6-7, 2013 concerning the Agreements.
The Independent Directors, advised by independent
legal counsel, engaged two service providers to assist them with evaluating the Agreements with respect to the Fund. Lipper Inc.
(“Lipper”), an independent provider of investment company data, was retained to provide the Board with reports on how
the Fund’s contractual management fees, actual management fees, other non-management fees, overall expense ratios and investment
performance compared to those of mutual funds with similar investment objectives. The Independent Directors also engaged an independent
financial services consulting firm (the “Consultant”) to assist them in evaluating the Fund’s management fees,
sub-advisory fees, other non-management fees, overall expense ratios and investment performance. In addition, the Consultant reviewed
the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement.
In determining whether to continue the
Agreements for the Fund, the members of the Board reviewed and evaluated information and factors they believed to be relevant and
appropriate in light of the information that the Board deemed necessary and appropriate through the exercise of its reasonable
business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination
to continue the Agreements was based on a comprehensive consideration of all information provided to the Board throughout the year
and specifically with respect to the continuation of the Agreements. A more detailed discussion of the factors the Board considered
with respect to its approval of the Agreements is provided below.
Nature, Extent, and Quality of Services
Provided by the Advisers
The Board requested and considered information
concerning the nature, extent, and quality of the services provided to the Fund by the Advisers. The Board considered, among other
things, the terms of the Agreements and the range of services provided by the Advisers. The Board considered the Advisers’
professional personnel who provide services to the Fund, including each Adviser’s ability and experience in attracting and
retaining qualified personnel to service the Fund. The Board considered each Adviser’s reputation and overall financial strength,
as well as its willingness to consider and implement organizational and operational changes designed to improve services to the
Fund. In addition, the Board considered the quality of each Adviser’s communications with the Board and responsiveness to
Board inquiries.
The Board also requested and evaluated
information concerning each Adviser’s regulatory and compliance environment. In this regard, the Board requested and reviewed
information on each Adviser’s compliance policies and procedures, compliance history, and a report from the Fund’s
Chief Compliance Officer on each Adviser’s compliance with applicable laws and regulations, including responses to regulatory
developments and compliance issues raised by regulators. The Board also noted the Advisers’ support of the Fund’s compliance
control structure, particularly the resources devoted by the Advisers in support of the Fund’s obligations pursuant to Rule 38a-1
under the 1940 Act.
Hartford
SmallCap Growth HLS Fund
Approval
of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
With respect to HFMC, the Board noted that
under the Agreements, HFMC is responsible for the management of the Fund, including overseeing fund operations and service providers,
as well as investment advisory services in connection with selecting, monitoring and supervising the Sub-adviser. The Board considered
HFMC’s ongoing monitoring of people, process and performance, including its quarterly reviews of each of the Hartford Funds,
semi-annual meetings with the leaders of each Fund’s portfolio management team, and oversight of the Funds’ approximately
40 portfolio managers. The Board recognized that HFMC has demonstrated a record of making changes to the management and/or strategies
of the Funds when warranted. The Board considered HFMC’s oversight of the Sub-adviser’s investment approach and results,
process for monitoring best execution of portfolio trades by the Sub-adviser, and approach to risk management with respect to the
Fund and the service providers to the Fund. The Board also considered HFMC’s oversight of compliance with the Fund’s
objective and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over
time led to an increase in the scope of HFMC’s services in this regard.
In addition, the Board considered HFMC’s
ongoing commitment to review and rationalize the Hartford Funds product line-up and the expenses that HFMC had incurred in connection
with fund combinations in recent years. The Board considered that HFMC or its affiliates are responsible for providing the Fund’s
officers. The Board also noted that Hartford Life Insurance Company (“HLIC”) provides administrative services to the
Fund. The Board considered its experiences with HFMC and HLIC with respect to each of these services.
With respect to the Sub-adviser, who provides
day-to-day portfolio management services, the Board considered the quality of the Fund’s portfolio managers, the Sub-adviser’s
other investment personnel, its investment philosophy and process, investment research capabilities and resources, performance
record, trade execution capabilities and experience. The Board considered the experience of the Fund’s portfolio managers,
the number of accounts managed by the portfolio managers, and the Sub-adviser’s method for compensating the portfolio managers.
Based on these considerations, the Board
concluded that it was satisfied with the nature, extent and quality of the services provided to the Fund by HFMC and the Sub-adviser.
Performance of the Fund and the Advisers
The Board considered the investment performance
of the Fund. In this regard, the Board reviewed the performance of the Fund over different time periods presented in the materials
and evaluated HFMC’s analysis of the Fund’s performance for these time periods. The Board considered information and
materials provided to the Board by the Advisers concerning Fund performance, as well as information from Lipper comparing the investment
performance of the Fund to an appropriate benchmark and universe of peer funds. The Board noted that the Fund’s performance
was in the 1
st
quintile of its performance universe for the 1-, 3- and 5-year periods. The Board also noted that the
Fund’s performance was above its benchmark for the 1-, 3- and 5-year periods.
The Board considered the detailed investment
analytics reports provided by Hartford Funds’ Investment Advisory Group throughout the year. These reports include, among
other things, information on the Fund’s gross and net returns, the Fund’s investment performance relative to an appropriate
benchmark and peer group, various statistics concerning the Fund’s portfolio, and a narrative summary of various factors
affecting Fund performance. The Board considered the Advisers’ cooperation with the Investment Committee, which assists the
Board in evaluating the performance of the Fund at periodic meetings throughout the year. The Board also considered the analysis
provided by the Consultant relating to the Fund’s performance track record.
In light of all the considerations noted
above, the Board concluded that it had continued confidence in HFMC’s and the Sub-adviser’s overall capabilities to
manage the Fund.
Costs of the Services and Profitability
of the Advisers
The Board reviewed information regarding
HFMC’s cost to provide investment management and related services to the Fund and HFMC’s profitability, both overall
and for the Fund, on a pre-tax basis without regard to distribution expenses. The Board also requested and reviewed information
about the profitability to HFMC and its affiliates from all services provided to the Fund and all aspects of their relationship
with the Fund. The Board also requested and received information relating to the operations and profitability of the Sub-adviser.
The Board considered the Consultant’s
review of the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement,
noting the Consultant’s view that Hartford Funds’ process for calculating and reporting Fund profitability is reasonable.
In this regard, the Board noted that the Consultant had previously performed a full review of this process and reported that such
process is sound and well within common industry practice.
Based on these considerations, the Board
concluded that the profits anticipated to be realized by the Advisers and their affiliates from their relationships with the Fund
would not be excessive.
Comparison of Fees and Services Provided
by the Advisers
The Board
considered comparative information with respect to the management fees to be paid by the Fund to HFMC and the total expense ratios
of the Fund. The Board also considered comparative information with respect to the sub-advisory fees to be paid by HFMC to the
Sub-adviser. In this regard, the Board requested and reviewed information from HFMC and the Sub-adviser relating to the management
and sub-advisory fees, including the sub-advisory fee schedule for the Fund, and total operating expenses for the Fund. The Board
considered that the management fee for the Fund includes the fee paid to HLIC for providing certain administrative services to
the Fund. With respect to the sub-advisory fee schedule, the Board considered representations from HFMC and the Sub-adviser that
the Sub-adviser’s fees were negotiated at arm’s length. The Board also reviewed information from Lipper comparing the
Fund’s contractual management fees, actual management fees and overall expense ratios relative to a group of funds selected
by Lipper, in consultation with the Consultant, and a broader universe of funds selected by Lipper.
The
Board noted that the Fund’s contractual management fee, actual management fee and total expenses (less 12b-1 and shareholder
service fees) were in the 1
st
quintile of its expense group.
While the Board recognized that comparisons
between the Fund and peer funds are imprecise, given the differing service levels and characteristics of mutual funds and the different
business models and cost structures of the Advisers, the comparative information provided by Lipper assisted the Board in evaluating
the reasonableness of the Fund’s management and sub-advisory fees and total operating expenses. In addition, the Board considered
the analysis and recommendations of the Consultant relating to the Fund’s management and sub-advisory fees and total operating
expenses.
Based on these considerations, the Board
concluded that the Fund’s fees and total operating expenses, in conjunction with the information about quality of services,
profitability, economies of scale, and other matters discussed, were reasonable in light of the services provided.
Economies of Scale
The Board requested and considered information
regarding the Advisers’ realization of economies of scale with respect to the Fund and whether the fee levels reflect these
economies of scale for the benefit of the Fund’s shareholders. The Board reviewed the breakpoints in the management fee schedule
for the Fund, which reduce fee rates as Fund assets grow over time. The Board recognized that a fund with assets beyond the last
breakpoint level will continue to benefit from economies of scale because additional assets are charged the lowest breakpoint fee
resulting in lower overall effective management fee rates. The Board also recognized that a fee schedule that reaches a lower breakpoint
quickly provides shareholders with the benefit of anticipated or potential economies of scale. The Board noted the effect of the
sale and run-off of the variable annuity business on the HLS Funds.
The Board reviewed and evaluated materials
from Lipper showing how management fee schedules of peer funds reflect economies of scale for the benefit of shareholders as a
peer fund’s assets hypothetically increase over time. Based on information provided by HFMC, Lipper, and the Consultant,
the Board recognized that there is no uniform methodology for establishing breakpoints or uniform pattern in asset levels that
trigger breakpoints or the amounts of breakpoints triggered.
After considering all of the information
available to it, the Board concluded that it was satisfied with the extent to which economies of scale would be shared for the
benefit of the Fund’s shareholders based on currently available information and the effective advisory fees and expense ratios
for the Fund at its current and reasonably anticipated asset levels. The Board noted, however, that it would continue to monitor
future growth in Fund assets and the appropriateness of additional breakpoints.
Hartford
SmallCap Growth HLS Fund
Approval
of Investment Management and Investment Sub-Advisory Agreements (Unaudited) – (continued)
Other Benefits
The Board considered other benefits to
the Advisers and their affiliates from their relationships with the Fund, including the role of the Fund in supporting the variable
life insurance and variable annuity products offered by The Hartford.
The Board reviewed information noting that
HLIC, an affiliate of HFMC, receives fees for providing certain administrative services to the Fund and that HFMC receives fees
for fund accounting and related services from the Fund. The Board considered information on profits to HLIC and HFMC for such services.
The Board also considered that Hartford Administrative Services Company (“HASCO”), the Fund’s transfer agent
and an affiliate of HFMC, receives transfer agency compensation from the Fund, and the Board reviewed information on the profitability
of the Fund’s transfer agency function to HASCO. The Board considered information provided by HASCO indicating that the transfer
agent fees charged by HASCO to the Fund were fair and reasonable based on publicly available information.
The Board also considered that Hartford
Funds Distributors, LLC (“HFD”), an affiliate of HFMC, serves as principal underwriter of the Fund. As principal underwriter,
HFD receives 12b-1 fees from the Fund. The Board also noted that certain affiliates of HFD distribute shares of the Fund and receive
compensation in that connection.
The Board considered benefits to the Sub-adviser
from its use of the Fund’s brokerage commissions to obtain soft dollar research, and representations from HFMC and the Sub-adviser
that the Sub-adviser would not make any revenue-sharing payments or any other type of distribution payments to HFMC or its affiliates.
The Board considered the benefits to shareholders
of being part of the Hartford Funds family of funds. The Board considered HFMC’s efforts to provide investors in the family
with a broad range of investment styles and asset classes.
* * * *
Based upon its review of these various
factors, among others, the Board concluded that it is in the best interests of the Fund and its shareholders for the Board to approve
the Agreements for an additional year. In reaching this decision, the Board did not assign relative weights to the factors discussed
above or deem any one or group of them to be controlling in and of themselves. In connection with their deliberations, the Independent
Directors met separately in executive session on several occasions, with independent legal counsel and the Consultant, to review
the relevant materials and consider their responsibilities under relevant laws and regulations.
Hartford
SmallCap Growth HLS Fund
Main Risks (Unaudited)
The main risks of investing in the Fund
are described below.
Market, Selection, and Strategy Risk:
The Fund’s share price may fluctuate due to market risk and/or security selections that may underperform the market or relevant
benchmarks. If the sub-adviser’s investment strategy does not perform as expected, the Fund could underperform its peers
or lose money. There is no guarantee the Fund will achieve its stated objective.
Small-cap Stock Risk
: Small-cap
stocks are generally more volatile and risky and may be less liquid than large-cap stocks because they may have limited operating
histories, narrow product lines, and focus on niche markets.
Growth Investing Risk
: Growth investments
can be volatile, and may fail to increase earnings or grow as quickly as anticipated. Growth-style investing falls in and out of
favor, which may result in periods of underperformance.
Foreign Investment Risk
: Foreign
investments can be riskier than U.S. investments. Potential risks include currency risk that may result from unfavorable exchange
rates, liquidity risk if decreased demand for a security makes it difficult to sell at the desired price, and risks that stem from
substantially lower trading volume on foreign markets.
Active Trading Risk:
Actively trading
investments may result in higher costs (thus affecting performance).
THIS PRIVACY POLICY IS NOT PART OF
THIS REPORT
Privacy Policy and Practices of The
Hartford Financial Services Group, Inc. and its Affiliates
(herein called “we,
our, and us”)
This
Privacy Policy applies to our United States Operations
We value your trust. We are committed to the responsible:
a) management;
b) use; and
c) protection;
of
Personal Information
.
This notice describes how we collect, disclose, and
protect
Personal Information
.
We collect
Personal Information
to:
a) service your
Transactions
with us; and
b) support our business functions.
We may obtain
Personal Information
from:
a)
You
;
b) your
Transactions
with us; and
c) third parties such as a consumer-reporting agency.
Based on the type of product or service
You
apply for or get from us,
Personal Information
such as:
a) your name;
b) your address;
c) your income;
d) your payment; or
e) your credit history;
may be gathered from sources such as applications,
Transactions
, and consumer reports.
To serve
You
and service our business, we may
share certain
Personal Information.
We will share
Personal Information
, only as allowed by law, with affiliates such
as:
a) our insurance companies;
b) our employee agents;
c) our brokerage firms; and
d) our administrators.
As allowed by law, we may share
Personal
Financial Information
with our affiliates to:
a) market our products; or
b) market our services;
to
You
without providing
You
with an option to prevent these disclosures.
|
We may also share
Personal Information
,
only as allowed by law, with unaffiliated third parties including:
a) independent agents;
b) brokerage firms;
c) insurance companies;
d) administrators; and
e) service providers;
who help us serve
You
and service our business.
When allowed by law, we may share
certain
Personal Financial Information
with other unaffiliated third parties who assist us by performing services or functions
such as:
a) taking surveys;
b) marketing our products or services; or
c) offering financial products or services under a joint agreement between us and one or more financial institutions.
We, and third parties we partner
with, may track some
of the pages You visit through
the use of:
a) cookies;
b) pixel tagging; or
c) other technologies;
and currently do not process or
comply with any web browser’s “do not track” signal or similar mechanism that indicates a request to disable
online tracking of individual users who visit our websites or use our services.
We will not sell or share your
Personal Financial Information
with anyone for purposes unrelated to our business functions without offering
You
the opportunity to:
a) “opt-out;” or
b) “opt-in;”
as required by law.
We only disclose
Personal Health
Information
with:
a) your proper written authorization; or
b) as otherwise allowed or required by law.
Our employees have access
to
Personal Information
in the course of doing their jobs, such as:
a) underwriting policies;
b) paying claims;
c) developing new products; or
d) advising customers of our products and services.
|
We use manual and electronic security procedures to
maintain:
a) the confidentiality; and
b) the integrity of;
Personal Information
that we have. We use these
procedures to guard against unauthorized access.
Some techniques we use to protect
Personal Information
include:
a) secured files;
b) user authentication;
c) encryption;
d) firewall technology; and
e) the use of detection software.
We are responsible for and must:
a) identify information to be protected;
b) provide an adequate level of protection for that
data;
c) grant access to protected data only to those people
who must use it in the performance of their job-related duties.
Employees who violate our Privacy Policy will be subject
to discipline, which may include ending their employment with us.
At the start of our business relationship, we will
give
You
a copy of our current Privacy Policy.
We will also give
You
a copy of our current
Privacy Policy once a year if
You
maintain a continuing business relationship with us.
We will continue to follow our Privacy Policy regarding
Personal Information
even when a business relationship no longer exists between us.
|
As used in this Privacy Notice:
Application
means
your request for our product or service.
Personal Financial Information
means financial information such as:
a) credit history;
b) income;
c) financial benefits; or
d) policy or claim information.
Personal Health Information
means health information such as:
a) your medical records; or
b) information about your illness, disability or injury.
Personal Information
means information that identifies
You
personally and is not otherwise available to the public. It includes:
a)
Personal Financial Information
; and
b)
Personal Health Information
.
Transaction
means
your business dealings with us, such as:
a) your
Application
;
b) your request for us to pay a claim; and
c) your request for us to take an action on your account.
You
means
an individual who has given us
Personal Information
in conjunction with:
a) asking about;
b) applying for; or
c) obtaining;
a financial product or service from us if the product or service is used mainly for personal, family, or household purposes.
|
This Privacy Policy is being provided
on behalf of the following affiliates of The Hartford Financial Services Group, Inc.:
1stAGChoice, Inc.; Access CoverageCorp,
Inc.; Access CoverageCorp Technologies, Inc.; American Maturity Life Insurance Company; Archway 60 R, LLC; Business Management
Group, Inc.; Catalyst360, LLC; Champlain Life Reinsurance Company; DMS R, LLC; Eloy R, LLC; Ersatz Corporation; First State Insurance
Company; Hartford Accident and Indemnity Company; Hartford Administrative Services Company; Hartford Casualty General Agency, Inc.;
Hartford Casualty Insurance Company; Hartford-Comprehensive Employee Benefit Service Company; Hartford Equity Sales Company, Inc.;
Hartford Fire General Agency, Inc.; Hartford Fire Insurance Company; Hartford Funds Management Company, LLC; Hartford Funds Management
Group, Inc.; Hartford HLS Series Fund II, Inc.; Hartford Insurance Company of Illinois; Hartford Insurance Company of the Midwest;
Hartford Insurance Company of the Southeast; Hartford Integrated Technologies, Inc.; Hartford International Life Reassurance Corporation;
Hartford Funds Distributors, LLC; Hartford Investment Management Company; Hartford Life and Accident Insurance Company; Hartford
Life and Annuity Insurance Company; Hartford Life Insurance Company; Hartford Life Private Placement, LLC; Hartford Lloyd’s
Corporation; Hartford Lloyd’s Insurance Company; Hartford Mezzanine Investors I, LLC; Hartford Residual Market, L.C.C.; Hartford
Retirement Services, LLC; Hartford Securities Distribution Company, Inc.; Hartford Series Fund, Inc.; Hartford Specialty Insurance
Services of Texas, LLC; Hartford Strategic Investments, LLC; Hartford Underwriters Insurance Company; Hartford Technology Services
Company, L.L.C.; Hartford of Texas General Agency, Inc.; Hartford Underwriters General Agency, Inc.; HARTRE Company, L.C.C.; HL
Investment Advisors, LLC; HLA LLC; Horizon Management Group, LLC; HRA Brokerage Services, Inc.; Lanidex Class B, LLC; M-CAP Insurance
Agency, LLC; New England Insurance Company; New England Reinsurance Corporation; Nutmeg Insurance Agency, Inc.; Nutmeg Insurance
Company; Pacific Insurance Company, Limited; Planco, LLC: Property and Casualty Insurance Company of Hartford; Revere R, LLC; RVR
R, LLC; Sentinel Insurance Company, Ltd.; Sunstone R, LLC; Symphony R, LLC; The Evergreen Group Incorporated; The Hartford Alternative
Strategies Fund; The Hartford Mutual Funds, Inc.; The Hartford Mutual Funds II, Inc.; Trumbull Flood Management, L.L.C.; Trumbull
Insurance Company; Twin City Fire Insurance Company; White River Life Reinsurance Company.
HPP Revised December 2013
HARTFORD
HLS FUNDS
c/o
The Hartford Wealth Management - Global Annuities
P.O.
Box 14293
Lexington,
KY 40512-4293
HARTFORD
FUNDS
hartfordfunds.com
Hartford HLS Series Fund II, Inc. is underwritten
and distributed by Hartford Funds Distributors, LLC.
Hartford HLS Series Fund II, Inc. inception
dates range from 1987 to date. Hartford HLS Series Fund II, Inc. is not a subsidiary of The Hartford Financial Services Group,
Inc. ("The Hartford") but is underwritten, distributed by and advised by subsidiaries of The Hartford. Investments in
Hartford HLS Series Fund II, Inc. are not guaranteed by The Hartford or any other entity.
This report is submitted for the general
information of the shareholders of the Fund. It is not authorized for distribution unless preceded or accompanied by a current
prospectus for the Fund.
Investors should carefully consider the investment
objectives, risks, charges, and expenses of Hartford Funds before investing. This and other information can be found in the prospectus
and summary prospectus, which can be obtained by calling 888-843-7824 (retail) or 877-836-5854 (institutional). Investors should
read them carefully before they invest.
HLSAR-SCG13 2-14 113552-2 Printed in U.S.A ©2013
The Hartford, Hartford, CT 06115
HARTFORD
FUNDS
|
|
HARTFORD SMALL/MID CAP
EQUITY HLS FUND
2013 Annual
Report
|
A
MESSAGE FROM THE PRESIDENT
Dear Fellow Shareholders:
Thank you for investing in Hartford
HLS Funds.
Market Review
U.S.
equities (as represented by the S&P 500 Index) generated their strongest year since 1997 in 2013, rising 32.39% for the
year. During the fourth quarter, equities rose without looking back, pushing the S&P 500 Index and the Dow Jones
Industrial Average to new all-time highs. Despite previously cheering delays to quantitative-easing tapering, the stock
market received an additional boost at the end of the year following the U.S. Federal Reserve’s (Fed) announcement of a
$10-billion-a-month reduction in bond purchases beginning in January.
The
Fed’s decision to begin tapering its bond purchases is generally considered a vote of confidence in the recovering U.S. economy.
Consumer spending has stabilized, the housing market is showing steady improvement, the unemployment rate is slowly declining and
economic growth clocked in at a healthy 4.1% in the third quarter. Equities have also recovered since the market low in March 2009:
The S&P 500 Index has gained 173% from the market low through December 31, 2013.
Signs of improvement
are also visible outside the U.S. Europe appears to have begun its own economic recovery, and emerging markets have reversed their
recent lackluster performance. Fiscal policy continues to wield significant influence in today’s economy and central banks
across the globe are maintaining their accommodative stances, including the appointment of Janet Yellen, who is widely expected
to continue current monetary policies, to succeed Ben Bernanke as U.S. Federal Reserve chairman.
It’s
important to stay abreast of domestic and international economic developments while balancing your individual investment goals.
Meeting with your financial advisor on a regular basis to examine your current investment strategy can help you determine whether
you are on the right track:
|
•
|
Is your portfolio fully diversified with an appropriate mix of stocks and bonds?
|
|
•
|
Is your portfolio incorporating both domestic and international holdings to take advantage of the
global economic recovery?
|
|
•
|
Are your investments still in line with your risk tolerance and investment time horizon?
|
Your financial advisor can help you
choose options within our fund family to navigate today’s markets with confidence.
Thank you again for investing with Hartford
HLS Funds.
James Davey
President
Hartford HLS Funds
1
The S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
2
The Dow Jones Industrial Average
is an unmanaged, price-weighted index of 30 of the largest, most widely held stocks traded on the New York Stock Exchange.
Hartford Small/Mid Cap Equity HLS Fund
Table of Contents
This report is prepared for the general
information of contract owners and qualified retirement plan participants. It is not an offer of contracts or of qualified retirement
plans. It should not be used in connection with any offer, except in conjunction with the appropriate product prospectus which
contains all pertinent information including the applicable sales, administrative and other charges.
The views expressed in the Fund’s
Manager Discussion under ‘‘Why did the Fund perform this way?’’ and ‘‘What is the outlook?’’
are views of the Fund’s sub-adviser and portfolio management team through the end of the period and are subject to change
based on market and other conditions. The Fund’s Manager Discussion is for informational purposes only and does not represent
an offer, recommendation or solicitation to buy, hold or sell any security. The specific securities identified and described, if
any, do not represent all of the securities purchased or sold and you should not assume that investments in the securities identified
and discussed will be profitable.
Hartford Small/Mid Cap Equity
HLS Fund
inception 05/01/1998
(sub-advised by Wellington Management Company, LLP)
Investment objective – Seeks long-term growth of capital.
|
Performance Overview
12/31/03 - 12/31/13
The chart above represents the hypothetical growth of a $10,000
investment in Class IA. Growth results in classes other than Class IA will vary from what is seen above due to differences in
the expenses charged to those share classes.
Average Annual Total Returns
(as of 12/31/13)
|
|
1 Year
|
|
5 Years
|
|
10 Years
|
Small/Mid Cap Equity IA
|
|
|
37.51%
|
|
|
24.00%
|
|
|
8.70%
|
Small/Mid Cap Equity IB
|
|
|
37.08%
|
|
|
23.67%
|
|
|
8.43%
|
Russell 2500 Index
|
|
|
36.80%
|
|
|
21.775
|
|
|
9.81%
|
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES
NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of the investment will fluctuate so that investors’
shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the
performance data quoted. To obtain performance data current to the most recent month-end, please visit our website at www.hartfordfunds.com.
Total returns presented above were calculated using the Fund’s
net asset value available to shareholders for sale or redemption of Fund shares on December 31, 2013, which may exclude investment
transactions as of this date. All share class returns assume the reinvestment of all distributions at net asset value and the deduction
of all fund expenses.
Performance information includes performance under the Fund’s
previous sub-adviser, Hartford Investment Management Company. As of June 4, 2012, Hartford Investment Management Company no longer
served as the sub-adviser to the Fund.
Includes the Fund’s performance when it invested, prior
to February 1, 2010, at least 80% of its assets in common stocks of mid-capitalization companies.
Class IB shares commenced on March 31, 2008. Class IB share
performance prior to that date reflects Class IA share performance adjusted to reflect the 12b-1 fee of 0.25% applicable to Class
IB shares. The performance after such date reflects actual Class IB share performance.
Russell 2500 Index
measures the performance of the small
to mid-cap segment of the U.S. equity universe, commonly referred to as “smid” cap. The Russell 2500 Index is a subset
of the Russell 3000 Index and includes approximately 2500 of the smallest securities based on a combination of their market cap
and current index membership.
You cannot invest directly in an index.
As of the Fund's current prospectus dated May 1, 2013, the total
annual operating expense ratios for Class IA and Class IB were 0.88% and 1.13%, respectively. Actual expenses may be higher. Please
see the accompanying Financial Highlights for expense ratios for the year ended December 31, 2013.
The chart and table do not reflect the deductions of taxes,
sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan
product level. Any such additional sales charges or other fees or expenses would lower the contract’s or plan’s performance.
All investments are subject to risk including the possible loss
of principal. For a discussion of the Fund’s risks, please see the Main Risks section of this report. For more detailed information
on the risks associated with an investment in the Fund, please see the prospectus.
Hartford
Small/Mid Cap Equity HLS Fund
Manager Discussion
December 31, 2013 (Unaudited)
Portfolio Manager
|
David J. Elliott, CFA
|
Vice President, Co-Director of Quantitative Investments, Director of Quantitative Portfolio Management and Portfolio Manager
|
|
How did the Fund perform?
The Class IA shares of the Hartford Small/Mid Cap Equity HLS
Fund returned 37.51% for the twelve-month period ended December 31, 2013, outperforming the Fund’s benchmark, the Russell
2500 Index, which returned 36.80% for the same period. The Fund also outperformed the 34.68% average return of the Variable Products-Underlying
Funds Lipper Mid-Cap Core Funds peer group, a group of funds with investment strategies similar to those of the Fund.
Why did the Fund perform this way?
U.S. equities reached another all-time high in December and
finished 2013 with a gain of 32.4%, as measured by the S&P 500 Index, the Index’s best return since 1997. The rally in
U.S. equities began on the first trading day of the year after a last-minute compromise by the U.S. Congress averted the fiscal
cliff. Optimism surrounding the fiscal reprieve was furthered during the first quarter by better-than-expected corporate earnings,
a robust housing market, and a steadily improving employment picture. Solid gains in April and the first part of May paused following
comments by U.S. Federal Reserve (Fed) Chairman Ben Bernanke that suggested the Fed might begin to slow quantitative easing sooner
than investors anticipated. Nonetheless, equities resumed their ascent in the third quarter as the surprising “no taper”
decision by the Federal Open Market Committee eased near-term concerns about rapidly rising interest rates derailing the recovery.
Additionally, accommodative rhetoric from the European Central Bank, along with encouraging data in China and further evidence
of a European economic recovery, contributed to a broad-based global equity rally that extended through the end of the year. In
December, the year ended with an optimistic tone as investors cheered the elimination of two market overhangs: the timing of Fed
tapering and the threat of another US government shutdown in early 2014.
All ten sectors in the Russell 2500 Index posted positive returns
during the period. Strong performers included the Consumer Staples (+57.6), Health Care (+46.1%), and Industrials (+45.1%) sectors,
while the Utilities (+19.9%), Materials (+25.5%) and Financials (+28.7%) sectors lagged on a relative basis.
The Fund’s relative outperformance was driven by strong
stock selection. Selection was strongest in the Industrials, Consumer Staples, and Consumer Discretionary sectors. This was partially
offset by weaker stock selection in the Health Care, Information Technology, and Financials sectors. Overall sector positioning
detracted modestly from relative returns during the period due to overweight allocations to the Energy and Utilities sectors.
The Fund’s modest cash position also detracted from relative performance in an upward-trending market.
The largest contributors to relative performance during the
period were Barrett Business Services (Financials), Nu Skin (Consumer Staples), and United Therapeutics (Health Care). Shares
of Barrett Business Services, a provider of business management solutions, rose steadily in the second half of the year after
providing earnings guidance above expectations in both the third and fourth quarter. Shares of Nu Skin, a personal care and nutritional
supplement company specializing in anti-aging treatments, steadily rose throughout the year as the company saw continued success
from the launch of its weight-loss product, and announced plans for new anti-aging and skin care products in the pipeline that
could further boost growth. United Therapeutics, a biopharmaceutical company, saw shares rise drastically after announcing the
approval of Orenitram, extended-release tablets for the treatment of pulmonary arterial hypertension, along with strong intellectual
property protection for the new product. Alaska Air (Industrials) and Hanesbrands (Consumer Discretionary) also contributed on
an absolute basis during the period.
The largest detractors from benchmark-relative performance during
the period were Hatteras Financial (Financials), Gold Resource Corp. (Materials), and Mack-Cali Realty (Financials). Shares of
Hatteras Financial, a mortgage real estate investment trust (REIT) focused on adjustable-rate mortgages, underperformed as a result
of the abrupt rise in interest rates in June, which drove a wider than expected mortgage basis and a 20% decline in book value.
Gold Resource Corp., a small Mexico-based gold producer, underperformed along with the broader gold producers industry as the price
of gold tumbled during the period. Shares of Mack-Cali Realty, a suburban office REIT, struggled during the period as it lost two
large corporate clients, and experienced earnings dilution as it transitioned to more multi-family, mixed-use real estate. Affymax
(Health Care), a California-based pharmaceutical company, detracted on an absolute basis during
the
period.
Hartford
Small/Mid Cap Equity HLS Fund
Manager Discussion – (continued)
December 31, 2013 (Unaudited)
Derivatives are not used in a significant manner in this Fund
and did not have a material impact on performance during the period.
What is the outlook?
The Fund seeks to add value by utilizing Wellington Management’s
proprietary quantitative research and investment tools in a highly disciplined framework. The Fund focuses on stock selection as
the key driver of returns and uses quantitative portfolio optimization techniques to minimize unintended and uncompensated risks.
Based on individual stock decisions, the Fund ended the period most overweight to the Health Care and Information Technology sectors
and most underweight to the Financials and Telecommunication Services sectors relative to the Russell 2500 Index.
Diversification by Sector
as of December 31, 2013
|
|
Percentage of
|
|
Sector
|
|
Net Assets
|
|
Equity Securities
|
|
|
|
|
Consumer Discretionary
|
|
|
14.7
|
%
|
Consumer Staples
|
|
|
2.7
|
|
Energy
|
|
|
6.0
|
|
Financials
|
|
|
20.7
|
|
Health Care
|
|
|
12.7
|
|
Industrials
|
|
|
15.8
|
|
Information Technology
|
|
|
15.6
|
|
Materials
|
|
|
6.1
|
|
Services
|
|
|
0.6
|
|
Utilities
|
|
|
4.0
|
|
Total
|
|
|
98.9
|
%
|
Short-Term Investments
|
|
|
1.0
|
|
Other Assets and Liabilities
|
|
|
0.1
|
|
Total
|
|
|
100.0
|
%
|
A sector may be comprised of several industries. For
Fund compliance purposes, the Fund may not use the same classification system and these sector classifications are used for reporting
ease.
Hartford
Small/Mid Cap Equity HLS Fund
Schedule of Investments
December 31, 2013
(000’s Omitted)
Shares or Principal Amount
|
|
Market Value ╪
|
|
COMMON STOCKS - 98.9%
|
|
|
|
|
|
|
|
|
Automobiles and Components - 0.5%
|
|
|
|
|
|
18
|
|
|
Goodyear (The) Tire & Rubber Co.
|
|
$
|
436
|
|
|
14
|
|
|
Superior Industries International, Inc.
|
|
|
281
|
|
|
|
|
|
|
|
|
717
|
|
|
|
|
|
Banks - 5.7%
|
|
|
|
|
|
13
|
|
|
Banco Latinoamericano De Comercio Exterior S.A. ADR
|
|
|
350
|
|
|
62
|
|
|
Fifth Third Bancorp
|
|
|
1,312
|
|
|
42
|
|
|
First Commonwealth Financial Corp.
|
|
|
374
|
|
|
18
|
|
|
First Interstate Bancsystem, Inc.
|
|
|
499
|
|
|
35
|
|
|
First Niagara Financial Group, Inc.
|
|
|
374
|
|
|
105
|
|
|
Huntington Bancshares, Inc.
|
|
|
1,008
|
|
|
62
|
|
|
KeyCorp
|
|
|
837
|
|
|
8
|
|
|
MainSource Financial Group, Inc.
|
|
|
143
|
|
|
48
|
|
|
MGIC Investment Corp. ●
|
|
|
404
|
|
|
10
|
|
|
Popular, Inc. ●
|
|
|
293
|
|
|
54
|
|
|
Regions Financial Corp.
|
|
|
534
|
|
|
41
|
|
|
United Community Banks, Inc. ●
|
|
|
728
|
|
|
19
|
|
|
Webster Financial Corp.
|
|
|
596
|
|
|
19
|
|
|
Western Alliance Bancorp ●
|
|
|
463
|
|
|
10
|
|
|
Zions Bancorporation
|
|
|
300
|
|
|
|
|
|
|
|
|
8,215
|
|
|
|
|
|
Capital Goods - 8.9%
|
|
|
|
|
|
6
|
|
|
A.O. Smith Corp.
|
|
|
345
|
|
|
16
|
|
|
AAON, Inc.
|
|
|
505
|
|
|
11
|
|
|
Aceto Corp.
|
|
|
276
|
|
|
5
|
|
|
AGCO Corp.
|
|
|
296
|
|
|
22
|
|
|
Aircastle Ltd.
|
|
|
422
|
|
|
12
|
|
|
Albany International Corp. Class A
|
|
|
420
|
|
|
6
|
|
|
Alliant Techsystems, Inc.
|
|
|
730
|
|
|
9
|
|
|
Altra Industrial Motion Corp.
|
|
|
315
|
|
|
6
|
|
|
American Railcar Industries, Inc.
|
|
|
286
|
|
|
15
|
|
|
Ampco-Pittsburgh Corp.
|
|
|
299
|
|
|
1
|
|
|
Astronics Corp. Class B ●
|
|
|
65
|
|
|
4
|
|
|
EnerSys, Inc.
|
|
|
301
|
|
|
10
|
|
|
Enpro Industries, Inc. ●
|
|
|
559
|
|
|
21
|
|
|
Exelis, Inc.
|
|
|
398
|
|
|
12
|
|
|
Fluor Corp.
|
|
|
927
|
|
|
10
|
|
|
Generac Holdings, Inc.
|
|
|
555
|
|
|
17
|
|
|
John Bean Technologies Corp.
|
|
|
507
|
|
|
7
|
|
|
L.B. Foster Co. Class A
|
|
|
345
|
|
|
49
|
|
|
Meritor, Inc. ●
|
|
|
509
|
|
|
6
|
|
|
National Presto Industries, Inc. ●
|
|
|
491
|
|
|
10
|
|
|
Oshkosh Corp.
|
|
|
524
|
|
|
4
|
|
|
Proto Laboratories, Inc. ●
|
|
|
249
|
|
|
74
|
|
|
Taser International, Inc. ●
|
|
|
1,169
|
|
|
11
|
|
|
Timken Co.
|
|
|
578
|
|
|
12
|
|
|
Trex Co., Inc. ●
|
|
|
986
|
|
|
6
|
|
|
Trinity Industries, Inc.
|
|
|
349
|
|
|
6
|
|
|
URS Corp.
|
|
|
329
|
|
|
|
|
|
|
|
|
12,735
|
|
|
|
|
|
Commercial and Professional Services - 4.7%
|
|
|
|
|
|
8
|
|
|
Avery Dennison Corp.
|
|
|
416
|
|
|
14
|
|
|
Barrett Business Services, Inc.
|
|
|
1,255
|
|
|
8
|
|
|
Deluxe Corp.
|
|
|
402
|
|
|
6
|
|
|
Dun & Bradstreet Corp.
|
|
|
786
|
|
|
8
|
|
|
Manpowergroup, Inc.
|
|
|
704
|
|
|
8
|
|
|
Multi-Color Corp.
|
|
|
291
|
|
|
24
|
|
|
Pitney Bowes, Inc.
|
|
|
561
|
|
|
19
|
|
|
RPX Corp. ●
|
|
|
323
|
|
|
8
|
|
|
Towers Watson & Co.
|
|
|
983
|
|
|
7
|
|
|
UniFirst Corp.
|
|
|
738
|
|
|
12
|
|
|
Viad Corp.
|
|
|
319
|
|
|
|
|
|
|
|
|
6,778
|
|
|
|
|
|
Consumer Durables and Apparel - 4.8%
|
|
|
|
|
|
15
|
|
|
Brunswick Corp.
|
|
|
682
|
|
|
5
|
|
|
CSS Industries, Inc.
|
|
|
146
|
|
|
5
|
|
|
Fossil Group, Inc. ●
|
|
|
612
|
|
|
22
|
|
|
Hanesbrands, Inc.
|
|
|
1,539
|
|
|
9
|
|
|
Iconix Brand Group, Inc. ●
|
|
|
365
|
|
|
26
|
|
|
La-Z-Boy, Inc.
|
|
|
818
|
|
|
19
|
|
|
Libbey, Inc. ●
|
|
|
405
|
|
|
8
|
|
|
Nacco Industries, Inc. Class A
|
|
|
480
|
|
|
8
|
|
|
Polaris Industries, Inc.
|
|
|
1,130
|
|
|
21
|
|
|
Pulte Group, Inc.
|
|
|
430
|
|
|
8
|
|
|
Steven Madden Ltd. ●
|
|
|
282
|
|
|
|
|
|
|
|
|
6,889
|
|
|
|
|
|
Consumer Services - 3.4%
|
|
|
|
|
|
9
|
|
|
American Public Education, Inc. ●
|
|
|
370
|
|
|
4
|
|
|
Bally Technologies, Inc. ●
|
|
|
298
|
|
|
5
|
|
|
Bob Evans Farms, Inc.
|
|
|
268
|
|
|
17
|
|
|
Brinker International, Inc.
|
|
|
769
|
|
|
5
|
|
|
Capella Education Co.
|
|
|
352
|
|
|
8
|
|
|
Domino's Pizza, Inc.
|
|
|
529
|
|
|
28
|
|
|
International Speedway Corp. Class A
|
|
|
983
|
|
|
26
|
|
|
Krispy Kreme Doughnuts, Inc. ●
|
|
|
496
|
|
|
9
|
|
|
Multimedia Games Holding Co., Inc. ●
|
|
|
276
|
|
|
20
|
|
|
Ruth's Hospitality Group, Inc.
|
|
|
281
|
|
|
6
|
|
|
Sotheby's Holdings
|
|
|
309
|
|
|
|
|
|
|
|
|
4,931
|
|
|
|
|
|
Diversified Financials - 1.9%
|
|
|
|
|
|
55
|
|
|
Apollo Investment Corp.
|
|
|
468
|
|
|
3
|
|
|
Credit Acceptance Corp. ●
|
|
|
390
|
|
|
37
|
|
|
New Mountain Finance Corp.
|
|
|
552
|
|
|
5
|
|
|
Portfolio Recovery Associates, Inc. ●
|
|
|
270
|
|
|
47
|
|
|
TCP Capital Corp.
|
|
|
782
|
|
|
3
|
|
|
World Acceptance Corp. ●
|
|
|
280
|
|
|
|
|
|
|
|
|
2,742
|
|
|
|
|
|
Energy - 6.0%
|
|
|
|
|
|
18
|
|
|
Alon USA Energy, Inc.
|
|
|
303
|
|
|
5
|
|
|
Core Laboratories N.V.
|
|
|
872
|
|
|
15
|
|
|
Delek U.S. Holdings, Inc.
|
|
|
499
|
|
|
7
|
|
|
Diamond Offshore Drilling, Inc.
|
|
|
379
|
|
|
5
|
|
|
Energen Corp.
|
|
|
332
|
|
|
15
|
|
|
Goodrich Petroleum Corp. ●
|
|
|
262
|
|
|
19
|
|
|
Green Plains Renewable Energy, Inc.
|
|
|
368
|
|
|
10
|
|
|
Helmerich & Payne, Inc.
|
|
|
868
|
|
|
15
|
|
|
HollyFrontier Corp.
|
|
|
764
|
|
|
3
|
|
|
Oasis Petroleum, Inc. ●
|
|
|
141
|
|
|
4
|
|
|
Oil States International, Inc. ●
|
|
|
397
|
|
|
52
|
|
|
Sandridge Energy, Inc. ●
|
|
|
314
|
|
|
3
|
|
|
Seacor Holdings, Inc. ●
|
|
|
274
|
|
|
3
|
|
|
SM Energy Co.
|
|
|
283
|
|
|
13
|
|
|
Stone Energy Corp. ●
|
|
|
432
|
|
|
5
|
|
|
Superior Energy Services, Inc. ●
|
|
|
138
|
|
|
42
|
|
|
Vaalco Energy, Inc. ●
|
|
|
290
|
|
|
18
|
|
|
Valero Energy Corp.
|
|
|
930
|
|
|
19
|
|
|
Western Refining, Inc.
|
|
|
821
|
|
|
|
|
|
|
|
|
8,667
|
|
|
|
|
|
Food and Staples Retailing - 0.7%
|
|
|
|
|
|
116
|
|
|
Rite Aid Corp. ●
|
|
|
584
|
|
The accompanying notes are an integral
part of these financial statements.
Hartford
Small/Mid Cap Equity HLS Fund
Schedule of Investments – (continued)
December 31, 2013
(000’s Omitted)
Shares or Principal Amount
|
|
Market Value ╪
|
|
COMMON STOCKS - 98.9% - (continued)
|
|
|
|
|
|
|
|
|
Food and Staples Retailing - 0.7% - (continued)
|
|
|
|
|
|
14
|
|
|
Spartan Stores, Inc.
|
|
$
|
350
|
|
|
|
|
|
|
|
|
934
|
|
|
|
|
|
Food, Beverage and Tobacco - 0.9%
|
|
|
|
|
|
16
|
|
|
Dean Foods Co. ●
|
|
|
272
|
|
|
5
|
|
|
Green Mountain Coffee Roasters, Inc. ●
|
|
|
385
|
|
|
31
|
|
|
Pilgrim's Pride Corp. ●
|
|
|
507
|
|
|
2
|
|
|
Universal Corp.
|
|
|
131
|
|
|
|
|
|
|
|
|
1,295
|
|
|
|
|
|
Health Care Equipment and Services - 6.5%
|
|
|
|
|
|
7
|
|
|
Aetna, Inc.
|
|
|
480
|
|
|
22
|
|
|
Alere, Inc. ●
|
|
|
786
|
|
|
7
|
|
|
Align Technology, Inc. ●
|
|
|
406
|
|
|
11
|
|
|
Anika Therapeutics, Inc. ●
|
|
|
416
|
|
|
6
|
|
|
Centene Corp. ●
|
|
|
366
|
|
|
3
|
|
|
Community Health Systems, Inc. ●
|
|
|
130
|
|
|
8
|
|
|
Cyberonics, Inc. ●
|
|
|
526
|
|
|
44
|
|
|
Gentiva Health Services, Inc. ●
|
|
|
541
|
|
|
12
|
|
|
Health Net, Inc. ●
|
|
|
368
|
|
|
17
|
|
|
Hill-Rom Holdings, Inc.
|
|
|
707
|
|
|
6
|
|
|
Magellan Health Services, Inc. ●
|
|
|
353
|
|
|
8
|
|
|
Medidata Solutions, Inc. ●
|
|
|
472
|
|
|
9
|
|
|
MEDNAX, Inc. ●
|
|
|
491
|
|
|
11
|
|
|
Molina Healthcare, Inc. ●
|
|
|
368
|
|
|
14
|
|
|
Omnicare, Inc.
|
|
|
857
|
|
|
18
|
|
|
Orthofix International N.V. ●
|
|
|
404
|
|
|
39
|
|
|
Owens & Minor, Inc.
|
|
|
1,415
|
|
|
23
|
|
|
Select Medical Holdings Corp.
|
|
|
265
|
|
|
|
|
|
|
|
|
9,351
|
|
|
|
|
|
Household and Personal Products - 1.1%
|
|
|
|
|
|
4
|
|
|
Herbalife Ltd.
|
|
|
346
|
|
|
10
|
|
|
Inter Parfums, Inc.
|
|
|
351
|
|
|
7
|
|
|
Nu Skin Enterprises, Inc. Class A
|
|
|
912
|
|
|
|
|
|
|
|
|
1,609
|
|
|
|
|
|
Insurance - 5.0%
|
|
|
|
|
|
13
|
|
|
American Equity Investment Life Holding Co.
|
|
|
348
|
|
|
13
|
|
|
Argo Group International Holdings Ltd.
|
|
|
603
|
|
|
9
|
|
|
Aspen Insurance Holdings Ltd.
|
|
|
382
|
|
|
9
|
|
|
Assurant, Inc.
|
|
|
584
|
|
|
10
|
|
|
Axis Capital Holdings Ltd.
|
|
|
495
|
|
|
4
|
|
|
Everest Re Group Ltd.
|
|
|
639
|
|
|
9
|
|
|
FBL Financial Group Class A
|
|
|
421
|
|
|
36
|
|
|
Genworth Financial, Inc. ●
|
|
|
564
|
|
|
18
|
|
|
Greenlight Capital Re Ltd. Class A ●
|
|
|
620
|
|
|
8
|
|
|
Hanover Insurance Group, Inc.
|
|
|
496
|
|
|
16
|
|
|
Montpelier Re Holdings Ltd.
|
|
|
457
|
|
|
10
|
|
|
Protective Life Corp.
|
|
|
481
|
|
|
39
|
|
|
Symetra Financial Corp.
|
|
|
730
|
|
|
8
|
|
|
Validus Holdings Ltd.
|
|
|
302
|
|
|
|
|
|
|
|
|
7,122
|
|
|
|
|
|
Materials - 6.1%
|
|
|
|
|
|
41
|
|
|
A. M. Castle & Co. ●
|
|
|
600
|
|
|
7
|
|
|
Advanced Emissions Solutions, Inc. ●
|
|
|
390
|
|
|
6
|
|
|
AEP Industries, Inc. ●
|
|
|
312
|
|
|
14
|
|
|
Cliff's Natural Resources, Inc.
|
|
|
375
|
|
|
8
|
|
|
Domtar Corp.
|
|
|
774
|
|
|
22
|
|
|
Ferro Corp. ●
|
|
|
278
|
|
|
18
|
|
|
FutureFuel Corp.
|
|
|
287
|
|
|
53
|
|
|
Gold Resource Corp.
|
|
|
238
|
|
|
22
|
|
|
Huntsman Corp.
|
|
|
539
|
|
|
6
|
|
|
Innospec, Inc.
|
|
|
286
|
|
|
13
|
|
|
Kraton Performance Polymers, Inc. ●
|
|
|
309
|
|
|
15
|
|
|
Myers Industries, Inc.
|
|
|
319
|
|
|
11
|
|
|
OM Group, Inc. ●
|
|
|
408
|
|
|
12
|
|
|
Packaging Corp. of America
|
|
|
768
|
|
|
3
|
|
|
Reliance Steel & Aluminum
|
|
|
243
|
|
|
27
|
|
|
Resolute Forest Products ●
|
|
|
426
|
|
|
9
|
|
|
Rock Tenn Co. Class A
|
|
|
892
|
|
|
10
|
|
|
Sealed Air Corp.
|
|
|
344
|
|
|
23
|
|
|
Steel Dynamics, Inc.
|
|
|
442
|
|
|
5
|
|
|
Westlake Chemical Corp.
|
|
|
561
|
|
|
|
|
|
|
|
|
8,791
|
|
|
|
|
|
Media - 1.2%
|
|
|
|
|
|
31
|
|
|
Gannett Co., Inc.
|
|
|
918
|
|
|
29
|
|
|
Global Sources Ltd. ●
|
|
|
235
|
|
|
8
|
|
|
Morningstar, Inc.
|
|
|
609
|
|
|
|
|
|
|
|
|
1,762
|
|
|
|
|
|
Pharmaceuticals, Biotechnology and Life Sciences - 6.2%
|
|
|
|
|
|
4
|
|
|
Charles River Laboratories International, Inc. ●
|
|
|
223
|
|
|
27
|
|
|
Emergent Biosolutions, Inc. ●
|
|
|
609
|
|
|
8
|
|
|
Endo Health Solutions, Inc. ●
|
|
|
519
|
|
|
11
|
|
|
Genomic Health, Inc. ●
|
|
|
310
|
|
|
12
|
|
|
Impax Laboratories, Inc. ●
|
|
|
312
|
|
|
10
|
|
|
Isis Pharmaceuticals, Inc. ●
|
|
|
379
|
|
|
24
|
|
|
Luminex Corp. ●
|
|
|
458
|
|
|
35
|
|
|
Mylan, Inc. ●
|
|
|
1,510
|
|
|
20
|
|
|
Myriad Genetics, Inc. ●
|
|
|
413
|
|
|
11
|
|
|
PAREXEL International Corp. ●
|
|
|
479
|
|
|
98
|
|
|
PDL Biopharma, Inc.
|
|
|
829
|
|
|
37
|
|
|
Pozen, Inc.
|
|
|
293
|
|
|
4
|
|
|
Questcor Pharmaceuticals, Inc.
|
|
|
240
|
|
|
29
|
|
|
Repligen Corp. ●
|
|
|
391
|
|
|
5
|
|
|
Salix Pharmaceuticals Ltd. ●
|
|
|
468
|
|
|
8
|
|
|
Sarepta Therapeutics, Inc. ●
|
|
|
157
|
|
|
39
|
|
|
Sciclone Pharmaceuticals, Inc. ●
|
|
|
196
|
|
|
11
|
|
|
United Therapeutics Corp. ●
|
|
|
1,187
|
|
|
|
|
|
|
|
|
8,973
|
|
|
|
|
|
Real Estate - 8.1%
|
|
|
|
|
|
35
|
|
|
American Capital Mortgage Investment Corp. REIT
|
|
|
610
|
|
|
56
|
|
|
Brandywine Realty Trust REIT
|
|
|
786
|
|
|
64
|
|
|
Capstead Mortgage Corp. REIT
|
|
|
776
|
|
|
18
|
|
|
DDR Corp. REIT
|
|
|
275
|
|
|
48
|
|
|
Franklin Street Properties Corp. REIT
|
|
|
572
|
|
|
57
|
|
|
Hatteras Financial Corp. REIT
|
|
|
938
|
|
|
140
|
|
|
Lexington Realty Trust REIT
|
|
|
1,428
|
|
|
63
|
|
|
Mack-Cali Realty Corp. REIT
|
|
|
1,347
|
|
|
20
|
|
|
MFA Mortgage Investments, Inc. REIT
|
|
|
142
|
|
|
95
|
|
|
Piedmont Office Realty Trust, Inc.
|
|
|
1,571
|
|
|
36
|
|
|
Redwood Trust, Inc. REIT
|
|
|
688
|
|
|
104
|
|
|
Retail Properties of America, Inc.
|
|
|
1,320
|
|
|
34
|
|
|
RLJ Lodging Trust REIT
|
|
|
832
|
|
|
11
|
|
|
Sabra Healthcare REIT, Inc.
|
|
|
282
|
|
|
|
|
|
|
|
|
11,567
|
|
|
|
|
|
Retailing - 4.8%
|
|
|
|
|
|
8
|
|
|
ANN, Inc. ●
|
|
|
274
|
|
|
9
|
|
|
Big Lots, Inc. ●
|
|
|
284
|
|
|
6
|
|
|
Children's Place Retail Stores, Inc. ●
|
|
|
342
|
|
The accompanying notes are an integral part of these financial
statements.
Shares or Principal Amount
|
|
Market Value ╪
|
|
COMMON STOCKS - 98.9% - (continued)
|
|
|
|
|
|
|
|
|
Retailing - 4.8% - (continued)
|
|
|
|
|
|
8
|
|
|
Dillard's, Inc.
|
|
$
|
758
|
|
|
14
|
|
|
Express, Inc. ●
|
|
|
252
|
|
|
15
|
|
|
Foot Locker, Inc.
|
|
|
622
|
|
|
15
|
|
|
Francescas Holding Corp. ●
|
|
|
280
|
|
|
8
|
|
|
GameStop Corp. Class A
|
|
|
389
|
|
|
9
|
|
|
Guess?, Inc.
|
|
|
273
|
|
|
9
|
|
|
Lumber Liquidators Holdings, Inc. ●
|
|
|
885
|
|
|
10
|
|
|
Men's Wearhouse, Inc.
|
|
|
495
|
|
|
14
|
|
|
Nutrisystem, Inc.
|
|
|
232
|
|
|
15
|
|
|
Overstock.com, Inc. ●
|
|
|
456
|
|
|
21
|
|
|
PetMed Express, Inc.
|
|
|
347
|
|
|
23
|
|
|
Pier 1 Imports, Inc.
|
|
|
531
|
|
|
8
|
|
|
Rent-A-Center, Inc.
|
|
|
250
|
|
|
5
|
|
|
Williams-Sonoma, Inc.
|
|
|
286
|
|
|
|
|
|
|
|
|
6,956
|
|
|
|
|
|
Semiconductors and Semiconductor Equipment - 1.0%
|
|
|
|
|
|
52
|
|
|
Amkor Technology, Inc. ●
|
|
|
316
|
|
|
5
|
|
|
First Solar, Inc. ●
|
|
|
246
|
|
|
21
|
|
|
Kulicke & Soffa Industries, Inc. ●
|
|
|
276
|
|
|
11
|
|
|
Photronics, Inc. ●
|
|
|
102
|
|
|
71
|
|
|
Silicon Image, Inc. ●
|
|
|
437
|
|
|
|
|
|
|
|
|
1,377
|
|
|
|
|
|
Software and Services - 9.9%
|
|
|
|
|
|
10
|
|
|
Advent Software, Inc.
|
|
|
343
|
|
|
6
|
|
|
Amdocs Ltd.
|
|
|
243
|
|
|
13
|
|
|
Angie's List, Inc. ●
|
|
|
191
|
|
|
13
|
|
|
AOL, Inc. ●
|
|
|
592
|
|
|
26
|
|
|
AVG Technologies N.V. ●
|
|
|
454
|
|
|
12
|
|
|
Blucora, Inc. ●
|
|
|
344
|
|
|
16
|
|
|
Booz Allen Hamilton Holding Corp.
|
|
|
303
|
|
|
21
|
|
|
Brightcove, Inc. ●
|
|
|
297
|
|
|
44
|
|
|
CA, Inc.
|
|
|
1,477
|
|
|
7
|
|
|
CACI International, Inc. Class A ●
|
|
|
505
|
|
|
14
|
|
|
Cadence Design Systems, Inc. ●
|
|
|
193
|
|
|
24
|
|
|
Carbonite, Inc. ●
|
|
|
280
|
|
|
6
|
|
|
Commvault Systems, Inc. ●
|
|
|
439
|
|
|
10
|
|
|
CSG Systems International, Inc.
|
|
|
294
|
|
|
22
|
|
|
Digital River, Inc. ●
|
|
|
405
|
|
|
9
|
|
|
DST Systems, Inc.
|
|
|
789
|
|
|
25
|
|
|
Egain Communications Corp. ●
|
|
|
253
|
|
|
9
|
|
|
Euronet Worldwide, Inc. ●
|
|
|
440
|
|
|
17
|
|
|
Global Cash Access, Inc. ●
|
|
|
170
|
|
|
6
|
|
|
Heartland Payment Systems, Inc.
|
|
|
304
|
|
|
3
|
|
|
j2 Global, Inc.
|
|
|
145
|
|
|
14
|
|
|
Mentor Graphics Corp.
|
|
|
347
|
|
|
18
|
|
|
Netscout Systems, Inc. ●
|
|
|
527
|
|
|
9
|
|
|
Neustar, Inc. ●
|
|
|
464
|
|
|
4
|
|
|
Opentable, Inc. ●
|
|
|
302
|
|
|
5
|
|
|
Pegasystems, Inc.
|
|
|
251
|
|
|
4
|
|
|
Splunk, Inc. ●
|
|
|
302
|
|
|
18
|
|
|
SS&C Technologies Holdings, Inc. ●
|
|
|
788
|
|
|
51
|
|
|
TiVo, Inc. ●
|
|
|
672
|
|
|
14
|
|
|
Travelzoo, Inc. ●
|
|
|
298
|
|
|
6
|
|
|
Unisys Corp. ●
|
|
|
195
|
|
|
18
|
|
|
ValueClick, Inc. ●
|
|
|
414
|
|
|
17
|
|
|
Verint Systems, Inc. ●
|
|
|
726
|
|
|
11
|
|
|
Web.com Group, Inc. ●
|
|
|
337
|
|
|
5
|
|
|
WebMD Health Corp. ●
|
|
|
208
|
|
|
|
|
|
|
|
|
14,292
|
|
|
|
|
|
Technology Hardware and Equipment - 4.7%
|
|
|
|
|
|
9
|
|
|
Arrow Electronics, Inc. ●
|
|
|
510
|
|
|
13
|
|
|
Aruba Networks, Inc. ●
|
|
|
240
|
|
|
13
|
|
|
Benchmark Electronics, Inc. ●
|
|
|
305
|
|
|
65
|
|
|
Brocade Communications Systems, Inc. ●
|
|
|
574
|
|
|
39
|
|
|
Calix, Inc. ●
|
|
|
379
|
|
|
18
|
|
|
Checkpoint Systems, Inc. ●
|
|
|
290
|
|
|
21
|
|
|
Comtech Telecommunications Corp.
|
|
|
666
|
|
|
61
|
|
|
Extreme Networks, Inc. ●
|
|
|
425
|
|
|
16
|
|
|
Ingram Micro, Inc. ●
|
|
|
385
|
|
|
12
|
|
|
Lexmark International, Inc.
|
|
|
423
|
|
|
7
|
|
|
Plexus Corp. ●
|
|
|
320
|
|
|
27
|
|
|
Polycom, Inc. ●
|
|
|
307
|
|
|
7
|
|
|
SYNNEX Corp. ●
|
|
|
492
|
|
|
10
|
|
|
Technology Data Corp. ●
|
|
|
500
|
|
|
8
|
|
|
Ubiquiti Networks, Inc. ●
|
|
|
358
|
|
|
6
|
|
|
Western Digital Corp.
|
|
|
503
|
|
|
|
|
|
|
|
|
6,677
|
|
|
|
|
|
Telecommunication Services - 0.6%
|
|
|
|
|
|
21
|
|
|
Telephone & Data Systems, Inc.
|
|
|
552
|
|
|
86
|
|
|
Vonage Holdings Corp. ●
|
|
|
287
|
|
|
|
|
|
|
|
|
839
|
|
|
|
|
|
Transportation - 2.2%
|
|
|
|
|
|
22
|
|
|
Alaska Air Group, Inc.
|
|
|
1,577
|
|
|
7
|
|
|
Allegiant Travel Co.
|
|
|
728
|
|
|
1
|
|
|
AMERCO, Inc. ●
|
|
|
333
|
|
|
26
|
|
|
Swift Transportation Co. ●
|
|
|
569
|
|
|
|
|
|
|
|
|
3,207
|
|
|
|
|
|
Utilities - 4.0%
|
|
|
|
|
|
124
|
|
|
Atlantic Power Corp.
|
|
|
430
|
|
|
40
|
|
|
Great Plains Energy, Inc.
|
|
|
977
|
|
|
16
|
|
|
Laclede Group, Inc.
|
|
|
706
|
|
|
4
|
|
|
MGE Energy, Inc.
|
|
|
226
|
|
|
13
|
|
|
Pinnacle West Capital Corp.
|
|
|
699
|
|
|
36
|
|
|
Portland General Electric Co.
|
|
|
1,099
|
|
|
51
|
|
|
Westar Energy, Inc.
|
|
|
1,650
|
|
|
|
|
|
|
|
|
5,787
|
|
|
|
|
|
Total common stocks
|
|
|
|
|
|
|
|
|
(cost $113,159)
|
|
$
|
142,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
|
|
|
|
|
|
|
|
(cost $113,159)
|
|
$
|
142,213
|
|
|
|
|
|
|
|
|
|
|
SHORT-TERM INVESTMENTS - 1.0%
|
|
|
|
|
Repurchase Agreements - 1.0%
|
|
|
|
|
|
|
|
|
Bank of America Merrill Lynch TriParty
Repurchase Agreement (maturing on
01/02/2014 in the amount of $69,
collateralized by GNMA 4.00%, 2043,
value of $71)
|
|
|
|
|
$
|
69
|
|
|
0.005%, 12/31/2013
|
|
$
|
69
|
|
|
|
|
|
Bank of Montreal TriParty Repurchase
Agreement (maturing on 01/02/2014 in the
amount of $67, collateralized by FNMA
1.58% - 4.50%, 2020 - 2043, U.S. Treasury
Note 0.25% - 4.00%, 2015 - 2020, value of
$68)
|
|
|
|
|
|
67
|
|
|
0.01%, 12/31/2013
|
|
|
67
|
|
The accompanying notes are an integral part of these financial
statements.
Hartford
Small/Mid Cap Equity HLS Fund
Schedule of Investments – (continued)
December 31, 2013
(000’s Omitted)
Shares or Principal Amount
|
|
|
|
|
Market Value ╪
|
|
SHORT-TERM INVESTMENTS - 1.0% - (continued)
|
|
|
|
|
|
|
|
|
Repurchase Agreements - 1.0% - (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Montreal TriParty Repurchase
Agreement (maturing on 01/02/2014 in the
amount of $236, collateralized by FHLMC
3.00% - 5.00%, 2019 - 2043, FNMA 0.76%
- 6.00%, 2016 - 2043, GNMA 1.50% -
5.25%, 2028 - 2043, value of $240)
|
|
|
|
|
|
|
|
|
$
|
236
|
|
|
0.02%, 12/31/2013
|
|
|
|
|
|
$
|
236
|
|
|
|
|
|
Barclays Capital TriParty Repurchase
Agreement (maturing on 01/02/2014 in the
amount of $212, collateralized by U.S.
Treasury Note 0.50% - 2.25%, 2017, value
of $217)
|
|
|
|
|
|
|
|
|
|
212
|
|
|
0.01%, 12/31/2013
|
|
|
|
|
|
|
212
|
|
|
|
|
|
Citigroup Global Markets, Inc. TriParty
Repurchase Agreement (maturing on
01/02/2014 in the amount of $382,
collateralized by U.S. Treasury Bond 3.88%
- 8.13%, 2021 - 2040, U.S. Treasury Note
0.25% - 3.38%, 2014 - 2020, value of $390)
|
|
|
|
|
|
|
|
|
|
382
|
|
|
0.01%, 12/31/2013
|
|
|
|
|
|
|
382
|
|
|
|
|
|
RBS Securities, Inc. TriParty Repurchase
Agreement (maturing on 01/02/2014 in the
amount of $124, collateralized by U.S.
Treasury Note 0.25% - 1.00%, 2015 - 2017,
value of $127)
|
|
|
|
|
|
|
|
|
|
124
|
|
|
0.01%, 12/31/2013
|
|
|
|
|
|
|
124
|
|
|
|
|
|
TD Securities TriParty Repurchase Agreement
(maturing on 01/02/2014 in the amount of
$298, collateralized by FFCB 0.20% -
0.50%, 2015 - 2016, FHLMC 0.38% -
5.25%, 2014 - 2042, FNMA 0.50% - 7.13%,
2014 - 2043, value of $304)
|
|
|
|
|
|
|
|
|
|
298
|
|
|
0.01%, 12/31/2013
|
|
|
|
|
|
|
298
|
|
|
|
|
|
UBS Securities, Inc. Repurchase Agreement
(maturing on 01/02/2014 in the amount of
$3, collateralized by U.S. Treasury Note
2.13%, 2015, value of $3)
|
|
|
|
|
|
|
|
|
|
3
|
|
|
0.01%, 12/31/2013
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
1,391
|
|
|
|
|
|
Total short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
(cost $1,391)
|
|
|
|
|
|
$
|
1,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
|
|
|
|
|
|
|
|
|
|
(cost $114,550) ▲
|
|
|
99.9
|
%
|
|
$
|
143,604
|
|
|
|
|
|
Other assets and liabilities
|
|
|
0.1
|
%
|
|
|
153
|
|
|
|
|
|
Total net assets
|
|
|
100.0
|
%
|
|
$
|
143,757
|
|
The accompanying notes are an integral part of these financial
statements.
|
Note:
|
Percentage of investments as shown is the ratio of the
total market value to total net assets.
|
|
▲
|
At December 31, 2013, the cost of securities for federal income tax purposes was $114,784 and the
aggregate gross unrealized appreciation and depreciation based on that cost were:
|
Unrealized Appreciation
|
|
$
|
32,434
|
|
Unrealized Depreciation
|
|
|
(3,614
|
)
|
Net Unrealized Appreciation
|
|
$
|
28,820
|
|
|
╪
|
See Significant Accounting Policies of accompanying Notes to Financial Statements regarding valuation
of securities.
|
GLOSSARY:
(abbreviations used in preceding Schedule of Investments)
|
|
Other Abbreviations:
|
ADR
|
American Depositary Receipt
|
FFCB
|
Federal Farm Credit Bank
|
FHLMC
|
Federal Home Loan Mortgage Corp.
|
FNMA
|
Federal National Mortgage Association
|
GNMA
|
Government National Mortgage Association
|
REIT
|
Real Estate Investment Trust
|
The accompanying notes are an integral part of these financial
statements.
Hartford
Small/Mid Cap Equity HLS Fund
Investment Valuation Hierarchy Level Summary
December 31, 2013
(000’s Omitted)
|
|
Total
|
|
|
Level 1 ♦
|
|
|
Level 2 ♦
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stocks ‡
|
|
$
|
142,213
|
|
|
$
|
142,213
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Short-Term Investments
|
|
|
1,391
|
|
|
|
–
|
|
|
|
1,391
|
|
|
|
–
|
|
Total
|
|
$
|
143,604
|
|
|
$
|
142,213
|
|
|
$
|
1,391
|
|
|
$
|
–
|
|
|
♦
|
For the year ended December 31, 2013, there were no transfers between Level 1 and Level 2.
|
|
‡
|
The Fund has all or primarily all of the equity securities categorized in a particular level. Refer to the Schedule
of Investments for further industry breakout.
|
|
Note:
|
For purposes of reporting transfers between different hierarchy
levels, both transfers in and out of each level, as applicable, are shown as if they occurred at the beginning of the period.
|
The accompanying notes are an integral part of these financial
statements.
Hartford
Small/Mid Cap Equity HLS Fund
Statement of Assets and Liabilities
December 31, 2013
(000’s Omitted)
Assets:
|
|
|
|
|
Investments in securities, at market value (cost $114,550)
|
|
$
|
143,604
|
|
Cash
|
|
|
—
|
|
Receivables:
|
|
|
|
|
Fund shares sold
|
|
|
3
|
|
Dividends and interest
|
|
|
258
|
|
Total assets
|
|
|
143,865
|
|
Liabilities:
|
|
|
|
|
Payables:
|
|
|
|
|
Fund shares redeemed
|
|
|
57
|
|
Investment management fees
|
|
|
25
|
|
Distribution fees
|
|
|
1
|
|
Accrued expenses
|
|
|
25
|
|
Total liabilities
|
|
|
108
|
|
Net assets
|
|
$
|
143,757
|
|
Summary of Net Assets:
|
|
|
|
|
Capital stock and paid-in-capital
|
|
$
|
89,183
|
|
Undistributed net investment income
|
|
|
2,142
|
|
Accumulated net realized gain
|
|
|
23,378
|
|
Unrealized appreciation of investments and the translations of assets and liabilities denominated in foreign currency
|
|
|
29,054
|
|
Net assets
|
|
$
|
143,757
|
|
Shares authorized
|
|
|
700,000
|
|
Par value
|
|
$
|
0.001
|
|
Class IA:
Net asset value per share
|
|
$
|
11.29
|
|
Shares outstanding
|
|
|
10,402
|
|
Net assets
|
|
$
|
117,395
|
|
Class IB:
Net asset value per share
|
|
$
|
11.22
|
|
Shares outstanding
|
|
|
2,349
|
|
Net assets
|
|
$
|
26,362
|
|
The accompanying notes are an integral part of these financial
statements.
Hartford
Small/Mid Cap Equity HLS Fund
Statement of Operations
For the Year Ended December 31, 2013
(000’s Omitted)
Investment Income:
|
|
|
|
|
Dividends
|
|
$
|
3,445
|
|
Interest
|
|
|
1
|
|
Less: Foreign tax withheld
|
|
|
(2
|
)
|
Total investment income, net
|
|
|
3,444
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
Investment management fees
|
|
|
1,136
|
|
Transfer agent fees
|
|
|
1
|
|
Distribution fees - Class IB
|
|
|
67
|
|
Custodian fees
|
|
|
—
|
|
Accounting services fees
|
|
|
20
|
|
Board of Directors' fees
|
|
|
4
|
|
Audit fees
|
|
|
12
|
|
Other expenses
|
|
|
35
|
|
Total expenses (before fees paid indirectly)
|
|
|
1,275
|
|
Commission recapture
|
|
|
(1
|
)
|
Custodian fee offset
|
|
|
—
|
|
Total fees paid indirectly
|
|
|
(1
|
)
|
Total expenses, net
|
|
|
1,274
|
|
Net Investment Income
|
|
|
2,170
|
|
|
|
|
|
|
Net Realized Gain on Investments:
|
|
|
|
|
Net realized gain on investments
|
|
|
23,511
|
|
Net Realized Gain on Investments
|
|
|
23,511
|
|
|
|
|
|
|
Net Changes in Unrealized Appreciation of Investments:
|
|
|
|
|
Net unrealized appreciation of investments
|
|
|
18,801
|
|
Net Changes in Unrealized Appreciation of Investments
|
|
|
18,801
|
|
Net Gain on Investments
|
|
|
42,312
|
|
Net Increase in Net Assets Resulting from Operations
|
|
$
|
44,482
|
|
The accompanying notes are an integral part of these financial
statements.
Hartford
Small/Mid Cap Equity HLS Fund
Statement of Changes in Net Assets
(000’s Omitted)
|
|
For the
Year Ended
December 31,
2013
|
|
|
For the
Year Ended
December 31,
2012
|
|
Operations:
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
2,170
|
|
|
$
|
1,992
|
|
Net realized gain on investments
|
|
|
23,511
|
|
|
|
9,880
|
|
Net unrealized appreciation of investments
|
|
|
18,801
|
|
|
|
7,438
|
|
Net Increase in Net Assets Resulting from Operations
|
|
|
44,482
|
|
|
|
19,310
|
|
Distributions to Shareholders:
|
|
|
|
|
|
|
|
|
From net investment income
|
|
|
|
|
|
|
|
|
Class IA
|
|
|
(1,547
|
)
|
|
|
(600
|
)
|
Class IB
|
|
|
(296
|
)
|
|
|
(72
|
)
|
Total from net investment income
|
|
|
(1,843
|
)
|
|
|
(672
|
)
|
From net realized gain on investments
|
|
|
|
|
|
|
|
|
Class IA
|
|
|
(7,572
|
)
|
|
|
(13,549
|
)
|
Class IB
|
|
|
(1,784
|
)
|
|
|
(3,574
|
)
|
Total from net realized gain on investments
|
|
|
(9,356
|
)
|
|
|
(17,123
|
)
|
Total distributions
|
|
|
(11,199
|
)
|
|
|
(17,795
|
)
|
Capital Share Transactions:
|
|
|
|
|
|
|
|
|
Class IA
|
|
|
|
|
|
|
|
|
Sold
|
|
|
25,596
|
|
|
|
20,551
|
|
Issued on reinvestment of distributions
|
|
|
9,119
|
|
|
|
14,149
|
|
Redeemed
|
|
|
(50,695
|
)
|
|
|
(37,429
|
)
|
Total capital share transactions
|
|
|
(15,980
|
)
|
|
|
(2,729
|
)
|
Class IB
|
|
|
|
|
|
|
|
|
Sold
|
|
|
8,350
|
|
|
|
5,947
|
|
Issued on reinvestment of distributions
|
|
|
2,080
|
|
|
|
3,646
|
|
Redeemed
|
|
|
(15,089
|
)
|
|
|
(13,469
|
)
|
Total capital share transactions
|
|
|
(4,659
|
)
|
|
|
(3,876
|
)
|
Net decrease from capital share transactions
|
|
|
(20,639
|
)
|
|
|
(6,605
|
)
|
Net Increase (Decrease) in Net Assets
|
|
|
12,644
|
|
|
|
(5,090
|
)
|
Net Assets:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
131,113
|
|
|
|
136,203
|
|
End of period
|
|
$
|
143,757
|
|
|
$
|
131,113
|
|
Undistributed (distribution in excess of) net
investment income
|
|
$
|
2,142
|
|
|
$
|
1,854
|
|
Shares:
|
|
|
|
|
|
|
|
|
Class IA
|
|
|
|
|
|
|
|
|
Sold
|
|
|
2,510
|
|
|
|
2,287
|
|
Issued on reinvestment of distributions
|
|
|
903
|
|
|
|
1,659
|
|
Redeemed
|
|
|
(4,959
|
)
|
|
|
(4,064
|
)
|
Total share activity
|
|
|
(1,546
|
)
|
|
|
(118
|
)
|
Class IB
|
|
|
|
|
|
|
|
|
Sold
|
|
|
836
|
|
|
|
639
|
|
Issued on reinvestment of distributions
|
|
|
207
|
|
|
|
430
|
|
Redeemed
|
|
|
(1,492
|
)
|
|
|
(1,472
|
)
|
Total share activity
|
|
|
(449
|
)
|
|
|
(403
|
)
|
The accompanying notes are an integral part of these financial
statements.
Hartford
Small/Mid Cap Equity HLS Fund
Notes to Financial Statements
December 31, 2013
(000’s Omitted)
Hartford Small/Mid Cap Equity
HLS Fund (the “Fund”) serves as an underlying investment option for certain variable annuity and variable life
insurance separate accounts of Hartford Life Insurance Company (“HLIC”) and its affiliates and certain qualified retirement
plans. The Fund may also serve as an underlying investment option for certain variable annuity and variable life separate accounts
of other insurance companies. Owners of variable annuity contracts and policyholders of variable life insurance contracts may choose
the funds permitted in the variable insurance contract prospectus. In addition, participants in certain qualified retirement plans
may choose the Fund if permitted by their plans.
Hartford HLS Series Fund II,
Inc. (the “Company”) is an open-end registered management investment company comprised of four portfolios. Financial
statements for the Fund, a series of the Company, are included in this report.
The Company is organized under
the laws of the State of Maryland and is registered with the Securities and Exchange Commission (“SEC”) under the Investment
Company Act of 1940, as amended (“1940 Act”). The Fund is a diversified open-end management investment company.
The Fund is divided into Class
IA and Class IB shares. Each class is offered at the per share net asset value (“NAV”) without a sales charge and is
subject to the same expenses, except that the Class IB shares are subject to distribution and service fees charged pursuant to
a Distribution Plan adopted in accordance with Rule 12b-1 under the 1940 Act.
|
2.
|
Significant Accounting Policies:
|
The following is a summary of
significant accounting policies of the Fund in the preparation of its financial statements, which are in accordance with United
States Generally Accepted Accounting Principles (“U.S. GAAP”). The preparation of financial statements in accordance
with U.S. GAAP may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases
and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
|
a)
|
Determination of Net Asset Value
– The NAV of each class of the Fund’s shares
is determined as of the close of regular trading (normally 4:00 p.m. Eastern Time) (the “NYSE Close”) on each day that
the New York Stock Exchange (the “Exchange”) is open (“Valuation Date”). Information that becomes known
to the Fund after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the NAV determined
earlier that day.
|
|
b)
|
Investment Valuation and Fair Value Measurements
– For purposes of calculating the
NAV, portfolio investments and other assets held by the Fund's portfolio for which market quotes are readily available are valued
at market value. Market value is generally determined on the basis of last reported sales prices or official close price. If no
sales are reported, market value is based on quotes obtained from a quotation reporting system, established market makers, or independent
pricing services. If market prices are not readily available or are deemed unreliable, the Fund will use the fair value of the
investment as determined in good faith under policies and procedures established by and under the supervision of the Company’s
Board of Directors. Market quotes are considered not readily available where there is an absence of current or reliable market-based
data (e.g., trade information or indicative market quotes), including where events occur after the close of the relevant market,
but prior to the NYSE Close, that materially affect the values of the Fund’s portfolio investments or assets. In addition,
market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which
the investments trade do not open for trading for the entire day and no other market prices are available. In addition, prices
of foreign equities that are principally traded on certain foreign markets may be adjusted daily pursuant to a fair value pricing
service approved by the Board of Directors in order to reflect an adjustment for the factors occurring after the close of certain
foreign markets but before the NYSE Close. Investments that are primarily traded on foreign markets may trade on days that are
not business days of the Fund. The value of the foreign investments in which the Fund invests may change on days when a shareholder
will not be able to
|
purchase or redeem shares of
the Fund. Fair value pricing is subjective in nature and the use of fair value pricing by the Fund may cause the NAV of its shares
to differ significantly from the NAV that would have been calculated using market prices at the close of the exchange on which
a portfolio investment is primarily traded. There can be no assurance that the Fund could obtain the fair market value assigned
to an investment if the Fund were to sell the investment at approximately the time at which the Fund determines its NAV.
Financial instruments for which
prices are not available from an independent pricing service may be valued using market quotations obtained from one or more dealers
that make markets in the respective financial instrument in accordance with procedures established by the Company’s Board
of Directors.
U.S. GAAP defines fair value
as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market
participants. The U.S. GAAP fair value measurement standards require disclosure of a fair value hierarchy for each major category
of assets and liabilities. Various inputs are used in determining the fair value of the Fund’s investments. These inputs
are summarized into three broad hierarchy levels. This hierarchy is based on whether the valuation inputs are observable or unobservable.
These levels are:
|
·
|
Level 1 – Quoted prices in active markets for identical investments. Level 1 may include
exchange traded instruments, such as domestic equities, some foreign equities, options, futures, mutual funds, exchange traded
funds, rights and warrants.
|
|
·
|
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar
investments; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable
market data. Level 2 may include debt investments that are traded less frequently than exchange traded instruments and which are
valued using independent pricing services; foreign equities, which are principally traded on certain foreign markets and are adjusted
daily pursuant to a fair value pricing service in order to reflect an adjustment for the factors occurring after the close of certain
foreign markets but before the NYSE Close; senior floating rate interests, which are valued using an aggregate of dealer bids;
short-term investments, which are valued at amortized cost; and swaps, which are valued based upon the terms of each swap contract.
|
|
·
|
Level 3 – Significant unobservable inputs that are supported by limited or no market activity.
Level 3 may include financial instruments whose values are determined using indicative market quotes or require significant management
judgment or estimation. These unobservable valuation inputs may include estimates for current yields, maturity/duration, prepayment
speed, and indicative market quotes for comparable investments along with other assumptions relating to credit quality, collateral
value, complexity of the investment structure, general market conditions and liquidity. This category may include investments where
trading has been halted or there are certain restrictions on trading. While these investments are priced using unobservable inputs,
the valuation of these investments reflects the best available data and management believes the prices are a reasonable representation
of exit price.
|
The Board of Directors of the Company
generally reviews and approves the “Procedures for Valuation of Portfolio Securities” on an annual basis. These procedures
define how investments are to be valued, including the formation and activities of a Valuation Committee. The Valuation Committee
is responsible for determining in good faith the fair value of investments when the value cannot be obtained from primary pricing
services or alternative sources or if the valuation of an investment as provided by the primary pricing service or alternative
source is believed not to reflect the investment’s fair value as of the Valuation Date. Voting members of the Valuation Committee
include the Fund’s Treasurer or designee and a Vice President of the investment manager or designee. An Assistant Vice President
of the Fund with legal expertise or designee is also included on the Valuation Committee as a non-voting advisory member. In addition,
the Fund’s Chief Compliance Officer shall designate a member of the compliance group to attend Valuation Committee meetings
as a non-voting resource, to monitor for and provide guidance with respect to compliance with these procedures. Two members of
the Valuation Committee or their designees, representing different departments, shall constitute a quorum for purposes of permitting
the Valuation Committee to take action. The Valuation Committee will consider all relevant factors in determining an investment’s
fair value, and may seek the advice of the Fund’s sub-adviser, knowledgeable brokers, and legal counsel in making such determination.
The Valuation Committee reports to
Hartford
Small/Mid Cap Equity HLS Fund
Notes to Financial Statements – (continued)
December 31, 2013
(000’s Omitted)
the Audit Committee of the Company’s
Board of Directors. The Audit Committee receives quarterly written reports which include details of all fair-valued investments,
including the reason for the fair valuation, and an indication, when possible, of the accuracy of the valuation by disclosing the
next available reliable public price quotation or the disposition price of such investments (the “look-back” test).
The Board of Directors then must consider for ratification all of the fair value determinations made during the previous quarter.
Valuation levels are not necessarily
indicative of the risk associated with investing in such investments. Individual investments within any of the above mentioned
asset classes may be assigned a different hierarchical level than those presented above, as individual circumstances dictate.
For additional information, refer
to the Investment Valuation Hierarchy Level Summary and the Level 3 roll-forward reconciliation, if applicable, which follow the
Schedule of Investments.
|
c)
|
Investment Transactions and Investment Income
–
Investment transactions are
recorded as of the trade date (the date the order to buy or sell is executed) for financial reporting purposes. Investments purchased
or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Realized gains and losses
are determined on the basis of identified cost.
|
Dividend income from domestic
securities is accrued on the ex-dividend date. In general, dividend income from foreign securities is recorded on the ex-date;
however, dividend notifications in certain foreign jurisdictions may not be available in a timely manner and as a result, the Fund
will record the dividend as soon as the relevant details (i.e., rate per share, payment date, shareholders of record, etc.) are
publicly available. Interest income, including amortization of premium, accretion of discounts and additional principal received
in-kind in lieu of cash, is accrued on a daily basis.
|
d)
|
Joint Trading Account
– The Fund may invest cash balances into a joint trading account
that may be invested in one or more repurchase agreements.
|
|
e)
|
Fund Share Valuation and Dividend Distributions to Shareholders
– Orders for the Fund’s
shares are executed in accordance with the investment instructions of the contract holders and plan participants. The NAV of the
Fund’s shares is determined as of the close of business on each business day of the Exchange. The NAV is determined separately
for each class of shares of the Fund by dividing the Fund’s net assets attributable to that class by the number of shares
of the class outstanding. Each class of shares offered by the Fund has equal rights as to assets and voting privileges (except
that shareholders of a class have exclusive voting rights regarding any matter relating solely to that class of shares). Income
and non-class specific expenses are allocated daily to each class on the basis of the relative net assets of the class. Realized
and unrealized gains and losses are allocated daily based on the relative net assets of each class of shares of the Fund.
|
Orders for the purchase of the
Fund’s shares received prior to the close of the Exchange on any day the Exchange is open for business are priced at the
NAV determined as of the close of the Exchange. Orders received after the close of the Exchange, or on a day on which the Exchange
and/or the Fund is not open for business, are priced at the next determined NAV.
Dividends are declared pursuant
to a policy adopted by the Company’s Board of Directors based upon the investment performance of the Fund. The policy of
the Fund is to pay dividends from net investment income and realized gains, if any, at least once a year.
Distributions from net investment
income, net realized gains and capital are determined in accordance with federal income tax regulations, which may differ from
U.S. GAAP with respect to character and timing. These differences may include, but are not limited to, losses deferred due to wash
sale adjustments, foreign currency gains and losses, adjustments related to Passive Foreign Investment Companies (“PFICs”),
Real Estate Investment Trusts (“REITs”), Regulated Investment Companies (“RICs”), certain derivatives and
partnerships. Permanent book and federal income tax
basis differences relating to
shareholder distributions will result in reclassifications to certain of the Fund’s capital accounts (see Federal Income
Taxes: Reclassification of Capital Accounts note).
|
3.
|
Securities and Other Investments:
|
|
a)
|
Repurchase Agreements
– A repurchase agreement is an agreement by which a counterparty
agrees to sell an investment and agrees to repurchase the investment sold from the buyer at a mutually agreed upon time and price.
During the period of the repurchase agreement, the counterparty will deposit cash and or securities in a third party custodial
account to serve as collateral. At the time the Fund enters into a repurchase agreement, the value of the underlying collateral,
including accrued interest, will be equal to or exceed the value of the repurchase agreement. Repurchase agreements expose the
Fund to counterparty risk - that is, the risk that the counterparty will not fulfill its obligations. To minimize counterparty
risk, the investments that serve to collateralize the repurchase agreement are held by the Fund’s custodian in book entry
or physical form in the custodial account of the Fund or in a third party custodial account. Repurchase agreements are valued at
cost plus accrued interest, which approximates fair value. Repurchase agreements have master netting arrangements which allow the
Fund to offset amounts owed to a counterparty with amounts owed by the counterparty, including any collateral. Upon an event of
default under a master repurchase agreement, the non-defaulting party may close out all transactions traded under such agreement
and net amounts owed under each transaction to one net amount payable by one party to the other. Absent an event of default, the
master repurchase agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets
and Liabilities across transactions between the Fund and the applicable counterparty. The Fund, as shown on the Schedule of Investments,
had outstanding repurchase agreements and related collateral as of December 31, 2013.
|
The Fund may be exposed to counterparty
risk, or the risk that an institution or other entity with which the Fund has unsettled or open transactions will default.
If the Fund invests directly
in foreign currencies or in securities that trade in, and receive revenues in, foreign currencies, or in derivatives that provide
exposure to foreign currencies, it will be subject to the risk that those currencies will decline in value relative to the base
currency (U.S. dollars) of the Fund, or, in the case of hedging positions, that the Fund’s base currency will decline in
value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods
of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign
governments, central banks or supranational entities, such as the International Monetary Fund, or by the imposition of currency
controls or other political developments in the United States or abroad. As a result, the Fund’s investments in foreign currency
denominated securities may reduce the returns of the Fund. The market values of equity securities, such as common stocks and preferred
stocks, or equity related investments, such as futures and options, may decline due to general market conditions which are not
specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook
for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. The market value of equity
securities may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased
production costs and competitive conditions within an industry. Equity securities and equity related investments generally have
greater market price volatility than fixed income securities.
|
a)
|
Federal Income Taxes
–
For federal income tax purposes, the Fund intends to continue to qualify as a RIC under
Subchapter M of the Internal Revenue Code (“IRC”) by distributing substantially
all of its taxable net investment income and net realized capital gains to its shareholders
and otherwise complying with the requirements of the IRC. The Fund has distributed substantially
all of its income and capital gains in prior years, if applicable, and intends to distribute
substantially all of its income and capital gains prior to the next fiscal year-end.
Accordingly, no provision for federal income or excise taxes has been made in the accompanying
financial statements. Distributions from short-term capital gains are treated as ordinary
income distributions for federal income tax purposes.
|
Hartford
Small/Mid Cap Equity HLS Fund
Notes to Financial Statements – (continued)
December 31, 2013
(000’s Omitted)
|
b)
|
Net Investment Income (Loss),
Net Realized Gains (Losses) and Distributions
–
Net investment income
(loss) and net realized gains (losses) may differ for financial statement and tax purposes
primarily because of losses deferred due to wash sale adjustments, foreign currency gains
and losses, adjustments related to PFICs, REITs, RICs, certain derivatives and partnerships.
The character of distributions made during the year from net investment income or net
realized gains may differ from their ultimate characterization for federal income tax
purposes. Also, due to the timing of dividend distributions, the fiscal year in which
amounts are distributed may differ from the year that the income or realized gains (losses)
were recorded by the Fund.
|
|
c)
|
Distributions and Components
of Distributable Earnings
– The tax character of distributions paid by the
Fund for the periods indicated is as follows (as adjusted for dividends payable, if applicable):
|
|
|
For the Year Ended
December 31, 2013
|
|
|
For the Year Ended
December 31, 2012
|
|
Ordinary Income
|
|
$
|
8,399
|
|
|
$
|
11,105
|
|
Long-Term Capital Gains*
|
|
|
2,800
|
|
|
|
6,690
|
|
|
*
|
The Fund designates these distributions as long-term capital dividends pursuant to IRC Sec. 852(b)(3)(C).
|
As of December 31, 2013, the
Fund’s components of distributable earnings (deficit) on a tax basis were as follows:
|
|
Amount
|
|
Undistributed Ordinary Income
|
|
$
|
17,578
|
|
Undistributed Long-Term Capital Gain
|
|
|
8,176
|
|
Unrealized Appreciation*
|
|
|
28,820
|
|
Total Accumulated Earnings
|
|
$
|
54,574
|
|
|
*
|
Differences between book-basis and tax-basis unrealized appreciation (depreciation) may be attributable
to the losses deferred due to wash sale adjustments, foreign currency gains and losses, adjustments related to PFICs, REITs, RICs,
certain derivatives and partnerships.
|
|
d)
|
Reclassification of Capital Accounts
– The Fund may record reclassifications in its
capital accounts. These reclassifications have no impact on the total net assets of the Fund. The reclassifications are a result
of permanent differences between U.S. GAAP and tax accounting for such items as foreign currency, PFICs, expiration or utilization
of capital loss carryforwards or net operating losses. Adjustments are made to reflect the impact these items have on current and
future distributions to shareholders. Therefore, the source of the Fund’s distributions may be shown in the accompanying
Statement of Changes in Net Assets as from undistributed net investment income, from accumulated net realized gains on investments
or from capital depending on the type of book and tax differences that exist. For the year ended December 31, 2013, the Fund recorded
reclassifications to increase (decrease) the accounts listed below:
|
|
|
Amount
|
|
Undistributed Net Investment Income (Loss)
|
|
$
|
(39
|
)
|
Accumulated Net Realized Gain (Loss)
|
|
|
39
|
|
|
e)
|
Capital Loss Carryforward
– On December 22, 2010, the Regulated Investment Company
Modernization Act of 2010 (the “Act”) was enacted, which made changes to the capital loss carryforward rules. The changes
are effective for taxable years beginning after the date of enactment. Under the Act, funds are permitted to carry forward capital
losses for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized
prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule,
pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital loss
|
carryforwards retain their character
as either short-term or long-term capital losses rather than being considered all short-term as permitted under prior regulation.
The Fund had no capital
loss carryforward for U.S. federal income tax purposes as of December 31, 2013.
|
f)
|
Accounting for Uncertainty in Income Taxes
– The Fund has adopted financial reporting
rules that require the Fund to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions.
Generally, tax authorities can examine all tax returns filed for the last three years. The Fund does not have an examination in
progress.
|
The Fund has reviewed all open
tax years and major jurisdictions and concluded that these financial reporting rules had no effect on the Fund’s financial
position or results of operations. There is no tax liability resulting from unrecognized tax benefits relating to uncertain income
tax positions taken or expected to be taken on the tax return for the fiscal year ended December 31, 2013. The Fund is also not
aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly
change in the next twelve months.
|
a)
|
Investment Management Agreement
– Hartford Funds Management Company, LLC (“HFMC”),
an indirect wholly owned subsidiary of The Hartford Financial Services Group, Inc. (“The Hartford”), serves as investment
manager to the Fund pursuant to an Investment Management Agreement with the Company. The investment manager has overall investment
supervisory responsibility for the Fund. In addition, the investment manager provides administrative personnel, services, equipment,
facilities and office space for proper operation of the Fund. The investment manager has contracted with Wellington Management
Company, LLP (“Wellington Management”) under a sub-advisory agreement for the provision of day-to-day investment management
services to the Fund in accordance with the Fund’s investment objective and policies. The Fund pays a fee to the investment
manager, a portion of which may be used to compensate Wellington Management.
|
The schedule below reflects the
rates of compensation paid to HFMC for investment management services rendered as of December 31, 2013; the rates are accrued daily
and paid monthly.
Average Daily Net Assets
|
|
Annual Fee
|
|
On first $500 million
|
|
|
0.8000
|
%
|
On next $500 million
|
|
|
0.7500
|
%
|
On next $2 billion
|
|
|
0.7000
|
%
|
On next $2 billion
|
|
|
0.6900
|
%
|
On next $5 billion
|
|
|
0.6800
|
%
|
Over $10 billion
|
|
|
0.6700
|
%
|
|
b)
|
Accounting Services Agreement –
Pursuant to the Fund Accounting Agreement between
HFMC and the Company, on behalf of the Fund, HFMC provides accounting services to the Fund and receives monthly compensation based
on the Fund’s average daily net assets at the rates set forth below. The Fund’s accounting services fees are accrued
daily and paid monthly.
|
Average Daily Net Assets
|
|
Annual Fee
|
|
On first $5 billion
|
|
|
0.014
|
%
|
On next $5 billion
|
|
|
0.012
|
%
|
Over $10 billion
|
|
|
0.010
|
%
|
|
c)
|
Operating Expenses
– Allocable expenses incurred by the Company are allocated to each
Fund and allocated to classes within a Fund in proportion to the average daily net assets of the Fund and each class, except where
allocation of certain expenses is more fairly made directly to the Fund or to specific classes within a Fund.
|
Hartford
Small/Mid Cap Equity HLS Fund
Notes to Financial Statements – (continued)
December 31, 2013
(000’s Omitted)
|
d)
|
Fees Paid Indirectly
– The Company, on behalf of the Fund, has entered into agreements
with State Street Global Markets, LLC and Russell Implementation Services, Inc. to partially recapture non-discounted trade commissions.
Such rebates are used to pay a portion of the Fund’s expenses. In addition, the Fund’s custodian bank has agreed to
reduce its fees when the Fund maintains cash on deposit in a non-interest-bearing custody account. For the year ended December
31, 2013, these amounts, if any, are included in the Statement of Operations.
|
The ratio of expenses to average
net assets in the accompanying financial highlights excludes the reduction in expenses related to fees paid indirectly. The annualized
expense ratio after waivers for the period listed below reflecting the reduction for fees paid indirectly is as follows:
|
|
Year Ended
December 31,
2013
|
|
Class IA
|
|
|
0.85
|
%
|
Class IB
|
|
|
1.10
|
|
|
e)
|
Distribution Plan for Class IB shares
– Effective June 14, 2013, Hartford Investment
Financial Services, LLC was renamed Hartford Funds Distributors, LLC (“HFD”). HFD, a wholly owned, ultimate subsidiary
of The Hartford, serves as the Fund’s principal underwriter and distributor. The Company, on behalf of the Fund, has adopted
a Distribution Plan pursuant to Rule 12b-1 of the 1940 Act to compensate the distributor, HFD, from assets attributable to the
Class IB shares for services rendered and expenses borne in connection with activities primarily intended to result in the sale
of the Class IB shares, subject to the review and approval of the Company’s Board of Directors.
|
The Distribution Plan provides
that the Fund may pay annually up to 0.25% of the average daily net assets of the Fund attributable to its Class IB shares for
activities primarily intended to result in the sale of Class IB shares. The Board has the authority to suspend or reduce these
payments at any point in time. Under the terms of the Distribution Plan and the principal underwriting agreement, the Fund is authorized
to make payments monthly to the distributor that may be used to pay or compensate entities providing distribution and shareholder
servicing with respect to the Class IB shares for such entities’ fees or expenses incurred or paid in that regard. These
fees are accrued daily and paid monthly.
|
f)
|
Other Related Party Transactions
– Certain officers of the Fund are directors and/or
officers of the investment manager and/or The Hartford or its subsidiaries. For the year ended December 31, 2013, a portion of
the Fund’s Chief Compliance Officer’s salary was paid by all the investment companies in the Hartford fund complex.
The portion allocated to the Fund rounds to zero. Hartford Administrative Services Company (“HASCO”), an indirect wholly
owned subsidiary of The Hartford, provides transfer agent services to the Fund. HASCO was compensated on a per account basis for
providing such services. The amount paid to HASCO can be found in the Statement of Operations. These fees are accrued daily and
paid monthly.
|
|
7.
|
Investment Transactions:
|
For the year ended December
31, 2013, the Fund's aggregate purchases and sales of investment securities (excluding short-term investments) were as follows:
|
|
Amount
|
|
Cost of Purchases Excluding U.S. Government Obligations
|
|
$
|
179,269
|
|
Sales Proceeds Excluding U.S. Government Obligations
|
|
|
209,264
|
|
The Fund is one of several Hartford
funds that participate in a $500 million committed revolving line of credit facility. The facility is to be used for temporary
or emergency purposes. Under the arrangement, the funds are required to own securities having a market value in excess of 300%
of the total bank borrowings. The interest rate on borrowings varies depending on
the nature of the loan. The
facility also requires a fee to be paid based on the amount of the commitment. This commitment fee is allocated to all of the funds
participating in the line of credit based on the average net assets of the funds. During the year ended December 31, 2013, the
Fund did not have any borrowings under this facility.
|
9.
|
Industry Classifications:
|
Other than the industry classifications
“Other Investment Pools and Funds” and “Exchange Traded Funds,” equity industry classifications used in
this report are the Global Industry Classification Standard, which was developed by and is the exclusive property and service mark
of MSCI, Inc. and Standard & Poor’s.
Under the Company’s organizational
documents, the Company shall indemnify its officers and directors to the full extent required or permitted under Maryland General
Corporation Law and the federal securities laws. In addition, the Company, on behalf of the Fund, may enter into contracts that
contain a variety of indemnifications. The Company’s maximum exposure under these arrangements is unknown. However, as of
the date of these financial statements, the Company has not had prior claims or losses pursuant to these contracts and expects
the risk of loss to be remote.
|
11.
|
Pending Legal Proceedings:
|
On February 25, 2011, Jennifer
L. Kasilag, Louis Mellinger, Judith M. Menendez, Jacqueline M. Robinson, and Linda A. Russell filed a derivative lawsuit against
Hartford Investment Financial Services, LLC (“HIFSCO”)(now known as Hartford Funds Distributors, LLC) on behalf of
six Hartford retail mutual funds in the United States District Court for the District of New Jersey, alleging that HIFSCO received
excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the 1940 Act when
serving as investment manager and principal underwriter, respectively, to the Hartford retail mutual funds. HIFSCO moved to dismiss
and, in September 2011, the motion was granted in part and denied in part, with leave to amend the complaint. In November 2011,
plaintiffs filed an amended complaint on behalf of certain Hartford retail mutual funds, The Hartford Global Health Fund (now known
as The Hartford Healthcare Fund), The Hartford Conservative Allocation Fund, The Hartford Growth Opportunities Fund, The Hartford
Inflation Plus Fund, The Hartford Advisers Fund (now known as The Hartford Balanced Fund), and The Hartford Capital Appreciation
Fund. Plaintiffs seek to rescind the investment management agreements and distribution plans between HIFSCO and these funds and
to recover the total fees charged thereunder or, in the alternative, to recover any improper compensation HIFSCO received, in addition
to lost earnings. HIFSCO filed a partial motion to dismiss the amended complaint and, in December 2012, the court dismissed without
prejudice the claims regarding distribution fees and denied the motion with respect to the advisory fees claims. HIFSCO disputes
the allegations and intends to defend the advisory fee claims vigorously.
This action concerns the activities
of HIFSCO in its capacity as investment manager and principal underwriter to the Hartford retail mutual funds and does not concern
HIFSCO’s activities in its capacity as principal underwriter to the HLS funds. For this reason, no accrual for litigation
relating to this matter has been recorded in the financial statements of the Fund.
Hartford
Small/Mid Cap Equity HLS Fund
Financial Highlights
|
|
─ Selected Per-Share Data(A) ─
|
|
|
─ Ratios and Supplemental Data ─
|
|
Class
|
|
Net Asset
Value at
Beginning
of Period
|
|
|
Net
Investment
Income
(Loss)
|
|
|
Net
Realized
and
Unrealized
Gain (Loss)
on
Investments
|
|
|
Total from
Investment
Operations
|
|
|
Dividends
from Net
Investment
Income
|
|
|
Distributions
from
Realized
Capital
Gains
|
|
|
Total
Dividends
and
Distributions
|
|
|
Net
Asset
Value at
End of
Period
|
|
|
Total
Return(B)
|
|
|
Net
Assets at
End of
Period
(000s)
|
|
|
Ratio of
Expenses
to
Average
Net
Assets
Before
Adjust-
ments(C)
|
|
|
Ratio of
Expenses
to
Average
Net
Assets
After
Adjust-
ments(C)
|
|
|
Ratio of
Net
Investment
Income
(Loss) to
Average
Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IA
|
|
$
|
8.90
|
|
|
$
|
0.16
|
|
|
$
|
3.08
|
|
|
$
|
3.24
|
|
|
$
|
(0.14
|
)
|
|
$
|
(0.71
|
)
|
|
$
|
(0.85
|
)
|
|
$
|
11.29
|
|
|
|
37.51
|
%
|
|
$
|
117,395
|
|
|
|
0.85
|
%
|
|
|
0.85
|
%
|
|
|
1.58
|
%
|
IB
|
|
|
8.85
|
|
|
|
0.13
|
|
|
|
3.07
|
|
|
|
3.20
|
|
|
|
(0.12
|
)
|
|
|
(0.71
|
)
|
|
|
(0.83
|
)
|
|
|
11.22
|
|
|
|
37.08
|
|
|
|
26,362
|
|
|
|
1.10
|
|
|
|
1.10
|
|
|
|
1.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2012 (D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IA
|
|
$
|
8.93
|
|
|
$
|
0.15
|
|
|
$
|
1.21
|
|
|
$
|
1.36
|
|
|
$
|
(0.06
|
)
|
|
$
|
(1.33
|
)
|
|
$
|
(1.39
|
)
|
|
$
|
8.90
|
|
|
|
15.87
|
%
|
|
$
|
106,339
|
|
|
|
0.88
|
%
|
|
|
0.88
|
%
|
|
|
1.57
|
%
|
IB
|
|
|
8.88
|
|
|
|
0.13
|
|
|
|
1.20
|
|
|
|
1.33
|
|
|
|
(0.03
|
)
|
|
|
(1.33
|
)
|
|
|
(1.36
|
)
|
|
|
8.85
|
|
|
|
15.58
|
|
|
|
24,774
|
|
|
|
1.13
|
|
|
|
1.13
|
|
|
|
1.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2011 (D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IA
|
|
$
|
9.85
|
|
|
$
|
0.06
|
|
|
$
|
(0.23
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
–
|
|
|
$
|
(0.75
|
)
|
|
$
|
(0.75
|
)
|
|
$
|
8.93
|
|
|
|
(1.13
|
)%
|
|
$
|
107,762
|
|
|
|
0.87
|
%
|
|
|
0.87
|
%
|
|
|
0.60
|
%
|
IB
|
|
|
9.83
|
|
|
|
0.04
|
|
|
|
(0.24
|
)
|
|
|
(0.20
|
)
|
|
|
–
|
|
|
|
(0.75
|
)
|
|
|
(0.75
|
)
|
|
|
8.88
|
|
|
|
(1.38
|
)
|
|
|
28,441
|
|
|
|
1.12
|
|
|
|
1.12
|
|
|
|
0.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2010 (D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IA
|
|
$
|
7.88
|
|
|
$
|
0.07
|
|
|
$
|
1.96
|
|
|
$
|
2.03
|
|
|
$
|
(0.06
|
)
|
|
$
|
–
|
|
|
$
|
(0.06
|
)
|
|
$
|
9.85
|
|
|
|
25.83
|
%
|
|
$
|
136,913
|
|
|
|
0.87
|
%
|
|
|
0.87
|
%
|
|
|
0.82
|
%
|
IB
|
|
|
7.86
|
|
|
|
0.05
|
|
|
|
1.96
|
|
|
|
2.01
|
|
|
|
(0.04
|
)
|
|
|
–
|
|
|
|
(0.04
|
)
|
|
|
9.83
|
|
|
|
25.52
|
|
|
|
38,008
|
|
|
|
1.12
|
|
|
|
1.12
|
|
|
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2009 (D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IA
|
|
$
|
5.34
|
|
|
$
|
0.02
|
|
|
$
|
2.54
|
|
|
$
|
2.56
|
|
|
$
|
(0.02
|
)
|
|
$
|
–
|
|
|
$
|
(0.02
|
)
|
|
$
|
7.88
|
|
|
|
47.87
|
%
|
|
$
|
114,269
|
|
|
|
0.87
|
%
|
|
|
0.87
|
%
|
|
|
0.43
|
%
|
IB
|
|
|
5.34
|
|
|
|
0.01
|
|
|
|
2.52
|
|
|
|
2.53
|
|
|
|
(0.01
|
)
|
|
|
–
|
|
|
|
(0.01
|
)
|
|
|
7.86
|
|
|
|
47.51
|
|
|
|
25,176
|
|
|
|
1.12
|
|
|
|
1.12
|
|
|
|
0.17
|
|
|
(A)
|
Information presented relates to a share outstanding throughout the indicated period. Net investment income (loss) per share
amounts are calculated based on average shares outstanding unless otherwise noted.
|
|
(B)
|
The figures do not include sales charges or other fees which may be applied at the variable life insurance, variable annuity
or qualified retirement plan product level. Any such additional sales charges or other fees would lower the Fund's performance.
|
|
(C)
|
Adjustments include waivers and reimbursements, if applicable. Ratios do not include fees paid indirectly (see Expenses in
the accompanying Notes to Financial Statements).
|
|
(D)
|
Net investment income (loss) per share amounts have been calculated using the SEC method.
|
|
|
Portfolio Turnover
Rate for
All Share Classes
|
|
For the Year Ended December 31, 2013
|
|
|
128
|
%
|
For the Year Ended December 31, 2012
|
|
|
150
|
|
For the Year Ended December 31, 2011
|
|
|
196
|
|
For the Year Ended December 31, 2010
|
|
|
300
|
|
For the Year Ended December 31, 2009
|
|
|
160
|
|
Report
of Independent Registered Public Accounting Firm
The Board of Directors
and Shareholders of
Hartford HLS Series Fund II, Inc.
We have audited the accompanying statement
of assets and liabilities, including the schedule of investments, of Hartford Small/Mid Cap Equity HLS Fund (one of the portfolios
constituting Hartford HLS Series Fund II, Inc. (the Funds)) as of December 31, 2013, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility
of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We
were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities
owned as of December 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures where
replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements
and financial highlights referred to above present fairly, in all material respects, the financial position of Hartford Small/Mid
Cap Equity HLS Fund of the Hartford HLS Series Fund II, Inc. at December 31, 2013, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Minneapolis, MN
February 17, 2014
Hartford
Small/Mid Cap Equity HLS Fund
Directors and Officers (Unaudited)
The Board of Directors of the Company appoints
officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the directors. Each
director serves until his or her death, resignation, or retirement or until the next annual meeting of shareholders is held or
until his or her successor is elected and qualifies.
Directors and officers who are employed
by or who have a financial interest in The Hartford are considered “interested” persons of the Fund pursuant to the
1940 Act. Each officer and two of the Company’s directors, as noted in the chart below, are “interested” persons
of the Fund. Each director serves as a director for The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., Hartford
Series Fund, Inc., Hartford HLS Series Fund II, Inc., and as a trustee for The Hartford Alternative Strategies Fund, which, as
of December 31, 2013, collectively consist of 91 funds. Correspondence may be sent to directors and officers c/o Hartford Funds,
5 Radnor Corporate Center, Suite 300, 100 Matsonford Road, Radnor, Pennsylvania 19087, except that correspondence to Mr. Annoni,
Mr. Dressen and Ms. Quade may be sent to 500 Bielenberg Drive, Woodbury, Minnesota 55125.
The table below sets forth, for each director
and officer, his or her name, year of birth, current position with the Company and date first elected or appointed to Hartford
Series Fund, Inc. (“HSF”), and Hartford HLS Series Fund II, Inc. (“HSF2”), principal occupation, and, for
directors, other directorships held. The Fund’s Statement of Additional Information contains further information on the directors
and is available free of charge by calling 1-800-862-6668 or writing to Hartford HLS Funds, c/o Hartford Life Insurance Company,
Hartford Life and Annuity Insurance Company, P.O. Box 14293, Lexington, KY 40512-4293.
Information on the aggregate remuneration
paid to the directors of the Company can be found in the Statement of Operations herein. The Fund pays to The Hartford a portion
of the Chief Compliance Officer’s compensation, but does not pay salaries or compensation to any of their other officers
or directors who are employed by The Hartford.
Non-Interested Directors
Lynn S. Birdsong
(1946) Director since 2003, Co-Chairman
of the Investment Committee since 2005
Mr. Birdsong is a private investor. Mr.
Birdsong currently serves as a Director of the Sovereign High Yield Investment Company (April 2010 to current). Mr. Birdsong currently
serves as an Independent Director of Nomura Partners Funds, Inc. (formerly, The Japan Fund) (April 2003 to current). From 2003
to March 2005, Mr. Birdsong was an Independent Director of the Atlantic Whitehall Funds. From 1979 to 2002, Mr. Birdsong was a
Managing Director of Zurich Scudder Investments, an investment management firm. During his employment with Scudder, Mr. Birdsong
was an Interested Director of The Japan Fund. From January 1981 through December 2013, Mr. Birdsong was a partner in Birdsong Company,
an advertising specialty firm.
Robert M. Gavin, Jr.
(1940) Director
since 2002 (HSF) and 1986 (HSF2), Chairman of the Board since 2004
Dr. Gavin is an educational consultant.
Prior to September 1, 2001, he was President of Cranbrook Education Community and prior to July 1996, he was President of Macalester
College, St. Paul, Minnesota.
Duane E. Hill
(1945) Director since
2001 (HSF) and 2002 (HSF2), Chairman of the Nominating Committee since 2003
Mr. Hill is a Partner of TSG Ventures L.P.,
a private equity investment company. Mr. Hill is a former partner of TSG Capital Group, a private equity investment firm that served
as sponsor and lead investor in leveraged buyouts of middle market companies.
Sandra S. Jaffee
(1941) Director
since 2005
Ms. Jaffee is the founder and Chief Executive
Officer of a private company, Homeworks Concierge, LLC, which provides residential property management services in Westchester
County, New York (January 2012 to present). Ms. Jaffee served as Chairman (2008 to 2009) and Chief Executive Officer of Fortent
(formerly Searchspace Group), a leading provider of compliance/regulatory technology to financial institutions from August 2005
to August 2009. Ms. Jaffee currently serves as a member of the Board of Directors of Broadridge Financial Solutions as well as
a Trustee of Muhlenberg College.
William P. Johnston
(1944) Director
since 2005, Chairman of the Compliance Committee since 2005
In June 2006, Mr. Johnston was appointed
as Senior Advisor to The Carlyle Group, a global private equity and alternative asset investment firm and currently serves as an
Operating Executive. In July 2006, Mr. Johnston was elected to the Board of Directors of MultiPlan, Inc. and served as a Director
(July 2006 to August 2010). In August 2007, Mr. Johnston was elected to the Board of Directors of LifeCare Holdings, Inc. and served
as a Director (August 2007 to June 2013). In February 2008, Mr. Johnston was elected to the Board of Directors of HCR-ManorCare,
Inc. In May 2006, Mr. Johnston was elected to the Supervisory Board of Fresenius Medical Care AG & Co. KGaA, after its acquisition
of Renal Care Group, Inc. in March 2006. Mr. Johnston joined Renal Care Group in November 2002 as a member of the Board of Directors
and served as Chairman of the Board from March 2003 through March 2006. From 2002 through 2013, Mr. Johnston served as a Board
member of the Georgia O’Keefe Museum. From September 1987 to December 2002, Mr. Johnston was with Equitable Securities Corporation
(and its successors, SunTrust Equitable Securities and SunTrust Robinson Humphrey) serving in various investment banking and managerial
positions, including Managing Director and Head of Investment Banking, Chief Executive Officer and Vice Chairman.
Phillip O. Peterson
(1944) Director
since 2002 (HSF) and 2000 (HSF2), Chairman of the Audit Committee since 2002
Mr. Peterson is a mutual fund
industry consultant. He was a partner of KPMG LLP (an accounting firm) until July 1999. Mr. Peterson joined William Blair Funds
in February 2007 as a member of the Board of Trustees. Mr. Peterson also joined the Board of Trustees of Symetra Variable Mutual
Funds Trust as a trustee in February 2012.
Lemma W. Senbet
(1946) Director
since 2005
Dr. Senbet is the William E. Mayer Chair
Professor of Finance and Founding Director, Center for Financial Policy, at the University of Maryland, Robert H. Smith School
of Business. He was chair of the Finance Department of the University of Maryland, Robert H. Smith School of Business from 1998
to 2006. Since June 2013, he has been on leave from the University to serve as Executive Director of African Economic Research
Consortium which focuses on economic policy research and training. Previously, he was a chaired professor of finance at the University
of Wisconsin-Madison. Also, he was a Director of the Fortis Funds from March 2000 to July 2002. Dr. Senbet served as Director of
the American Finance Association and President of the Western Finance Association. In 2006, Dr. Senbet was inducted Fellow of Financial
Management Association International for his career-long distinguished scholarship and professional service.
Interested Directors and Officers
James E. Davey
(1964) Director since
2012, President and Chief Executive Officer since 2010
Mr. Davey serves as Executive Vice President
of Hartford Life Insurance Company (“HLIC”) and The Hartford Financial Services Group, Inc. Additionally, Mr. Davey
serves as Chairman of the Board, Manager and Senior Managing Director of Hartford Funds Distributors, LLC (“HFD”).
He also currently serves as Director, Chairman of the Board, President and Senior Managing Director of Hartford Administrative
Services Company (“HASCO”). Mr. Davey also serves as Manager, Chairman of the Board and Senior Managing Director for
Hartford Funds Management Company, LLC (“HFMC”). Mr. Davey joined The Hartford in 2002.
Lowndes A. Smith
(1939) Director
since 1996 (HSF) and 2002 (HSF2), Co-Chairman of the Investment Committee since 2005
Mr. Smith served as Vice Chairman of The
Hartford from February 1997 to January 2002, as President and Chief Executive Officer of Hartford Life, Inc. from February 1997
to January 2002, and as President and Chief Operating Officer of The Hartford Life Insurance Companies from January 1989 to January
2002. Mr. Smith serves as a Director of White Mountains Insurance Group Ltd. (October 2003 to current); One Beacon Insurance (October
2006 to current); Symetra Financial (August 2007 to current) and is a Managing Director of Whittington Gray Associates (January
2007 to current).
Other Officers
Mark A. Annoni
(1964) Vice President,
Controller and Treasurer since 2012
Mr. Annoni currently serves
as the Assistant Vice President of HLIC (February 2004 to present).
Hartford
Small/Mid Cap Equity HLS Fund
Directors and Officers (Unaudited)
– (continued)
Michael R. Dressen
(1963) AML Compliance
Officer since 2011
Mr. Dressen currently serves as Assistant
Vice President of HLIC. He also serves as Chief Compliance Officer and AML Compliance Officer of HASCO and as AML Officer of HFD.
Mr. Dressen has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford
Funds.
Edward P. Macdonald
(1967) Vice
President, Secretary and Chief Legal Officer since 2005
Mr. Macdonald currently serves
as Assistant Secretary, Executive Vice President and Deputy General Counsel of HFD, HASCO and HFMC. He also serves as Vice President
of HLIC. Mr. Macdonald has served in various positions within The Hartford and its subsidiaries in connection with the operation
of the Hartford Funds. Mr. Macdonald joined The Hartford in 2005.
Joseph
G. Melcher
(1973) Vice President and Chief Compliance Officer since 2013
Mr. Melcher currently serves as Executive
Vice President of HASCO and HFD. Mr. Melcher also currently serves as Executive Vice President and Chief Compliance Officer of
HFMC. Mr. Melcher has served in various positions within The Hartford and its subsidiaries in connection with the operation of
the Hartford Funds since joining The Hartford in 2012. Prior to joining The Hartford, Mr. Melcher worked at Touchstone Investments,
a member of the Western & Southern Financial Group, where he held the position of Vice President and Chief Compliance Officer
from 2010 through 2012 and Assistant Vice President, Compliance from 2005 to 2010.
Vernon J. Meyer
(1964) Vice President
since 2006
Mr. Meyer currently serves as Senior Vice
President of HLIC. He also currently serves as Managing Director and Chief Investment Officer of HFMC. Mr. Meyer has served in
various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr. Meyer joined
The Hartford in 2004.
Laura S. Quade
(1969) Vice President
since 2012
Ms. Quade currently serves as Vice President of HASCO and HFD.
She is the Head of Operations of HASCO and also serves as Director, Enterprise Operations of HLIC. Ms. Quade has served in various
positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
Martin A. Swanson
(1962) Vice President since 2010
Mr. Swanson currently serves as Vice President
of HLIC. Mr. Swanson also serves as Managing Director, Chief Marketing Officer and Principal of HFD. Mr. Swanson has served in
various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
HOW TO OBTAIN A COPY OF THE FUND’S
PROXY VOTING POLICIES AND VOTING RECORDS (UNAUDITED)
A description of the policies and procedures
that the Fund uses to determine how to vote proxies relating to portfolio securities and information about how the Fund voted proxies
relating to portfolio securities during the most recent twelve-month period ended June 30 are available (1) without charge, upon
request, by calling 800-862-6668 and (2) on the SEC’s website at http://www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS INFORMATION
(UNAUDITED)
The Fund files a complete schedule of portfolio
holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available
(1) without charge, upon request, by calling 800-862-6668 and (2) on the SEC’s website at http://www.sec.gov. The Form N-Q
may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public
Reference Room may be obtained by calling 1-800-SEC-0330.
Hartford
Small/Mid Cap Equity HLS Fund
Expense Example (Unaudited)
Your Fund's Expenses
As a shareholder of the Fund, you incur
two types of costs: (1) transaction costs and (2) ongoing costs, including investment management fees, distribution and/or service
(12b-1) fees, if any, and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars)
of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based
on an investment of $1,000 invested at the beginning of the period and held for the period of June 30, 2013 through December 31,
2013.
Actual Expenses
The first set of columns of the table below
provides information about actual account values and actual expenses. You may use the information in this column, together with
the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for
example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the line under the heading
entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second set of columns of the table
below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to
highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) and CDSC. Therefore,
the second set of columns of the table is useful in comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these transactional costs were included, your costs would be higher. Expenses
are equal to the Fund's annualized expense ratios multiplied by average account value over the period, multiplied by 184/365 (to
reflect the one-half year period).
|
|
Actual return
|
|
|
Hypothetical (5% return before expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Account Value
June 30, 2013
|
|
|
Ending
Account Value
December 31,
2013
|
|
|
Expenses paid
during the period
June 30, 2013
through
December 31, 2013
|
|
|
Beginning
Account Value
June 30, 2013
|
|
|
Ending
Account Value
December 31,
2013
|
|
|
Expenses paid
during the period
June 30, 2013
through
December 31, 2013
|
|
|
Annualized
expense
ratio
|
|
|
|
Days in
the
current
1/2
year
|
|
|
|
Days
in the
full
year
|
|
Class IA
|
|
$
|
1,000.00
|
|
|
$
|
1,203.90
|
|
|
$
|
4.64
|
|
|
$
|
1,000.00
|
|
|
$
|
1,021.00
|
|
|
$
|
4.25
|
|
|
|
0.84
|
%
|
|
|
184
|
|
|
|
365
|
|
Class IB
|
|
$
|
1,000.00
|
|
|
$
|
1,201.70
|
|
|
$
|
6.02
|
|
|
$
|
1,000.00
|
|
|
$
|
1,019.73
|
|
|
$
|
5.52
|
|
|
|
1.09
|
%
|
|
|
184
|
|
|
|
365
|
|
Hartford
Small/Mid Cap Equity HLS Fund
Approval of Investment Management and Investment Sub-Advisory
Agreements
(Unaudited)
Section 15(c) of the Investment Company
Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of directors, including a majority
of those directors who are not “interested persons” of the mutual fund, as defined in the 1940 Act (the “Independent
Directors”), annually review and consider the continuation of the mutual fund’s investment advisory and sub-advisory
agreements. At its meeting held on August 6-7, 2013, the Board of Directors (the “Board”) of Hartford HLS Series Fund
II, Inc., including each of the Independent Directors, unanimously voted to approve the continuation of the investment management
agreement for Hartford Small/Mid Cap Equity HLS Fund (the “Fund”) with Hartford Funds Management Company, LLC (“HFMC”)
and the continuation of the investment sub-advisory agreement between HFMC and the Fund’s sub-adviser, Wellington Management
Company, LLP (the “Sub-adviser,” and together with HFMC, the “Advisers”) (collectively, the “Agreements”).
In the months preceding the August 6-7,
2013 meeting, the Board requested, received, and reviewed written responses from the Advisers to questions posed to them on behalf
of the Independent Directors and supporting materials relating to those questions and responses. The Board considered information
furnished to the Board at its meetings throughout the year, as well as information specifically prepared in connection with the
annual approval of the Agreements at the Board’s meetings held on June 18-19, 2013 and August 6-7, 2013. Information
provided to the Board at its meetings throughout the year included, among other things, reports on Fund performance, legal and
compliance matters, sales and marketing activity, shareholder services, and the other services provided to the Fund by the Advisers
and their affiliates. The Board also received in-person presentations by Fund officers and representatives of HFMC at the Board’s
meetings on June 18-19, 2013 and August 6-7, 2013 concerning the Agreements.
The Independent Directors, advised by independent
legal counsel, engaged two service providers to assist them with evaluating the Agreements with respect to the Fund. Lipper Inc.
(“Lipper”), an independent provider of investment company data, was retained to provide the Board with reports on how
the Fund’s contractual management fees, actual management fees, other non-management fees, overall expense ratios and investment
performance compared to those of mutual funds with similar investment objectives. The Independent Directors also engaged an independent
financial services consulting firm (the “Consultant”) to assist them in evaluating the Fund’s management fees,
sub-advisory fees, other non-management fees, overall expense ratios and investment performance. In addition, the Consultant reviewed
the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement.
In determining whether to continue the
Agreements for the Fund, the members of the Board reviewed and evaluated information and factors they believed to be relevant and
appropriate in light of the information that the Board deemed necessary and appropriate through the exercise of its reasonable
business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination
to continue the Agreements was based on a comprehensive consideration of all information provided to the Board throughout the year
and specifically with respect to the continuation of the Agreements. A more detailed discussion of the factors the Board considered
with respect to its approval of the Agreements is provided below.
Nature, Extent, and Quality of Services
Provided by the Advisers
The Board requested and considered information
concerning the nature, extent, and quality of the services provided to the Fund by the Advisers. The Board considered, among other
things, the terms of the Agreements and the range of services provided by the Advisers. The Board considered the Advisers’
professional personnel who provide services to the Fund, including each Adviser’s ability and experience in attracting and
retaining qualified personnel to service the Fund. The Board considered each Adviser’s reputation and overall financial strength,
as well as its willingness to consider and implement organizational and operational changes designed to improve services to the
Fund. In addition, the Board considered the quality of each Adviser’s communications with the Board and responsiveness to
Board inquiries.
The Board also requested and evaluated
information concerning each Adviser’s regulatory and compliance environment. In this regard, the Board requested and reviewed
information on each Adviser’s compliance policies and procedures, compliance history, and a report from the Fund’s
Chief Compliance Officer on each Adviser’s compliance with applicable laws and regulations, including responses to regulatory
developments and compliance issues raised by regulators. The Board also noted the Advisers’ support of the Fund’s compliance
control structure, particularly the resources devoted by the Advisers in support of the Fund’s obligations pursuant to Rule 38a-1
under the 1940 Act.
With respect to HFMC, the Board noted that
under the Agreements, HFMC is responsible for the management of the Fund, including overseeing fund operations and service providers,
as well as investment advisory services in connection with selecting, monitoring and supervising the Sub-adviser. The Board considered
HFMC’s ongoing monitoring of people, process and performance, including its quarterly reviews of each of the Hartford Funds,
semi-annual meetings with the leaders of each Fund’s portfolio management team, and oversight of the Funds’ approximately
40 portfolio managers. The Board recognized that HFMC has demonstrated a record of making changes to the management and/or strategies
of the Funds when warranted. The Board considered HFMC’s oversight of the Sub-adviser’s investment approach and results,
process for monitoring best execution of portfolio trades by the Sub-adviser, and approach to risk management with respect to the
Fund and the service providers to the Fund. The Board also considered HFMC’s oversight of compliance with the Fund’s
objective and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over
time led to an increase in the scope of HFMC’s services in this regard.
In addition, the Board considered HFMC’s
ongoing commitment to review and rationalize the Hartford Funds product line-up and the expenses that HFMC had incurred in connection
with fund combinations in recent years. The Board considered that HFMC or its affiliates are responsible for providing the Fund’s
officers. The Board also noted that Hartford Life Insurance Company (“HLIC”) provides administrative services to the
Fund. The Board considered its experiences with HFMC and HLIC with respect to each of these services.
With respect to the Sub-adviser, who provides
day-to-day portfolio management services, the Board considered the quality of the Fund’s portfolio manager, the Sub-adviser’s
other investment personnel, its investment philosophy and process, investment research capabilities and resources, performance
record, trade execution capabilities and experience. The Board considered the experience of the Fund’s portfolio manager,
the number of accounts managed by the portfolio manager, and the Sub-adviser’s method for compensating the portfolio manager.
Based on these considerations, the Board
concluded that it was satisfied with the nature, extent and quality of the services provided to the Fund by HFMC and the Sub-adviser.
Performance of the Fund and the Advisers
The Board considered the investment performance
of the Fund. In this regard, the Board reviewed the performance of the Fund over different time periods presented in the materials
and evaluated HFMC’s analysis of the Fund’s performance for these time periods. The Board considered information and
materials provided to the Board by the Advisers concerning Fund performance, as well as information from Lipper comparing the investment
performance of the Fund to an appropriate benchmark and universe of peer funds. The Board noted that the Fund’s performance
was in the 3
rd
quintile of its performance universe for the 1- and 5-year periods and the 2
nd
quintile for
the 3-year period. The Board also noted that the Fund’s performance was in line with its benchmark for the 1-year period,
above its benchmark for the 3-year period and below its benchmark for the 5-year period.
The Board considered the detailed investment
analytics reports provided by Hartford Funds’ Investment Advisory Group throughout the year. These reports include, among
other things, information on the Fund’s gross and net returns, the Fund’s investment performance relative to an appropriate
benchmark and peer group, various statistics concerning the Fund’s portfolio, and a narrative summary of various factors
affecting Fund performance. The Board considered the Advisers’ cooperation with the Investment Committee, which assists the
Board in evaluating the performance of the Fund at periodic meetings throughout the year. The Board also considered the analysis
provided by the Consultant relating to the Fund’s performance track record.
In light of all the considerations noted
above, the Board concluded that it had continued confidence in HFMC’s and the Sub-adviser’s overall capabilities to
manage the Fund.
Costs of the Services and Profitability
of the Advisers
The Board reviewed information regarding
HFMC’s cost to provide investment management and related services to the Fund and HFMC’s profitability, both overall
and for the Fund, on a pre-tax basis without regard to distribution expenses. The Board also requested and reviewed information
about the profitability to HFMC and its affiliates from all services provided to the Fund and all aspects of their relationship
with the Fund. The Board also requested and received information relating to the operations and profitability of the Sub-adviser.
Hartford
Small/Mid Cap Equity HLS Fund
Approval of Investment Management and Investment Sub-Advisory
Agreements (Unaudited) – (continued)
The Board considered the Consultant’s
review of the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement,
noting the Consultant’s view that Hartford Funds’ process for calculating and reporting Fund profitability is reasonable.
In this regard, the Board noted that the Consultant had previously performed a full review of this process and reported that such
process is sound and well within common industry practice.
Based on these considerations, the Board
concluded that the profits anticipated to be realized by the Advisers and their affiliates from their relationships with the Fund
would not be excessive.
Comparison of Fees and Services Provided
by the Advisers
The Board considered comparative information
with respect to the management fees to be paid by the Fund to HFMC and the total expense ratios of the Fund. The Board also considered
comparative information with respect to the sub-advisory fees to be paid by HFMC to the Sub-adviser. In this regard, the Board
requested and reviewed information from HFMC and the Sub-adviser relating to the management and sub-advisory fees, including the
sub-advisory fee schedule for the Fund, and total operating expenses for the Fund. The Board considered that the management fee
for the Fund includes the fee paid to HLIC for providing certain administrative services to the Fund. With respect to the sub-advisory
fee schedule, the Board considered representations from HFMC and the Sub-adviser that the Sub-adviser’s fees were negotiated
at arm’s length. The Board also reviewed information from Lipper comparing the Fund’s contractual management fees,
actual management fees and overall expense ratios relative to a group of funds selected by Lipper, in consultation with the Consultant,
and a broader universe of funds selected by Lipper. The Board noted that the Fund’s contractual management fee, actual management
fee and total expenses (less 12b-1 and shareholder service fees) were in the 2
nd
quintile of its expense group.
While the Board recognized that comparisons
between the Fund and peer funds are imprecise, given the differing service levels and characteristics of mutual funds and the different
business models and cost structures of the Advisers, the comparative information provided by Lipper assisted the Board in evaluating
the reasonableness of the Fund’s management and sub-advisory fees and total operating expenses. In addition, the Board considered
the analysis and recommendations of the Consultant relating to the Fund’s management and sub-advisory fees and total operating
expenses.
Based on these considerations, the Board
concluded that the Fund’s fees and total operating expenses, in conjunction with the information about quality of services,
profitability, economies of scale, and other matters discussed, were reasonable in light of the services provided.
Economies of Scale
The Board requested and considered information
regarding the Advisers’ realization of economies of scale with respect to the Fund and whether the fee levels reflect these
economies of scale for the benefit of the Fund’s shareholders. The Board reviewed the breakpoints in the management fee schedule
for the Fund, which reduce fee rates as Fund assets grow over time. The Board recognized that a fund with assets beyond the last
breakpoint level will continue to benefit from economies of scale because additional assets are charged the lowest breakpoint fee
resulting in lower overall effective management fee rates. The Board also recognized that a fee schedule that reaches a lower breakpoint
quickly provides shareholders with the benefit of anticipated or potential economies of scale. The Board noted the effect of the
sale and run-off of the variable annuity business on the HLS Funds.
The Board reviewed and evaluated materials
from Lipper showing how management fee schedules of peer funds reflect economies of scale for the benefit of shareholders as a
peer fund’s assets hypothetically increase over time. Based on information provided by HFMC, Lipper, and the Consultant,
the Board recognized that there is no uniform methodology for establishing breakpoints or uniform pattern in asset levels that
trigger breakpoints or the amounts of breakpoints triggered.
After considering all of the information
available to it, the Board concluded that it was satisfied with the extent to which economies of scale would be shared for the
benefit of the Fund’s shareholders based on currently available information and the effective advisory fees and expense ratios
for the Fund at its current and reasonably anticipated asset levels. The Board noted, however, that it would continue to monitor
future growth in Fund assets and the appropriateness of additional breakpoints.
Other Benefits
The Board considered other benefits to
the Advisers and their affiliates from their relationships with the Fund, including the role of the Fund in supporting the variable
life insurance and variable annuity products offered by The Hartford.
The Board reviewed information noting that
HLIC, an affiliate of HFMC, receives fees for providing certain administrative services to the Fund and that HFMC receives fees
for fund accounting and related services from the Fund. The Board considered information on profits to HLIC and HFMC for such services.
The Board also considered that Hartford Administrative Services Company (“HASCO”), the Fund’s transfer agent
and an affiliate of HFMC, receives transfer agency compensation from the Fund, and the Board reviewed information on the profitability
of the Fund’s transfer agency function to HASCO. The Board considered information provided by HASCO indicating that the transfer
agent fees charged by HASCO to the Fund were fair and reasonable based on publicly available information.
The Board also considered that Hartford
Funds Distributors, LLC (“HFD”), an affiliate of HFMC, serves as principal underwriter of the Fund. As principal underwriter,
HFD receives 12b-1 fees from the Fund. The Board also noted that certain affiliates of HFD distribute shares of the Fund and receive
compensation in that connection.
The Board considered benefits to the Sub-adviser
from its use of the Fund’s brokerage commissions to obtain soft dollar research, and representations from HFMC and the Sub-adviser
that the Sub-adviser would not make any revenue-sharing payments or any other type of distribution payments to HFMC or its affiliates.
The Board considered the benefits to shareholders
of being part of the Hartford Funds family of funds. The Board considered HFMC’s efforts to provide investors in the family
with a broad range of investment styles and asset classes.
* * * *
Based upon its review of these various factors, among others,
the Board concluded that it is in the best interests of the Fund and its shareholders for the Board to approve the Agreements for
an additional year. In reaching this decision, the Board did not assign relative weights to the factors discussed above or deem
any one or group of them to be controlling in and of themselves. In connection with their deliberations, the Independent Directors
met separately in executive session on several occasions, with independent legal counsel and the Consultant, to review the relevant
materials and consider their responsibilities under relevant laws and regulations.
Hartford
Small/Mid Cap Equity HLS Fund
Main Risks (Unaudited)
The main risks of investing in the Fund
are described below.
Market, Selection, and Strategy Risk:
The Fund’s
share price may fluctuate due to market risk and/or security selections that may underperform the market or relevant benchmarks.
If the sub-adviser’s investment strategy does not perform as expected, the Fund could underperform its peers or lose money.
There is no guarantee the Fund will achieve its stated objective.
Small/Mid-cap Stock Risk
: Small- and mid-cap stocks are
generally more volatile and risky and may be less liquid than large-cap stocks because they may have limited operating histories,
narrow product lines, and focus on niche markets.
Quantitative Analysis Risk
: The Fund uses quantitative
analysis in its securities selection; securities selected by this method may perform differently from the broader stock market.
Foreign Investment Risk
: Foreign investments can be riskier
than U.S. investments. Potential risks include currency risk that may result from unfavorable exchange rates, liquidity risk if
decreased demand for a security makes it difficult to sell at the desired price, and risks that stem from substantially lower trading
volume on foreign markets.
Active Trading Risk:
Actively trading investments may
result in higher costs (thus affecting performance).
THIS PRIVACY POLICY IS NOT PART OF
THIS REPORT
Privacy Policy and Practices of The
Hartford Financial Services Group, Inc. and its Affiliates
(herein called “we,
our, and us”)
This
Privacy Policy applies to our United States Operations
We value your trust. We are committed to the responsible:
a) management;
b) use; and
c) protection;
of
Personal Information
.
This notice describes how we collect, disclose, and
protect
Personal Information
.
We collect
Personal Information
to:
a) service your
Transactions
with us; and
b) support our business functions.
We may obtain
Personal Information
from:
a)
You
;
b) your
Transactions
with us; and
c) third parties such as a consumer-reporting agency.
Based on the type of product or service
You
apply for or get from us,
Personal Information
such as:
a) your name;
b) your address;
c) your income;
d) your payment; or
e) your credit history;
may be gathered from sources such as applications,
Transactions
, and consumer reports.
To serve
You
and service our business, we may
share certain
Personal Information.
We will share
Personal Information
, only as allowed by law, with affiliates such
as:
a) our insurance companies;
b) our employee agents;
c) our brokerage firms; and
d) our administrators.
As allowed by law, we may share
Personal
Financial Information
with our affiliates to:
a) market our products; or
b) market our services;
to
You
without providing
You
with an option to prevent these disclosures.
|
We may also share
Personal Information
,
only as allowed by law, with unaffiliated third parties including:
a) independent agents;
b) brokerage firms;
c) insurance companies;
d) administrators; and
e) service providers;
who help us serve
You
and service our business.
When allowed by law, we may share
certain
Personal Financial Information
with other unaffiliated third parties who assist us by performing services or functions
such as:
a) taking surveys;
b) marketing our products or services; or
c) offering financial products or services under a joint agreement between us and one or more financial institutions.
We, and third parties we partner
with, may track some
of the pages You visit through
the use of:
a) cookies;
b) pixel tagging; or
c) other technologies;
and currently do not process or
comply with any web browser’s “do not track” signal or similar mechanism that indicates a request to disable
online tracking of individual users who visit our websites or use our services.
We will not sell or share your
Personal Financial Information
with anyone for purposes unrelated to our business functions without offering
You
the opportunity to:
a) “opt-out;” or
b) “opt-in;”
as required by law.
We only disclose
Personal Health
Information
with:
a) your proper written authorization; or
b) as otherwise allowed or required by law.
Our employees have access
to
Personal Information
in the course of doing their jobs, such as:
a) underwriting policies;
b) paying claims;
c) developing new products; or
d) advising customers of our products and services.
|
We use manual and electronic security procedures to
maintain:
a) the confidentiality; and
b) the integrity of;
Personal Information
that we have. We use these
procedures to guard against unauthorized access.
Some techniques we use to protect
Personal Information
include:
a) secured files;
b) user authentication;
c) encryption;
d) firewall technology; and
e) the use of detection software.
We are responsible for and must:
a) identify information to be protected;
b) provide an adequate level of protection for that
data;
c) grant access to protected data only to those people
who must use it in the performance of their job-related duties.
Employees who violate our Privacy Policy will be subject
to discipline, which may include ending their employment with us.
At the start of our business relationship, we will
give
You
a copy of our current Privacy Policy.
We will also give
You
a copy of our current
Privacy Policy once a year if
You
maintain a continuing business relationship with us.
We will continue to follow our Privacy Policy regarding
Personal Information
even when a business relationship no longer exists between us.
|
As used in this Privacy Notice:
Application
means
your request for our product or service.
Personal Financial Information
means financial information such as:
a) credit history;
b) income;
c) financial benefits; or
d) policy or claim information.
Personal Health Information
means health information such as:
a) your medical records; or
b) information about your illness, disability or injury.
Personal Information
means information that identifies
You
personally and is not otherwise available to the public. It includes:
a)
Personal Financial Information
; and
b)
Personal Health Information
.
Transaction
means
your business dealings with us, such as:
a) your
Application
;
b) your request for us to pay a claim; and
c) your request for us to take an action on your account.
You
means
an individual who has given us
Personal Information
in conjunction with:
a) asking about;
b) applying for; or
c) obtaining;
a financial product or service from us if the product or service is used mainly for personal, family, or household purposes.
|
This Privacy Policy is being provided
on behalf of the following affiliates of The Hartford Financial Services Group, Inc.:
1stAGChoice, Inc.; Access CoverageCorp,
Inc.; Access CoverageCorp Technologies, Inc.; American Maturity Life Insurance Company; Archway 60 R, LLC; Business Management
Group, Inc.; Catalyst360, LLC; Champlain Life Reinsurance Company; DMS R, LLC; Eloy R, LLC; Ersatz Corporation; First State Insurance
Company; Hartford Accident and Indemnity Company; Hartford Administrative Services Company; Hartford Casualty General Agency, Inc.;
Hartford Casualty Insurance Company; Hartford-Comprehensive Employee Benefit Service Company; Hartford Equity Sales Company, Inc.;
Hartford Fire General Agency, Inc.; Hartford Fire Insurance Company; Hartford Funds Management Company, LLC; Hartford Funds Management
Group, Inc.; Hartford HLS Series Fund II, Inc.; Hartford Insurance Company of Illinois; Hartford Insurance Company of the Midwest;
Hartford Insurance Company of the Southeast; Hartford Integrated Technologies, Inc.; Hartford International Life Reassurance Corporation;
Hartford Funds Distributors, LLC; Hartford Investment Management Company; Hartford Life and Accident Insurance Company; Hartford
Life and Annuity Insurance Company; Hartford Life Insurance Company; Hartford Life Private Placement, LLC; Hartford Lloyd’s
Corporation; Hartford Lloyd’s Insurance Company; Hartford Mezzanine Investors I, LLC; Hartford Residual Market, L.C.C.; Hartford
Retirement Services, LLC; Hartford Securities Distribution Company, Inc.; Hartford Series Fund, Inc.; Hartford Specialty Insurance
Services of Texas, LLC; Hartford Strategic Investments, LLC; Hartford Underwriters Insurance Company; Hartford Technology Services
Company, L.L.C.; Hartford of Texas General Agency, Inc.; Hartford Underwriters General Agency, Inc.; HARTRE Company, L.C.C.; HL
Investment Advisors, LLC; HLA LLC; Horizon Management Group, LLC; HRA Brokerage Services, Inc.; Lanidex Class B, LLC; M-CAP Insurance
Agency, LLC; New England Insurance Company; New England Reinsurance Corporation; Nutmeg Insurance Agency, Inc.; Nutmeg Insurance
Company; Pacific Insurance Company, Limited; Planco, LLC: Property and Casualty Insurance Company of Hartford; Revere R, LLC; RVR
R, LLC; Sentinel Insurance Company, Ltd.; Sunstone R, LLC; Symphony R, LLC; The Evergreen Group Incorporated; The Hartford Alternative
Strategies Fund; The Hartford Mutual Funds, Inc.; The Hartford Mutual Funds II, Inc.; Trumbull Flood Management, L.L.C.; Trumbull
Insurance Company; Twin City Fire Insurance Company; White River Life Reinsurance Company.
HPP Revised December 2013
HARTFORD
HLS FUNDS
c/o
The Hartford Wealth Management - Global Annuities
P.O.
Box 14293
Lexington,
KY 40512-4293
HARTFORD
FUNDS
hartfordfunds.com
Hartford HLS Series Fund II, Inc. is underwritten
and distributed by Hartford Funds Distributors, LLC.
Hartford HLS Series Fund II, Inc. inception
dates range from 1987 to date. Hartford HLS Series Fund II, Inc. is not a subsidiary of The Hartford Financial Services Group,
Inc. ("The Hartford") but is underwritten, distributed by and advised by subsidiaries of The Hartford. Investments in
Hartford HLS Series Fund II, Inc. are not guaranteed by The Hartford or any other entity.
This report is submitted for the general
information of the shareholders of the Fund. It is not authorized for distribution unless preceded or accompanied by a current
prospectus for the Fund.
Investors should carefully consider the investment
objectives, risks, charges, and expenses of Hartford Funds before investing. This and other information can be found in the prospectus
and summary prospectus, which can be obtained by calling 888-843-7824 (retail) or 877-836-5854 (institutional). Investors should
read them carefully before they invest.
HLSAR-SMC13 2-14 113553-2 Printed in U.S.A ©2013
The Hartford, Hartford, CT 06115
HARTFORD
FUNDS
|
|
HARTFORD U.S. GOVERNMENT
SECURITIES HLS
FUND
2013 Annual
Report
|
A
MESSAGE FROM THE PRESIDENT
Dear Fellow Shareholders:
Thank you for investing in Hartford
HLS Funds.
Market Review
U.S.
equities (as represented by the S&P 500 Index) generated their strongest year since 1997 in 2013, rising 32.39% for the
year. During the fourth quarter, equities rose without looking back, pushing the S&P 500 Index and the Dow Jones
Industrial Average to new all-time highs. Despite previously cheering delays to quantitative-easing tapering, the stock
market received an additional boost at the end of the year following the U.S. Federal Reserve’s (Fed) announcement of a
$10-billion-a-month reduction in bond purchases beginning in January.
The
Fed’s decision to begin tapering its bond purchases is generally considered a vote of confidence in the recovering U.S. economy.
Consumer spending has stabilized, the housing market is showing steady improvement, the unemployment rate is slowly declining and
economic growth clocked in at a healthy 4.1% in the third quarter. Equities have also recovered since the market low in March 2009:
The S&P 500 Index has gained 173% from the market low through December 31, 2013.
Signs of improvement
are also visible outside the U.S. Europe appears to have begun its own economic recovery, and emerging markets have reversed their
recent lackluster performance. Fiscal policy continues to wield significant influence in today’s economy and central banks
across the globe are maintaining their accommodative stances, including the appointment of Janet Yellen, who is widely expected
to continue current monetary policies, to succeed Ben Bernanke as U.S. Federal Reserve chairman.
It’s
important to stay abreast of domestic and international economic developments while balancing your individual investment goals.
Meeting with your financial advisor on a regular basis to examine your current investment strategy can help you determine whether
you are on the right track:
|
•
|
Is your portfolio fully diversified with an appropriate mix of stocks and bonds?
|
|
•
|
Is your portfolio incorporating both domestic and international holdings to take advantage of the
global economic recovery?
|
|
•
|
Are your investments still in line with your risk tolerance and investment time horizon?
|
Your financial advisor can help you
choose options within our fund family to navigate today’s markets with confidence.
Thank you again for investing with Hartford
HLS Funds.
James Davey
President
Hartford HLS Funds
1
The S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks.
2
The Dow Jones Industrial Average
is an unmanaged, price-weighted index of 30 of the largest, most widely held stocks traded on the New York Stock Exchange.
Hartford U.S. Government Securities HLS
Fund
Table of Contents
This report is prepared for the general
information of contract owners and qualified retirement plan participants. It is not an offer of contracts or of qualified retirement
plans. It should not be used in connection with any offer, except in conjunction with the appropriate product prospectus which
contains all pertinent information including the applicable sales, administrative and other charges.
The views expressed in the Fund’s
Manager Discussion under ‘‘Why did the Fund perform this way?’’ and ‘‘What is the outlook?’’
are views of the Fund’s sub-adviser and portfolio management team through the end of the period and are subject to change
based on market and other conditions. The Fund’s Manager Discussion is for informational purposes only and does not represent
an offer, recommendation or solicitation to buy, hold or sell any security. The specific securities identified and described,
if any, do not represent all of the securities purchased or sold and you should not assume that investments in the securities
identified and discussed will be profitable.
Hartford U.S. Government Securities
HLS Fund
inception 03/24/1987
(sub-advised by Wellington Management Company, LLP)
Investment objective –
Seeks to maximize total return while providing shareholders with a high level of current income consistent with prudent investment
risk.
Performance Overview
12/31/03 - 12/31/13
The chart above represents the hypothetical growth of a $10,000
investment in Class IA. Growth results in classes other than Class IA will vary from what is seen above due to differences in the
expenses charged to those share classes.
Average Annual Total Returns
(as of 12/31/13)
|
|
1 Year
|
|
5 Years
|
|
10 Years
|
U.S. Government Securities IA
|
|
|
-1.68%
|
|
|
2.79%
|
|
|
2.52%
|
U.S. Government Securities IB
|
|
|
-1.97%
|
|
|
2.52%
|
|
|
2.26%
|
Barclays Intermediate Government Bond Index
|
|
|
-1.25%
|
|
|
2.20%
|
|
|
3.74%
|
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND
DOES NOT GUARANTEE FUTURE RESULTS. The investment return and principal value of the investment will fluctuate so that investors’
shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the
performance data quoted. To obtain performance data current to the most recent month-end, please visit our website at www.hartfordfunds.com.
Total returns presented above were calculated using the Fund’s
net asset value available to shareholders for sale or redemption of Fund shares on December 31, 2013, which may exclude investment
transactions as of this date. All share class returns assume the reinvestment of all distributions at net asset value and the
deduction of all fund expenses.
Performance information includes performance under the Fund’s
previous sub-adviser, Hartford Investment Management Company. As of March 5, 2012, Hartford Investment Management Company no longer
served as the sub-adviser to the Fund.
Barclays Intermediate Government Bond Index
is an unmanaged
index of government bonds with maturities of between one and ten years.
You cannot invest directly in an index.
As of the Fund's current prospectus dated May 1, 2013, the
total annual operating expense ratios for Class IA and Class IB were 0.48% and 0.73%, respectively. Actual expenses may be higher.
Please see the accompanying Financial Highlights for expense ratios for the year ended December 31, 2013.
The chart and table do not reflect the deductions of taxes,
sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan
product level. Any such additional sales charges or other fees or expenses would lower the contract’s or plan’s performance.
All investments are subject to risk including the possible
loss of principal. For a discussion of the Fund’s risks, please see the Main Risks section of this report. For more detailed
information on the risks associated with an investment in the Fund, please see the prospectus.
Hartford U.S. Government Securities
HLS Fund
|
Manager Discussion
|
December 31, 2013 (Unaudited)
|
Portfolio Manager
|
Michael F. Garrett
|
Senior Vice President and Fixed Income Portfolio Manager
|
|
How did the Fund perform?
The Class IA shares of the Hartford U.S. Government Securities
HLS Fund returned -1.68% for the twelve-month period ended December 31, 2013, underperforming the Fund’s benchmark, the
Barclays Intermediate Government Bond Index, which returned -1.25% for the same period. The Fund outperformed the -2.87% average
return of the Variable Products-Underlying Funds Lipper Intermediate U.S. Government Funds peer group, a group of funds that invest
primarily in U.S. government and agency issues.
Why did the Fund perform this way?
Global central banks’ unconventional policy measures
continued to be one of the biggest influences on the market during the year. Central bank easing and signs of gradual global economic
recovery imparted a positive tone to financial markets early in the year. However, concerns about a possible pull back in U.S.
Federal Reserve (Fed) stimulus were felt in the second quarter, triggered by Fed Chairman Ben Bernanke’s unexpectedly hawkish
tone. Fed officials signaled a readiness to begin tapering the Fed’s asset purchases under quantitative easing (QE) by September
and to end purchases by mid-2014 if the economy strengthened sufficiently. The Fed’s earlier-than-expected plan to taper
asset purchases sent yields sharply higher and credit spreads gapped out in sympathy. Meanwhile, other major central banks, including
the Bank of Japan, European Central Bank, and Bank of England, reiterated their commitment to easy monetary policy for as long
it was needed.
Signs of economic momentum and speculation over Fed tapering
weighed on U.S. Treasury prices during the year; for the full year 2013, 5-, 10-, and 30-year Treasury yields rose 1.02%, 1.27%,
and 1.02%, respectively. Many of the major fixed income sectors, with the exception of high yield and bank loans, posted negative
absolute returns due to the rise in yields. However, most sectors outperformed Treasuries on a duration-adjusted basis as credit
spreads tightened.
Security selection was a main driver of relative underperformance
during the period, especially in the agency mortgage backed securities (MBS) sector, which detracted from relative performance.
Changes to, and expectations for, the Fed’s asset purchase program impacted performance, leading to a volatile 2013. An
allocation to agency MBS, especially the 30-year sector, detracted from performance in the first half of the year. Although the
sector recouped some of its losses after July, it was not enough to offset the significant underperformance experienced during
May and June. The Fund’s investments in U.S. government agency bonds also detracted from performance. In contrast, allocations
to non-agency residential mortgage backed securities (RMBS) and asset backed securities (ABS) positively impacted returns during
the year as these sectors outperformed U.S. Government bonds.
We use Treasury futures and interest rate swaps to manage duration
and yield curve exposures; but overall these components also detracted from performance.
What is the outlook?
In the U.S., we believe there will be positive gross domestic
product (GDP) growth of about 3% as the fiscal drag reverses. In our opinion, we estimate that fiscal policies reduced GDP by
1.5% in 2013 (and some of these effects may linger in early 2014), but importantly, state and local governments now appear to
be moving back to expansionary mode. We believe the employment picture continues to improve and housing should remain constructive.
Housing paused recently in part due to the uptick in mortgage rates but we expect it to reaccelerate in the spring selling season,
in our view. While higher rates can be a hurdle to further recovery, they are still low historically and we believe early signs
of wage growth should boost consumer confidence. The Fed is expected to remain accommodative throughout the year and we view the
Fed’s decision to start unwinding quantitative easing as a healthy sign for the economy.
We view the current level of interest rates as roughly appropriate
for an economy gradually recovering and a Fed that we believe is still a year away from their first increase in interest rates.
Assuming the Fed's economic assumptions hold, we believe rates will roughly follow the forward curve, with both 2-year and 10-year
rates gradually rising, along with a yield curve that slowly flattens.
Although we are cautious on the agency MBS sector from a tactical
perspective, we believe that the medium to long term supply and demand dynamics favor owning agency MBS, as the Fed continues
to purchase assets in the face of reduced origination. Overall supply growth should continue at a modest pace, compared to the
rapidly expanding issuance of U.S. Treasuries. With this in mind, we would view any significant widening of MBS spreads as an
opportunity to
Hartford U.S. Government Securities
HLS Fund
|
Manager Discussion – (continued)
|
December 31, 2013 (Unaudited)
|
increase allocations. Overall, we view current conditions as
more of a relative value opportunity between low and high coupon securities. We believe low coupon MBS continue to trade at tight
spreads, so our pass-through exposures remain concentrated in middle and higher coupon MBS, which offer more attractive spreads,
in our opinion.
In 2014, we believe the rate of home price appreciation will
normalize, growing at a slower pace than in 2013. In our view, this is still a positive environment for the housing market, and
consequently, we maintain our constructive outlook on the non-agency RMBS sector, particularly Option adjustable-rate mortgage
(ARM), Alt-A fixed rate, and Prime ARM senior bonds.
In commercial mortgage backed securities (CMBS), we continue
to monitor the impact of rising interest rates on commercial real estate fundamentals but remain constructive on the near-term
outlook for collateral performance. Continued economic recovery, coupled with an uptick in demand and flat supply, appears to
bode well for the longer-term health of the sector, in our view. At the end of the period, the Fund was positioned with a modest
allocation, and within the sector we believe high-quality, new issue conduit deals, select legacy CMBS, and single-borrower deals
are attractive.
Looking ahead across ABS sectors, we believe that improvements
in the economy will be partially offset by increased lending and modestly weaker underwriting standards. In our opinion, this
will likely cause performance in 2014 to fall short of post-crisis bests but still exceed long-term averages. Given this supportive
backdrop, we remain constructive on the sector and favor senior and select subordinate bonds of lower-quality auto issuers. We
also believe that investors’ search for new ideas will intensify, and this, combined with improving fundamentals, makes
certain niche subsectors and select credit tranches look attractive.
Diversification by Security Type
as of December 31, 2013
Category
|
|
Percentage of
Net
Assets
|
|
Fixed Income Securities
|
|
|
|
|
Asset & Commercial Mortgage Backed
Securities
|
|
|
18.7
|
%
|
Corporate Bonds
|
|
|
0.4
|
|
Municipal Bonds
|
|
|
0.4
|
|
U.S. Government Agencies
|
|
|
35.7
|
|
U.S. Government Securities
|
|
|
45.4
|
|
Total
|
|
|
100.6
|
%
|
Short-Term Investments
|
|
|
13.0
|
%
|
Other Assets and Liabilities
|
|
|
(13.6
|
)
|
Total
|
|
|
100.0
|
%
|
Credit Exposure
as of December 31, 2013
Credit Rating *
|
|
Percentage of
Net
Assets
|
|
Aaa / AAA
|
|
|
42.1
|
%
|
Aa / AA
|
|
|
48.6
|
|
A
|
|
|
4.6
|
|
Baa / BBB
|
|
|
1.6
|
|
B
|
|
|
1.6
|
|
Caa / CCC or Lower
|
|
|
0.4
|
|
Not Rated
|
|
|
1.7
|
|
Non-Debt Securities and Other Short-Term Instruments
|
|
|
13.0
|
|
Other Assets and Liabilities
|
|
|
(13.6
|
)
|
Total
|
|
|
100.0
|
%
|
|
*
|
Credit exposure is the long-term credit ratings for the Fund's holdings,
as of the date noted, as provided by Standard and Poor's (S&P) or Moody's Investors
Service and typically range from AAA/Aaa (highest) to C/D (lowest). If Moody's and S&P
assign different ratings, the lower rating is used. Fixed income securities that are
not rated by either agency are listed as "Not Rated." Ratings do not apply
to the Fund itself or to Fund shares. Ratings may change.
|
Hartford U.S. Government Securities
HLS Fund
|
Schedule of Investments
|
December 31, 2013
|
(000’s Omitted)
|
Shares or Principal Amount
|
|
Market Value ╪
|
|
ASSET & COMMERCIAL MORTGAGE
BACKED SECURITIES - 18.7%
|
|
|
|
|
|
|
|
|
Finance and Insurance - 17.5%
|
|
|
|
|
|
|
|
|
Ally Master Owner Trust
|
|
|
|
|
$
|
3,825
|
|
|
1.54%, 09/15/2019
|
|
$
|
3,798
|
|
|
|
|
|
American Credit Acceptance Receivables
|
|
|
|
|
|
4,756
|
|
|
1.64%, 11/15/2016 ■
|
|
|
4,766
|
|
|
|
|
|
AmeriCredit Automobile Receivables Trust
|
|
|
|
|
|
3,940
|
|
|
1.12%, 11/08/2017
|
|
|
3,937
|
|
|
5,000
|
|
|
1.78%, 03/08/2017
|
|
|
5,051
|
|
|
|
|
|
Cal Funding II Ltd.
|
|
|
|
|
|
4,470
|
|
|
3.47%, 10/25/2027 ■
|
|
|
4,409
|
|
|
|
|
|
Cent CLO L.P.
|
|
|
|
|
|
6,900
|
|
|
1.70%, 01/25/2026 ■☼
|
|
|
6,900
|
|
|
|
|
|
CFC LLC
|
|
|
|
|
|
1,995
|
|
|
1.65%, 07/17/2017 ■
|
|
|
1,991
|
|
|
|
|
|
CPS Automotive Trust
|
|
|
|
|
|
8,640
|
|
|
1.31%, 06/15/2020 ■
|
|
|
8,503
|
|
|
|
|
|
Credit Acceptance Automotive Loan Trust
|
|
|
|
|
|
1,336
|
|
|
2.20%, 09/16/2019 ■
|
|
|
1,345
|
|
|
3,595
|
|
|
2.21%, 09/15/2020 ■
|
|
|
3,614
|
|
|
|
|
|
First Investors Automotive Owner Trust
|
|
|
|
|
|
3,463
|
|
|
1.23%, 03/15/2019 ■
|
|
|
3,470
|
|
|
|
|
|
Ford Credit Floorplan Master Owner Trust
|
|
|
|
|
|
695
|
|
|
2.32%, 01/15/2017 Δ
|
|
|
707
|
|
|
|
|
|
FREMF Mortgage Trust
|
|
|
|
|
|
2,040
|
|
|
3.95%, 06/25/2047 ■Δ
|
|
|
2,017
|
|
|
|
|
|
HLSS Servicer Advance Receivables
|
|
|
|
|
|
6,661
|
|
|
1.50%, 01/16/2046 ■
|
|
|
6,636
|
|
|
|
|
|
HLSS Servicer Advance Receivables Backed Notes
|
|
|
|
|
|
5,760
|
|
|
1.98%, 11/15/2046 ■
|
|
|
5,750
|
|
|
|
|
|
Huntington Automotive Trust
|
|
|
|
|
|
1,240
|
|
|
1.07%, 02/15/2018
|
|
|
1,230
|
|
|
|
|
|
ING Investment Management CLO Ltd.
|
|
|
|
|
|
6,185
|
|
|
1.69%, 01/18/2026 ■Δ
|
|
|
6,151
|
|
|
|
|
|
Master Asset Backed Securities Trust
|
|
|
|
|
|
285
|
|
|
2.86%, 05/25/2033 Δ
|
|
|
281
|
|
|
|
|
|
Morgan Stanley ABS Capital I
|
|
|
|
|
|
1,429
|
|
|
1.66%, 11/25/2032 Δ
|
|
|
1,334
|
|
|
|
|
|
Morgan Stanley Dean Witter Capital I
|
|
|
|
|
|
3,907
|
|
|
1.68%, 03/25/2033 Δ
|
|
|
3,865
|
|
|
|
|
|
Nationstar Agency Advance Funding Trust
|
|
|
|
|
|
1,815
|
|
|
1.89%, 02/18/2048 ■
|
|
|
1,769
|
|
|
|
|
|
Sequoia Mortgage Trust
|
|
|
|
|
|
3,146
|
|
|
0.40%, 02/20/2035 Δ
|
|
|
2,931
|
|
|
|
|
|
Springleaf Mortgage Loan Trust
|
|
|
|
|
|
8,926
|
|
|
1.27%, 06/25/2058 ■
|
|
|
8,904
|
|
|
4,616
|
|
|
1.57%, 12/25/2059 ■
|
|
|
4,598
|
|
|
5,152
|
|
|
2.22%, 10/25/2057 ■
|
|
|
5,248
|
|
|
|
|
|
Structured Asset Securities Corp.
|
|
|
|
|
|
1,897
|
|
|
1.66%, 02/25/2033 Δ
|
|
|
1,837
|
|
|
|
|
|
Thornburg Mortgage Securities Trust
|
|
|
|
|
|
8,476
|
|
|
2.42%, 04/25/2045 Δ
|
|
|
8,517
|
|
|
|
|
|
WaMu Mortgage Pass-Through Certificates
|
|
|
|
|
|
2,857
|
|
|
2.21%, 03/25/2033 Δ
|
|
|
2,847
|
|
|
3,184
|
|
|
2.36%, 10/25/2035 Δ
|
|
|
3,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wells Fargo Mortgage Backed Securities Trust
|
|
|
|
|
|
3,380
|
|
|
2.49%, 09/25/2033 Δ
|
|
|
3,398
|
|
|
|
|
|
|
|
|
118,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation Equipment Manufacturing - 1.2%
|
|
|
|
|
|
|
|
|
TAL Advantage LLC
|
|
|
|
|
|
8,278
|
|
|
2.83%, 02/22/2038 ■
|
|
|
8,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset & commercial mortgage backed securities
|
|
|
|
|
|
|
|
|
(cost $126,372)
|
|
$
|
126,854
|
|
|
|
|
|
|
|
|
|
|
CORPORATE BONDS - 0.4%
|
|
|
|
|
|
|
|
|
Finance and Insurance - 0.4%
|
|
|
|
|
|
|
|
|
Northwoods Capital
|
|
|
|
|
$
|
2,975
|
|
|
1.70%, 11/04/2025 ■Δ
|
|
$
|
2,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate bonds
|
|
|
|
|
|
|
|
|
(cost $2,966)
|
|
$
|
2,960
|
|
|
|
|
|
|
|
|
|
|
MUNICIPAL BONDS - 0.4%
|
|
|
|
|
|
|
|
|
Utilities - Combined - 0.4%
|
|
|
|
|
|
|
|
|
Utility Debt Securitization Auth, New York
|
|
|
|
|
$
|
2,920
|
|
|
3.44%, 12/15/2025
|
|
$
|
2,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total municipal bonds
|
|
|
|
|
|
|
|
|
(cost $2,920)
|
|
$
|
2,877
|
|
|
|
|
|
|
|
|
|
|
U.S. GOVERNMENT AGENCIES - 35.7%
|
|
|
|
|
|
|
|
FHLMC - 13.0%
|
|
|
|
|
$
|
5,975
|
|
|
0.56%, 04/25/2020
|
|
$
|
5,975
|
|
|
13,160
|
|
|
1.57%, 01/25/2022
|
|
|
12,858
|
|
|
6,329
|
|
|
2.57%, 06/01/2042
|
|
|
6,446
|
|
|
6,000
|
|
|
3.50%, 11/15/2025
|
|
|
6,053
|
|
|
12,200
|
|
|
4.00%, 01/15/2040 ☼
|
|
|
12,529
|
|
|
220
|
|
|
4.50%, 12/01/2018
|
|
|
233
|
|
|
17,874
|
|
|
5.50%, 05/15/2033 Ф
|
|
|
19,080
|
|
|
9,449
|
|
|
5.50%, 06/01/2034 - 12/01/2039
|
|
|
10,299
|
|
|
9,165
|
|
|
6.00%, 10/01/2021 - 09/01/2034
|
|
|
10,086
|
|
|
3,635
|
|
|
6.50%, 09/01/2014 - 09/01/2032
|
|
|
4,087
|
|
|
636
|
|
|
7.00%, 10/01/2026 - 11/01/2032
|
|
|
711
|
|
|
12
|
|
|
7.50%, 05/01/2024 - 06/01/2025
|
|
|
14
|
|
|
30
|
|
|
8.00%, 08/01/2024 - 10/01/2024
|
|
|
33
|
|
|
1
|
|
|
8.50%, 10/01/2024
|
|
|
1
|
|
|
15
|
|
|
10.00%, 11/01/2020
|
|
|
15
|
|
|
|
|
|
|
|
|
88,420
|
|
|
|
|
|
FNMA - 17.4%
|
|
|
|
|
|
8,518
|
|
|
1.49%, 03/01/2018
|
|
|
8,473
|
|
|
3,545
|
|
|
2.22%, 10/01/2022
|
|
|
3,303
|
|
|
8,421
|
|
|
2.25%, 10/01/2022
|
|
|
7,853
|
|
|
3,570
|
|
|
2.31%, 10/01/2022
|
|
|
3,347
|
|
|
2,334
|
|
|
2.35%, 10/01/2022
|
|
|
2,193
|
|
|
746
|
|
|
2.40%, 10/01/2022
|
|
|
703
|
|
|
1,080
|
|
|
2.52%, 10/01/2022
|
|
|
1,026
|
|
|
2,125
|
|
|
2.56%, 01/01/2019
|
|
|
2,178
|
|
|
1,595
|
|
|
2.65%, 07/01/2019
|
|
|
1,617
|
|
|
30,700
|
|
|
3.50%, 01/15/2026 - 01/15/2041 ☼
|
|
|
30,968
|
|
The accompanying notes are an integral part of these financial
statements.
Hartford
U.S. Government Securities HLS Fund
Schedule of Investments – (continued)
December 31, 2013
(000’s Omitted)
Shares or Principal Amount
|
|
|
|
|
|
|
Market Value ╪
|
|
U.S. GOVERNMENT AGENCIES - 35.7% - (continued)
|
|
|
|
|
FNMA - 17.4% - (continued)
|
|
|
|
|
|
|
|
|
$
|
7,789
|
|
|
3.74%, 06/01/2018
|
|
|
|
|
|
$
|
8,436
|
|
|
6,500
|
|
|
4.00%, 01/15/2040 ☼
|
|
|
|
|
|
|
6,691
|
|
|
12,200
|
|
|
4.50%, 01/15/2040 ☼
|
|
|
|
|
|
|
12,927
|
|
|
1,378
|
|
|
5.00%, 08/01/2018 - 06/01/2025
|
|
|
|
|
|
|
1,474
|
|
|
3,350
|
|
|
5.50%, 08/01/2015 - 08/01/2019
|
|
|
|
|
|
|
3,607
|
|
|
14,961
|
|
|
6.00%, 07/01/2014 - 02/01/2037
|
|
|
|
|
|
|
16,653
|
|
|
4,446
|
|
|
6.50%, 11/01/2014 - 09/01/2032
|
|
|
|
|
|
|
4,996
|
|
|
885
|
|
|
6.50%, 06/25/2029 Ф
|
|
|
|
|
|
|
995
|
|
|
543
|
|
|
7.00%, 03/01/2015 - 02/01/2032
|
|
|
|
|
|
|
604
|
|
|
20
|
|
|
7.50%, 06/01/2023
|
|
|
|
|
|
|
23
|
|
|
100
|
|
|
8.00%, 10/01/2029 - 02/01/2031
|
|
|
|
|
|
|
112
|
|
|
2
|
|
|
8.50%, 04/01/2017
|
|
|
|
|
|
|
2
|
|
|
29
|
|
|
9.00%, 08/01/2020 - 09/01/2021
|
|
|
|
|
|
|
29
|
|
|
2
|
|
|
9.75%, 07/01/2020
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
118,212
|
|
|
|
|
|
GNMA - 5.3%
|
|
|
|
|
|
|
|
|
|
22,900
|
|
|
4.50%, 01/15/2040 ☼
|
|
|
|
|
|
|
24,483
|
|
|
2,058
|
|
|
5.00%, 01/20/2034
|
|
|
|
|
|
|
2,249
|
|
|
2,326
|
|
|
5.50%, 09/20/2033
|
|
|
|
|
|
|
2,533
|
|
|
1,586
|
|
|
6.00%, 01/15/2033 - 02/15/2033
|
|
|
|
|
|
|
1,788
|
|
|
2,626
|
|
|
6.50%, 12/15/2028 - 01/15/2032
|
|
|
|
|
|
|
2,947
|
|
|
1,189
|
|
|
7.00%, 06/20/2030 - 10/15/2032
|
|
|
|
|
|
|
1,347
|
|
|
386
|
|
|
7.50%, 04/15/2022 - 04/20/2030
|
|
|
|
|
|
|
430
|
|
|
55
|
|
|
8.50%, 09/15/2019 - 03/15/2030
|
|
|
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
35,836
|
|
|
|
|
|
Total U.S. government agencies
|
|
|
|
|
|
|
|
|
|
|
|
|
(cost $239,319)
|
|
|
|
|
|
$
|
242,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GOVERNMENT SECURITIES - 45.4%
|
Other Direct Federal Obligations - 17.6%
|
|
|
|
|
FHLB - 17.6%
|
|
|
|
|
|
|
|
|
$
|
16,335
|
|
|
1.75%, 12/14/2018
|
|
|
|
|
|
$
|
16,206
|
|
|
20,665
|
|
|
4.13%, 03/13/2020
|
|
|
|
|
|
|
22,662
|
|
|
26,000
|
|
|
5.25%, 12/09/2022
|
|
|
|
|
|
|
30,020
|
|
|
45,500
|
|
|
5.38%, 05/18/2016
|
|
|
|
|
|
|
50,657
|
|
|
|
|
|
|
|
|
|
|
|
|
119,545
|
|
U.S. Treasury Securities - 27.8%
|
|
|
|
|
U.S. Treasury Notes - 27.8%
|
|
|
|
|
|
|
|
|
|
137,100
|
|
|
0.88%, 04/30/2017 ‡
|
|
|
|
|
|
|
136,693
|
|
|
18,480
|
|
|
2.13%, 08/15/2021
|
|
|
|
|
|
|
17,902
|
|
|
33,000
|
|
|
2.63%, 01/31/2018
|
|
|
|
|
|
|
34,702
|
|
|
|
|
|
|
|
|
|
|
|
|
189,297
|
|
|
|
|
|
Total U.S. government securities
|
|
|
|
|
|
|
|
|
|
|
|
|
(cost $308,492)
|
|
|
|
|
|
$
|
308,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
(cost $680,069)
|
|
|
|
|
|
$
|
684,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHORT-TERM INVESTMENTS - 13.0%
|
Repurchase Agreements - 13.0%
|
|
|
|
|
Bank of America Merrill Lynch TriParty
Repurchase Agreement (maturing on
01/02/2014 in the amount of $4,415,
collateralized by GNMA 4.00%, 2043,
value of $4,503)
|
|
|
|
|
|
|
|
|
$
|
4,415
|
|
|
0.005%, 12/31/2013
|
|
|
|
|
|
$
|
4,415
|
|
|
|
|
|
Bank of Montreal TriParty Repurchase
Agreement (maturing on 01/02/2014 in the
amount of $4,242, collateralized by FNMA
1.58% - 4.50%, 2020 - 2043, U.S. Treasury
Note 0.25% - 4.00%, 2015 - 2020, value of
$4,326)
|
|
|
|
|
|
|
|
|
|
4,242
|
|
|
0.01%, 12/31/2013
|
|
|
|
|
|
|
4,242
|
|
|
|
|
|
Bank of Montreal TriParty Repurchase
Agreement (maturing on 01/02/2014 in the
amount of $15,022, collateralized by
FHLMC 3.00% - 5.00%, 2019 - 2043,
FNMA 0.76% - 6.00%, 2016 - 2043,
GNMA 1.50% - 5.25%, 2028 - 2043, value
of $15,322)
|
|
|
|
|
|
|
|
|
|
15,022
|
|
|
0.02%, 12/31/2013
|
|
|
|
|
|
|
15,022
|
|
|
|
|
|
Barclays Capital TriParty Repurchase
Agreement (maturing on 01/02/2014 in the
amount of $13,548, collateralized by U.S.
Treasury Note 0.50% - 2.25%, 2017, value
of $13,819)
|
|
|
|
|
|
|
|
|
|
13,548
|
|
|
0.01%, 12/31/2013
|
|
|
|
|
|
|
13,548
|
|
|
|
|
|
Citigroup Global Markets, Inc. TriParty
Repurchase Agreement (maturing on
01/02/2014 in the amount of $24,378,
collateralized by U.S. Treasury Bond
3.88% - 8.13%, 2021 - 2040, U.S. Treasury
Note 0.25% - 3.38%, 2014 - 2020, value of
$24,866)
|
|
|
|
|
|
|
|
|
|
24,378
|
|
|
0.01%, 12/31/2013
|
|
|
|
|
|
|
24,378
|
|
|
|
|
|
RBS Securities, Inc. TriParty Repurchase
Agreement (maturing on 01/02/2014 in the
amount of $7,921, collateralized by U.S.
Treasury Note 0.25% - 1.00%, 2015 - 2017,
value of $8,080)
|
|
|
|
|
|
|
|
|
|
7,921
|
|
|
0.01%, 12/31/2013
|
|
|
|
|
|
|
7,921
|
|
|
|
|
|
TD Securities TriParty Repurchase Agreement
(maturing on 01/02/2014 in the amount of
$19,016, collateralized by FFCB 0.20% -
0.50%, 2015 - 2016, FHLMC 0.38% -
5.25%, 2014 - 2042, FNMA 0.50% -
7.13%, 2014 - 2043, value of $19,396)
|
|
|
|
|
|
|
|
|
|
19,016
|
|
|
0.01%, 12/31/2013
|
|
|
|
|
|
|
19,016
|
|
|
|
|
|
UBS Securities, Inc. Repurchase Agreement
(maturing on 01/02/2014 in the amount of
$162, collateralized by U.S. Treasury Note
2.13%, 2015, value of $166)
|
|
|
|
|
|
|
|
|
|
162
|
|
|
0.01%, 12/31/2013
|
|
|
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
88,704
|
|
|
|
|
|
Total short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
(cost $88,704)
|
|
|
|
|
|
$
|
88,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
|
|
|
|
|
|
|
|
|
|
(cost $768,773) ▲
|
|
|
113.6
|
%
|
|
$
|
772,705
|
|
|
|
|
|
Other assets and liabilities
|
|
|
(13.6
|
)%
|
|
|
(92,628
|
)
|
|
|
|
|
Total net assets
|
|
|
100.0
|
%
|
|
$
|
680,077
|
|
The accompanying notes are an integral part of these financial
statements.
|
Note:
|
Percentage of investments as shown is the ratio of the total
market value to total net assets.
|
|
▲
|
At December 31, 2013, the cost of securities for federal income
tax purposes was $768,773 and the aggregate gross unrealized appreciation and depreciation
based on that cost were:
|
Unrealized Appreciation
|
|
$
|
9,426
|
|
Unrealized Depreciation
|
|
|
(5,494
|
)
|
Net Unrealized Appreciation
|
|
$
|
3,932
|
|
|
Δ
|
Variable rate securities; the rate reported is the coupon
rate in effect at December 31, 2013.
|
|
■
|
Securities issued within terms of a private placement memorandum,
exempt from registration under Rule 144A under the Securities Act of 1933, as amended,
and may be sold only to qualified institutional buyers. Unless otherwise indicated, these
holdings are determined to be liquid. At December 31, 2013, the aggregate value of these
securities was $87,069, which represents 12.8% of total net assets.
|
|
Ф
|
Z-Tranche securities pay no principal or interest during their
initial accrual period, but accrue additional principal at a specified coupon rate.
|
|
☼
|
This security, or a portion of this security, was purchased
on a when-issued, delayed-delivery or delayed-draw basis. The cost of these securities
was $94,737 at December 31, 2013.
|
|
‡
|
This security, or a portion of this security, has been segregated
to cover funding requirements on investment transactions settling in the future.
|
Futures Contracts Outstanding at December
31, 2013
Description
|
|
Number of
Contracts*
|
|
Expiration
Date
|
|
Notional Amount
|
|
|
Market Value ╪
|
|
|
Unrealized
Appreciation/
(Depreciation)
|
|
Long position contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10-Year U.S. Treasury Note Future
|
|
87
|
|
03/20/2014
|
|
$
|
10,723
|
|
|
$
|
10,705
|
|
|
$
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short position contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Long Bond Future
|
|
142
|
|
03/20/2014
|
|
$
|
18,316
|
|
|
$
|
18,220
|
|
|
$
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
78
|
|
* The number of contracts does not omit 000's.
Cash of $259 was pledged as initial margin deposit and collateral
for daily variation margin loss on open futures contracts at December 31, 2013.
Securities Sold
Short Outstanding at December 31, 2013
|
|
Description
|
|
Principal
Amount
|
|
|
Maturity Date
|
|
Market Value ╪
|
|
|
Unrealized
Appreciation/
Depreciation
|
|
FHLMC TBA, 5.50%
|
|
$
|
5,800
|
|
|
01/15/2040
|
|
$
|
6,335
|
|
|
$
|
(10
|
)
|
At December 31, 2013, the aggregate value of these securities
represents 0.9% of total net assets.
|
╪
|
See Significant Accounting Policies of accompanying Notes
to Financial Statements regarding valuation of securities.
|
GLOSSARY:
(abbreviations used in preceding Schedule of Investments)
|
|
Other
Abbreviations:
|
FFCB
|
Federal Farm Credit Bank
|
FHLB
|
Federal Home Loan Bank
|
FHLMC
|
Federal Home Loan Mortgage Corp.
|
FNMA
|
Federal National Mortgage Association
|
GNMA
|
Government National Mortgage Association
|
The accompanying notes are an integral part of these financial
statements.
Hartford U.S. Government Securities
HLS Fund
|
Investment Valuation Hierarchy Level Summary
|
December 31, 2013
|
(000’s Omitted)
|
|
|
Total
|
|
|
Level 1 ♦
|
|
|
Level 2 ♦
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset & Commercial Mortgage Backed Securities
|
|
$
|
126,854
|
|
|
$
|
–
|
|
|
$
|
89,832
|
|
|
$
|
37,022
|
|
Corporate Bonds
|
|
|
2,960
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2,960
|
|
Municipal Bonds
|
|
|
2,877
|
|
|
|
–
|
|
|
|
2,877
|
|
|
|
–
|
|
U.S. Government Agencies
|
|
|
242,468
|
|
|
|
–
|
|
|
|
242,468
|
|
|
|
–
|
|
U.S. Government Securities
|
|
|
308,842
|
|
|
|
–
|
|
|
|
308,842
|
|
|
|
–
|
|
Short-Term Investments
|
|
|
88,704
|
|
|
|
–
|
|
|
|
88,704
|
|
|
|
–
|
|
Total
|
|
$
|
772,705
|
|
|
$
|
–
|
|
|
$
|
732,723
|
|
|
$
|
39,982
|
|
Futures *
|
|
|
96
|
|
|
|
96
|
|
|
|
–
|
|
|
|
–
|
|
Total
|
|
$
|
96
|
|
|
$
|
96
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Sold Short
|
|
$
|
6,335
|
|
|
$
|
–
|
|
|
$
|
6,335
|
|
|
$
|
–
|
|
Total
|
|
$
|
6,335
|
|
|
$
|
–
|
|
|
$
|
6,335
|
|
|
$
|
–
|
|
Futures *
|
|
|
18
|
|
|
|
18
|
|
|
|
–
|
|
|
|
–
|
|
Total
|
|
$
|
18
|
|
|
$
|
18
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
♦
|
For the year ended December 31, 2013, there were no transfers
between Level 1 and Level 2.
|
|
*
|
Derivative instruments (excluding purchased and written options,
if applicable) are valued at the unrealized appreciation/depreciation on the investments.
|
Following is a reconciliation of Level 3 assets for which significant
unobservable inputs were used to determine fair value:
|
|
Balance
as
of
December
31, 2012
|
|
|
Realized
Gain
(Loss)
|
|
|
Change
in
Unrealized
Appreciation
(Depreciation)
|
|
|
Net
Amortization
|
|
|
Purchases
|
|
|
Sales
|
|
|
Transfers
Into
Level 3 *
|
|
|
Transfers
Out of
Level 3 *
|
|
|
Balance
as
of
December
31, 2013
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset &
Commercial Mortgage Backed Securities
|
|
$
|
22,493
|
|
|
$
|
12
|
|
|
$
|
(97
|
)†
|
|
$
|
—
|
|
|
$
|
25,854
|
|
|
$
|
(6,326
|
)
|
|
$
|
—
|
|
|
$
|
(4,914
|
)
|
|
$
|
37,022
|
|
Corporate Bonds
|
|
|
—
|
|
|
|
—
|
|
|
|
(6
|
)‡
|
|
|
—
|
|
|
|
2,966
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,960
|
|
Total
|
|
$
|
22,493
|
|
|
$
|
12
|
|
|
$
|
(103
|
)
|
|
$
|
—
|
|
|
$
|
28,820
|
|
|
$
|
(6,326
|
)
|
|
$
|
—
|
|
|
$
|
(4,914
|
)
|
|
$
|
39,982
|
|
|
*
|
Investments are transferred into and out of Level 3 for a variety
of reasons including, but not limited to:
|
|
1)
|
Investments where trading has been halted (transfer into Level
3) or investments where trading has resumed (transfer out of Level 3).
|
|
2)
|
Broker quoted investments (transfer into Level 3) or quoted
prices in active markets (transfer out of Level 3).
|
|
3)
|
Investments that have certain restrictions on trading (transfer
into Level 3) or investments where trading restrictions have expired (transfer out of
Level 3).
|
|
†
|
Change in unrealized appreciation (depreciation) in the current
period relating to assets still held at December 31, 2013 was $(97).
|
|
‡
|
Change in unrealized appreciation (depreciation) in the current
period relating to assets still held at December 31, 2013 was $(6).
|
|
Note:
|
For purposes of reporting transfers between different hierarchy
levels, both transfers in and out of each level, as applicable, are shown as if they
occurred at the beginning of the period.
|
The accompanying notes are an integral part of these financial
statements.
Hartford U.S. Government Securities
HLS Fund
|
Statement of Assets and Liabilities
|
December 31, 2013
|
(000’s Omitted)
|
Assets:
|
|
|
|
|
Investments in securities, at market value
(cost $680,069)
|
|
$
|
684,001
|
|
Investments in repurchase agreements, at market value
(cost $88,704)
|
|
|
88,704
|
|
Cash
|
|
|
474
|
*
|
Receivables:
|
|
|
|
|
Investment securities sold
|
|
|
13,045
|
|
Fund shares sold
|
|
|
53
|
|
Dividends and interest
|
|
|
2,029
|
|
Variation margin on financial derivative
instruments
|
|
|
66
|
|
Total assets
|
|
|
788,372
|
|
Liabilities:
|
|
|
|
|
Securities sold short, at market value (proceeds $6,325)
|
|
|
6,335
|
|
Payables:
|
|
|
|
|
Investment securities purchased
|
|
|
101,434
|
|
Fund shares redeemed
|
|
|
353
|
|
Variation margin on financial derivative instruments
|
|
|
15
|
|
Investment management fees
|
|
|
67
|
|
Distribution fees
|
|
|
7
|
|
Accrued expenses
|
|
|
84
|
|
Total liabilities
|
|
|
108,295
|
|
Net assets
|
|
$
|
680,077
|
|
Summary of Net Assets:
|
|
|
|
|
Capital stock and paid-in-capital
|
|
$
|
799,607
|
|
Undistributed net investment income
|
|
|
13,850
|
|
Accumulated net realized loss
|
|
|
(137,380
|
)
|
Unrealized appreciation of investments
|
|
|
4,000
|
|
Net assets
|
|
$
|
680,077
|
|
Shares authorized
|
|
|
700,000
|
|
Par value
|
|
$
|
0.001
|
|
Class IA:
Net
asset value per share
|
|
$
|
10.32
|
|
Shares outstanding
|
|
|
53,918
|
|
Net assets
|
|
$
|
556,169
|
|
Class IB:
Net
asset value per share
|
|
$
|
10.28
|
|
Shares outstanding
|
|
|
12,054
|
|
Net assets
|
|
$
|
123,908
|
|
|
*
|
Cash of $259 was pledged as initial margin deposit and
collateral for daily variation margin loss on open financial derivative instruments at December 31, 2013.
|
The accompanying notes are an integral part of these financial
statements.
Hartford U.S. Government Securities
HLS Fund
|
Statement of Operations
|
For the Year Ended December 31, 2013
|
(000’s Omitted)
|
Investment Income:
|
|
|
|
|
Interest
|
|
$
|
13,584
|
|
Total investment income, net
|
|
|
13,584
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
Investment management fees
|
|
|
3,743
|
|
Transfer agent fees
|
|
|
1
|
|
Distribution fees - Class IB
|
|
|
365
|
|
Custodian fees
|
|
|
5
|
|
Accounting services fees
|
|
|
100
|
|
Board of Directors' fees
|
|
|
24
|
|
Audit fees
|
|
|
18
|
|
Other expenses
|
|
|
164
|
|
Total expenses (before fees paid indirectly)
|
|
|
4,420
|
|
Custodian fee offset
|
|
|
—
|
|
Total fees paid indirectly
|
|
|
—
|
|
Total expenses, net
|
|
|
4,420
|
|
Net Investment Income
|
|
|
9,164
|
|
|
|
|
|
|
Net Realized Loss on Investments
and Other Financial Instruments:
|
|
|
|
|
Net realized gain on investments
|
|
|
619
|
|
Net realized loss on securities sold short
|
|
|
(371
|
)
|
Net realized loss on futures
|
|
|
(2,285
|
)
|
Net realized loss on swap contracts
|
|
|
(42
|
)
|
Net Realized
Loss on Investments and Other Financial Instruments
|
|
|
(2,079
|
)
|
|
|
|
|
|
Net Changes in Unrealized Depreciation
of Investments, Other Financial Instruments and Foreign Currency Transactions:
|
|
|
|
|
Net unrealized depreciation of investments
|
|
|
(23,632
|
)
|
Net unrealized depreciation of securities sold short
|
|
|
(10
|
)
|
Net unrealized appreciation of futures
|
|
|
130
|
|
Net unrealized appreciation of
swap contracts
|
|
|
16
|
|
Net Changes
in Unrealized Depreciation of Investments, Other Financial Instruments and Foreign Currency Transactions
|
|
|
(23,496
|
)
|
Net Loss
on Investments, Other Financial Instruments and Foreign Currency Transactions
|
|
|
(25,575
|
)
|
Net Decrease in Net Assets Resulting
from Operations
|
|
$
|
(16,411
|
)
|
The accompanying notes are an integral part of these financial
statements.
Hartford U.S. Government Securities
HLS Fund
|
Statement of Changes in Net Assets
|
|
(000’s Omitted)
|
|
|
For the
Year Ended
December
31,
2013
|
|
|
For the
Year Ended
December
31,
2012
|
|
Operations:
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
9,164
|
|
|
$
|
12,237
|
|
Net realized gain (loss) on investments and other financial instruments
|
|
|
(2,079
|
)
|
|
|
8,518
|
|
Net unrealized appreciation (depreciation) of investments
and other financial instruments
|
|
|
(23,496
|
)
|
|
|
17,498
|
|
Net Increase (Decrease) in Net Assets Resulting from
Operations
|
|
|
(16,411
|
)
|
|
|
38,253
|
|
Distributions to Shareholders:
|
|
|
|
|
|
|
|
|
From net investment income
|
|
|
|
|
|
|
|
|
Class IA
|
|
|
(15,681
|
)
|
|
|
(24,352
|
)
|
Class IB
|
|
|
(2,866
|
)
|
|
|
(4,613
|
)
|
Total distributions
|
|
|
(18,547
|
)
|
|
|
(28,965
|
)
|
Capital Share Transactions:
|
|
|
|
|
|
|
|
|
Class IA
|
|
|
|
|
|
|
|
|
Sold
|
|
|
73,225
|
|
|
|
154,606
|
|
Issued on reinvestment of distributions
|
|
|
15,681
|
|
|
|
24,352
|
|
Redeemed
|
|
|
(337,416
|
)
|
|
|
(259,812
|
)
|
Total capital share transactions
|
|
|
(248,510
|
)
|
|
|
(80,854
|
)
|
Class IB
|
|
|
|
|
|
|
|
|
Sold
|
|
|
16,213
|
|
|
|
40,910
|
|
Issued on reinvestment of distributions
|
|
|
2,866
|
|
|
|
4,613
|
|
Redeemed
|
|
|
(63,206
|
)
|
|
|
(67,604
|
)
|
Total capital share transactions
|
|
|
(44,127
|
)
|
|
|
(22,081
|
)
|
Net decrease from capital share transactions
|
|
|
(292,637
|
)
|
|
|
(102,935
|
)
|
Net Decrease in Net Assets
|
|
|
(327,595
|
)
|
|
|
(93,647
|
)
|
Net Assets:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
1,007,672
|
|
|
|
1,101,319
|
|
End of period
|
|
$
|
680,077
|
|
|
$
|
1,007,672
|
|
Undistributed (distribution in excess of) net
investment income
|
|
$
|
13,850
|
|
|
$
|
18,548
|
|
Shares:
|
|
|
|
|
|
|
|
|
Class IA
|
|
|
|
|
|
|
|
|
Sold
|
|
|
6,922
|
|
|
|
14,291
|
|
Issued on reinvestment of distributions
|
|
|
1,530
|
|
|
|
2,288
|
|
Redeemed
|
|
|
(32,056
|
)
|
|
|
(24,020
|
)
|
Total share activity
|
|
|
(23,604
|
)
|
|
|
(7,441
|
)
|
Class IB
|
|
|
|
|
|
|
|
|
Sold
|
|
|
1,542
|
|
|
|
3,803
|
|
Issued on reinvestment of distributions
|
|
|
280
|
|
|
|
435
|
|
Redeemed
|
|
|
(6,009
|
)
|
|
|
(6,279
|
)
|
Total share activity
|
|
|
(4,187
|
)
|
|
|
(2,041
|
)
|
The accompanying notes are an integral part of these financial
statements.
Hartford U.S. Government Securities
HLS Fund
|
Notes to Financial Statements
|
December 31, 2013
|
(000’s Omitted)
|
Hartford U.S. Government Securities
HLS Fund (the “Fund”) serves as an underlying investment option for certain variable annuity and variable life
insurance separate accounts of Hartford Life Insurance Company (“HLIC”) and its affiliates and certain qualified retirement
plans. The Fund may also serve as an underlying investment option for certain variable annuity and variable life separate accounts
of other insurance companies. Owners of variable annuity contracts and policyholders of variable life insurance contracts may
choose the funds permitted in the variable insurance contract prospectus. In addition, participants in certain qualified retirement
plans may choose the Fund if permitted by their plans.
Hartford HLS Series Fund II,
Inc. (the “Company”) is an open-end registered management investment company comprised of four portfolios. Financial
statements for the Fund, a series of the Company, are included in this report.
The Company is organized under
the laws of the State of Maryland and is registered with the Securities and Exchange Commission (“SEC”) under the
Investment Company Act of 1940, as amended (“1940 Act”). The Fund is a diversified open-end management investment
company.
The Fund is divided into Class
IA and Class IB shares. Each class is offered at the per share net asset value (“NAV”) without a sales charge and
is subject to the same expenses, except that the Class IB shares are subject to distribution and service fees charged pursuant
to a Distribution Plan adopted in accordance with Rule 12b-1 under the 1940 Act.
|
2.
|
Significant
Accounting Policies:
|
The following is a summary
of significant accounting policies of the Fund in the preparation of its financial statements, which are in accordance with United
States Generally Accepted Accounting Principles (“U.S. GAAP”). The preparation of financial statements in accordance
with U.S. GAAP may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases
and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
|
a)
|
Determination of Net Asset
Value
– The NAV of each class of the Fund’s shares is determined as of
the close of regular trading (normally 4:00 p.m. Eastern Time) (the “NYSE Close”)
on each day that the New York Stock Exchange (the “Exchange”) is open (“Valuation
Date”). Information that becomes known to the Fund after the NAV has been calculated
on a particular day will not generally be used to retroactively adjust the NAV determined
earlier that day.
|
|
b)
|
Investment Valuation and Fair
Value Measurements
– For purposes of calculating the NAV, portfolio investments
and other assets held by the Fund's portfolio for which market quotes are readily available
are valued at market value. Market value is generally determined on the basis of last
reported sales prices or official close price. If no sales are reported, market value
is based on quotes obtained from a quotation reporting system, established market makers,
or independent pricing services. If market prices are not readily available or are deemed
unreliable, the Fund will use the fair value of the investment as determined in good
faith under policies and procedures established by and under the supervision of the Company’s
Board of Directors. Market quotes are considered not readily available where there is
an absence of current or reliable market-based data (e.g., trade information or indicative
market quotes), including where events occur after the close of the relevant market,
but prior to the NYSE Close, that materially affect the values of the Fund’s portfolio
investments or assets. In addition, market quotes are considered not readily available
when, due to extraordinary circumstances, the exchanges or markets on which the investments
trade do not open for trading for the entire day and no other market prices are available.
In addition, prices of foreign equities that are principally traded on certain foreign
markets may be adjusted daily pursuant to a fair value pricing service approved by the
Board of Directors in order to reflect an adjustment for the factors occurring after
the close of certain foreign markets but before the NYSE Close. Investments that are
primarily traded on foreign markets may trade on days that are not business days of the
Fund. The value of the foreign investments in which the Fund invests may change on days
when a shareholder will not be able to
|
purchase or redeem shares of
the Fund. Fair value pricing is subjective in nature and the use of fair value pricing by the Fund may cause the NAV of its shares
to differ significantly from the NAV that would have been calculated using market prices at the close of the exchange on which
a portfolio investment is primarily traded. There can be no assurance that the Fund could obtain the fair market value assigned
to an investment if the Fund were to sell the investment at approximately the time at which the Fund determines its NAV.
Fixed income investments (other
than short-term obligations), non-exchange traded derivatives and centrally cleared swaps held by the Fund are normally valued
on the basis of quotes obtained from brokers and dealers or independent pricing services in accordance with procedures established
by the Company’s Board of Directors. Prices obtained from independent pricing services use information provided by market
makers or estimates of market values through accepted market modeling, trading and pricing conventions. Inputs to the models may
include, but are not limited to, prepayment speeds, pricing spread, yield, trade information, dealer quotes, market color, cash
flow models and the investment’s terms and conditions. Generally, the Fund may use fair valuation in regard to fixed income
investments when the Fund holds defaulted or distressed investments or investments in a company in which a reorganization is pending.
Short-term investments maturing in 60 days or less are generally valued at amortized cost, if their original term to maturity
was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if the original term to maturity exceeded
60 days.
Exchange traded options, futures
and options on futures are valued at the settlement price or last trade price determined by the relevant exchange as of the NYSE
Close. If the last trade price for exchange traded options does not fall between the bid and ask prices, the value will be the
mean of the bid and ask prices as of the NYSE Close. If a last trade price is not available, the value will be the mean of the
bid and ask prices as of the NYSE Close. If a mean of the bid and ask prices cannot be calculated for the day, the value will
be the bid price as of the NYSE Close. In the case of OTC options and such instruments that do not trade on an exchange, values
may be supplied by a pricing service using a formula or other objective method that may take into consideration the style, direction,
expiration, strike price, notional value and volatility or other special adjustments.
Financial instruments for which
prices are not available from an independent pricing service may be valued using market quotations obtained from one or more dealers
that make markets in the respective financial instrument in accordance with procedures established by the Company’s Board
of Directors.
U.S. GAAP defines fair value
as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market
participants. The U.S. GAAP fair value measurement standards require disclosure of a fair value hierarchy for each major category
of assets and liabilities. Various inputs are used in determining the fair value of the Fund’s investments. These inputs
are summarized into three broad hierarchy levels. This hierarchy is based on whether the valuation inputs are observable or unobservable.
These levels are:
|
·
|
Level 1 –
Quoted prices in active markets for identical investments. Level 1 may include exchange
traded instruments, such as domestic equities, some foreign equities, options, futures,
mutual funds, exchange traded funds, rights and warrants.
|
|
·
|
Level 2 –
Observable inputs other than Level 1 prices, such as quoted prices for similar investments;
quoted prices in markets that are not active; or other inputs that are observable or
can be corroborated by observable market data. Level 2 may include debt investments that
are traded less frequently than exchange traded instruments and which are valued using
independent pricing services; foreign equities, which are principally traded on certain
foreign markets and are adjusted daily pursuant to a fair value pricing service in order
to reflect an adjustment for the factors occurring after the close of certain foreign
markets but before the NYSE Close; senior floating rate interests, which are valued using
an aggregate of dealer bids; short-term investments, which are valued at amortized cost;
and swaps, which are valued based upon the terms of each swap contract.
|
|
·
|
Level 3 –
Significant unobservable inputs that are supported by limited or no market activity.
Level 3 may include financial instruments whose values are determined using indicative
market quotes or require significant management judgment or estimation. These unobservable
valuation inputs may include estimates for current yields, maturity/duration, prepayment
speed, and indicative market quotes for comparable investments along
|
Hartford U.S. Government Securities
HLS Fund
|
Notes to Financial Statements – (continued)
|
December 31, 2013
|
(000’s Omitted)
|
with other assumptions relating
to credit quality, collateral value, complexity of the investment structure, general market conditions and liquidity. This category
may include investments where trading has been halted or there are certain restrictions on trading. While these investments are
priced using unobservable inputs, the valuation of these investments reflects the best available data and management believes
the prices are a reasonable representation of exit price. For more information on specific valuation techniques and unobservable
inputs, please see table below titled "Quantitative Information about Level 3 Fair Value Measurements".
The Board of Directors of the
Company generally reviews and approves the “Procedures for Valuation of Portfolio Securities” on an annual basis.
These procedures define how investments are to be valued, including the formation and activities of a Valuation Committee. The
Valuation Committee is responsible for determining in good faith the fair value of investments when the value cannot be obtained
from primary pricing services or alternative sources or if the valuation of an investment as provided by the primary pricing service
or alternative source is believed not to reflect the investment’s fair value as of the Valuation Date. Voting members of
the Valuation Committee include the Fund’s Treasurer or designee and a Vice President of the investment manager or designee.
An Assistant Vice President of the Fund with legal expertise or designee is also included on the Valuation Committee as a non-voting
advisory member. In addition, the Fund’s Chief Compliance Officer shall designate a member of the compliance group to attend
Valuation Committee meetings as a non-voting resource, to monitor for and provide guidance with respect to compliance with these
procedures. Two members of the Valuation Committee or their designees, representing different departments, shall constitute a
quorum for purposes of permitting the Valuation Committee to take action. The Valuation Committee will consider all relevant factors
in determining an investment’s fair value, and may seek the advice of the Fund’s sub-adviser, knowledgeable brokers,
and legal counsel in making such determination. The Valuation Committee reports to the Audit Committee of the Company’s
Board of Directors. The Audit Committee receives quarterly written reports which include details of all fair-valued investments,
including the reason for the fair valuation, and an indication, when possible, of the accuracy of the valuation by disclosing
the next available reliable public price quotation or the disposition price of such investments (the “look-back” test).
The Board of Directors then must consider for ratification all of the fair value determinations made during the previous quarter.
Valuation levels are not necessarily
indicative of the risk associated with investing in such investments. Individual investments within any of the above mentioned
asset classes may be assigned a different hierarchical level than those presented above, as individual circumstances dictate.
For additional information,
refer to the Investment Valuation Hierarchy Level Summary and the Level 3 roll-forward reconciliation, if applicable, which follow
the Schedule of Investments.
Quantitative Information about Level 3 Fair Value
Measurements:
Security Type/Valuation Technique
|
|
Unobservable Input *
|
|
Range
(Weighted Average) ‡
|
|
Fair Value at
December 31,
2013
|
|
Asset & Commercial Mortgage Backed Securities:
|
|
|
|
|
|
|
|
|
Cost
|
|
Recent trade price
|
|
$100.00, 12/19/2013
|
|
$
|
6,900
|
|
Discounted cash flow
|
|
Internal rate of return
|
|
1.1% - 5.2% (1.9%)
|
|
|
22,202
|
|
|
|
Life expectancy (in months)
|
|
9 - 70 (29)
|
|
|
|
|
Indicative market quotations
|
|
Broker Quote †
|
|
$97.46 - $99.45 ($99.01)
|
|
|
7,920
|
|
Corporate Bonds:
|
|
|
|
|
|
|
|
|
Indicative market quotations
|
|
Broker Quote †
|
|
$99.50
|
|
|
2,960
|
|
Total
|
|
|
|
|
|
$
|
39,982
|
|
* Significant changes to any observable
inputs may result in a significant change to the fair value.
‡ Unless otherwise noted, inputs
were weighted based on the fair value of the investments included in the range.
† The broker quote represents the
best available estimate of fair value per share as of December 31, 2013.
|
c)
|
Investment Transactions and
Investment Income
–
Investment transactions are recorded as of the trade
date (the date the order to buy or sell is executed) for financial reporting purposes.
Investments purchased or sold on a when-issued or delayed-delivery basis may be settled
a month or more after the trade date. Realized gains and losses are determined on the
basis of identified cost.
|
Dividend income from domestic
securities is accrued on the ex-dividend date. In general, dividend income from foreign securities is recorded on the ex-date;
however, dividend notifications in certain foreign jurisdictions may not be available in a timely manner and as a result, the
Fund will record the dividend as soon as the relevant details (i.e., rate per share, payment date, shareholders of record, etc.)
are publicly available. Interest income, including amortization of premium, accretion of discounts and additional principal received
in-kind in lieu of cash, is accrued on a daily basis. Paydown gains and losses on mortgage related and other asset backed securities
are included in interest income in the Statement of Operations, as applicable.
|
d)
|
Joint Trading Account
–
The Fund may invest cash balances into a joint trading account that may be invested in
one or more repurchase agreements.
|
|
e)
|
Fund Share Valuation and Dividend
Distributions to Shareholders
– Orders for the Fund’s shares are executed
in accordance with the investment instructions of the contract holders and plan participants.
The NAV of the Fund’s shares is determined as of the close of business on each
business day of the Exchange. The NAV is determined separately for each class of shares
of the Fund by dividing the Fund’s net assets attributable to that class by the
number of shares of the class outstanding. Each class of shares offered by the Fund has
equal rights as to assets and voting privileges (except that shareholders of a class
have exclusive voting rights regarding any matter relating solely to that class of shares).
Income and non-class specific expenses are allocated daily to each class on the basis
of the relative net assets of the class. Realized and unrealized gains and losses are
allocated daily based on the relative net assets of each class of shares of the Fund.
|
Orders for the purchase of the
Fund’s shares received prior to the close of the Exchange on any day the Exchange is open for business are priced at the
NAV determined as of the close of the Exchange. Orders received after the close of the Exchange, or on a day on which the Exchange
and/or the Fund is not open for business, are priced at the next determined NAV.
Dividends are declared pursuant
to a policy adopted by the Company’s Board of Directors based upon the investment performance of the Fund. The policy of
the Fund is to pay dividends from net investment income and realized gains, if any, at least once a year.
Distributions from net investment
income, net realized gains and capital are determined in accordance with federal income tax regulations, which may differ from
U.S. GAAP with respect to character and timing. These differences may include but are not limited to losses deferred due to wash
sale adjustments, foreign currency gains and losses, adjustments related to Passive Foreign Investment Companies (“PFICs”),
Real Estate Investment Trusts (“REITs”), Regulated Investment Companies (“RICs”), certain derivatives
and partnerships. Permanent book and federal income tax basis differences relating to shareholder distributions will result in
reclassifications to certain of the Fund’s capital accounts (see Federal Income Taxes: Reclassification of Capital Accounts
note).
|
3.
|
Securities
and Other Investments:
|
|
a)
|
Repurchase Agreements
–
A repurchase agreement is an agreement by which a counterparty agrees to sell an investment
and agrees to repurchase the investment sold from the buyer at a mutually agreed upon
time and price. During the period of the repurchase agreement, the counterparty will
deposit cash and or securities in a third party custodial account to serve as collateral.
At the time the Fund enters into a repurchase agreement, the value of the underlying
collateral, including accrued interest, will be equal to or exceed the value of the repurchase
agreement. Repurchase agreements expose the Fund to counterparty risk - that is, the
risk that the counterparty will not fulfill its obligations. To minimize counterparty
risk, the investments that serve to collateralize the repurchase agreement are held by
the Fund’s custodian in
|
Hartford U.S. Government Securities
HLS Fund
|
Notes to Financial Statements – (continued)
|
December 31, 2013
|
(000’s Omitted)
|
book entry or physical form
in the custodial account of the Fund or in a third party custodial account. Repurchase agreements are valued at cost plus accrued
interest, which approximates fair value. Repurchase agreements have master netting arrangements which allow the Fund to offset
amounts owed to a counterparty with amounts owed by the counterparty, including any collateral. Upon an event of default under
a master repurchase agreement, the non-defaulting party may close out all transactions traded under such agreement and net amounts
owed under each transaction to one net amount payable by one party to the other. Absent an event of default, the master repurchase
agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities
across transactions between the Fund and the applicable counterparty. The Fund, as shown on the Schedule of Investments, had outstanding
repurchase agreements and related collateral as of December 31, 2013.
|
b)
|
Illiquid and Restricted Investments
– The Fund is permitted to invest up to 15% of its net assets in illiquid investments.
Illiquid investments are those that may not be sold or disposed of in the ordinary course
of business within seven days, at approximately the price used to determine the Fund’s
NAV. The Fund may not be able to sell illiquid investments when its sub-adviser considers
it desirable to do so or may have to sell such investments at a price that is lower than
the price that could be obtained if the investments were more liquid. A sale of illiquid
investments may require more time and may result in higher dealer discounts and other
selling expenses than does the sale of those that are liquid. Illiquid investments also
may be more difficult to value due to the unavailability of reliable market quotations
for such investments, and an investment in them may have an adverse impact on the Fund’s
NAV. The Fund may also purchase certain restricted investments that can only be resold
to certain qualified investors and may be determined to be liquid pursuant to policies
and guidelines established by the Company’s Board of Directors. The Fund, as shown
on the Schedule of Investments, had illiquid and/or restricted investments
as of December 31, 2013.
|
|
c)
|
Investments Purchased on a
When-Issued or Delayed-Delivery Basis
– Delivery and payment for investments
that have been purchased by the Fund on a forward commitment, or when-issued or delayed-delivery
basis, take place beyond the customary settlement period. The Fund may dispose of or
renegotiate a delayed-delivery transaction after it is entered into, and may sell delayed-delivery
investments before they are delivered, which may result in a realized gain or loss. During
this period, such investments are subject to market fluctuations, and the Fund identifies
investments segregated in its records with a value at least equal to the amount of the
commitment. The Fund, as shown on the Schedule of Investments, had when-issued or delayed-delivery
investments as of December 31, 2013.
|
In connection with the Fund’s
ability to purchase investments on a when-issued or forward commitment basis, the Fund may enter into to-be announced (“TBA”)
commitments. TBA commitments are forward agreements for the purchase or sale of mortgage backed securities for a fixed price,
with payment and delivery on an agreed-upon future settlement date. The specific securities to be delivered are not identified
at the trade date; however, delivered securities must meet specified terms, including issuer, rate and mortgage terms. Although
the Fund may enter into TBA commitments with the intention of acquiring or delivering securities for its portfolio, the Fund can
extend the settlement date, roll the transaction, or dispose of a commitment prior to settlement if deemed appropriate to do so.
If the TBA commitment is closed through the acquisition of an offsetting TBA commitment, the Fund realizes a gain or loss. In
a TBA roll transaction, the Fund generally purchases or sells the initial TBA commitment prior to the agreed upon settlement date
and enters into a new TBA commitment for future delivery or receipt of the mortgage backed securities. TBA commitments involve
a risk of loss if the value of the security to be purchased or sold declines or increases, respectively, prior to settlement date.
The Fund may enter into “dollar
rolls” in which the Fund sells securities and contracts with the same counterparty to repurchase substantially similar securities
(for example, same issuer, coupon and maturity) on a specified future date at an agreed upon price. The Fund gives up the right
to receive interest paid on the investments sold. The Fund would benefit to the extent of any differences between the price received
for the security and the lower forward price for the future purchase. Dollar rolls involve the risk that the market value of the
securities that the Fund is required to purchase may decline below the agreed upon repurchase price of those securities. The Fund
records dollar roll transactions as purchases and sales and realizes gains and losses on these transactions. These transactions
are excluded from the Fund’s portfolio turnover rate. The Fund had open dollar roll transactions as of December 31, 2013.
|
d)
|
Inflation Indexed Bonds
– The Fund may invest in inflation indexed bonds. Inflation indexed bonds are fixed
income investments whose principal value is periodically adjusted to the rate of inflation.
The interest rate on these bonds is generally fixed at issuance at a rate lower than
typical bonds. Over the life of an inflation indexed bond, however, interest will be
paid based on a principal value, which is adjusted for inflation. Any increase or decrease
in the principal amount of an inflation indexed bond will be included as interest income
on the Statement of Operations, even though investors do not receive the principal amount
until maturity. As of December 31, 2013, the Fund did not hold any inflation indexed
bonds.
|
|
e)
|
Mortgage Related and Other
Asset Backed Securities
–
The Fund may invest in mortgage related
and other asset backed securities. These securities include mortgage pass-through securities,
collateralized mortgage obligations, commercial mortgage backed securities, stripped
mortgage backed securities, asset backed securities, collateralized debt obligations
and other securities that directly or indirectly represent a participation in, or are
secured by and payable from, mortgage loans on real property. Mortgage related securities
are created from pools of residential or commercial mortgage loans, including mortgage
loans made by savings and loan institutions, mortgage bankers, commercial banks and others.
Asset backed securities are created from many types of assets, including auto loans,
credit card receivables, home equity loans, and student loans. These securities provide
a monthly payment that consists of both interest and principal payments. Interest payments
may be determined by fixed or adjustable rates. The rate of pre-payments on underlying
mortgages will affect the price and volatility of a mortgage related security, and may
have the effect of shortening or extending the effective duration of the security relative
to what was anticipated at the time of purchase. The timely payment of principal and
interest of certain mortgage related securities is guaranteed by the full faith and credit
of the United States Government. Mortgage related and other asset backed securities created
and guaranteed by non-governmental issuers, including government-sponsored corporations,
may be supported by various forms of insurance or guarantees, but there can be no assurance
that the private insurers or guarantors can meet their obligations under the insurance
policies or guarantee arrangements. The Fund, as shown on the Schedule of
Investments, had mortgage related and other asset backed securities as of December 31,
2013.
|
|
4.
|
Financial
Derivative Instruments:
|
The following disclosures contain
information on how and why the Fund uses derivative instruments, the credit-risk-related contingent features in certain derivative
instruments, and how derivative instruments affect the Fund’s financial position and results of operations. The location
and fair value amounts of these instruments on the Statement of Assets and Liabilities and the realized gains and losses and changes
in unrealized gains and losses on the Statement of Operations, each categorized by type of derivative contract, are included in
the following Additional Derivative Instrument Information footnote. The derivative instruments outstanding as of year-end are
disclosed in the notes to or within the Schedule of Investments for purchased options, if applicable. The amounts of realized
gains and losses and changes in unrealized gains and losses on derivative instruments during the year are disclosed in the Statement
of Operations.
|
a)
|
Futures Contracts
–
The Fund may enter into futures contracts. A futures contract is an agreement between
two parties to buy or sell an asset at a set price on a future date. The Fund uses futures
contracts to manage or obtain exposure to the investment markets, commodities, or movements
in interest rates and currency values. The primary risks associated with the use of futures
contracts are the imperfect correlation between the change in market value of the investments
held by the Fund and the prices of futures contracts and the possibility of an illiquid
market. Upon entering into a futures contract, the Fund is required to deposit with a
futures commission merchant (“FCM”) an amount of cash or U.S. Government
or Agency Obligations in accordance with the initial margin requirements of the broker
or exchange. Futures contracts are marked to market daily at the most recent settlement
price reported by an exchange on which, over time, they are traded most extensively,
and an appropriate payable or receivable for the change in value (“variation margin”)
is recorded by the Fund. Gains or losses are recognized but not considered realized until
the contracts expire or are closed. Futures contracts involve, to varying degrees, risk
of loss in excess of the variation margin disclosed on the Statement of Assets and Liabilities;
however, the Fund seeks to reduce this risk through the use of an FCM. The Fund, as shown
on the Schedule of Investments, had outstanding futures contracts as of December
31, 2013.
|
Hartford U.S. Government Securities
HLS Fund
|
Notes to Financial Statements – (continued)
|
December 31, 2013
|
(000’s Omitted)
|
|
b)
|
Swap Contracts
–
The Fund may invest in swap contracts. Swap contracts are agreements to exchange or swap
investment cash flows, assets, foreign currencies or market-linked returns at specified,
future intervals. Swap contracts are either privately negotiated in the over-the-counter
market (“OTC swaps”) or executed in a multilateral or other trade facility
platform, such as a registered exchange (“centrally cleared swaps”). The
Fund may enter into credit default, total return, cross-currency, interest rate, inflation
and other forms of swap contracts to manage its exposure to credit, currency, interest
rate, commodity and inflation risk. Swap contracts are also used to gain exposure to
certain markets. In connection with these contracts, investments or cash may be identified
as collateral or margin in accordance with the terms of the respective swap contracts
and/or master netting arrangement to provide assets of value and recourse in the event
of default or bankruptcy/insolvency.
|
Swaps are
valued based on custom valuations furnished by an independent pricing service. Swaps for which prices are not available from an
independent pricing service are valued in accordance with procedures established by the Company’s Board of Directors. Changes
in market value, if any, are reflected as a component of net changes in unrealized appreciation or depreciation on the Statement
of Operations. Daily changes in valuation of centrally cleared swaps, if any, are recorded as a receivable or payable for the
change in value as appropriate (“variation margin”) on the Statement of Assets and Liabilities. Realized gains or
losses on centrally cleared swaps are recorded upon the termination of the swap. OTC swap payments received or made at the beginning
of the measurement period are reflected as such on the Statement of Assets and Liabilities and represent premiums paid or received
upon entering into the swap contract to compensate for differences between the stated terms of the swap contract and prevailing
market conditions (credit spreads, currency exchange rates, interest rates and other relevant factors). These upfront premiums
are recorded as realized gains or losses on the Statement of Operations upon termination or maturity of the swap. A liquidation
payment received or made at the termination or maturity of the swap is recorded as a realized gain or loss on the Statement of
Operations. Net periodic payments received or paid by the Fund are included as part of realized gains or losses on the Statement
of Operations.
Entering
into these contracts involves, to varying degrees, elements of liquidation, counterparty, credit and market risk in excess of
the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid
market for these contracts, that the counterparty to the contracts may default on its obligation to perform or disagree as to
the meaning of contractual terms in the contracts, and that there may be unfavorable changes in market conditions (credit spreads,
currency exchange rates, interest rates and other relevant factors).
The Fund’s
maximum risk of loss from credit risk for OTC swaps is the net value of the discounted cash flows to be received from the counterparty
over the contract’s remaining life, and current market value, to the extent that amount is positive. The risk is mitigated
by having a master netting arrangement between the Fund and the counterparty, which allows for the netting of payments made or
received (although such amounts are presented on a gross basis within the Statement of Assets and Liabilities, as applicable)
as well as the posting of collateral to the Fund to cover the Fund’s exposure to the counterparty. In a centrally cleared
swap, while the Fund enters into an agreement with a clearing broker to execute contracts with a counterparty, the performance
of the swap is guaranteed by the central clearinghouse, which reduces the Fund’s exposure to credit risk. The Fund is still
exposed to the credit risk of the clearing broker and clearinghouse. The clearinghouse attempts to minimize this risk to all of
its participants through the use of mandatory margin requirements, daily cash settlements, and other procedures designed to protect
counterparties utilizing the clearinghouse. Likewise, the clearing broker reduces its risk through margin requirements and required
segregation of customer balances.
Interest Rate Swap Contracts
–
The Fund is subject to interest rate risk exposure in the normal course of pursuing its investment objectives.
Because the Fund holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this
risk and to maintain its ability to generate income at prevailing market rates, the Fund may enter into interest rate swap contracts.
In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate, based on a specified
interest rate or inflation benchmark (e.g. London Interbank Offered Rate (“LIBOR”)), multiplied by a “notional
principal amount”, in return for payments equal to a fixed rate multiplied by the same amount, for a specific period of
time. The net interest received or paid on interest rate swap contracts is recorded as a realized gain or loss. Interest rate
swaps are marked to market daily and the change, if any, is recorded as
an unrealized gain or loss in
the Statement of Operations. When the interest rate swap contract is terminated early, the Fund records a realized gain or loss
equal to the difference between the current realized value and the expected cash flows.
If an interest rate swap contract
provides for payments in different currencies, the parties might agree to exchange the notional principal amount as well. Interest
rate swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates. The risks of
interest rate swaps include changes in market conditions which will affect the value of the contract or the cash flows and the
possible inability of the counterparty to fulfill its obligations under the contract. The Fund’s maximum risk of loss from
counterparty credit risk is the discounted net value of the cash flows to be received from the counterparty over the contract’s
remaining life, to the extent that amount is positive. The Fund had no outstanding interest rate swap contracts as of December
31, 2013.
|
c)
|
Additional Derivative Instrument
Information:
|
Fair Value of Derivative Instruments on the Statement
of Assets and Liabilities as of December 31, 2013:
|
|
Risk
Exposure Category
|
|
|
|
Interest
Rate
Contracts
|
|
|
Foreign
Exchange
Contracts
|
|
|
Credit
Contracts
|
|
|
Equity
Contracts
|
|
|
Commodity
Contracts
|
|
|
Other
Contracts
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variation margin receivable *
|
|
$
|
66
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
66
|
|
Total
|
|
$
|
66
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variation margin payable *
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15
|
|
Total
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15
|
|
* Only current day's variation margin is reported
within the Statement of Assets and Liabilities. The variation margin is included in the open futures cumulative appreciation of
$78 as reported in the Schedule of Investments.
The ratio of futures contracts
market value to net assets at December 31, 2013 was 4.08%, compared to the one year monthly average of 16.79% for the year ended
December 31, 2013.
The Effect of Derivative Instruments on the Statement
of Operations for the year ended December 31, 2013:
|
|
Risk
Exposure Category
|
|
|
|
Interest
Rate
Contracts
|
|
|
Foreign
Exchange
Contracts
|
|
|
Credit
Contracts
|
|
|
Equity
Contracts
|
|
|
Commodity
Contracts
|
|
|
Other
Contracts
|
|
|
Total
|
|
Realized Loss on Derivatives Recognized as a Result
of Operations:
|
Net realized loss on futures
|
|
$
|
(2,285
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2,285
|
)
|
Net realized loss on swap contracts
|
|
|
(42
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(42
|
)
|
Total
|
|
$
|
(2,327
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2,327
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Unrealized Appreciation (Depreciation)
on Derivatives Recognized as a Result of Operations:
|
Net change
in unrealized appreciation of futures
|
|
$
|
130
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
130
|
|
Net change
in unrealized appreciation of swap contracts
|
|
|
16
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16
|
|
Total
|
|
$
|
146
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
146
|
|
|
d)
|
Balance Sheet Offsetting Information:
|
Set forth below are tables which
disclose both gross information and net information about instruments and transactions eligible for offset in the financial statements,
and instruments and transactions that are subject to a master netting
Hartford
U.S. Government Securities HLS Fund
Notes to Financial Statements –
(continued)
December 31, 2013
(000’s Omitted)
arrangement, as well as amounts
related to margin, reflected as financial collateral (including cash collateral), held at clearing brokers, counterparties and
the Fund’s custodian. The master netting arrangements allow the clearing brokers to net any collateral held in or on behalf
of the Fund, or liabilities or payment obligations of the clearing brokers to the Fund, against any liabilities or payment obligations
of the Fund to the clearing brokers. The Fund is required to deposit financial collateral (including cash collateral) at the Fund’s
custodian on behalf of clearing brokers and counterparties to continually meet the original and maintenance requirements established
by the clearing brokers and counterparties. Such requirements are specific to the respective clearing broker or counterparty.
Offsetting of Financial Assets and Derivative Assets as of December 31, 2013:
|
|
Gross
Amounts* of
Assets Presented in
Statement of Assets
and Liabilities
|
|
|
Financial
Instruments with
Allowable Netting
|
|
|
Collateral Received
|
|
|
Net
Amount (not
less than $0)
|
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures
contracts - Variation margin receivable
|
|
$
|
66
|
|
|
$
|
(15
|
)
|
|
$
|
—
|
|
|
$
|
51
|
|
Total subject to
a master netting or similar arrangement
|
|
$
|
66
|
|
|
$
|
(15
|
)
|
|
$
|
—
|
|
|
$
|
51
|
|
Offsetting of Financial Liabilities and Derivative Liabilities
as of December 31, 2013:
|
|
Gross
Amounts* of
Liabilities Presented
in Statement of
Assets and
Liabilities
|
|
|
Financial
Instruments with
Allowable Netting
|
|
|
Collateral
Pledged
|
|
|
Net
Amount (not
less than $0)
|
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures contracts - Variation margin
payable
|
|
$
|
15
|
|
|
$
|
(15
|
)
|
|
$
|
(259
|
)†
|
|
$
|
—
|
|
Total subject to a master netting or similar arrangement
|
|
$
|
15
|
|
|
$
|
(15
|
)
|
|
$
|
(259
|
)
|
|
$
|
—
|
|
|
*
|
Gross amounts presented as no amounts are netted within
the Statement of Assets and Liabilities.
|
|
†
|
Pledged as initial margin deposit and collateral for
daily variation margin loss on open financial derivative contracts held at December 31, 2013.
|
Credit risk depends largely on
the perceived financial health of bond issuers. In general, the credit rating is inversely related to the credit risk of the issuer.
Higher rated bonds generally are deemed to have less credit risk, while lower or unrated bonds are deemed to have higher risk of
default. The share price, yield and total return of a fund that holds securities with higher credit risk may be more volatile than
those of a fund that holds bonds with lower credit risk. Similar to credit risk, the Fund may be exposed to counterparty risk,
or the risk that an institution or other entity with which the Fund has unsettled or open transactions will default.
The Fund’s investments
expose the Fund to various risks including, but not limited to, interest rate, prepayment, extension, foreign currency and equity
risks. Interest rate risk is the risk that fixed income securities will decline in value because of changes in interest rates.
As nominal interest rates rise, the values of certain fixed income securities held by the Fund are likely to decrease. A nominal
interest rate can be described as the sum of a real interest rate and an expected inflation rate. Fixed income securities with
longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with
shorter durations. Duration is useful primarily as a measure of the sensitivity of a fixed income security’s market price
to interest rate (i.e., yield) movements. In addition, securities are subject to extension risk. Rising interest rates may cause
prepayments to occur at a slower than expected rate, thereby effectively lengthening the maturity of the security and making the
security more sensitive to interest rate changes. Prepayment and extension risk are major risks of mortgage backed securities and
certain asset backed securities. For certain asset backed securities, the actual maturity may be less than the stated maturity
shown in the Schedule of Investments, if applicable. As a result, the timing of income recognition relating to these securities
may vary based upon the actual maturity.
If the Fund invests directly
in foreign currencies or in securities that trade in, and receive revenues in, foreign currencies, or in derivatives that provide
exposure to foreign currencies, it will be subject to the risk that those currencies will decline in value relative to the base
currency (U.S. dollars) of the Fund, or, in the case of hedging positions, that the Fund’s base currency will decline in
value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods
of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign
governments, central banks or supranational entities, such as the International Monetary Fund, or by the imposition of currency
controls or other political developments in the United States or abroad. As a result, the Fund’s investments in foreign currency
denominated securities may reduce the returns of the Fund. The market values of equity securities, such as common stocks and preferred
stocks, or equity related investments, such as futures and options, may decline due to general market conditions which are not
specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook
for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. The market value of equity
securities may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased
production costs and competitive conditions within an industry. Equity securities and equity related investments generally have
greater market price volatility than fixed income securities.
|
a)
|
Federal Income Taxes
–
For federal income tax purposes, the Fund intends to continue to qualify as a RIC under
Subchapter M of the Internal Revenue Code (“IRC”) by distributing substantially
all of its taxable net investment income and net realized capital gains to its shareholders
and otherwise complying with the requirements of the IRC. The Fund has distributed substantially
all of its income and capital gains in prior years, if applicable, and intends to distribute
substantially all of its income and capital gains prior to the next fiscal year-end.
Accordingly, no provision for federal income or excise taxes has been made in the accompanying
financial statements. Distributions from short-term capital gains are treated as ordinary
income distributions for federal income tax purposes.
|
|
b)
|
Net Investment Income (Loss),
Net Realized Gains (Losses) and Distributions
–
Net investment income
(loss) and net realized gains (losses) may differ for financial statement and tax purposes
primarily because of losses deferred due to wash sale adjustments, foreign currency gains
and losses, adjustments related to PFICs, REITs, RICs, certain derivatives and partnerships.
The character of distributions made during the year from net investment income or net
realized gains may differ from their ultimate characterization for federal income tax
purposes. Also, due to the timing of dividend distributions, the fiscal year in which
amounts are distributed may differ from the year that the income or realized gains (losses)
were recorded by the Fund.
|
|
c)
|
Distributions and Components
of Distributable Earnings
– The tax character of distributions paid by the
Fund for the periods indicated is as follows (as adjusted for dividends payable, if applicable):
|
|
|
For the Year Ended
December 31, 2013
|
|
|
For the Year Ended
December 31, 2012
|
|
Ordinary Income
|
|
$
|
18,547
|
|
|
$
|
28,965
|
|
Hartford
U.S. Government Securities HLS Fund
Notes to Financial Statements –
(continued)
December 31, 2013
(000’s Omitted)
As of December 31, 2013, the
Fund’s components of distributable earnings (deficit) on a tax basis were as follows:
|
|
Amount
|
|
Undistributed Ordinary Income
|
|
$
|
13,850
|
|
Accumulated Capital and Other Losses*
|
|
|
(137,302
|
)
|
Unrealized Appreciation†
|
|
|
3,922
|
|
Total Accumulated Deficit
|
|
$
|
(119,530
|
)
|
|
*
|
The Fund has capital loss carryforwards that are identified in the Capital Loss Carryforward note that follows.
|
|
†
|
Differences between book-basis and tax-basis unrealized
appreciation (depreciation) may be attributable to the losses deferred due to wash sale adjustments, foreign currency gains and
losses, adjustments related to PFICs, REITs, RICs, certain derivatives and partnerships.
|
|
d)
|
Reclassification of Capital Accounts
– The Fund may record reclassifications in its
capital accounts. These reclassifications have no impact on the total net assets of the Fund. The reclassifications are a result
of permanent differences between U.S. GAAP and tax accounting for such items as foreign currency, PFICs, expiration or utilization
of capital loss carryforwards or net operating losses. Adjustments are made to reflect the impact these items have on current and
future distributions to shareholders. Therefore, the source of the Fund’s distributions may be shown in the accompanying
Statement of Changes in Net Assets as from undistributed net investment income, from accumulated net realized gains on investments
or from capital depending on the type of book and tax differences that exist. For the year ended December 31, 2013, the Fund recorded
reclassifications to increase (decrease) the accounts listed below:
|
|
|
Amount
|
|
Undistributed Net Investment Income (Loss)
|
|
$
|
4,685
|
|
Accumulated Net Realized Gain (Loss)
|
|
|
11,531
|
|
Capital Stock and Paid-in-Capital
|
|
|
(16,216
|
)
|
|
e)
|
Capital Loss Carryforward
– On December 22, 2010, the Regulated Investment Company
Modernization Act of 2010 (the “Act”) was enacted, which made changes to the capital loss carryforward rules. The changes
are effective for taxable years beginning after the date of enactment. Under the Act, funds are permitted to carry forward capital
losses for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized
prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule,
pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital loss carryforwards
retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted
under prior regulation.
|
At December 31, 2013 (tax-year-end),
the Fund had capital loss carryforwards for U.S. federal income tax purposes as follows:
Year of Expiration
|
|
Amount
|
|
2014
|
|
$
|
15,888
|
|
2017
|
|
|
25,163
|
|
2018
|
|
|
58,150
|
|
Total
|
|
$
|
99,201
|
|
As of December 31, 2013, the Fund had $16,217 in expired capital loss carryforwards.
Capital loss carryforwards with no expiration:
|
|
Amount
|
|
Short-Term Capital Loss Carryforward
|
|
$
|
4,783
|
|
Long-Term Capital Loss Carryforward
|
|
|
33,318
|
|
Total
|
|
$
|
38,101
|
|
|
f)
|
Accounting for Uncertainty in Income Taxes
– The Fund has adopted financial reporting
rules that require the Fund to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions.
Generally, tax authorities can examine all tax returns filed for the last three years. The Fund does not have an examination in
progress.
|
The Fund has reviewed all open
tax years and major jurisdictions and concluded that these financial reporting rules had no effect on the Fund’s financial
position or results of operations. There is no tax liability resulting from unrecognized tax benefits relating to uncertain income
tax positions taken or expected to be taken on the tax return for the fiscal year ended December 31, 2013. The Fund is also not
aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly
change in the next twelve months.
|
a)
|
Investment Management Agreement
– Hartford Funds Management Company, LLC (“HFMC”),
an indirect wholly owned subsidiary of The Hartford Financial Services Group, Inc. (“The Hartford”), serves as investment
manager to the Fund pursuant to an Investment Management Agreement with the Company. The investment manager has overall investment
supervisory responsibility for the Fund. In addition, the investment manager provides administrative personnel, services, equipment,
facilities and office space for proper operation of the Fund. The investment manager has contracted with Wellington Management
Company, LLP (“Wellington Management”) under a sub-advisory agreement for the provision of day-to-day investment management
services to the Fund in accordance with the Fund’s investment objective and policies. The Fund pays a fee to the investment
manager, a portion of which may be used to compensate Wellington Management.
|
The schedule below reflects the
rates of compensation paid to HFMC for investment management services rendered as of December 31, 2013; the rates are accrued daily
and paid monthly.
Average Daily Net Assets
|
|
Annual Fee
|
|
On first $500 million
|
|
|
0.4500
|
%
|
On next $500 million
|
|
|
0.4450
|
%
|
On next $1.5 billion
|
|
|
0.4400
|
%
|
On next $2.5 billion
|
|
|
0.4350
|
%
|
On next $5 billion
|
|
|
0.4300
|
%
|
Over $10 billion
|
|
|
0.4200
|
%
|
|
b)
|
Accounting Services Agreement –
Pursuant to the Fund Accounting Agreement between
HFMC and the Company, on behalf of the Fund, HFMC provides accounting services to the Fund and receives monthly compensation based
on the Fund’s average daily net assets at the rates set forth below. The Fund’s accounting services fees are accrued
daily and paid monthly.
|
Average Daily Net Assets
|
|
Annual Fee
|
|
On first $5 billion
|
|
|
0.012
|
%
|
Over $5 billion
|
|
|
0.010
|
%
|
Hartford
U.S. Government Securities HLS Fund
Notes to Financial Statements –
(continued)
December 31, 2013
(000’s Omitted)
|
c)
|
Operating Expenses
– Allocable expenses incurred by the Company are allocated to each
Fund and allocated to classes within a Fund in proportion to the average daily net assets of the Fund and each class, except where
allocation of certain expenses is more fairly made directly to the Fund or to specific classes within a Fund.
|
|
d)
|
Fees Paid Indirectly
– The Fund’s custodian bank has agreed to reduce its fees when the Fund maintains cash
on deposit in a non-interest-bearing custody account. For the year ended December 31, 2013, these amounts, if any, are included
in the Statement of Operations.
|
The ratio of expenses to average
net assets in the accompanying financial highlights excludes the reduction in expenses related to fees paid indirectly. The annualized
expense ratio after waivers for the period listed below reflecting the reduction for fees paid indirectly is as follows:
|
|
Year Ended
December 31, 2013
|
|
Class IA
|
|
|
0.49
|
%
|
Class IB
|
|
|
0.74
|
|
|
e)
|
Distribution Plan for Class IB shares
– Effective June 14, 2013, Hartford Investment
Financial Services, LLC was renamed Hartford Funds Distributors, LLC (“HFD”). HFD, a wholly owned, ultimate subsidiary
of The Hartford, serves as the Fund’s principal underwriter and distributor. The Company, on behalf of the Fund, has adopted
a Distribution Plan pursuant to Rule 12b-1 of the 1940 Act to compensate the distributor, HFD, from assets attributable to the
Class IB shares for services rendered and expenses borne in connection with activities primarily intended to result in the sale
of the Class IB shares, subject to the review and approval of the Company’s Board of Directors.
|
The Distribution Plan provides
that the Fund may pay annually up to 0.25% of the average daily net assets of the Fund attributable to its Class IB shares for
activities primarily intended to result in the sale of Class IB shares. The Board has the authority to suspend or reduce these
payments at any point in time. Under the terms of the Distribution Plan and the principal underwriting agreement, the Fund is authorized
to make payments monthly to the distributor that may be used to pay or compensate entities providing distribution and shareholder
servicing with respect to the Class IB shares for such entities’ fees or expenses incurred or paid in that regard. These
fees are accrued daily and paid monthly.
|
f)
|
Other Related Party Transactions
– Certain officers of the Fund are directors and/or
officers of the investment manager and/or The Hartford or its subsidiaries. For the year ended December 31, 2013, a portion of
the Fund’s Chief Compliance Officer’s salary was paid by all the investment companies in the Hartford fund complex.
The portion allocated to the Fund was in the amount of $1. Hartford Administrative Services Company (“HASCO”), an indirect
wholly owned subsidiary of The Hartford, provides transfer agent services to the Fund. HASCO was compensated on a per account basis
for providing such services. The amount paid to HASCO can be found in the Statement of Operations. These fees are accrued daily
and paid monthly.
|
|
8.
|
Investment Transactions:
|
For the year ended December
31, 2013, the Fund's aggregate purchases and sales of investment securities (excluding short-term investments) were as follows:
|
|
Amount
|
|
Cost of Purchases Excluding U.S. Government Obligations
|
|
$
|
2,417,420
|
|
Sales Proceeds Excluding U.S. Government Obligations
|
|
|
2,846,299
|
|
Cost of Purchases for U.S. Government Obligations
|
|
|
180,851
|
|
Sales Proceeds for U.S. Government Obligations
|
|
|
133,592
|
|
The Fund is one of several Hartford
funds that participate in a $500 million committed revolving line of credit facility. The facility is to be used for temporary
or emergency purposes. Under the arrangement, the funds are required to own securities having a market value in excess of 300%
of the total bank borrowings. The interest rate on borrowings varies depending on the nature of the loan. The facility also requires
a fee to be paid based on the amount of the commitment. This commitment fee is allocated to all of the funds participating in the
line of credit based on the average net assets of the funds. During the year ended December 31, 2013, the Fund did not have any
borrowings under this facility.
|
10.
|
Industry Classifications:
|
Other than the industry classifications
“Other Investment Pools and Funds” and “Exchange Traded Funds,” equity industry classifications used in
this report are the Global Industry Classification Standard, which was developed by and is the exclusive property and service mark
of MSCI, Inc. and Standard & Poor’s.
Under the Company’s organizational
documents, the Company shall indemnify its officers and directors to the full extent required or permitted under Maryland General
Corporation Law and the federal securities laws. In addition, the Company, on behalf of the Fund, may enter into contracts that
contain a variety of indemnifications. The Company’s maximum exposure under these arrangements is unknown. However, as of
the date of these financial statements, the Company has not had prior claims or losses pursuant to these contracts and expects
the risk of loss to be remote.
|
12.
|
Pending Legal Proceedings:
|
On February 25, 2011, Jennifer
L. Kasilag, Louis Mellinger, Judith M. Menendez, Jacqueline M. Robinson, and Linda A. Russell filed a derivative lawsuit against
Hartford Investment Financial Services, LLC (“HIFSCO”)(now known as Hartford Funds Distributors, LLC) on behalf of
six Hartford retail mutual funds in the United States District Court for the District of New Jersey, alleging that HIFSCO received
excessive advisory and distribution fees in violation of its statutory fiduciary duty under Section 36(b) of the 1940 Act when
serving as investment manager and principal underwriter, respectively, to the Hartford retail mutual funds. HIFSCO moved to dismiss
and, in September 2011, the motion was granted in part and denied in part, with leave to amend the complaint. In November 2011,
plaintiffs filed an amended complaint on behalf of certain Hartford retail mutual funds, The Hartford Global Health Fund (now known
as The Hartford Healthcare Fund), The Hartford Conservative Allocation Fund, The Hartford Growth Opportunities Fund, The Hartford
Inflation Plus Fund, The Hartford Advisers Fund (now known as The Hartford Balanced Fund), and The Hartford Capital Appreciation
Fund. Plaintiffs seek to rescind the investment management agreements and distribution plans between HIFSCO and these funds and
to recover the total fees charged thereunder or, in the alternative, to recover any improper compensation HIFSCO received, in addition
to lost earnings. HIFSCO filed a partial motion to dismiss the amended complaint and, in December 2012, the court dismissed without
prejudice the claims regarding distribution fees and denied the motion with respect to the advisory fees claims. HIFSCO disputes
the allegations and intends to defend the advisory fee claims vigorously.
This action concerns the activities
of HIFSCO in its capacity as investment manager and principal underwriter to the Hartford retail mutual funds and does not concern
HIFSCO’s activities in its capacity as principal underwriter to the HLS funds. For this reason, no accrual for litigation
relating to this matter has been recorded in the financial statements of the Fund.
Hartford
U.S. Government Securities HLS Fund
Financial
Highlights
|
|
─
Selected Per-Share Data(A) ─
|
|
|
─
Ratios and Supplemental Data ─
|
|
Class
|
|
Net Asset
Value at
Beginning
of Period
|
|
|
Net
Investment
Income
(Loss)
|
|
|
Net
Realized
and
Unrealized
Gain (Loss)
on
Investments
|
|
|
Total from
Investment
Operations
|
|
|
Dividends
from Net
Investment
Income
|
|
|
Distributions
from
Realized
Capital
Gains
|
|
|
Total
Dividends
and
Distributions
|
|
|
Net
Asset
Value at
End of
Period
|
|
|
Total
Return(B)
|
|
|
Net Assets
at End of
Period
(000s)
|
|
|
Ratio of
Expenses
to
Average
Net
Assets
Before
Adjust-
ments(C)
|
|
|
Ratio of
Expenses
to
Average
Net
Assets
After
Adjust-
ments(C)
|
|
|
Ratio of
Net
Investment
Income
(Loss) to
Average
Net Assets
|
|
For the Year Ended December
31, 2013
|
IA
|
|
$
|
10.75
|
|
|
$
|
0.12
|
|
|
$
|
(0.30
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
–
|
|
|
$
|
(0.25
|
)
|
|
$
|
10.32
|
|
|
|
(1.68
|
)%
|
|
$
|
556,169
|
|
|
|
0.49
|
%
|
|
|
0.49
|
%
|
|
|
1.14
|
%
|
IB
|
|
|
10.71
|
|
|
|
0.09
|
|
|
|
(0.30
|
)
|
|
|
(0.21
|
)
|
|
|
(0.22
|
)
|
|
|
–
|
|
|
|
(0.22
|
)
|
|
|
10.28
|
|
|
|
(1.97
|
)
|
|
|
123,908
|
|
|
|
0.74
|
|
|
|
0.74
|
|
|
|
0.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December
31, 2012 (D)
|
IA
|
|
$
|
10.68
|
|
|
$
|
0.16
|
|
|
$
|
0.22
|
|
|
$
|
0.38
|
|
|
$
|
(0.31
|
)
|
|
$
|
–
|
|
|
$
|
(0.31
|
)
|
|
$
|
10.75
|
|
|
|
3.70
|
%
|
|
$
|
833,735
|
|
|
|
0.48
|
%
|
|
|
0.48
|
%
|
|
|
1.20
|
%
|
IB
|
|
|
10.63
|
|
|
|
0.13
|
|
|
|
0.23
|
|
|
|
0.36
|
|
|
|
(0.28
|
)
|
|
|
–
|
|
|
|
(0.28
|
)
|
|
|
10.71
|
|
|
|
3.44
|
|
|
|
173,937
|
|
|
|
0.73
|
|
|
|
0.73
|
|
|
|
0.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December
31, 2011 (D)
|
IA
|
|
$
|
10.46
|
|
|
$
|
0.21
|
|
|
$
|
0.30
|
|
|
$
|
0.51
|
|
|
$
|
(0.29
|
)
|
|
$
|
–
|
|
|
$
|
(0.29
|
)
|
|
$
|
10.68
|
|
|
|
4.87
|
%
|
|
$
|
907,046
|
|
|
|
0.48
|
%
|
|
|
0.48
|
%
|
|
|
1.61
|
%
|
IB
|
|
|
10.40
|
|
|
|
0.19
|
|
|
|
0.29
|
|
|
|
0.48
|
|
|
|
(0.25
|
)
|
|
|
–
|
|
|
|
(0.25
|
)
|
|
|
10.63
|
|
|
|
4.61
|
|
|
|
194,273
|
|
|
|
0.73
|
|
|
|
0.73
|
|
|
|
1.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December
31, 2010
|
IA
|
|
$
|
10.53
|
|
|
$
|
0.28
|
|
|
$
|
0.14
|
|
|
$
|
0.42
|
|
|
$
|
(0.49
|
)
|
|
$
|
–
|
|
|
$
|
(0.49
|
)
|
|
$
|
10.46
|
|
|
|
3.79
|
%
|
|
$
|
1,038,534
|
|
|
|
0.47
|
%
|
|
|
0.47
|
%
|
|
|
2.59
|
%
|
IB
|
|
|
10.48
|
|
|
|
0.25
|
|
|
|
0.12
|
|
|
|
0.37
|
|
|
|
(0.45
|
)
|
|
|
–
|
|
|
|
(0.45
|
)
|
|
|
10.40
|
|
|
|
3.53
|
|
|
|
231,188
|
|
|
|
0.72
|
|
|
|
0.72
|
|
|
|
2.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December
31, 2009 (D)
|
IA
|
|
$
|
10.19
|
|
|
$
|
0.40
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.34
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
10.53
|
|
|
|
3.38
|
%
|
|
$
|
1,132,301
|
|
|
|
0.49
|
%
|
|
|
0.49
|
%
|
|
|
3.63
|
%
|
IB
|
|
|
10.16
|
|
|
|
0.39
|
|
|
|
(0.07
|
)
|
|
|
0.32
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
10.48
|
|
|
|
3.12
|
|
|
|
274,898
|
|
|
|
0.74
|
|
|
|
0.74
|
|
|
|
3.39
|
|
(A)
|
Information presented relates to a share outstanding throughout the indicated period. Net investment income (loss) per share amounts are calculated based on average shares outstanding unless otherwise noted.
|
(B)
|
The figures do not include sales charges or other fees which may be applied at the variable life insurance, variable annuity or qualified retirement plan product level. Any such additional sales charges or other fees would lower the Fund's performance.
|
(C)
|
Adjustments include waivers and reimbursements, if applicable. Ratios do not include fees paid indirectly (see Expenses in the accompanying Notes to Financial Statements).
|
(D)
|
Net investment income (loss) per share amounts have been calculated using the SEC method.
|
|
|
Portfolio Turnover
Rate for
All Share Classes
|
|
For the Year Ended December 31, 2013
|
|
|
39
|
%
|
For the Year Ended December 31, 2012
|
|
|
86
|
|
For the Year Ended December 31, 2011
|
|
|
426
|
|
For the Year Ended December 31, 2010
|
|
|
270
|
|
For the Year Ended December 31, 2009
|
|
|
151
|
|
Report
of Independent Registered Public Accounting Firm
The
Board of Directors and Shareholders of
Hartford HLS Series Fund II, Inc.
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Hartford U.S. Government Securities HLS Fund (one of the portfolios constituting Hartford
HLS Series Fund II, Inc. (the Funds)) as of December 31, 2013, and the related statement of operations for the year then ended,
the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’
management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We
were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities
owned as of December 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures where
replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial position of Hartford U.S. Government Securities HLS Fund
of the Hartford HLS Series Fund II, Inc. at December 31, 2013, the results of its operations for the year then ended, the changes
in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with U.S. generally accepted accounting principles.
|
|
Minneapolis, MN
February 17, 2014
|
|
Hartford
U.S. Government Securities HLS Fund
Directors
and Officers (Unaudited)
The Board of Directors of the Company appoints
officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the directors. Each
director serves until his or her death, resignation, or retirement or until the next annual meeting of shareholders is held or
until his or her successor is elected and qualifies.
Directors and officers who are employed
by or who have a financial interest in The Hartford are considered “interested” persons of the Fund pursuant to the
1940 Act. Each officer and two of the Company’s directors, as noted in the chart below, are “interested” persons
of the Fund. Each director serves as a director for The Hartford Mutual Funds, Inc., The Hartford Mutual Funds II, Inc., Hartford
Series Fund, Inc., Hartford HLS Series Fund II, Inc., and as a trustee for The Hartford Alternative Strategies Fund, which, as
of December 31, 2013, collectively consist of 91 funds. Correspondence may be sent to directors and officers c/o Hartford Funds,
5 Radnor Corporate Center, Suite 300, 100 Matsonford Road, Radnor, Pennsylvania 19087, except that correspondence to Mr. Annoni,
Mr. Dressen and Ms. Quade may be sent to 500 Bielenberg Drive, Woodbury, Minnesota 55125.
The table below sets forth, for each director
and officer, his or her name, year of birth, current position with the Company and date first elected or appointed to Hartford
Series Fund, Inc. (“HSF”), and Hartford HLS Series Fund II, Inc. (“HSF2”), principal occupation, and, for
directors, other directorships held. The Fund’s Statement of Additional Information contains further information on the directors
and is available free of charge by calling 1-800-862-6668 or writing to Hartford HLS Funds, c/o Hartford Life Insurance Company,
Hartford Life and Annuity Insurance Company, P.O. Box 14293, Lexington, KY 40512-4293.
Information on the aggregate remuneration
paid to the directors of the Company can be found in the Statement of Operations herein. The Fund pays to The Hartford a portion
of the Chief Compliance Officer’s compensation, but does not pay salaries or compensation to any of their other officers
or directors who are employed by The Hartford.
Non-Interested Directors
Lynn S. Birdsong
(1946) Director since 2003, Co-Chairman
of the Investment Committee since 2005
Mr. Birdsong is a private investor.
Mr. Birdsong currently serves as a Director of the Sovereign High Yield Investment Company (April 2010 to current). Mr. Birdsong
currently serves as an Independent Director of Nomura Partners Funds, Inc. (formerly, The Japan Fund) (April 2003 to current).
From 2003 to March 2005, Mr. Birdsong was an Independent Director of the Atlantic Whitehall Funds. From 1979 to 2002, Mr. Birdsong
was a Managing Director of Zurich Scudder Investments, an investment management firm. During his employment with Scudder, Mr. Birdsong
was an Interested Director of The Japan Fund. From January 1981 through December 2013, Mr. Birdsong was a partner in Birdsong Company,
an advertising specialty firm.
Robert M. Gavin, Jr.
(1940) Director
since 2002 (HSF) and 1986 (HSF2), Chairman of the Board since 2004
Dr. Gavin is an educational
consultant. Prior to September 1, 2001, he was President of Cranbrook Education Community and prior to July 1996, he was President
of Macalester College, St. Paul, Minnesota.
Duane E. Hill
(1945) Director since
2001 (HSF) and 2002 (HSF2), Chairman of the Nominating Committee since 2003
Mr. Hill is a Partner of TSG
Ventures L.P., a private equity investment company. Mr. Hill is a former partner of TSG Capital Group, a private equity investment
firm that served as sponsor and lead investor in leveraged buyouts of middle market companies.
Sandra S. Jaffee
(1941) Director
since 2005
Ms. Jaffee is the founder and
Chief Executive Officer of a private company, Homeworks Concierge, LLC, which provides residential property management services
in Westchester County, New York (January 2012 to present). Ms. Jaffee served as Chairman (2008 to 2009) and Chief Executive Officer
of Fortent (formerly Searchspace Group), a leading provider of compliance/regulatory technology to financial institutions from
August 2005 to August 2009. Ms. Jaffee currently serves as a member of the Board of Directors of Broadridge Financial Solutions
as well as a Trustee of Muhlenberg College.
William P. Johnston
(1944) Director
since 2005, Chairman of the Compliance Committee since 2005
In June 2006, Mr. Johnston was
appointed as Senior Advisor to The Carlyle Group, a global private equity and alternative asset investment firm and currently serves
as an Operating Executive. In July 2006, Mr. Johnston was elected to the Board of Directors of MultiPlan, Inc. and served as a
Director (July 2006 to August 2010). In August 2007, Mr. Johnston was elected to the Board of Directors of LifeCare Holdings, Inc.
and served as a Director (August 2007 to June 2013). In February 2008, Mr. Johnston was elected to the Board of Directors of HCR-ManorCare,
Inc. In May 2006, Mr. Johnston was elected to the Supervisory Board of Fresenius Medical Care AG & Co. KGaA, after its acquisition
of Renal Care Group, Inc. in March 2006. Mr. Johnston joined Renal Care Group in November 2002 as a member of the Board of Directors
and served as Chairman of the Board from March 2003 through March 2006. From 2002 through 2013, Mr. Johnston served as a Board
member of the Georgia O’Keefe Museum. From September 1987 to December 2002, Mr. Johnston was with Equitable Securities Corporation
(and its successors, SunTrust Equitable Securities and SunTrust Robinson Humphrey) serving in various investment banking and managerial
positions, including Managing Director and Head of Investment Banking, Chief Executive Officer and Vice Chairman.
Phillip O. Peterson
(1944) Director
since 2002 (HSF) and 2000 (HSF2), Chairman of the Audit Committee since 2002
Mr. Peterson is a mutual fund
industry consultant. He was a partner of KPMG LLP (an accounting firm) until July 1999. Mr. Peterson joined William Blair Funds
in February 2007 as a member of the Board of Trustees. Mr. Peterson also joined the Board of Trustees of Symetra Variable Mutual
Funds Trust as a trustee in February 2012.
Lemma W. Senbet
(1946) Director
since 2005
Dr. Senbet is the William E.
Mayer Chair Professor of Finance and Founding Director, Center for Financial Policy, at the University of Maryland, Robert H. Smith
School of Business. He was chair of the Finance Department of the University of Maryland, Robert H. Smith School of Business from
1998 to 2006. Since June 2013, he has been on leave from the University to serve as Executive Director of African Economic Research
Consortium which focuses on economic policy research and training. Previously, he was a chaired professor of finance at the University
of Wisconsin-Madison. Also, he was a Director of the Fortis Funds from March 2000 to July 2002. Dr. Senbet served as Director of
the American Finance Association and President of the Western Finance Association. In 2006, Dr. Senbet was inducted Fellow of Financial
Management Association International for his career-long distinguished scholarship and professional service.
Interested Directors and Officers
James E. Davey
(1964) Director since
2012, President and Chief Executive Officer since 2010
Mr. Davey serves as Executive
Vice President of Hartford Life Insurance Company (“HLIC”) and The Hartford Financial Services Group, Inc. Additionally,
Mr. Davey serves as Chairman of the Board, Manager and Senior Managing Director of Hartford Funds Distributors, LLC (“HFD”).
He also currently serves as Director, Chairman of the Board, President and Senior Managing Director of Hartford Administrative
Services Company (“HASCO”). Mr. Davey also serves as Manager, Chairman of the Board and Senior Managing Director for
Hartford Funds Management Company, LLC (“HFMC”). Mr. Davey joined The Hartford in 2002.
Lowndes A. Smith
(1939) Director
since 1996 (HSF) and 2002 (HSF2), Co-Chairman of the Investment Committee since 2005
Mr. Smith served as Vice Chairman
of The Hartford from February 1997 to January 2002, as President and Chief Executive Officer of Hartford Life, Inc. from February
1997 to January 2002, and as President and Chief Operating Officer of The Hartford Life Insurance Companies from January 1989 to
January 2002. Mr. Smith serves as a Director of White Mountains Insurance Group Ltd. (October 2003 to current); One Beacon Insurance
(October 2006 to current); Symetra Financial (August 2007 to current) and is a Managing Director of Whittington Gray Associates
(January 2007 to current).
Other Officers
Mark A. Annoni
(1964) Vice President,
Controller and Treasurer since 2012
Mr. Annoni currently serves
as the Assistant Vice President of HLIC (February 2004 to present).
Hartford
U.S. Government Securities HLS Fund
Directors
and Officers (Unaudited) – (continued)
Michael R. Dressen
(1963) AML Compliance
Officer since 2011
Mr. Dressen currently serves
as Assistant Vice President of HLIC. He also serves as Chief Compliance Officer and AML Compliance Officer of HASCO and as AML
Officer of HFD. Mr. Dressen has served in various positions within The Hartford and its subsidiaries in connection with the operation
of the Hartford Funds.
Edward P. Macdonald
(1967) Vice
President, Secretary and Chief Legal Officer since 2005
Mr. Macdonald currently serves
as Assistant Secretary, Executive Vice President and Deputy General Counsel of HFD, HASCO and HFMC. He also serves as Vice President
of HLIC. Mr. Macdonald has served in various positions within The Hartford and its subsidiaries in connection with the operation
of the Hartford Funds. Mr. Macdonald joined The Hartford in 2005.
Joseph
G. Melcher
(1973) Vice President and Chief Compliance Officer since 2013
Mr. Melcher currently serves
as Executive Vice President of HASCO and HFD. Mr. Melcher also currently serves as Executive Vice President and Chief Compliance
Officer of HFMC. Mr. Melcher has served in various positions within The Hartford and its subsidiaries in connection with the operation
of the Hartford Funds since joining The Hartford in 2012. Prior to joining The Hartford, Mr. Melcher worked at Touchstone Investments,
a member of the Western & Southern Financial Group, where he held the position of Vice President and Chief Compliance Officer
from 2010 through 2012 and Assistant Vice President, Compliance from 2005 to 2010.
Vernon J. Meyer
(1964) Vice President
since 2006
Mr. Meyer currently serves as
Senior Vice President of HLIC. He also currently serves as Managing Director and Chief Investment Officer of HFMC. Mr. Meyer has
served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds. Mr.
Meyer joined The Hartford in 2004.
Laura S. Quade
(1969) Vice President
since 2012
Ms. Quade currently serves as
Vice President of HASCO and HFD. She is the Head of Operations of HASCO and also serves as Director, Enterprise Operations of HLIC.
Ms. Quade has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford
Funds.
Martin A. Swanson
(1962) Vice President since 2010
Mr. Swanson currently serves
as Vice President of HLIC. Mr. Swanson also serves as Managing Director, Chief Marketing Officer and Principal of HFD. Mr. Swanson
has served in various positions within The Hartford and its subsidiaries in connection with the operation of the Hartford Funds.
HOW TO OBTAIN A COPY OF THE FUND’S
PROXY VOTING POLICIES AND VOTING RECORDS (UNAUDITED)
A description of the policies and procedures
that the Fund uses to determine how to vote proxies relating to portfolio securities and information about how the Fund voted proxies
relating to portfolio securities during the most recent twelve-month period ended June 30 are available (1) without charge, upon
request, by calling 800-862-6668 and (2) on the SEC’s website at http://www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS INFORMATION
(UNAUDITED)
The Fund files a complete schedule of portfolio
holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available
(1) without charge, upon request, by calling 800-862-6668 and (2) on the SEC’s website at http://www.sec.gov. The Form N-Q
may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public
Reference Room may be obtained by calling 1-800-SEC-0330.
Hartford
U.S. Government Securities HLS Fund
Expense
Example (Unaudited)
Your Fund's Expenses
As a shareholder of the Fund, you incur
two types of costs: (1) transaction costs and (2) ongoing costs, including investment management fees, distribution and/or service
(12b-1) fees, if any, and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars)
of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based
on an investment of $1,000 invested at the beginning of the period and held for the period of June 30, 2013 through December 31,
2013.
Actual Expenses
The first set of columns of the table below
provides information about actual account values and actual expenses. You may use the information in this column, together with
the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for
example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the line under the heading
entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second set of columns of the table
below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in
the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads)
and CDSC. Therefore, the second set of columns of the table is useful in comparing ongoing costs only, and will not help you determine
the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would be
higher. Expenses are equal to the Fund's annualized expense ratios multiplied by average account value over the period, multiplied
by 184/365 (to reflect the one-half year period).
|
|
Actual return
|
|
|
Hypothetical (5% return before expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Account Value
June 30, 2013
|
|
|
Ending
Account Value
December 31,
2013
|
|
|
Expenses paid
during the period
June 30, 2013
through
December 31, 2013
|
|
|
Beginning
Account Value
June 30, 2013
|
|
|
Ending
Account Value
December 31,
2013
|
|
|
Expenses paid
during the period
June 30, 2013
through
December 31, 2013
|
|
|
Annualized
expense
ratio
|
|
|
|
Days in
the
current
1/2
year
|
|
|
|
Days
in
the
full
year
|
|
Class IA
|
|
$
|
1,000.00
|
|
|
$
|
1,006.30
|
|
|
$
|
2.45
|
|
|
$
|
1,000.00
|
|
|
$
|
1,022.76
|
|
|
$
|
2.47
|
|
|
|
0.49
|
%
|
|
|
184
|
|
|
|
365
|
|
Class IB
|
|
$
|
1,000.00
|
|
|
$
|
1,004.60
|
|
|
$
|
3.72
|
|
|
$
|
1,000.00
|
|
|
$
|
1,021.50
|
|
|
$
|
3.75
|
|
|
|
0.74
|
%
|
|
|
184
|
|
|
|
365
|
|
Hartford
U.S. Government Securities HLS Fund
Approval
of Investment Management and Investment Sub-Advisory Agreements (Unaudited)
Section 15(c) of the Investment Company
Act of 1940, as amended (the “1940 Act”), requires that each mutual fund’s board of directors, including a majority
of those directors who are not “interested persons” of the mutual fund, as defined in the 1940 Act (the “Independent
Directors”), annually review and consider the continuation of the mutual fund’s investment advisory and sub-advisory
agreements. At its meeting held on August 6-7, 2013, the Board of Directors (the “Board”) of Hartford HLS Series Fund
II, Inc., including each of the Independent Directors, unanimously voted to approve the continuation of the investment management
agreement for Hartford U.S. Government Securities HLS Fund (the “Fund”) with Hartford Funds Management Company, LLC
(“HFMC”) and the continuation of the investment sub-advisory agreement between HFMC and the Fund’s sub-adviser,
Wellington Management Company, LLP (“Wellington Management” or the “Sub-adviser,” and together with HFMC,
the “Advisers”) (collectively, the “Agreements”).
In the months preceding the August 6-7,
2013 meeting, the Board requested, received, and reviewed written responses from the Advisers to questions posed to them on behalf
of the Independent Directors and supporting materials relating to those questions and responses. The Board considered information
furnished to the Board at its meetings throughout the year, as well as information specifically prepared in connection with the
annual approval of the Agreements at the Board’s meetings held on June 18-19, 2013 and August 6-7, 2013. Information
provided to the Board at its meetings throughout the year included, among other things, reports on Fund performance, legal and
compliance matters, sales and marketing activity, shareholder services, and the other services provided to the Fund by the Advisers
and their affiliates. The Board also received in-person presentations by Fund officers and representatives of HFMC at the Board’s
meetings on June 18-19, 2013 and August 6-7, 2013 concerning the Agreements.
The Independent Directors, advised by independent
legal counsel, engaged two service providers to assist them with evaluating the Agreements with respect to the Fund. Lipper Inc.
(“Lipper”), an independent provider of investment company data, was retained to provide the Board with reports on how
the Fund’s contractual management fees, actual management fees, other non-management fees, overall expense ratios and investment
performance compared to those of mutual funds with similar investment objectives. The Independent Directors also engaged an independent
financial services consulting firm (the “Consultant”) to assist them in evaluating the Fund’s management fees,
sub-advisory fees, other non-management fees, overall expense ratios and investment performance. In addition, the Consultant reviewed
the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement.
In determining whether to continue the
Agreements for the Fund, the members of the Board reviewed and evaluated information and factors they believed to be relevant and
appropriate in light of the information that the Board deemed necessary and appropriate through the exercise of its reasonable
business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination
to continue the Agreements was based on a comprehensive consideration of all information provided to the Board throughout the year
and specifically with respect to the continuation of the Agreements. A more detailed discussion of the factors the Board considered
with respect to its approval of the Agreements is provided below.
Nature, Extent, and Quality of Services
Provided by the Advisers
The Board requested and considered information
concerning the nature, extent, and quality of the services provided to the Fund by the Advisers. The Board considered, among other
things, the terms of the Agreements and the range of services provided by the Advisers. The Board considered the Advisers’
professional personnel who provide services to the Fund, including each Adviser’s ability and experience in attracting and
retaining qualified personnel to service the Fund. The Board considered each Adviser’s reputation and overall financial strength,
as well as its willingness to consider and implement organizational and operational changes designed to improve services to the
Fund. In addition, the Board considered the quality of each Adviser’s communications with the Board and responsiveness to
Board inquiries.
The Board also requested and evaluated
information concerning each Adviser’s regulatory and compliance environment. In this regard, the Board requested and reviewed
information on each Adviser’s compliance policies and procedures, compliance history, and a report from the Fund’s
Chief Compliance Officer on each Adviser’s compliance with applicable laws and regulations, including responses to regulatory
developments and compliance issues raised by regulators. The Board also noted the Advisers’ support of the Fund’s compliance
control structure, particularly the resources devoted by the Advisers in support of the Fund’s obligations pursuant to Rule 38a-1
under the 1940 Act.
With respect to HFMC, the Board noted that
under the Agreements, HFMC is responsible for the management of the Fund, including overseeing fund operations and service providers,
as well as investment advisory services in connection with selecting, monitoring and supervising the Sub-adviser. The Board considered
HFMC’s ongoing monitoring of people, process and performance, including its quarterly reviews of each of the Hartford Funds,
semi-annual meetings with the leaders of each Fund’s portfolio management team, and oversight of the Funds’ approximately
40 portfolio managers. The Board recognized that HFMC has demonstrated a record of making changes to the management and/or strategies
of the Funds when warranted. The Board considered HFMC’s oversight of the Sub-adviser’s investment approach and results,
process for monitoring best execution of portfolio trades by the Sub-adviser, and approach to risk management with respect to the
Fund and the service providers to the Fund. The Board also considered HFMC’s oversight of compliance with the Fund’s
objective and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over
time led to an increase in the scope of HFMC’s services in this regard.
In addition, the Board considered HFMC’s
ongoing commitment to review and rationalize the Hartford Funds product line-up and the expenses that HFMC had incurred in connection
with fund combinations in recent years. The Board considered that HFMC or its affiliates are responsible for providing the Fund’s
officers. The Board also noted that Hartford Life Insurance Company (“HLIC”) provides administrative services to the
Fund. The Board considered its experiences with HFMC and HLIC with respect to each of these services.
With respect to the Sub-adviser, who provides
day-to-day portfolio management services, the Board considered the quality of the Fund’s portfolio manager, the Sub-adviser’s
other investment personnel, its investment philosophy and process, investment research capabilities and resources, performance
record, trade execution capabilities and experience. The Board considered the experience of the Fund’s portfolio manager,
the number of accounts managed by the portfolio manager, and the Sub-adviser’s method for compensating the portfolio manager.
Based on these considerations, the Board
concluded that it was satisfied with the nature, extent and quality of the services provided to the Fund by HFMC and the Sub-adviser.
Performance of the Fund and the Advisers
The Board considered the investment performance
of the Fund. In this regard, the Board reviewed the performance of the Fund over different time periods presented in the materials
and evaluated HFMC’s analysis of the Fund’s performance for these time periods. The Board considered information and
materials provided to the Board by the Advisers concerning Fund performance, as well as information from Lipper comparing the investment
performance of the Fund to an appropriate benchmark and universe of peer funds. The Board noted that the Fund’s performance
was in the 3
rd
quintile of its performance universe for the 1-year period and the 5
th
quintile for the 3-
and 5-year periods. The Board also noted that the Fund’s performance was above its benchmark for the 1-year period and in
line with its benchmark for the 3- and 5-year periods. In considering the Fund’s performance record, the Board noted that
the Fund had transitioned to Wellington Management as sub-adviser in 2012.
The Board considered the detailed investment
analytics reports provided by Hartford Funds’ Investment Advisory Group throughout the year. These reports include, among
other things, information on the Fund’s gross and net returns, the Fund’s investment performance relative to an appropriate
benchmark and peer group, various statistics concerning the Fund’s portfolio, and a narrative summary of various factors
affecting Fund performance. The Board considered the Advisers’ cooperation with the Investment Committee, which assists the
Board in evaluating the performance of the Fund at periodic meetings throughout the year. The Board also considered the analysis
provided by the Consultant relating to the Fund’s performance track record.
In light of all the considerations noted
above, the Board concluded that it had continued confidence in HFMC’s and the Sub-adviser’s overall capabilities to
manage the Fund.
Costs of the Services and Profitability
of the Advisers
The Board reviewed information regarding
HFMC’s cost to provide investment management and related services to the Fund and HFMC’s profitability, both overall
and for the Fund, on a pre-tax basis without regard to distribution expenses. The Board also requested and reviewed information
about the profitability to HFMC and its affiliates from all services provided to the Fund and
Hartford
U.S. Government Securities HLS Fund
Approval
of Investment Management and Investment Sub-Advisory Agreements (Unaudited)– (continued)
all aspects of their relationship with
the Fund. The Board also requested and received information relating to the operations and profitability of the Sub-adviser.
The Board considered the Consultant’s
review of the profitability calculations utilized by HFMC in connection with the continuation of the investment management agreement,
noting the Consultant’s view that Hartford Funds’ process for calculating and reporting Fund profitability is reasonable.
In this regard, the Board noted that the Consultant had previously performed a full review of this process and reported that such
process is sound and well within common industry practice.
Based on these considerations, the Board
concluded that the profits anticipated to be realized by the Advisers and their affiliates from their relationships with the Fund
would not be excessive.
Comparison of Fees and Services Provided
by the Advisers
The Board considered comparative information
with respect to the management fees to be paid by the Fund to HFMC and the total expense ratios of the Fund. The Board also considered
comparative information with respect to the sub-advisory fees to be paid by HFMC to the Sub-adviser. In this regard, the Board
requested and reviewed information from HFMC and the Sub-adviser relating to the management and sub-advisory fees, including the
sub-advisory fee schedule for the Fund, and total operating expenses for the Fund. The Board considered that the management fee
for the Fund includes the fee paid to HLIC for providing certain administrative services to the Fund. With respect to the sub-advisory
fee schedule, the Board considered representations from HFMC and the Sub-adviser that the Sub-adviser’s fees were negotiated
at arm’s length. The Board also reviewed information from Lipper comparing the Fund’s contractual management fees,
actual management fees and overall expense ratios relative to a group of funds selected by Lipper, in consultation with the Consultant,
and a broader universe of funds selected by Lipper. The Board noted that the Fund’s contractual management fee, actual management
fee and total expenses (less 12b-1 and shareholder service fees) were in the 2
nd
quintile of its expense group.
While the Board recognized that comparisons
between the Fund and peer funds are imprecise, given the differing service levels and characteristics of mutual funds and the different
business models and cost structures of the Advisers, the comparative information provided by Lipper assisted the Board in evaluating
the reasonableness of the Fund’s management and sub-advisory fees and total operating expenses. In addition, the Board considered
the analysis and recommendations of the Consultant relating to the Fund’s management and sub-advisory fees and total operating
expenses.
Based on these considerations, the Board
concluded that the Fund’s fees and total operating expenses, in conjunction with the information about quality of services,
profitability, economies of scale, and other matters discussed, were reasonable in light of the services provided.
Economies of Scale
The Board requested and considered information
regarding the Advisers’ realization of economies of scale with respect to the Fund and whether the fee levels reflect these
economies of scale for the benefit of the Fund’s shareholders. The Board reviewed the breakpoints in the management fee schedule
for the Fund, which reduce fee rates as Fund assets grow over time. The Board recognized that a fund with assets beyond the last
breakpoint level will continue to benefit from economies of scale because additional assets are charged the lowest breakpoint fee
resulting in lower overall effective management fee rates. The Board also recognized that a fee schedule that reaches a lower breakpoint
quickly provides shareholders with the benefit of anticipated or potential economies of scale. The Board noted the effect of the
sale and run-off of the variable annuity business on the HLS Funds.
The Board reviewed and evaluated materials
from Lipper showing how management fee schedules of peer funds reflect economies of scale for the benefit of shareholders as a
peer fund’s assets hypothetically increase over time. Based on information provided by HFMC, Lipper, and the Consultant,
the Board recognized that there is no uniform methodology for establishing breakpoints or uniform pattern in asset levels that
trigger breakpoints or the amounts of breakpoints triggered.
After considering all of the information
available to it, the Board concluded that it was satisfied with the extent to which economies of scale would be shared for the
benefit of the Fund’s shareholders based on currently available information and the
effective advisory fees and expense ratios
for the Fund at its current and reasonably anticipated asset levels. The Board noted, however, that it would continue to monitor
future growth in Fund assets and the appropriateness of additional breakpoints.
Other Benefits
The Board considered other benefits to
the Advisers and their affiliates from their relationships with the Fund, including the role of the Fund in supporting the variable
life insurance and variable annuity products offered by The Hartford.
The Board reviewed information noting that
HLIC, an affiliate of HFMC, receives fees for providing certain administrative services to the Fund and that HFMC receives fees
for fund accounting and related services from the Fund. The Board considered information on profits to HLIC and HFMC for such services.
The Board also considered that Hartford Administrative Services Company (“HASCO”), the Fund’s transfer agent
and an affiliate of HFMC, receives transfer agency compensation from the Fund, and the Board reviewed information on the profitability
of the Fund’s transfer agency function to HASCO. The Board considered information provided by HASCO indicating that the transfer
agent fees charged by HASCO to the Fund were fair and reasonable based on publicly available information.
The Board also considered that Hartford
Funds Distributors, LLC (“HFD”), an affiliate of HFMC, serves as principal underwriter of the Fund. As principal underwriter,
HFD receives 12b-1 fees from the Fund. The Board also noted that certain affiliates of HFD distribute shares of the Fund and receive
compensation in that connection.
The Board considered the benefits, if any,
to the Sub-adviser from any use of the Fund’s brokerage commissions to obtain soft dollar research, and representations from
HFMC and the Sub-adviser that the Sub-adviser would not make any revenue-sharing payments or any other type of distribution payments
to HFMC or its affiliates.
The Board considered the benefits to shareholders
of being part of the Hartford Funds family of funds. The Board considered HFMC’s efforts to provide investors in the family
with a broad range of investment styles and asset classes.
* * * *
Based upon its review of these various
factors, among others, the Board concluded that it is in the best interests of the Fund and its shareholders for the Board to approve
the Agreements for an additional year. In reaching this decision, the Board did not assign relative weights to the factors discussed
above or deem any one or group of them to be controlling in and of themselves. In connection with their deliberations, the Independent
Directors met separately in executive session on several occasions, with independent legal counsel and the Consultant, to review
the relevant materials and consider their responsibilities under relevant laws and regulations.
Hartford
U.S. Government Securities HLS Fund
Main
Risks (Unaudited)
The main risks of investing in the Fund
are described below.
Market, Selection, and Strategy Risk:
The Fund’s share price may fluctuate due to market risk and/or security selections that may underperform the market or relevant
benchmarks. If the sub-adviser’s investment strategy does not perform as expected, the Fund could underperform its peers
or lose money. There is no guarantee the Fund will achieve its stated objective.
Fixed Income Risk
: The Fund is subject
to interest rate risk (the risk that the value of an investment decreases when interest rates rise) and credit risk (the risk that
the issuing company of a security is unable to pay interest and principal when due) and call risk (the risk that an investment
may be redeemed early). These risks also apply to the Fund’s investments in U.S. government securities, which may not be
guaranteed by the U.S. government.
Mortgage-Backed Securities Risk
:
Mortgage-backed securities are subject to interest rate risk, credit risk, prepayment risk, extension risk, and the risk that an
investment’s value may be reduced or become worthless if it receives interest or income payments only after other investments
in the same pool.
Derivatives Risk
: Investments in
derivatives can be volatile. Potential risks include currency risk, leverage risk (the risk that small market movements may result
in large changes in the value of an investment), liquidity risk, index risk, pricing risk, and counterparty risk (the risk that
the counterparty may be unwilling or unable to honor its obligations).
Active Trading Risk:
Actively trading
investments may result in higher costs (thus affecting performance).
THIS PRIVACY POLICY IS NOT PART OF
THIS REPORT
Privacy Policy and Practices of The
Hartford Financial Services Group, Inc. and its Affiliates
(herein called “we,
our, and us”)
This
Privacy Policy applies to our United States Operations
We value your trust. We are committed to the responsible:
a) management;
b) use; and
c) protection;
of
Personal Information
.
This notice describes how we collect, disclose, and
protect
Personal Information
.
We collect
Personal Information
to:
a) service your
Transactions
with us; and
b) support our business functions.
We may obtain
Personal Information
from:
a)
You
;
b) your
Transactions
with us; and
c) third parties such as a consumer-reporting agency.
Based on the type of product or service
You
apply for or get from us,
Personal Information
such as:
a) your name;
b) your address;
c) your income;
d) your payment; or
e) your credit history;
may be gathered from sources such as applications,
Transactions
, and consumer reports.
To serve
You
and service our business, we may
share certain
Personal Information.
We will share
Personal Information
, only as allowed by law, with affiliates such
as:
a) our insurance companies;
b) our employee agents;
c) our brokerage firms; and
d) our administrators.
As allowed by law, we may share
Personal
Financial Information
with our affiliates to:
a) market our products; or
b) market our services;
to
You
without providing
You
with an option to prevent these disclosures.
|
We may also share
Personal Information
,
only as allowed by law, with unaffiliated third parties including:
a) independent agents;
b) brokerage firms;
c) insurance companies;
d) administrators; and
e) service providers;
who help us serve
You
and service our business.
When allowed by law, we may share
certain
Personal Financial Information
with other unaffiliated third parties who assist us by performing services or functions
such as:
a) taking surveys;
b) marketing our products or services; or
c) offering financial products or services under a joint agreement between us and one or more financial institutions.
We, and third parties we partner
with, may track some
of the pages You visit through
the use of:
a) cookies;
b) pixel tagging; or
c) other technologies;
and currently do not process or
comply with any web browser’s “do not track” signal or similar mechanism that indicates a request to disable
online tracking of individual users who visit our websites or use our services.
We will not sell or share your
Personal Financial Information
with anyone for purposes unrelated to our business functions without offering
You
the opportunity to:
a) “opt-out;” or
b) “opt-in;”
as required by law.
We only disclose
Personal Health
Information
with:
a) your proper written authorization; or
b) as otherwise allowed or required by law.
Our employees have access
to
Personal Information
in the course of doing their jobs, such as:
a) underwriting policies;
b) paying claims;
c) developing new products; or
d) advising customers of our products and services.
|
We use manual and electronic security procedures to
maintain:
a) the confidentiality; and
b) the integrity of;
Personal Information
that we have. We use these
procedures to guard against unauthorized access.
Some techniques we use to protect
Personal Information
include:
a) secured files;
b) user authentication;
c) encryption;
d) firewall technology; and
e) the use of detection software.
We are responsible for and must:
a) identify information to be protected;
b) provide an adequate level of protection for that
data;
c) grant access to protected data only to those people
who must use it in the performance of their job-related duties.
Employees who violate our Privacy Policy will be subject
to discipline, which may include ending their employment with us.
At the start of our business relationship, we will
give
You
a copy of our current Privacy Policy.
We will also give
You
a copy of our current
Privacy Policy once a year if
You
maintain a continuing business relationship with us.
We will continue to follow our Privacy Policy regarding
Personal Information
even when a business relationship no longer exists between us.
|
As used in this Privacy Notice:
Application
means
your request for our product or service.
Personal Financial Information
means financial information such as:
a) credit history;
b) income;
c) financial benefits; or
d) policy or claim information.
Personal Health Information
means health information such as:
a) your medical records; or
b) information about your illness, disability or injury.
Personal Information
means information that identifies
You
personally and is not otherwise available to the public. It includes:
a)
Personal Financial Information
; and
b)
Personal Health Information
.
Transaction
means
your business dealings with us, such as:
a) your
Application
;
b) your request for us to pay a claim; and
c) your request for us to take an action on your account.
You
means
an individual who has given us
Personal Information
in conjunction with:
a) asking about;
b) applying for; or
c) obtaining;
a financial product or service from us if the product or service is used mainly for personal, family, or household purposes.
|
This Privacy Policy is being provided
on behalf of the following affiliates of The Hartford Financial Services Group, Inc.:
1stAGChoice, Inc.; Access CoverageCorp,
Inc.; Access CoverageCorp Technologies, Inc.; American Maturity Life Insurance Company; Archway 60 R, LLC; Business Management
Group, Inc.; Catalyst360, LLC; Champlain Life Reinsurance Company; DMS R, LLC; Eloy R, LLC; Ersatz Corporation; First State Insurance
Company; Hartford Accident and Indemnity Company; Hartford Administrative Services Company; Hartford Casualty General Agency, Inc.;
Hartford Casualty Insurance Company; Hartford-Comprehensive Employee Benefit Service Company; Hartford Equity Sales Company, Inc.;
Hartford Fire General Agency, Inc.; Hartford Fire Insurance Company; Hartford Funds Management Company, LLC; Hartford Funds Management
Group, Inc.; Hartford HLS Series Fund II, Inc.; Hartford Insurance Company of Illinois; Hartford Insurance Company of the Midwest;
Hartford Insurance Company of the Southeast; Hartford Integrated Technologies, Inc.; Hartford International Life Reassurance Corporation;
Hartford Funds Distributors, LLC; Hartford Investment Management Company; Hartford Life and Accident Insurance Company; Hartford
Life and Annuity Insurance Company; Hartford Life Insurance Company; Hartford Life Private Placement, LLC; Hartford Lloyd’s
Corporation; Hartford Lloyd’s Insurance Company; Hartford Mezzanine Investors I, LLC; Hartford Residual Market, L.C.C.; Hartford
Retirement Services, LLC; Hartford Securities Distribution Company, Inc.; Hartford Series Fund, Inc.; Hartford Specialty Insurance
Services of Texas, LLC; Hartford Strategic Investments, LLC; Hartford Underwriters Insurance Company; Hartford Technology Services
Company, L.L.C.; Hartford of Texas General Agency, Inc.; Hartford Underwriters General Agency, Inc.; HARTRE Company, L.C.C.; HL
Investment Advisors, LLC; HLA LLC; Horizon Management Group, LLC; HRA Brokerage Services, Inc.; Lanidex Class B, LLC; M-CAP Insurance
Agency, LLC; New England Insurance Company; New England Reinsurance Corporation; Nutmeg Insurance Agency, Inc.; Nutmeg Insurance
Company; Pacific Insurance Company, Limited; Planco, LLC: Property and Casualty Insurance Company of Hartford; Revere R, LLC; RVR
R, LLC; Sentinel Insurance Company, Ltd.; Sunstone R, LLC; Symphony R, LLC; The Evergreen Group Incorporated; The Hartford Alternative
Strategies Fund; The Hartford Mutual Funds, Inc.; The Hartford Mutual Funds II, Inc.; Trumbull Flood Management, L.L.C.; Trumbull
Insurance Company; Twin City Fire Insurance Company; White River Life Reinsurance Company.
HPP Revised December 2013
HARTFORD
HLS FUNDS
c/o
The Hartford Wealth Management - Global Annuities
P.O.
Box 14293
Lexington,
KY 40512-4293
HARTFORD
FUNDS
hartfordfunds.com
Hartford HLS Series Fund II, Inc. is underwritten
and distributed by Hartford Funds Distributors, LLC.
Hartford HLS Series Fund II, Inc. inception
dates range from 1987 to date. Hartford HLS Series Fund II, Inc. is not a subsidiary of The Hartford Financial Services Group,
Inc. ("The Hartford") but is underwritten, distributed by and advised by subsidiaries of The Hartford. Investments in
Hartford HLS Series Fund II, Inc. are not guaranteed by The Hartford or any other entity.
This report is submitted for the general
information of the shareholders of the Fund. It is not authorized for distribution unless preceded or accompanied by a current
prospectus for the Fund.
Investors should carefully consider the investment
objectives, risks, charges, and expenses of Hartford Funds before investing. This and other information can be found in the prospectus
and summary prospectus, which can be obtained by calling 888-843-7824 (retail) or 877-836-5854 (institutional). Investors should
read them carefully before they invest.
HLSAR-USGS13 2-14 113556-2 Printed in
U.S.A ©2013 The Hartford, Hartford, CT 06115