<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
__________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
_____________________
Securities and Exchange Commission File No. 812-06037
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
22-2265014
(I.R.S. Employer Identification No.)
116 Huntington Avenue
Boston, Massachusetts 02116
(Address of principal executive offices)
(617) 266-6008
(Registrant's telephone number, including area code)
_____________________
Indicated by check mark whether the registrant (1) has filed reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
__X__ Yes _____ No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the issuer's sole class of common stock, as
of June 30, 1999 was 2,600.
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THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
Quarterly Report on Form 10-Q
For the period ended June 30, 1999
Table of Contents
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Part I Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 3
Consolidated Statements of Income for the three and six months ended
June 30, 1999 and 1998 4
Consolidated Statement of Changes in Shareholder's Equity as of June 30, 1999 5
Consolidated Statements of Cash Flows for the six months ended June 30, 1999
and 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Results of Operations and Financial
Condition 9
Part II Other Information
Item 1 Legal Proceedings 15
Item 2 Changes in Securities 15
Item 3 Default upon Senior Securities 15
Item 4 Submission of matters to a vote of Security Holders 15
Item 5 Other Information 15
Item 6A Exhibits 15
Item 6B Reports on Form 8-K 19
</TABLE>
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THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS AT AS AT
JUNE 30 DECEMBER 31
ASSETS ($ thousands) 1999 1998
- --------------------- ----------- -----------
(UNAUDITED)
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INVESTMENTS
Fixed maturities available-for-sale, at fair value
(amortized cost: 1999 $155,877; 1998 $152,969) $ 154,823 $ 157,743
Short-term investments 45,652 34,074
Policy loans 5,450 5,175
----------- -----------
TOTAL INVESTMENTS $ 205,925 $ 196,992
----------- -----------
Cash and cash equivalents $ 9,249 $ 10,320
Accrued investment income 3,674 3,132
Deferred acquisition costs 527,183 449,332
Receivable for undelivered securities 11,643 -
Other assets 6,725 6,360
Due from reinsurers 705,434 641,858
Separate account assets 13,858,832 12,188,420
----------- -----------
TOTAL ASSETS $15,328,665 $13,496,414
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY ($ thousands)
- --------------------------------------------------
LIABILITIES:
Policyholder funds $ 124,460 $ 102,252
Payable to affiliates 15,135 4,644
Notes payable to affiliates 263,700 241,419
Deferred income taxes 30,137 23,777
Payable for securities 14,208 -
Other liabilities 25,499 25,980
Due to reinsurers 719,544 655,892
Separate account liabilities 13,858,832 12,188,420
----------- -----------
TOTAL LIABILITIES $15,051,515 $13,242,384
----------- -----------
SHAREHOLDER'S EQUITY:
Common stock (par value $1,000 per
share--authorized, 3,000 shares; issued and
outstanding, 2,600 shares) $ 2,600 $ 2,600
Additional paid-in capital 179,053 179,053
Retained earnings 95,920 70,293
Accumulated other comprehensive income (423) 2,084
----------- -----------
Total shareholder's equity $ 277,150 $ 254,030
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $15,328,665 $13,496,414
=========== ===========
</TABLE>
See accompanying notes.
3
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THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
($ thousands) 1999 1998 1999 1998
- ------------- --------- --------- -------- --------
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REVENUES:
Fees from separate accounts and policyholder funds $ 52,584 $ 42,563 $101,595 $ 80,890
Advisory fees and other distribution revenues 29,693 23,105 56,443 44,070
Premiums 14 - 23 -
Net investment income 3,150 3,021 6,197 5,920
Net realized investment gains (losses) (169) 126 34 203
--------- --------- -------- --------
TOTAL REVENUE $ 85,272 $ 68,815 $164,292 $131,083
--------- --------- -------- --------
BENEFITS AND EXPENSES:
Benefits to policyholders $ 1,385 $ 1,222 $ 2,718 $ 2,628
Amortization of deferred acquisition costs 9,254 17,136 24,632 20,848
Other insurance expenses 47,727 35,553 90,086 64,141
Financing costs 2,464 2,267 7,112 6,431
--------- --------- -------- --------
TOTAL BENEFITS AND EXPENSES $ 60,830 $ 56,178 $124,548 $ 94,048
--------- --------- -------- --------
INCOME BEFORE INCOME TAXES $ 24,442 $ 12,637 $ 39,744 $ 37,035
--------- --------- -------- --------
INCOME TAX EXPENSE $8,718 $ 4,403 $ 14,117 $ 12,942
--------- --------- -------- --------
NET INCOME $ 15,724 $ 8,234 $ 25,627 $ 24,093
--------- --------- -------- --------
</TABLE>
See accompanying notes
4
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THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY (UNAUDITED)
<TABLE>
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ACCUMULATED
RETAINED OTHER TOTAL
COMMON ADDITIONAL EARNINGS COMPREHENSIVE SHAREHOLDER'S
($ thousands) STOCK PAID-IN CAPITAL (DEFICIT) INCOME EQUITY
- ------------- ------ --------------- -------- ------------- -------------
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Balance at January 1, 1999 $2,600 $179,053 $70,293 $ 2,084 $254,030
Comprehensive income (note 2) -- -- 25,627 (2,507) 23,120
------ -------- -------- ------- --------
BALANCE, JUNE 30, 1999 $2,600 $179,053 $95,920 $ (423) $277,150
====== ======== ======== ======= ========
</TABLE>
See accompanying notes
5
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THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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SIX MONTHS ENDED
JUNE 30
($ thousands) 1999 1998
- ------------- --------- --------
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OPERATING ACTIVITIES:
Net income $ 25,627 $ 24,093
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Amortization of bond discount and premium 416 302
Benefits to policyholders 2,718 2,618
Provision for deferred income tax 7,710 3,881
Net realized investment gains (34) (203)
Amortization of deferred acquisition costs 24,632 20,848
Acquisition costs deferred (100,512) (66,065)
Changes in assets and liabilities:
Accrued investment income (542) (387)
Other assets (365) 2,470
Receivable from affiliates -- 4,605
Payable to affiliates 10,491 8,651
Other liabilities (481) 6,310
--------- --------
Net cash (used in) provided by operating activities $ (30,340) $ 7,123
--------- --------
INVESTING ACTIVITIES:
Purchase of fixed maturity securities $ (67,723) $(35,812)
Proceeds from fixed maturity securities sold, matured or repaid 64,433 22,628
Net change in short-term investments (11,578) (3,476)
Net change in policy loans (275) (1,239)
Net change in receivable for undelivered securities (11,643) --
Net change in payable for securities 14,208 --
--------- --------
Net cash used in investing activities $ (12,578) $(17,899)
--------- --------
FINANCING ACTIVITIES:
Net reinsurance (consideration) proceeds $ 76 $(11,878)
Receipts credited to policyholder funds 26,246 7,271
Return of policyholder funds (6,756) (6,759)
Increase in notes payable to affiliates 22,281 24,545
--------- --------
Net cash provided by financing activities $ 41,847 $ 13,179
--------- --------
Increase (decrease) in cash and cash equivalents during the period $ (1,071) $ 2,403
Cash and cash equivalents at beginning of year 10,320 7,339
--------- --------
BALANCE, END OF PERIOD $ 9,249 $ 9,742
========= ========
</TABLE>
See accompanying notes.
6
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THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of the
Company and its wholly-owned subsidiaries have been prepared in
accordance with generally accepted accounting principles ("GAAP"), except
that they do not contain complete notes. However, in the opinion of
management, these statements include all normal recurring adjustments
necessary for a fair presentation of the results. These financial
statements should be read in conjunction with the financial statements
and the related notes included in the Company's annual report on Form
10-K for the year ended December 31, 1998. Operating results for the six
months ended June 30, 1999 are not necessarily indicative of the results
that may be expected for the full year ending December 31, 1999.
Certain 1998 balances have been reclassified to permit comparisons with
the 1999 presentations.
2. COMPREHENSIVE INCOME
Total comprehensive income was as follows:
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
COMPREHENSIVE INCOME:
($ thousands) 1999 1998 1999 1998
- ---------- -------- -------- ------- -------
<S> <C> <C> <C> <C>
NET INCOME $15,724 $8,234 $25,627 $24,093
-------- -------- ------- -------
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized holding gains (losses)
arising during the year (1,318) 350 (2,485) 509
Less:
Reclassification adjustment for
realized (gains) losses included in
net income 110 (82) (22) (132)
-------- -------- ------- -------
Other comprehensive income (loss) (1,208) 268 (2,507) 377
-------- -------- ------- -------
COMPREHENSIVE INCOME $14,516 $8,502 $23,120 $24,470
-------- -------- ------- -------
</TABLE>
Other comprehensive income is reported net of taxes recoverable (payable)
of $650 and $(144) for the three months and $1,350 and $(203) for the six
months ended June 30, 1999 and 1998, respectively.
7
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3. SEGMENT DISCLOSURES
The Company reports three business segments: Annuities, Pensions, and
Life Insurance. The Annuities segment consists of annuity contracts that
provide the customer with the opportunity to invest in mutual funds
managed by independent investment managers and the Company or in the
general account of the Company, with investment returns accumulating on a
tax-deferred basis. The Pensions segment offers 401(k) products to
customers in the State of New York. The Individual Life Insurance
segment offers traditional non-participating life insurance to the New
York State market. No significant assets or revenues have been generated
to date in these two segments. The following is a summary of the
contribution to net income of the three business segments:
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1999 1998 1999 1998
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Annuities $ 16,384 $ 8,358 $ 26,396 $ 24,484
Pensions (497) (74) (743) (83)
Life Insurance (163) (50) (26) (308)
-------- ------- -------- --------
NET INCOME (LOSS) $ 15,724 $ 8,234 $ 25,627 $ 24,093
-------- ------- -------- --------
</TABLE>
8
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Item 2. Management's Discussion And Analysis of Results of Operations
And Financial Condition
OVERVIEW
The following analysis of the consolidated results of operations and financial
condition of The Manufacturers Life Insurance Company of North America
(hereinafter referred to as "MNA" or the "Company") should be read in
conjunction with the Consolidated Financial Statements and the related Notes to
Consolidated Financial Statements.
CORPORATE STRUCTURE AND OVERVIEW
The Company is a wholly-owned subsidiary of Manulife-Wood Logan Holding Co.,
Inc. ("MWL"). MWL is 78.4% owned by The Manufacturers Life Insurance Company
(USA) ("ManUSA") and 21.6% by MRL Holding, LLC ("MRL"). ManUSA and MRL are
indirectly wholly-owned subsidiaries of The Manufacturers Life Insurance
Company ("Manulife Financial"), a Canadian mutual life insurance company.
Manulife Financial is a leading provider of financial protection products and
investment management services to individuals, families, businesses and groups
in selected international markets. Manulife Financial operates in 16 countries
and territories worldwide, with more than 27,000 employees and agents. Funds
under management by Manulife Financial and its subsidiaries were $96.7 billion
(Cdn) as of December 31, 1998 with a consolidated surplus position of $6.0
billion (Cdn).
MNA is licensed to sell fixed and variable annuities, traditional life and
variable life insurance, and accident and health insurance in all states except
New Hampshire and New York. MNA has two subsidiaries, The Manufacturers Life
Insurance Company of New York ("MNY") and Manufacturers Securities Services,
LLC ("MSS"). MNY is an insurance subsidiary licensed to sell fixed and
variable annuities, traditional life insurance, and accident and health
insurance in the State of New York only. MSS, a majority-owned broker dealer,
acts as investment advisor to the Manufacturers Investment Trust ("MIT"), a
no-load, open-end management investment company organized as a Massachusetts
business trust and is the principal underwriter of the Company's variable
annuity and life insurance contracts and is the exclusive distributor of its
insurance products in the State of New York. MSS is the successor to NASL
Financial Services, Inc. ("NASL Financial"), a broker dealer that conducted
operations until September 30, 1997, when it was reorganized into MSS. Prior
to October 1, 1997, NASL Financial also acted as investment advisor to North
American Funds (NAF), a no-load, open-end management investment company
organized as a Massachusetts business trust.
The Company, along with its ultimate parent company Manulife Financial, enjoys
strong financial ratings that enhance its ability to attract new sales and
retain assets. Distributors and consumers of variable and fixed annuity products
have begun to utilize the relative financial strength ratings as a criteria in
choosing an annuity carrier. The Company has received financial strength ratings
of A++ (Superior) by A.M. Best, AA+ (Very Strong) by Standards and Poor's and
Aa2 (Excellent) by Moody's Investor Services. The Company is rated AAA
(Highest) by Duff & Phelps in terms of its ability to meet contractual
obligations to policyholders.
Prior to 1998, the Company reported two segments, Annuities and Mutual Funds.
The Mutual Fund segment consisted solely of NAF, a group of thirteen mutual
funds. During 1997, the Company disposed of its Mutual Fund segment to an
unrelated party. In 1998 and 1997, pursuant to a revised plan of operations for
MNY, the Company entered the Pensions and the Life Insurance businesses in the
State of New York. The Company now reports three segments: Annuities, Pensions,
and Life Insurance. Two of the Company's segments, Pensions and Life Insurance,
are in the development stage and the assets, revenues and operations of those
segments are not material to the Company's June 30, 1999 financial position or
results of operations. The remainder of this discussion will be limited to the
Annuities segment except as noted.
9
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The Company's primary source of earnings from the Annuities segment are fees
assessed against policyholder account balances held in the Company's separate
accounts including: mortality and expense risk charges, surrender charges, and
an annual administrative charge. In addition, the segment earns a spread
between the advisory fees charged to manage the separate account assets
invested in MIT and the subadvisory fees paid to external managers of those
assets. A key factor in the Company's profitability is sustained growth in the
underlying assets through market performance coupled with the ability to
acquire and retain variable annuity and life deposits.
FORWARD-LOOKING STATEMENTS
Certain information included herein is forward-looking within the meaning of
the Private Securities Litigation Reform Act of 1995, including, but not
limited to, statements concerning anticipated operating results, financial
resources, growth in existing markets and the impact of the year 2000. Such
forward-looking information involves important risks and uncertainties that
could significantly affect actual results and cause them to differ materially
from expectations expressed herein. These risks and uncertainties include
changes in general economic conditions, the effect of regulatory, tax and
competitive changes in the environment in which the Company operates,
fluctuations in interest rates, performance of financial markets and the
Company's ability to achieve anticipated levels of earnings.
10
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REVIEW OF OPERATING RESULTS
The discussion that follows compares results for the three months ended June
30, 1999 to those for the three months ended June 30, 1998.
1999 Compared to 1998
The Company recorded net income of $15.7 million in 1999 versus net income of
$8.2 million in 1998, an increase of $7.5 million or 91%. Revenues grew by 25%
to $85.3 million as a result of growth in fee income earned on additional
separate account assets, additional advisory profits associated with additional
assets in MIT, and investment income from higher general account assets.
Separate account assets at June 30, 1999 compared to June 30, 1998 were higher
by $2.6 billion or 23%. The asset growth is attributed to an increase in
variable annuity sales, strong equity market performance, and favorable
contract persistency. Total sales during the second quarter of 1999 were $815
million, an increase of 33% over the same quarter in 1998. Total fees,
including advisory fees, generated by separate accounts and policyholder
liabilities increased by $16.6 million or 25% in 1999.
The Company incurred total benefits and expenses in 1999 of $60.8 million, an
increase of $4.6 million, or 8% compared to 1998. The additional expenses
reflect an increase in non-capitalized acquisition expenses, additional
sub-advisory expenses associated with additional assets in MIT, and higher
financing costs which were offset by a decrease in Deferred Acquisition Costs
(DAC) amortization. The amortization of Deferred Acquisition Costs (DAC) was
reduced by $7.8 million during the second quarter of 1999 due primarily to
improved investment performance of the Company's Separate Account Assets
compared to the second quarter of 1998. It is this asset base against which fees
are assessed. Higher projected fees due to the quarter's results compared to
that of 1998 resulted in reduced DAC amortization for the quarter. The Company
paid an additional $2.8 million of sub-advisory expenses during the second
quarter of 1999. The Company's commission financing loans increased by
approximately $55.2 million over June 30, 1998 levels and added additional
expenses. Offsetting this increase in borrowing costs were the effects of the
Company's reinsurance treaties, which lowered the overall financing costs for
the periods.
The discussion that follows compares results for the six months ended June 30,
1999 to those for the six months ended June 30, 1998.
1999 Compared to 1998
The Company recorded net income of $25.6 million in 1999 versus net income of
$24.1 million in 1998, an increase of $1.5 million or 6%. Revenues grew by 25%
to $164.3 million as a result of growth in fee income earned on additional
separate account assets, additional advisory profits associated with additional
assets in MIT, and investment income from higher general account assets.
Separate account assets at June 30, 1999 compared to June 30, 1998 were higher
by $2.6 billion or 23%. The asset growth is attributed to an increase in
variable annuity sales, strong equity market performance, and favorable
contract persistency. Total sales during the first half of 1999 were $1.5
billion, an increase of 26% over the same period in 1998. Total fees, including
advisory fees, generated by separate accounts and policyholder liabilities
increased by $33.0 million or 26% in 1999.
11
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The Company incurred total benefits and expenses in 1999 of $124.5 million, an
increase of $30.5 million, or 32% compared to 1998. The additional expenses
reflect an increase in non-capitalized acquisition expenses, higher DAC
amortization, additional sub-advisory expenses associated with additional assets
in MIT, and higher financing costs. DAC amortization costs were $3.8 million
higher in the first half of 1999 compared to the same period in 1998. Higher DAC
balances at June 30, 1999 and lower investment performance of the Company's
Separate Account Assets for the first half of 1999, as compared to the same
period in 1998, contributed to this increase. It is this asset base against
which fees are assessed. Lower projected fees due to half year results as at
June 30, 1999 and as compared to the same period in 1998, resulted in increased
amortization of DAC. The Company paid an additional $4.8 million of sub-advisory
expenses during the first half of 1999. The Company's commission financing
loans increased by approximately $55.2 million over June 30, 1998 levels and
added additional expense.
FINANCIAL POSITION
1999 Compared to 1998
Total assets increased from $13.5 billion at December 31, 1998 to $15.3 billion
at June 30, 1999, an increase of $1.8 billion or 13%. Separate account assets
increased by 14% over the first half of 1999 and represent 91% of total assets
as the Company continues to focus on its variable option annuity products. The
Company continues to own only investment grade fixed maturity investments to
support its general account liabilities and shareholder's equity. The Company's
DAC asset grew by 17% as the Company experienced increased annuity sales
volumes during the second quarter of 1999. The Company deferred the related
costs, net of current amortization, associated with those sales.
Total liabilities have increased proportionately with the growth in the related
assets, primarily in the Company's separate accounts. During the first half of
1999, the Company borrowed an additional $22.7 million from Manulife Financial
to support its sales volumes and related acquisition expenses.
The growth in retained earnings is primarily due to net income from operations
of $25.6 million. The Company's shareholder's equity decreased by $2.5 million
due to lower market values associated with invested assets at June 30, 1999.
12
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MARKET RISK
Market risk is the risk that the Company will incur losses due to adverse
changes in market rates and prices. The primary market risk exposure for the
Company is the impact of lower than expected equity market performance on its
asset-related fee revenue. The Company also has certain exposures to changes
in interest rates.
The Company earns asset based fees on the asset levels invested in the separate
accounts. As a result, the Company is subject to equity risk and the effect
changes in equity market levels will have on the amounts invested in the
separate accounts.
Interest rate risk is the risk that the Company will incur economic losses due
to adverse changes in interest rates. This risk arises from the issuance of
certain interest sensitive annuity products and the investing of those proceeds
in fixed rate investments. The Company manages its interest rate risk through
an asset/liability management program. The Company has established a target
portfolio mix which takes into account the risk attributes of the liabilities
supported by the assets, expectations of market performance, and a generally
conservative investment philosophy. Preservation of capital and maintenance of
income flows are key objectives of this program. In addition, the Company has
diversified its product portfolio offerings to include products that contain
features that will protect it against fluctuations in interest rates. Those
features include adjustable crediting rates, policy surrender charges, and
market value adjustments on liquidations.
Based on the Company's overall exposure to interest rate and equity price
risks, the Company believes that changes in market rates would not materially
affect the consolidated near-term financial position, results of operations or
cashflows of the Company as of June 30, 1999. Refer to the Company's Annual
Report on form 10-K for a more detailed discussion of market risks.
IMPACT OF YEAR 2000
The Company makes extensive use of information systems in the operations of its
various businesses, including for the exchange of financial data and other
information with customers, suppliers and other counterparties. The Company
also uses software and information systems provided by third parties in its
accounting, business and investment systems.
The Year 2000 risk, as it is commonly known, is the result of computer programs
being written using two digits, rather than four, to define the applicable
year. Any of the Company's computer programs that have date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in systems' failures or miscalculations causing disruptions
of operations, including, among other things, a temporary inability to process
transactions, send premium billing notices, make claims payments or engage in
other normal business activities.
The systems used by the Company have been assessed as part of a comprehensive
written plan conducted by The Manufacturers Life Insurance Company
(collectively with its subsidiaries "Manulife Financial") to ensure that the
computer systems and processes of Manulife Financial, including the Company's,
will continue to perform through the end of this century and in the next.
In 1996, in order to make Manulife Financial's systems Year 2000 compliant, a
Project was instituted to modify or replace both Manulife Financial's
information technology systems ("IT systems") and embedded technology systems
("Non-IT systems"). The phases of this Project include (i) an inventory and
assessment of all systems to determine which are critical, (ii) planning and
designing the required modifications and replacements, (iii) making these
modifications and replacements, (iv) testing modified replaced systems, (v)
redeploying modified or replaced systems and (vi) final management review and
certification.
13
<PAGE> 14
As at June 30, 1999, management believes that the certification phase has been
completed for all the Company's critical IT and Non-IT systems. Management
believes that the Company's non-critical systems were Year 2000 compliant by
the end of the first quarter 1999.
In addition to efforts directed at the Company's own systems, Manulife
Financial consulted vendors, customers, borrowers and other third parties with
which the Company deals in an effort to ensure that no material aspect of the
Company's operations will be hindered by Year 2000 problems of these third
parties. This process included sending questionnaires to third parties
regarding the state of their Year 2000 readiness and, where possible or where
appropriate, conducting further due diligence activities. Where appropriate,
risk management steps are being followed as a result of the third-party
assessment.
The Year 2000 Project Management Office for Manulife Financial's U.S. Division
has coordinated the preparation and completion of contingency plans on behalf
of U.S. Division affiliates and subsidiaries, including the Company, in the
event that Manulife Financial's Year 2000 Project has not fully resolved its
Year 2000 issues.
Management believes that, due to the modifications made to existing software
and conversions to new software, the Year 2000 risk will not pose significant
operational problems for the Company's computer systems. As part of the Year
2000 Project, critical systems were "time-shift" tested in the year 2000 and
beyond to confirm that they will continue to function properly before, during
and after the change to the year 2000. However, there can be no assurance that
Manulife Financial's Year 2000 Project, including consulting third parties and
its contingency planning, will avoid any material adverse effect on the
Company's operations, customer relations or financial condition.
Manulife Financial estimates the total cost of its Year 2000 Project will be
approximately $61.2 million,* of which $56.3 million* has been incurred through
June 30, 1999. In addition, previously unbudgeted costs associated with the
start up of a new joint venture in Japan in April 1999 are estimated to be $4.6
million,* of which $1.4 million* was incurred through June 30, 1999. These
previously unbudgeted costs will be shared by Manulife Financial and its joint
venture partner. There can be no assurance that the actual costs incurred will
not be materially higher than estimated. Manulife Financial's Year 2000 costs
were $8.5 million* for the first six months of 1999, including the total joint
venture costs, and $15.9 million* for the first six months of 1998. Most costs
will be expensed as incurred; however, those costs attributed to the purchase
of new software and hardware will generally be capitalized.
* All figures are shown in US dollars converted from Canadian dollars using the
average exchange rate of 1.493 in effect June 30, 1999.
14
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PART II--OTHER INFORMATION
Item 1 - Legal Proceedings
No reportable events
Item 2 - Changes In Securities
(a) and (b) No reportable events
(c)
The Company currently sells Venture Group Annuity, a flexible premium payment
deferred variable unallocated group annuity, to retirement plans that qualify
for special tax treatment under Section 401(a) of the Internal Revenue Code.
Sales of these securities are not required to be registered under the
Securities Act of 1933 (Section 3(a)(2) of this Act). Manufacturers Securities
Services, LLC, a majority owned subsidiary of the Company is the principal
underwriter of the contracts and Wood Logan Associates, Inc., an affiliate of
the Company, is the promotional agent. There are no maximum or minimum
purchase payments required to establish a contract. The value of a contract
will vary according to the investment performance, charges and expenses of the
subaccounts in which the contract is invested. As of June 30, 1999, the total
variable assets in the Venture Group Annuity was $131,923,005.
Items 3 - Defaults Upon Senior Securities
No reportable events
Item 4 - Submission Of Matters To A Vote Of Security Holders
No reportable events
Item 5 - Other Information
No reportable events
Item 6A - Exhibits
(3) Exhibits (the Registrant is also referred to as the "Company")
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
1(a) Underwriting Agreement between the Company and Manufacturers
Securities Services, LLC, formerly NASL Financial Services, Inc.
(Underwriter)14/
1(b)i Promotional Agent Agreement between Manufacturers Securities
Services, LLC, formerly NASL Financial Services, Inc.
(Underwriter), the Company and Wood Logan Associates, Inc.
(Promotional Agent) 2/
1(b)ii Amendment to Promotional Agent Agreement 1/
2 Not Applicable
3(i)(a) Certificate of Incorporation of the Company 3/
3(i)(b) Certificate of Amendment of Certificate of Incorporation of the
Company, Name Change, July 1984 3/
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3(i)(c) Certificate of Amendment of Certificate of Incorporation of the
Company, Authorization of Capital, December 1994 3/
3(i)(d) Certificate of Amendment of Certificate of Incorporation of the
Company, Name Change, March 1997 4/
3(i)(e) Certificate of Amendment of Certificate of Incorporation of the
Company, Registered Agent, July 1997 3/
3(ii) Amended and Restated By-Laws of the Company 3/
4(i) Form of Individual Single Payment Deferred Fixed Annuity
Non-Participating Contract - 10/
4(ii) Form of Group Single Payment Deferred Fixed Annuity
Non-Participating Contract - 10/
4(iii) Individual Retirement Annuity Endorsement - 10/
4(iv) ERISA Tax-Sheltered Annuity Endorsement - 10/
4(v) Tax-Sheltered Annuity Endorsement - 10/
4(vi) Section 401 Plans Endorsement - 10/
5 Opinion and Consent of James D. Gallagher, Esq. - 11/
6 Not Applicable
7 Not Applicable
8 Not Applicable
9 Not Applicable
10(i) Form of broker-dealer agreement between the Company, Manufacturers
Securities Services, LLC, formerly NASL Financial Services, Inc.
(underwriter), Wood Logan Associates, Inc. (Promotional Agent) and
broker-dealers 5/
(10)(ii) Reinsurance and Guaranteed Death Benefits Agreement between the
Company and Connecticut General Life Insurance Company 8/
(10)(iii) Reinsurance Agreement between the Company and PaineWebber Life
Insurance Company 9/
(10)(iv) Coinsurance Agreement between the Company and Peoples Security
Life Insurance Company - 12/
(10)(v) Reinsurance and Accounts Receivable Agreements between the Company
and ITT Lyndon Life - 12/
(10)(vi) Automatic Modified - Coinsurance Reinsurance Agreement between the
Company and Transamerica Occidental Life Insurance Company - 12/
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
(10)(vii) Automatic Yearly Renewable Term Reinsurance Agreement between the
Company and Transamerica Occidental Life Insurance Company - 12/
(10)(viii) Amendment No. 1 to the Variable Annuity Guaranteed Death Benefit
Reinsurance Agreement between the Company and Connecticut General
Life Insurance Company -12/
(10)(ix) Coinsurance Agreement between the Company and The Manufacturers
Life Insurance Company (USA) 13/
11 Not Applicable
12 Not Applicable
13 Not Applicable
14 Not Applicable
15 Not Applicable
16 Not Applicable
17 Not Applicable
18 Not Applicable
19 Not Applicable
20 Not Applicable
21 The Company has the following wholly owned subsidiaries:
Manufacturers Securities Services, LLC and The Manufacturers Life
Insurance Company of New York
22 Not Applicable
23(i) Not Applicable
23(ii) Not Applicable
24 (i) Power of Attorney - John D. Richardson, Director and Chairman of
the Company 2/
24(ii) Power of Attorney - David W. Libbey, Principal Financial Officer
of the Company 3/
24(iii) Power of Attorney - Peter Hutchison, Director of the Company 1/
24(iv) Power of Attorney - John D. DesPrez III 16/
25 Not Applicable
26 Not Applicable
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule 17/
28 Not Applicable
1/ Incorporated by reference to Post-Effective Amendment No. 4 to
Registration Statement on Form N-4, file number 33-76162, filed February
25, 1988 on behalf of The Manufacturers Life Insurance Company of North
America Separate Account A.
2/ Incorporated by reference to Post-Effective Amendment No. 3 to
Registration Statement on Form N-4, file number 33-76162, filed April 29,
1997 on behalf of The Manufacturers Life Insurance Company of North
America Separate Account A.
3/ Incorporated by reference to Form 10Q, file number 812-06037, filed
November 14, 1997 on behalf of The Manufacturers Life Insurance Company of
North America.
4/ Incorporated by reference to Post-Effective Amendment No. 1 to
Registration Statement on Form S-1, file number 333-6011, filed October 9,
1997 on behalf of The Manufacturers Life Insurance Company of North
America.
5/ Incorporated by reference to Exhibit (b)(3)(iii) to pre-effective
amendment no. 1 to Form N-4, file number 33-9960, filed February 2, 1987
on behalf of the NASL Variable Account of the Company, now known as The
Manufacturers Life Insurance Company of North America Separate Account A
6/ not applicable
7/ not applicable
8/ Incorporated by reference to Exhibit (b)(7)(i) to Registration Statement
on Form N-4, file number 33-76162, filed March 1, 1996
9/ Incorporated by reference to Exhibit (b)(7)(iii) to Registration
Statement on Form N-4, file number 33-76162, filed March 1, 1996
10/ Incorporated by reference to Exhibit 4 to Registration Statement on Form
S-1, file number 33-6011, filed June 14, 1996
11/ Incorporated by reference to Exhibit 5 to Pre-Effective Amendment No. 1
to the Registration Statement on Form S-1, file number 33-6011, filed
January 29, 1997
12/ Incorporated by reference to Exhibits (10)(iv) through (10)(viii) to
Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1,
file number 33-6011, filed January 29, 1997
13/ Incorporated by reference to Form 10K, file number 812-06037, filed March
31, 1998 on behalf of The Manufacturers Life Insurance Company of North
America
14/ Incorporated by reference to Exhibit (b)(3)(i) to Form N-4, file number
33-76162, filed March 1, 1999.
15/ Incorporated by reference to Form 10K, file number 812-06037, filed March
30, 1999 on behalf of The Manufacturers Life Insurance Company of North
America
16/ Incorporated by reference to Exhibit (14)(iv) to post-effective amendment
no. 1 to Form N-4, file number 333-38081 filed April 19, 1999.
17/ Filed herewith.
</TABLE>
18
<PAGE> 19
ITEM 6B - REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
(Registrant)
By: /s/ DAVID W. LIBBEY
-------------------------------------------------------
David W. Libbey
Vice President, Treasurer and Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)
Date: August 16, 1999
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial data schedule for quarter ended June 30, 1999
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 154,823
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 205,925
<CASH> 9,249
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 527,183
<TOTAL-ASSETS> 15,328,665
<POLICY-LOSSES> 124,460
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 13,858,832
<NOTES-PAYABLE> 263,700
0
0
<COMMON> 2,600
<OTHER-SE> 274,550
<TOTAL-LIABILITY-AND-EQUITY> 15,328,665
23
<INVESTMENT-INCOME> 6,197
<INVESTMENT-GAINS> 34
<OTHER-INCOME> 158,038
<BENEFITS> 2718
<UNDERWRITING-AMORTIZATION> 24,632
<UNDERWRITING-OTHER> 90,086
<INCOME-PRETAX> 39,744
<INCOME-TAX> (14,117)
<INCOME-CONTINUING> 25,627
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,627
<EPS-BASIC> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
