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As Filed with the Securities and Exchange Commission on July 27, 1998
Registration No. 333-31491
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. 1
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
(formerly First North American Life Assurance Company)
(Exact Name of Registrant)
NEW YORK
(State or Other Jurisdiction of Incorporation or Organization)
555 Theodore Fremd Avenue, Rye, New York 10580
(914) 921-1020
(Address of Registrant's Principal Executive Offices and Telephone Number)
13-3646501
(I.R.S. Employer Number)
6355
(Primary Standard Industrial Classification Code Number)
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Scott Logan, President Copy to:
The Manufacturers Life Insurance Company of J. Sumner Jones, Esq.
New York Jones & Blouch L.L.P.
555 Theodore Fremd Avenue 1025 Thomas Jefferson Street N.W.
Rye, New York 10580 Washington DC 20007
(914) 921-1020
(Name and Address of Agent for Service)
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Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following : X
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Calculation of Registration Fee
- --------------------------- --------------------- ---------------------- --------------------- ----------------------
Title of Securities Amount Being Proposed Maximum Proposed Maximum Amount of
Being Registered Registered Offering Price Per Aggregate Offering Registration Fee
Unit price
- --------------------------- --------------------- ---------------------- --------------------- ----------------------
<S> <C> <C> <C> <C>
Deferred Fixed Annuity
Contract Non-Participating See Note (1) See Note (1) $10 million $2,950
- --------------------------- --------------------- ---------------------- --------------------- ----------------------
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Note (1): The proposed aggregate offering price is estimated solely for
determining the registration fee. The amount to be registered and the proposed
maximum offering price per unit are not applicable since these securities are
not issued in predetermined amounts or units.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that the Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
CROSS REFERENCE TO ITEMS REQUIRED BY FORM S-1
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Form S-1 Item No. and Caption Prospectus Heading
- ----------------------------- ------------------
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1. Forepart of the Registration Statement and Outside Cover Pages
Front Cover of Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus Cover Pages
3. Summary Information, Risk Factors and Ratio of Summary
Earnings to Fixed Charges
4. Use of Proceeds The Manufacturers Life Insurance Company of New York
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution The Manufacturers Life Insurance Company of New York -
Distribution of the Contract
9. Description of Securities to be Registered Description of the Contract and Guarantees, The
Manufacturers Life Insurance Company of New York
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Registrant The Manufacturers Life Insurance Company of New York
12. Disclosure of Commission Position on Indemnification Not Applicable
for Securities Act Liabilities
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PART 1
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE> 4
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
Annuity Service Office and Mailing Address
Corporate Center at Rye
555 Theodore Fremd Avenue
Rye, New York 10580
DEFERRED FIXED ANNUITY
CONTRACT
NON-PARTICIPATING
This Prospectus describes Venture Market Value Adjusted Annuity
("Venture MVA"), a single payment deferred fixed annuity contract, offered by
The Manufacturers Life Insurance Company of New York (formerly First North
American Life Assurance Company) ("Manulife New York" or the "Company"), a stock
life insurance company organized under the laws of the state of New York.
The Prospectus describes an individual deferred annuity contract
designed and offered to provide retirement programs for eligible individuals and
retirement plans.
The purchase payment is paid to the Company at its Annuity Service
Office. The minimum purchase payment for a contract is $5,000. The maximum
purchase payment accepted without prior approval of the Company is $500,000. The
purchase payment is allocated to the guarantee period designated by the contract
owner. Additional purchase payments for a contract will not be accepted.
Additional contracts may, however, be purchased at the then prevailing rates and
terms.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT
CONTAINS INFORMATION ABOUT THE FIXED ACCOUNT AND THE CONTRACT THAT A PROSPECTIVE
PURCHASER SHOULD KNOW BEFORE INVESTING.
BECAUSE OF THE MARKET VALUE ADJUSTMENT PROVISION OF THE CONTRACT, THE CONTRACT
OWNER BEARS THE INVESTMENT RISK THAT THE GUARANTEED INTEREST RATES OFFERED BY
THE COMPANY AT THE TIME OF WITHDRAWAL, TRANSFER OR THE START OF ANNUITY PAYMENTS
MAY BE HIGHER THAN THE GUARANTEED INTEREST RATE APPLIED TO THE CONTRACT WITH THE
RESULT THAT THE AMOUNT RECEIVED UPON WITHDRAWAL, TRANSFER OR ANNUITIZATION MAY
BE REDUCED BY THE MARKET VALUE ADJUSTMENT AND MAY BE LESS THAN THE ORIGINAL
INVESTMENT IN THE CONTRACT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, (THE "SEC") NOR HAS THE SEC PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THESE SECURITIES ARE NOT DEPOSITS WITH, OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR ANY AFFILIATE THEREOF, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY.
The date of the Prospectus is _________________, 1998.
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AVAILABLE INFORMATION
Commencing with the offering of the securities described in this
Prospectus, The Manufacturers Life Insurance Company of New York will become
subject to the informational requirements of the Securities Exchange Act of 1934
as amended, (the "1934 Act"), and in accordance therewith will file reports and
other information with the SEC. Such reports and other information can be
inspected and copied at the public reference facilities of the SEC at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's Regional Offices
located at 75 Park Place, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such materials also can be obtained from the Public Reference Section
of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The SEC maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC which is located at http://www.sec.gov.
A registration statement has been filed with the SEC under the
Securities Exchange Act of 1933, as amended, (the "1933 Act") with respect to
the contracts discussed in the Prospectus. Not all the information set forth in
the registration statement, amendments and exhibits thereto has been included in
this Prospectus. Statements contained in this Prospectus concerning the content
of the contracts and other legal instruments are only summaries. For a complete
statement of the terms of these documents, reference should be made to the
instruments filed with the SEC. The Registration Statements and the exhibits
thereto may be inspected and copied, and copies can be obtained at the
prescribed rates, in the manner set forth in the preceding paragraph.
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TABLE OF CONTENTS
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SPECIAL TERMS........................................................................................
SUMMARY ............................................................................................
DESCRIPTION OF THE CONTRACT..........................................................................
ACCUMULATION PROVISIONS..........................................................................
Purchase Payments...........................................................................
Guarantee Periods...........................................................................
Transfers Among Guarantee Periods...........................................................
Renewals....................................................................................
Withdrawals.................................................................................
Death Benefit Before Maturity Date..........................................................
ANNUITY PROVISIONS...............................................................................
General.....................................................................................
Annuity Options.............................................................................
Death Benefit on or After Maturity Date.....................................................
OTHER CONTRACT PROVISIONS........................................................................
Ten Day Right to Review.....................................................................
Ownership...................................................................................
Beneficiary.................................................................................
Annuitant...................................................................................
Modification................................................................................
Company Approval............................................................................
MARKET VALUE ADJUSTMENT..........................................................................
CHARGES AND DEDUCTIONS...........................................................................
Withdrawal Charge...........................................................................
Reduction or Elimination of Withdrawal Charge...............................................
Taxes.......................................................................................
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK.................................................
Description of Business.....................................................................
Management Discussion & Analysis............................................................
Selected Financial Data.....................................................................
Officers and Directors of the Company.......................................................
Executive Compensation......................................................................
The Manufacturers Life Insurance Company of New York Separate Account G.....................
Distribution of the Contract ...............................................................
Confirmation Statements.....................................................................
Legal Proceedings...........................................................................
Legal Matters...............................................................................
Independent Auditors........................................................................
Notices and Reports to Contract Owners......................................................
Contract Owner Inquiries....................................................................
FEDERAL TAX MATTERS..................................................................................
Introduction................................................................................
The Company's Tax Status....................................................................
Taxation of Annuities in General............................................................
Qualified Retirement Plans..................................................................
Federal Income Tax Withholding..............................................................
APPENDIX A - EXAMPLES OF CALCULATION OF WITHDRAWAL CHARGE............................................
APPENDIX B - MARKET VALUE ADJUSTMENT EXAMPLES........................................................
APPENDIX C - STATE PREMIUM TAXES.....................................................................
FINANCIAL STATEMENTS OF THE COMPANY..................................................................
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SPECIAL TERMS
Annuitant Any individual person or persons whose
life is used to determine the duration
of annuity payments involving life
contingencies. The Annuitant is as
designated on the contract or in the
application, unless changed.
Annuity Option One of several alternative methods by
which payment of the proceeds may be
made.
Annuity Service Office The Annuity Service Office of the
Company is Corporate Center at Rye, 555
Theodore Fremd Avenue, Rye, New York
10580-9966
Beneficiary The person, persons, or entity to whom
the death benefit proceeds are payable
following the death of the owner, or in
certain circumstances, an annuitant.
Company The Manufacturers Life Insurance Company
of New York.
Contingent The person, persons or entity who
Beneficiary becomes the beneficiary if the
beneficiary is not alive.
Contract The anniversary of the contract date.
Anniversary
Contract Date The date of issue of the contract as
designated on the contract
specifications page.
Contract Value The contract value is the sum of the net
purchase payment and accrued interest,
less the sum of any withdrawals and any
administration fee, adjusted for any
transfer market value adjustment.
Contract Year The period of twelve consecutive months
beginning on the contract date or any
anniversary thereafter.
Code The Internal Revenue Code of 1986, as
amended.
Designated Beneficiary For purposes of section 72(s) of the
Code, the "designated beneficiary" under
the contract shall be the individual who
is entitled to receive the amounts
payable on death, or if any Owner is not
an individual, on any change in (or
death) of the Annuitant or Co-Annuitant.
Due Proof of Death Due Proof of Death is required upon the
death of the owner or annuitant, as
applicable. One of the following must be
received at the Annuity Service Office:
(a) A certified copy of a death
certificate;
(b) A certified copy of a decree
of a court of competent
jurisdiction as to the
finding of death; or
(c) Any other proof satisfactory
to the Company.
Death benefits will be paid within 7
days of receipt of due proof of death
and all required claim forms by the
Company's Annuity Service Office.
Fixed Account The Manufacturers Life Insurance Company
of New York Separate Account G, which is
a separate account of the Company.
Fixed Annuity An annuity option with payments which
are predetermined and
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guaranteed as to dollar amount.
General Account All of the assets of the Company other
than assets in separate accounts.
Gross Withdrawal Value The portion of the contract value
specified by the owner for a full or
partial withdrawal. Such amount is
determined prior to the application of
any withdrawal charge, annual
administration fee and market value
adjustment.
Initial Guarantee Period The period of time during which the
initial guaranteed interest rate is in
effect.
Initial Guaranteed Interest Rate The compound annual rate used to
determine the interest earned on the net
purchase payment during the initial
guarantee period.
Market Value Adjustment An adjustment to amounts that are
withdrawn, transferred or annuitized
prior to the end of the guarantee
period. It may increase or decrease the
amount available for transfer,
withdrawal or annuitization.
Maturity Date The date on which annuity benefits
commence. It is the date specified on
the contract specifications page, unless
changed. The date specified may not be
later than the Annuitant's 90th
birthday.
Net Purchase Payment The purchase payment less the amount of
premium tax, if any, deducted from the
payment.
Non-Qualified Contracts Contracts which are not issued under
Qualified Plans.
Owner or The person, persons or entity entitled
Contract Owner to the ownership rights under the
contract. The owner is as designated on
the contract specifications page or in
the application, unless changed.
Payment or An amount paid by a contract owner to
Purchase Payment the Company as consideration for
the benefits provided by the contract.
Qualified Contracts Contracts issued under Qualified Plans.
Qualified Plans Retirement plans which receive favorable
tax treatment under section 401, 403 or
408 or 408A of the Code.
Renewal Amount The contract value at the end of the
initial guarantee period or at the end
of a renewal guarantee period.
Renewal Guarantee Period The period of time during which a
renewal guaranteed interest rate is in
effect.
Renewal Guaranteed Interest Rate The compound annual rate used to
determine the interest earned on a
renewal amount during a renewal
guarantee period. In no event shall this
rate be less than 3%.
Separate Account A segregated account of the Company that
is not commingled with the Company's
general assets and obligations.
Successor Owner The person, persons, or entity to become
the owner if the owner dies prior to the
maturity date. The successor owner is as
specified in the application, unless
changed. If no successor owner is
designated, or the successor owner dies
before the owner, the owner's estate is
the successor owner.
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SUMMARY
DESCRIPTION OF THE CONTRACT
The Contract. The contract offered by this Prospectus is a single
purchase payment deferred fixed annuity contract. The contract provides for the
accumulation of the contract value and the payment of annuity benefits on a
fixed basis.
Retirement Plans. The contract may be issued pursuant to either
non-qualified retirement plans or plans qualifying for special income tax
treatment under the Internal Revenue Code of 1986, as amended, (the "Code"),
such as individual retirement accounts and annuities (including Roth IRAs),
pension and profit-sharing plans for corporations and sole
proprietorships/partnerships ("H.R. 10" and "Keogh" plans) and tax-sheltered
annuities (see "QUALIFIED RETIREMENT PLANS"). Those who are considering purchase
of a contract for use in connection with a qualified retirement plan should
consider, in evaluating the suitability of the contract, that the contract
allows only a single premium purchase payment in an amount of at least $5,000.
Purchase Payments. Purchase payments are paid to the Company at its
Annuity Service Office. The minimum purchase payment for a contract is $5,000.
The maximum purchase payment accepted without prior approval of the Company is
$500,000. The purchase payment is allocated to the guarantee period designated
by the contract owner. Additional purchase payments for a contract will not be
accepted. Additional contracts may, however, be purchased at the then prevailing
rates and terms.
Prior to the maturity date, the Company may, at its option, cancel a
contract following the third contract anniversary if both (i) the total purchase
payment made, less any withdrawals, is less than $2,000; and (ii) the higher of
the contract value or the amount available upon total withdrawal is less than
$2,000. The cancellation of contract privileges may vary in certain states in
order to comply with the requirements of insurance laws and regulations in such
states (see "PURCHASE PAYMENTS").
Guarantee Periods. Currently, there are ten guarantee periods under the
contract; one year through ten years. The Company may offer additional guarantee
periods for any yearly period from one to twenty years (see "INVESTMENT
OPTIONS").
Transfers Among Guarantee Periods. Before the maturity date, the
contract owner may transfer the entire contract value to a different guarantee
period at any time upon written notice to the Company. Amounts may only be
transferred, however, once per contract year and the entire amount of the
account must be transferred. Amounts transferred will be subject to a market
value adjustment (see "TRANSFERS AMONG INVESTMENT OPTIONS").
Renewals. At the end of a guarantee period, the contract owner may
choose a renewal guarantee period from any of the then existing guarantee period
options, at the then current interest rates (see "RENEWALS").
Withdrawals. Prior to the earlier of the maturity date or the death of
the contract owner, the owner may withdraw all or a portion of the contract
value. The amount withdrawn must be at least $300 or, if less, the entire
contract value. If a partial withdrawal plus any applicable withdrawal charge,
after giving effect to any market value adjustment, would reduce the contract
value to less than $300, the Company will treat the partial withdrawal as a
total withdrawal of the contract value. A withdrawal charge and market value
adjustment may be imposed (see "WITHDRAWALS"). A withdrawal may be subject to
income tax and a 10% penalty tax (see "FEDERAL TAX MATTERS").
Confirmation Statements. Owners will be sent confirmation statements
for certain transactions in their account. Owners should carefully review these
statements to verify their accuracy. Any mistakes should immediately be reported
to the Company's Annuity Service Office. If the owner fails to notify the
Company's Annuity Service Office of any mistake within 60 days of the mailing of
the confirmation statement, the owner will be deemed to have ratified the
transaction.
Death Benefits. The Company will pay the death benefit to the
beneficiary if any contract owner dies before the maturity date. The death
benefit is equal to the contract value. If there is a surviving contract owner,
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that contract owner will be deemed to be the beneficiary. No death benefit is
payable on the death of any annuitant, except that if any contract owner is not
a natural person, the death of any annuitant will be treated as the death of an
owner. The death benefit will be determined as of the date on which written
notice and proof of death and all required claim forms are received at the
Company's Annuity Service Office.
Annuity Payments. The Company offers a variety of fixed annuity
options. Periodic annuity payments will begin on the maturity date. The contract
owner may select the maturity date, frequency of payment and annuity option (see
"ANNUITY PROVISIONS").
Ten Day Review. Within 10 days of receipt of a contract, the contract
owner may cancel the contract by returning it to the Company or its agent (see
"TEN DAY RIGHT TO REVIEW").
Market Value Adjustment. Any amount withdrawn, transferred or
annuitized prior to the end of either the initial guarantee period or a renewal
guarantee period will be adjusted by the market value adjustment factor
described under "MARKET VALUE ADJUSTMENT."
Withdrawal Charge. If a withdrawal is made from the contract before the
maturity date, a withdrawal charge (contingent deferred sales charge) may be
assessed against amounts withdrawn during the first seven contract years. There
is never a withdrawal charge after seven complete contract years and for certain
amounts withdrawn during the first seven contract years as described below. The
amount of the withdrawal charge and when it is assessed is discussed under
"CHARGES AND DEDUCTIONS - WITHDRAWAL CHARGE."
Tax Deferral. The status of the contract as an annuity generally allows
all earnings on the underlying investments to be tax-deferred until withdrawn or
until annuity payments begin (see "FEDERAL TAX MATTERS"). This tax deferred
treatment may be beneficial to contract owners in building assets in a long-term
investment program.
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
The Company is a stock life insurance company organized under the laws
of the state of New York in 1992. The Company's principal office is located at
Corporate Center at Rye, 555 Theodore Fremd Avenue, Rye, New York 10580. The
Company is a wholly-owned subsidiary of The Manufacturers Life Insurance Company
of North America, formerly, North American Security Life Insurance Company
("Manulife North America" or "Parent"). Manulife North America is a stock life
insurance company organized under the laws of the state of Delaware in 1979 with
its principal office located at 116 Huntington Avenue, Boston, Massachusetts
02116. The ultimate parent of the Company is The Manufacturers Life Insurance
Company ("Manulife"), a Canadian mutual life insurance company based in Toronto,
Canada. Prior to January 1, 1996, the Company was a wholly owned subsidiary of
North American Life Assurance Company ("NAL"), a Canadian mutual life insurance
company. On January 1, 1996 NAL and Manulife merged with the combined company
retaining the Manulife name. Effective January 1, 1996, immediately following
the merger of NAL and Manulife, the Company's Parent experienced a corporate
restructuring which resulted in the formation of a newly organized holding
corporation, Manulife-Wood Logan Holding Co., Inc. (formerly NAWL Holding
Company, Inc.) ("MWL"). MWL holds all of the outstanding shares of the Company's
Parent and Wood Logan Associates, Inc. ("WLA"). MWL is 62.5% owned by The
Manufacturers Life Insurance Company (U.S.A.), 22.5% owned by MRL Holding, LLC
and 15% owned by the principals of WLA.
The Company issues fixed and variable annuity contracts, individual
life insurance, and a group annuity products in the state of New York. Amounts
invested in the fixed contracts and fixed portion of the variable insurance
products are allocated to the General Account of the Company, or in the case of
the contract described in this prospectus, to a non-unitized separate account of
the Company. Amounts invested in the variable options of the contracts or
policies are allocated to separate accounts of the Company. Assets of the
separate accounts (other than the separate account described in this prospectus)
are invested in shares of Manufacturers Investment Trust, formerly NASL Series
Trust ("MIT"), a no-load, open end management investment company organized as a
Massachusetts business trust, and, for separate accounts supporting the group
annuity, in shares of externally managed mutual funds.
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The above summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus.
DESCRIPTION OF CONTRACT
ACCUMULATION PROVISIONS
PURCHASE PAYMENTS
Purchase payments are paid to the Company at its Annuity Service
Office. The minimum purchase payment for a contract is $5,000. The maximum
purchase payment accepted without prior approval of the Company is $500,000. The
purchase payment is allocated to the guarantee period selected by the contract
owner. Additional purchase payments for a contract will not be accepted.
Additional contracts may, however, be purchased at the then prevailing rates and
terms.
Prior to the maturity date, the Company may, at its option, cancel a
contract following the third contract anniversary, if both (i) the total
purchase payment made, less any withdrawals, is less than $2,000; and (ii) the
higher of the contract value or the amount available upon total withdrawal is
less than $2,000. The cancellation of contract privileges may vary in certain
states in order to comply with the requirements of insurance laws and
regulations in such state. Upon cancellation, the Company will pay the contract
owner the higher of the contract value and any annual administration fee or the
amount available upon total withdrawal. The amount paid will be treated as a
withdrawal for Federal tax purposes and thus may be subject to income tax and to
a 10% penalty tax. (See "FEDERAL TAX MATTERS")
GUARANTEE PERIODS
Currently, there are ten guarantee periods; one year through ten years.
The Company may offer additional guarantee periods for any yearly period from
one to twenty years. The contract provides for the accumulation of interest on
the purchase payment at guaranteed rates for the duration of the guarantee
period. In consideration of these higher interest rates, the commission to these
broker-dealers may be reduced. The renewal guaranteed interest rate on a renewal
amount allocated or transferred to a renewal guarantee period is determined from
time-to-time by the Company in accordance with market conditions. Under certain
circumstances, the Company may offer a rate in excess of the renewal guaranteed
rate for the first year only of a renewal guarantee period. In no event will the
renewal guaranteed interest rate be less than 3%. The interest rate is
guaranteed for the duration of the guarantee period and may not be changed by
the Company.
TRANSFERS AMONG GUARANTEE PERIODS
Before the maturity date, the contract owner may transfer the entire
contract value to a different guarantee period at any time upon written notice
to the Company. Amounts may only be transferred, however, once per contract year
and the entire contract value must be transferred. Amounts transferred will be
subject to a transfer market value adjustment. The amount requested to be
transferred will be multiplied by the market value adjustment factor to
determine the transferred amount. There will be no market value adjustment on
amounts transferred within one month prior to the end of a guarantee period.
(See "MARKET VALUE ADJUSTMENT"). The Company also reserves the right to modify
or terminate the transfer privilege at any time in accordance with applicable
law.
RENEWALS
At the end of a guarantee period, the contract owner may choose a
renewal guarantee period from any of the then existing guarantee periods at the
then current interest rate, all without the imposition of any charge. The
contract owner may not select a guarantee period that would extend beyond the
maturity date. In the case of renewals within one year of the maturity date, the
only option available is to have interest accrued up to the maturity date at the
then current interest rate for one year guarantee periods.
A notice will be mailed at least 15 days, but not more than 45 days,
prior to the end of any Initial Guaranteed Period or Renewal Guaranteed Period.
If the contract owner does not specify the renewal
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guarantee period desired, the Company will select the same guarantee period as
has just expired, so long as such period does not extend beyond the maturity
date. In the event a renewal would extend beyond the maturity date, the Company
will select the longest period that will not extend beyond such date, except in
the case of a renewal within one year of the maturity date in which case the
Company will credit interest up to the maturity date at the then current
interest rate for one year guarantee periods.
WITHDRAWALS
Prior to the earlier of the maturity date or the death of the contract
owner, the owner may withdraw all or a portion of the contract value upon
written request, complete with all necessary information, to the Company's
Annuity Service Office. For certain qualified contracts, exercise of the
withdrawal right may require the consent of the qualified plan participant's
spouse under the Code and regulations promulgated by the Treasury Department.
In the case of a total withdrawal, as of the date of receipt of the
request at its Annuity Service Office, the Company will cancel the contract and
pay the following amount:
C + [ (A - B - C) x D], where:
A=the gross withdrawal value reduced by an applicable annual administration fee;
B=the withdrawal charge;
C=the amount available without the imposition of a withdrawal charge;
D=the market value adjustment factor.
(See "CHARGES AND DEDUCTIONS" and "MARKET VALUE ADJUSTMENT")
Partial withdrawals will use the formula specified above and the gross
withdrawal value to determine the amount payable. Partial withdrawals will be
subject to market value adjustments and possible withdrawal charges. The Company
will deduct the gross withdrawal value from the contract value. The gross
withdrawal value may not exceed the contract value.
The Company may defer the payment of a full or partial withdrawal for
not more than six months (or the period permitted by applicable state law if
shorter) from the date the Company receives the withdrawal request and the
contract. If payments are deferred ten days or more, the amount deferred will
earn interest at a rate not less than 4% per year or at a rate determined by
applicable state law. The Company will not, however, defer payment for more than
thirty days for any withdrawal effective at the end of any guarantee period.
There is no limit on the frequency of partial withdrawals, however, the
amount withdrawn must be at least $300 or, if less, the entire contract value.
If a partial withdrawal plus any applicable withdrawal charge, after giving
effect to any market value adjustment, would reduce the contract value to less
than $300, the Company will treat the partial withdrawal as a total withdrawal
of the contract value.
Withdrawals from the contract may be subject to income tax and a 10%
penalty tax. Withdrawals are permitted from contracts issued in connection with
Section 403(b) qualified plans only under limited circumstances (see "FEDERAL
TAX MATTERS").
DEATH BENEFIT BEFORE MATURITY DATE
In General. The following discussion applies principally to contracts
that are not issued in connection with qualified plans, i.e., a "non-qualified
contract." The requirements of the tax law applicable to qualified plans, and
the tax treatment of amounts held and distributed under such plans, are quite
complex. Accordingly, a prospective purchaser of the contract to be used in
connection with a qualified plan should seek competent legal and tax advice
regarding the suitability of the contract for the situation involved and the
requirements governing the distribution of benefits, including death benefits,
from a contract used in the plan.
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Determination of Death Benefit. The determination of the death benefit
will be made on the date written notice and proof of death, as well as all
required claims forms, are received at the Company's Annuity Service Office. No
person is entitled to the death benefit until this time.
Amount and Payment of Death Benefit. The Company will pay a death
benefit equal to the contract value to the beneficiary if any contract owner
dies before the maturity date. This amount will not be subject to a market value
adjustment. If there is a surviving contract owner, that contract owner will be
deemed to be the beneficiary. No death benefit is payable on the death of any
annuitant, except that if any contract owner is not a natural person, the death
of any annuitant will be treated as the death of an owner. On the death of the
last surviving annuitant, the contract owner, if a natural person, will become
the annuitant unless the contract owner designates another person as the
annuitant.
The death benefit may be taken in the form of a lump sum immediately.
If not taken immediately, the contract will continue subject to the following:
(1) the beneficiary will become the contract owner; (2) no additional purchase
payments may be made; and (3) if the beneficiary is not the deceased owner's
spouse, distribution of the contract owner's entire interest in the contract
must be made within five years of the owner's death, or alternatively,
distribution may be made as an annuity, under one of the annuity options
described below, which begins within one year of the owner's death and is
payable over the life of the beneficiary or over a period not extending beyond
the life expectancy of the beneficiary. If the beneficiary dies before
distributions described in "(3)" above are completed, the entire remaining
contract value must be distributed in a lump sum immediately. If the owner's
spouse is the beneficiary, the spouse continues the contract as the new owner.
In such a case, the distribution rules described in "(3)" applicable when a
contract owner dies, will apply when the spouse, as the owner, dies.
If any annuitant is changed and any contract owner is not a natural
person, the entire interest in the contract must be distributed to the contract
owner within five years.
Death benefits will be paid within seven days of the date the amount of
the death benefit is determined, as described above, subject to postponement
under the same circumstances that payment of withdrawals may be postponed (see
"WITHDRAWALS").
ANNUITY PROVISIONS
GENERAL
The proceeds of the contract payable on death, withdrawal or the
contract maturity date may be applied to the annuity options described below,
subject to the distribution of death benefit provisions (see "DEATH BENEFIT
BEFORE MATURITY DATE").
Generally, annuity benefits under the contract will begin on the
maturity date. The maturity date is the date specified on the contract
specifications page, unless changed. If no date is specified, the maturity date
is the maximum maturity date described below. The maximum maturity date is the
first day of the month following the later of the 85th birthday of the annuitant
or the tenth contract anniversary. In no event will the maturity date exceed age
90. The contract owner may specify a different maturity date at any time by
written request at least one month before both the previously specified and the
new maturity date. The new maturity date may not be later than the maximum
maturity date unless the Company consents. Maturity dates which occur, or are
scheduled to occur, at advanced ages, e.g., past age 85, may in some
circumstances have adverse income tax consequences (see "FEDERAL TAX MATTERS").
Distributions from qualified contracts may be required before the maturity date.
The contract owner may select the frequency of annuity payments.
However, if the contract value at the maturity date is such that a monthly
payment would be less than $20, the Company may pay the higher of contract value
and any annual administration fee or the amount available upon total withdrawal
in one lump sum to the annuitant on the maturity date.
ANNUITY OPTIONS
10
<PAGE> 14
Annuity benefits are available under the contract on a fixed basis.
Upon purchase of the contract, and on or before the maturity date, the contract
owner may select one or more of the annuity options described below or choose an
alternate form of settlement acceptable to the Company. If an annuity option is
not selected, the Company will provide as a default option annuity payments to
be made for a period certain of 10 years and continuing thereafter during the
lifetime of the annuitant. Treasury Department regulations may preclude the
availability of certain annuity options in connection with certain qualified
contracts.
The following annuity options are guaranteed in the contract.
Option 1(a): Non-Refund Life Annuity - An annuity with payments during
the lifetime of the annuitant. No payments are due after the death of
the annuitant. Since there is no guarantee that any minimum number of
payments will be made, an annuitant may receive only one payment if the
annuitant dies prior to the date the second payment is due.
Option 1(b): Life Annuity with Payments Guaranteed for 10 Years - An
annuity with payments guaranteed for 10 years and continuing thereafter
during the lifetime of the annuitant. Since payments are guaranteed for
10 years, annuity payments will be made to the end of such period if
the annuitant dies prior to the end of the tenth year.
Option 2(a): Joint & Survivor Non-Refund Life Annuity - An annuity with
payments during the lifetimes of the annuitant and a designated
co-annuitant. No payments are due after the death of the last survivor
of the annuitant and co-annuitant. Since there is no guarantee that any
minimum number of payments will be made, an annuitant or co-annuitant
may receive only one payment if the annuitant and co-annuitant die
prior to the date the second payment is due.
Option 2(b): Joint & Survivor Life Annuity with Payments Guaranteed for
10 Years - An annuity with payments guaranteed for 10 years and
continuing thereafter during the lifetimes of the annuitant and a
designated co-annuitant. Since payments are guaranteed for 10 years,
annuity payments will be made to the end of such period if both the
annuitant and the co-annuitant die prior to the end of the tenth year.
In addition to the foregoing annuity options which the Company is
contractually obligated to offer at all times, the Company currently offers the
following annuity options. The Company may cease offering the following annuity
options at any time and may offer other annuity options in the future.
Option 3: Life annuity with Payments Guaranteed for 5, 15 or 20 Years -
An Annuity with payments guaranteed for 5, 15 or 20 years and
continuing thereafter during the lifetime of the annuitant. Since
payments are guaranteed for the specific number of years, annuity
payments will be made to the end of the last year of the 5, 15 or 20
year period.
Option 4: Joint & Two-Thirds Survivor Non-Refund Life Annuity - An
annuity with full payments during the joint lifetime of the annuitant
and a designated co-annuitant and two-thirds payments during the
lifetime of the survivor. Since there is no guarantee that any minimum
number of payments will be made, an annuitant or co-annuitant may
receive only one payment if the annuitant and co-annuitant die prior to
the date the second payment is due.
Option 5: Period Certain Only Annuity for 5, 10, 15 or 20 years - An
annuity with payments for a 5, 10, 15 or 20 year period and no payments
thereafter.
DEATH BENEFIT ON OR AFTER MATURITY DATE
If annuity payments have been selected based on an annuity option
providing for payments for a guaranteed period, and the annuitant dies on or
after the maturity date, the Company will make the remaining guaranteed payments
to the beneficiary. Any remaining payments will be made as rapidly as under the
method of distribution being used as of the date of the annuitant's death. If no
beneficiary is living, the Company will commute any unpaid guaranteed payments
to a single sum (on the basis of the interest rate used in determining the
payments) and pay that single sum to the estate of the last to die of the
annuitant and the beneficiary.
11
<PAGE> 15
OTHER CONTRACT PROVISIONS
12
<PAGE> 16
TEN DAY RIGHT TO REVIEW
The contract owner may cancel the contract by returning it to the
Annuity Service Office or agent within 10 days after receipt of the contract.
Within 7 days of receipt of the contract by the Company, the Company will refund
the payment made for the contract.
No withdrawal charge is imposed upon return of the contract within the
ten day right to review period. The ten day right to review may vary in certain
states in order to comply with the requirements of insurance laws and
regulations in such states. When the contract is issued as an individual
retirement annuity under Sections 408 or 408A of the Code, during the first 7
days of the 10 day period, the Company will return the contract value if this is
greater than the amount otherwise payable.
OWNERSHIP
In the case of an individual annuity contract, the contract owner is
the person entitled to exercise all rights under the contract. Prior to the
maturity date, the contract owner is the person designated in the contract
specifications page or as subsequently named. On and after the maturity date,
the annuitant is the contract owner. If amounts become payable to any
beneficiary under the contract, the beneficiary is the contract owner.
In the case of non-qualified contracts, ownership of the contract may
be changed or the contract may be collaterally assigned at any time prior to the
maturity date, subject to the rights of any irrevocable beneficiary. Assigning a
contract, or changing the ownership of a contract, may be treated as a
distribution of the contract value for Federal tax purposes (see "FEDERAL TAX
MATTERS").
Any change of ownership or assignment must be made in writing. Any
change must be approved by the Company. Any assignment and any change, if
approved, will be effective as of the date the Company receives the request at
its Annuity Service Office. The Company assumes no liability for any payments
made or actions taken before a change is approved or an assignment is accepted
or responsibility for the validity or sufficiency of any assignment. An absolute
assignment will revoke the interest of any revocable beneficiary.
In the case of qualified contracts, ownership of the contract generally
may not be transferred except by the trustee of an exempt employees' trust which
is part of a retirement plan qualified under Section 401 of the Code or as
otherwise permitted by applicable Internal Revenue Service ("IRS") regulations.
Subject to the foregoing, a qualified contract may not be sold, assigned,
transferred, discounted or pledged as collateral for a loan or as security for
the performance of an obligation or for any other purpose to any person other
than the Company.
BENEFICIARY
The beneficiary is the person, persons or entity designated in the
contract specifications page or as subsequently named. However, if there is a
surviving contract owner, that person will be treated as the beneficiary. The
beneficiary may be changed subject to the rights of any irrevocable beneficiary.
Any change must be made in writing, approved by the Company and if approved,
will be effective as of the date on which written. The Company assumes no
liability for any payments made or actions taken before the change is approved.
If no beneficiary is living, the contingent beneficiary will be the beneficiary.
The interest of any beneficiary is subject to that of any assignee. If no
beneficiary or contingent beneficiary is living, the beneficiary is the estate
of the deceased contract owner. In the case of certain qualified contracts,
regulations promulgated by the Treasury Department prescribe certain limitations
on the designation of a beneficiary.
ANNUITANT
The annuitant is any natural person or persons whose life is used to
determine the duration of annuity payments involving life contingencies. If the
contract owner names more than one person as an "annuitant," the second person
named shall be referred to as "co-annuitant." The annuitant is as designated on
the contract specifications page or in the application, unless changed.
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<PAGE> 17
On the death of the annuitant, the co-annuitant, if living, becomes the
annuitant. If there is no living co-annuitant, the owner becomes the annuitant.
In the case of certain qualified contracts, there are limitations on the ability
to designate and change the annuitant and the co-annuitant.
MODIFICATION
The Company will not change or modify the contract without the owner's
consent except to the extent necessary to conform to any applicable law or
regulation or any ruling issued by a government agency. The provisions of the
contract shall be interpreted so as to comply with the requirements of Section
72(s) of the Code.
COMPANY APPROVAL
The Company reserves the right to accept or reject a contract
application at its sole discretion.
MARKET VALUE ADJUSTMENT
Any amount withdrawn, transferred or annuitized prior to the end of
either the initial guarantee period or a renewal guarantee period will be
adjusted by the market value adjustment factor described below.
The market value adjustment factor is determined by the following
formula: ((1+i)/(1+j))(n/12) where:
i - The initial guaranteed interest rate or renewal guaranteed interest
rate currently being earned on the contract.
j - The guaranteed interest rate available, on the date the request is
processed by the Company, for a guarantee period with the same length
as the period remaining in the initial guarantee period or renewal
guarantee period. If the guarantee period of this length is not
available, the guarantee period with the next highest duration which is
maintained by the Company will be chosen.
n - The number of complete months remaining to the end of the initial
guarantee period or renewal guarantee period.
If the Company no longer issues the guaranteed interest contracts
described in i and j, i and j are defined as follows:
i - the Moody's Corporate Bond Yield Average - Monthly Average
Corporates (for the applicable duration) as published by the Moody's
Investors Service, Inc. for the date that the initial guaranteed
interest rate or renewal guaranteed interest rate currently being
earned on the contract was set.
j - The Moody's Corporate Bond Yield Average - Monthly Average
Corporates (for the applicable duration) as published by the Moody's
Investors Service, Inc. for the date the request is processed.
There will be no market value adjustment in the following situations:
(a) death of the contract owner; (b) amounts withdrawn or transferred within one
month prior to the end of the guarantee period; and (c) amounts withdrawn or
transferred in any contract year that do not exceed 10% of total purchase
payments less any prior partial withdrawals in that year.
The market value adjustment reflects the relationship between the
initial guaranteed interest rate or the renewal guaranteed interest rate
applicable to the contract and the then current available guaranteed interest
rate. Generally, if the initial guaranteed interest rate or the renewal
guaranteed interest rate is lower than the then current available guaranteed
interest rate, then the effect of the market value adjustment will be to reduce
the amount withdrawn, transferred or annuitized. Similarly, if the initial
guaranteed interest rate or the renewal guaranteed interest rate is higher than
the then current available guaranteed interest rate, then the effect of the
market value adjustment will be to increase the amount withdrawn, transferred or
annuitized. The greater the difference in these interest rates the greater the
effect of the market value adjustment.
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<PAGE> 18
The market value adjustment is also affected by the amount of time
remaining in the guarantee period. Generally, the longer the time remaining in
the guarantee period, the greater the effect of the market value adjustment on
the amount withdrawn, transferred or annuitized. This is because the longer the
time remaining in the guarantee period, the higher the compounding factor 'n' in
the market value adjustment factor.
The cumulative effect of the market value adjustment and withdrawal
charges could result in a contract owner receiving total withdrawal proceeds of
less than the contract owner's investment in the contract.
BECAUSE OF THE MARKET VALUE ADJUSTMENT PROVISION OF THE CONTRACT, THE CONTRACT
OWNER BEARS THE INVESTMENT RISK THAT THE CURRENT AVAILABLE GUARANTEED INTEREST
RATE OFFERED BY THE COMPANY AT THE TIME OF WITHDRAWAL, TRANSFER OR ANNUITIZATION
MAY BE HIGHER THAN THE INITIAL OR RENEWAL GUARANTEE INTEREST RATE APPLICABLE TO
THE CONTRACT WITH THE RESULT THAT THE AMOUNT THE CONTRACT OWNER RECEIVES UPON A
WITHDRAWAL, TRANSFER OR ANNUITIZATION MAY BE SUBSTANTIALLY REDUCED.
For more information on the market value adjustment, including examples
of its calculation, see Appendix B.
CHARGES AND DEDUCTIONS
WITHDRAWAL CHARGE
If a withdrawal is made from the contract before the maturity date, a
withdrawal charge (contingent deferred sales charge) may be assessed against
amounts withdrawn during the first seven contract years. There is never a
withdrawal charge after seven complete contract years and on certain amounts
withdrawn during the first seven contract years as described below. The amount
of the withdrawal charge and when it is assessed is discussed below:
1. In any contract year, the amount available without the imposition of
a withdrawal charge for that year is the excess of (i) over (ii), where (i) is
10% of the purchase payment and (ii) is all prior partial withdrawals in that
contract year.
2. If a withdrawal is made at the end of the initial guarantee period,
no withdrawal charge will be applied provided such withdrawal occurs on or after
the end of the third contract year. If a withdrawal is made at the end of any
other guarantee period, no withdrawal charge will be applied provided such
withdrawal occurs on or after the end of the fifth contract year. A request for
withdrawal at the end of a guarantee period must be received in writing during
the 30 days period preceding the end of that guarantee period.
3. The amount of the withdrawal charge is calculated by multiplying the
gross withdrawal value, less any administration fee and the amount available
without the imposition of a withdrawal charge by the applicable withdrawal
charge percentage obtained from the table below.
<TABLE>
<CAPTION>
NUMBER OF COMPLETED WITHDRAWAL CHARGE
CONTRACT YEARS PERCENTAGE
------------------- -----------------
<S> <C>
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7+ 0%
</TABLE>
15
<PAGE> 19
4. There is generally no withdrawal charge on distributions made as a
result of the death of the contract owner or, if applicable, the annuitant, (see
"Death Benefit Before Maturity Date - Amount and Payment of Death Benefit").
The amount collected from the withdrawal charge will be used to
reimburse the Company for the compensation paid to cover selling concessions to
broker-dealers, preparation of sales literature and other expenses related to
sales activity.
For examples of calculation of the withdrawal charge, see Appendix A.
Withdrawals may be subject to a market value adjustment in addition to the
withdrawal charge described above (see "MARKET VALUE ADJUSTMENT").
REDUCTION OR ELIMINATION OF WITHDRAWAL CHARGE
The amount of the withdrawal charge on a contract or the period to
which it applies may from time to time be reduced or eliminated for sales of the
contracts to certain individuals or groups of individuals in such a manner that
results in savings of sales expenses. The Company will consider such factors as
(i) the size and type of group, (ii) the amount of the single premium and/or
(iii) other transactions where sales expenses are reduced, when considering
whether to reduce or eliminate the sales charge or the period to which it
applies.
TAXES
The Company reserves the right to charge, or provide for, certain taxes
against purchase payments, contract values, death benefits or annuity payments.
Such taxes may include premium taxes or other taxes levied by any government
entity which the Company determines to have resulted from the (i) establishment
or maintenance of the Fixed Account, (ii) receipt by the Company of purchase
payments, (iii) issuance of the contracts, (iv) commencement or continuance of
annuity payments under the contracts or (v) death of the owner or annuitant. In
addition, the Company will withhold taxes to the extent required by applicable
law.
Premium taxes will be deducted from the contract value used to provide
for annuity payments unless otherwise required by applicable law. The amount
deducted will depend on the premium tax assessed in the applicable state. State
premium taxes currently range from 0% to 3.5% depending on the jurisdiction and
the tax status of the contract and are subject to change by the legislature or
other authority (see "APPENDIX C: STATE PREMIUM TAXES").
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
DESCRIPTION OF BUSINESS
Organization and History
The Company is a stock life insurance company organized under the laws
of the State of New York in 1992. The Company's principal office is located at
Corporate Center, 555 Theodore Fremd Avenue, Rye, New York 10580. The Company is
a wholly-owned subsidiary of Manulife North America. Manulife North America is a
stock life insurance company organized under the laws of the state of Delaware
in 1979 with its principal office located at 116 Huntington Avenue, Boston,
Massachusetts 02116.
The ultimate parent of the Company is Manulife, a Canadian mutual life
insurance company based in Toronto, Canada. Prior to January 1, 1996, Manulife
North America was a wholly owned subsidiary of NAL, a Canadian mutual life
insurance company. On January 1, 1996 NAL and Manulife merged with the combined
company retaining the Manulife name.
Effective January 1, 1996, immediately following the merger of NAL and
Manulife, Manulife North America experienced a corporate restructuring which
resulted in the formation of a newly organized holding corporation, MWL. MWL
holds all of the outstanding shares of Manulife North America and WLA. MWL is
62.5% owned by The Manufacturers Life Insurance Company (U.S.A.), 22.5% owned by
MRL Holding, LLC and approximately 15% owned by the principals of WLA.
16
<PAGE> 20
Manufacturers Securities Services, LLC, the successor to NASL Financial
Services, Inc. ("MSS"), a wholly-owned subsidiary of Manulife North America,
acts as principal underwriter to the contracts issued by the Company, and is a
duly appointed and licensed agent of the Company in the State of New York.
Product Lines
The Company issues fixed and variable annuity contracts, individual
life insurance, and a group annuity products in the State of New York. Amounts
invested in the fixed contracts and fixed portion of the variable insurance
products are allocated to the General Account of the Company, or in the case of
the contract described in this prospectus, to a non-unitized separate account of
the Company. Amounts invested in the variable options of the contracts or
policies are allocated to separate accounts of the Company. Assets of the
separate accounts (other than the separate account described in this prospectus)
are invested in shares of Manufacturers Investment Trust, formerly NASL Series
Trust ("MIT"), a no-load, open end management investment company organized as a
Massachusetts business trust, and, for separate accounts supporting the group
annuity, in shares of externally managed mutual funds.
Property and Office Location
The Company's offices are located at Corporate Center, 555 Theodore
Fremd Avenue, Rye, New York 10580 where the Company leases office space. The
Company owns no real property which is used for business purposes.
MANAGEMENT DISCUSSION & ANALYSIS
The following analysis of the results of operations and financial
condition of the Company should be read in conjunction with the Financial
Statements and the related Notes to Financial Statements.
Overview
The Company provides variable annuities, individual life insurance and
group pension products in New York state. The Company became licensed to sell
life insurance products in 1992 and commenced sales of annuity products in 1992.
In 1997, the Company received approval to expand its product offerings to
include individual life insurance products and group pension products. Amounts
invested in variable contracts are allocated to the Separate Account of the
Company. The assets of the Separate Accounts are invested in shares of MIT.
Amounts invested in the fixed portion of the contracts and individual life
insurance contract and group pension assets are invested in the Company's
General Account and are backed by investment grade fixed income maturities.
The Company's primary source of earnings from the annuity and life
insurance product segment is generated from Separate Account fees assessed
against policyholder account balances: mortality and expense risk charges,
surrender charges and an annual administrative charge. 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 annuity and
variable life deposits.
Basis of Presentation
During 1996, the Company adopted generally accepted accounting
principles ("GAAP") in conformity with the requirements of the Financial
Accounting Standards Board. Prior to 1996, the Company prepared its financial
statements in conformity with statutory accounting practices prescribed or
permitted by the Insurance Department of the State of New York which were
considered GAAP for mutual life insurance companies and their direct and
indirect subsidiaries. As discussed in Note 2 to the financial statements, the
effect of the adoption of GAAP has been reflected retroactively and the
17
<PAGE> 21
previously issued 1995 financial statements have been restated for the change. A
description of accounting policies can be found in Note 2 to the financial
statements.
18
<PAGE> 22
Review of operating results
<TABLE>
<CAPTION>
Financial Summary March 31, March 31, December 31, December 31, December 31,
(In '000's) 1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Fees from separate account and
policyholder funds $ 2,299 $ 1,394 $ 7,396 $ 4,762 $ 3,139
Net investment income 2,259 1,479 6,716 5,224 4,768
Net realized investment gains 77 137 769 89 466
-------- -------- -------- -------- --------
Total Revenues 4,635 3,010 14,881 10,075 8,373
-------- -------- -------- -------- --------
Benefits to policyholders 1,273 1,087 4,747 4,189 4,734
Amortization of deferred policy
acquisition costs 193 671 3,393 2,319 1,162
Other insurance expenses 1,437 611 5,845 1,192 1,193
-------- -------- -------- -------- --------
Total Benefits and Expenses 2,903 2,369 13,985 7,700 7,089
-------- -------- -------- -------- --------
Income before provision for
income taxes 1,732 641 896 2,375 1,284
Provision for income taxes 606 225 310 833 451
Net income $ 1,126 $ 416 $ 586 $ 1,542 $ 833
-------- -------- -------- -------- --------
General Account Assets 170,040 115,699 171,975 113,626 103,908
Separate Account Assets 687,458 391,927 597,193 361,310 216,808
-------- -------- -------- -------- --------
Total Assets $857,498 $507,626 $769,168 $474,936 $320,716
-------- -------- -------- -------- --------
General Account Liabilities 91,279 86,981 $ 94,213 $ 84,857 $ 88,696
Separate Account Liabilities 687,458 391,927 597,193 361,310 216,808
-------- -------- -------- -------- --------
Shareholder's Equity $ 78,761 $ 28,718 $ 77,762 $ 28,769 $ 15,212
-------- -------- -------- -------- --------
</TABLE>
March 31, 1998 Compared to March 31, 1997
The Company recorded net income of $1.1 million in March 1998 versus
net income of $0.4 million in March 1997, an increase of $0.7 million or 175%.
Revenues grew by 54% to $4.6 million as a result of fee income earned on
additional Separate Account assets and higher investment income from higher
General Account assets. This growth is attributed to consistent sales of $36.1
million for 1998 compared to 1997 sales of $38.3 million, strong equity market
performance since the middle of 1997 and favorable contract persistency. Total
fees generated by Separate Accounts and policyholder funds increased by $0.9
million or 64% in 1998. Net investment income grew by $0.8 million or 53% due to
fixed account sales and a $47.7 million capital infusion received in the fourth
quarter of 1997 to support expanded operations in New York.
The Company incurred total benefits and expenses in 1998 of $2.9
million, an increase of $0.5 million, or 21% compared to 1997. The additional
expenses reflect an increase in non-capitalized acquisition expenses and other
costs associated with growth in the Company's business, and additional operating
expenses associated with expanding the Company's operations in New York.
1997 Compared to 1996
The Company recorded net income of $0.6 million in 1997 versus net
income of $1.5 million in 1996, a decrease of $0.9 million. The Company however,
recorded an increase in revenues as a result of fee income earned on additional
Separate Account assets and higher investment income from higher General Account
assets. Separate Account assets grew by 65% while total assets increased by 62%
during 1997. This growth is attributed to record sales of $190.7 million for
1997 compared to 1996 sales of $116.7 million, strong equity
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<PAGE> 23
market performance during 1997 and favorable contract persistency. The record
sales for 1997 were attributable to the Company's implementation of the
Efficient Frontier Investment model in early 1997 and the addition of
competitively performing funds, including additional investment options. The
latter includes five Lifestyle funds which offer the buyer the opportunity to
invest in a pre-determined "fund of funds". Total fees generated by Separate
Accounts and policyholder funds increased by $2.6 million or 55% in 1997. Net
investment income grew by $1.5 million or 29% due to higher fixed account sales
and a $47.7 million capital infusion received in the fourth quarter of 1997 to
support expanded operations in New York.
The Company incurred total benefits and expenses in 1997 of $14.0
million and $7.7 million in 1996, an increase of $6.3 million, or 82% compared
to 1996. The additional expenses reflect an increase in non-capitalized
acquisition expenses and other costs associated with growth in the Company's
business, and additional operating expenses associated with expanding the
Company's operations in New York. The increase in expense levels had a direct
impact on the lower net income for 1997.
1996 Compared to 1995
The Company recorded net income of $1.5 million in 1996 versus net
income of $0.8 million in 1995, an increase of $0.7 million or 88%. The increase
in revenues was a result of fee income earned on additional Separate Account
assets and higher investment income from higher General Account assets. Separate
Account assets grew by 67% during 1996, while total assets grew by 48%. This
growth was due to strong equity market performance and favorable contract
persistency. Net transfers from the General Account to the Separate Account of
approximately $20.0 million during 1996 versus $(0.4) million during 1995 also
contributed to the increased asset levels. Sales for 1996 were $116.4 million
compared to $89.1 million for 1995. The Company's relatively flat sales and
reduced market share during 1996 were primarily a result of relatively poor
investment performance in the underlying funds within MIT and the impact of more
competitive product features and pricing offered by the competition. Total fees
generated by Separate Accounts and policyholder funds increased by $1.6 million
or 52% in 1996. Net investment income increased by approximately 10% related to
higher General Account assets during 1996. The increased assets were primarily a
result of higher sales volumes. Net realized investment gains decreased between
1996 and 1995 by $0.4 million as a result of lower investment sales.
Benefits and expenses were $7.7 million in 1996 and $7.1 million in
1995. The increase is primarily attributed to higher amortization of Deferred
Policy Acquisition Costs (DPAC) during 1996. The increase in overall expenses
was partially offset by a decrease in benefits to policyholders due to the
increase in net transfer from the fixed account to the Separate Account. The
increased transfers resulted in lower policyholder account balances during the
year which resulted in lower interest credited to their policies.
Financial position
<TABLE>
<CAPTION>
Assets
(In '000's) March 31, December 31, December 31,
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
Invested assets $136,009 $139,547 $ 87,634
Deferred policy acquisition costs 30,647 28,364 20,208
Separate account assets 687,458 597,193 361,310
Other assets 3,384 4,064 5,784
------- -------- --------
Total Assets 857,498 $769,168 $474,936
------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
Fixed maturities by investment grade March 31, December 31, December 31,
(In '000's) 1998 1997 1996
----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
AAA $ 15,553 13.0% $ 17,957 13.9% $ 10,016 12.0%
AA 14,477 12.1% 12,398 9.6% 5,843 7.0%
A 76,571 64.0% 83,813 64.9% 59,261 71.0%
</TABLE>
20
<PAGE> 24
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
BBB 13,041 10.9% 14,982 11.6% 8,346 10%
-------- ---- -------- ---- -------- ---
Total Fixed Maturities $119,642 100% $129,150 100% $ 83,466 100%
-------- ---- -------- ---- -------- ---
</TABLE>
March 31, 1998 Compared to December 31, 1997
Total assets increased from $769 million at December 31, 1997 to $857
million at March 31, 1998, an increase of $88 million or 11%. Separate Account
assets increased by 15% for the three months ended March 31, 1998 compared to
the same period in 1997 and represent 80% of total assets as the Company
continues to focus on its variable option insurance products. Fixed maturity and
short-term investments decreased slightly by 3% during 1998. The Company
continues to own high quality investment grade fixed maturity investments to
support its General Account. The Company's deferred policy acquisition costs
(DPAC) asset grew by 8% as the Company experienced consistent sales volumes,
during first quarter 1998 and first quarter 1997, and deferred the related
costs, net of current amortization, associated with the sales.
December 31, 1997 Compared to December 31, 1996
Total assets increased from $475 million at December 31, 1996 to $769
million at December 31, 1997, an increase of $294 million or 62%. Separate
Account assets increased by 65% in 1997 compared to 1996 and represent 78% of
total assets as the Company continues to focus on its variable option insurance
products. Fixed maturity and short-term investments increased by 59% during
1997. This increase is a result of a $47.7 million capital infusion in the
fourth quarter of 1997 to support expansion of MNY's operations to include
individual life insurance and pension products in the State of New York. The
Company continues to own high quality investment grade fixed maturity
investments to support its General Account. The Company's DPAC asset grew by 40%
as the Company experienced record sales volumes during 1997 and deferred the
related costs, net of current amortization, associated with the sales.
<TABLE>
<CAPTION>
Liabilities
(In '000's) March 31, 1998 December 31, 1997 December 31, 1996
------------ ------------ ------------
<S> <C> <C> <C>
Separate account liabilities $ 687,458 $ 597,193 $ 361,310
Other liabilities 91,279 94,213 84,857
------------ ------------ ------------
Total Liabilities $ 778,737 $ 691,406 $ 446,167
</TABLE>
March 31, 1998 Compared to December 31, 1997 and December 31, 1997
Compared to December 31, 1996
Total liabilities have increased proportionately with the growth in the related
assets, primarily in the Company's Separate Accounts.
<TABLE>
<CAPTION>
Shareholder's Equity
(In '000's ) March 31, 1998 December 31, 1997 December 31, 1996
----------- ----------- -----------
<S> <C> <C> <C>
Common stock $ 2,000 $ 2,000 $ 2,000
Additional paid-in capital 72,531 72,531 24,800
Unrealized appreciation on securities
available-for sale 969 1,095 419
Retained earnings 3,261 2,136 1,550
----------- ----------- -----------
Total Shareholder's Equity $ 78,761 $ 77,762 $ 28,769
----------- ----------- -----------
</TABLE>
March 31, 1998 Compared to December 31, 1997
21
<PAGE> 25
The growth in retained earnings is due to net income from operations of
$1.1 million during the first quarter of 1998.
22
<PAGE> 26
December 31, 1997 Compared to December 31, 1996
The Company received $47.7 million of additional capital to support
expansion of its operations. The growth in retained earnings is due to net
income from operations of $0.6 million during 1997. In addition, shareholders
equity increased $0.6 million due to higher market values associated with
invested assets at December 31, 1997.
Asset/liability management
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.
Liquidity and capital resources
The General Account liabilities consist of policyholder funds whose
liquidity requirements do not fluctuate significantly from one year to the next.
The majority of the Company's cash flows arise from policyholder transactions
related to the Separate Account for which the assets and liabilities of these
products are exactly matched.
The Company maintains a prudent amount invested in cash and short term
investments. At the end of 1997, this amounted to $11.4 million or 8% of total
investments compared to $ 8.1 million in 1996 or 9%. In addition, the Company's
liquidity is managed by maintaining an easily marketable portfolio of fixed
maturity securities. Because of the excess expense over income which arises from
the cost of new policy issues, the continued success in generating sales will
not only result in losses in the results from operations, but will create a cash
flow strain as well. As a result, the Company looks to its parent MNA, for the
necessary capital to support its operations. In 1997 and 1996, the Company
received $47.7 million and $13.3 million, respectively, to support the growth of
the Company and enable the Company to expand operations in New York by
increasing the product lines offered to our customers.
Investments
The Company's assets must be invested in accordance with requirements
of applicable state law and regulations regarding the nature and quality of
investments that may be made by insurance companies and the percentage of its
assets that may be held in certain types of investments. In general, these laws
permit investments, within specified limits and subject to certain
qualifications, in federal, state, and municipal obligations, corporate bonds,
preferred and common stocks, real estate mortgages, real estate and certain
other investments.
Competition
The Company is engaged in a business that is highly competitive because
of the large number of stock and mutual life insurance companies and other
entities marketing annuity products. There are over 2,100 stock, mutual and
other types of insurers in the life insurance business in the United States, a
significant number of which are substantially larger than the Company. As of
December 31, 1997, the Company had nine employees.
Government Regulation
The Company is subject to the laws of the State of New York governing
insurance companies and to the regulation of the New York Insurance Department.
Regulation by an insurance department includes periodic examination to determine
the Company's contract liabilities and reserves so that the insurance department
may verify that these items are correct. Regulation by supervisory agencies
includes licensing to transact business, overseeing trade practices, licensing
agents, approving policy forms, establishing reserve requirements, fixing
maximum interest rates on life insurance policy loans and minimum rates for
accumulation of surrender values, prescribing the form and content of required
financial statements and regulation of the type and amounts of investments
permitted. The Company's books and accounts are subject to review by the
insurance department and
23
<PAGE> 27
other supervisory agencies at all times, and the Company files annual statements
with these agencies. A full examination of the Company's operations is conducted
periodically by the New York Insurance Department.
Under insurance guaranty fund laws in most states, insurers doing
business therein can be assessed (up to prescribed limits) for policyholder
losses incurred by insolvent companies. The amount of any future assessments on
the Company under these laws cannot be reasonably estimated. Most of these laws
do provide, however, that an assessment may be excused or deferred if it would
threaten an insurer's own financial strength.
Although the federal government generally does not directly regulate
the business of insurance, federal initiatives often have an impact on the
business in a variety of ways. Federal legislation that removed barriers
preventing banks from engaging in the insurance business or that changed the
Federal income tax treatment of insurance companies, insurance company products,
or employee benefit plans could significantly affect the insurance business.
Capital requirements and solvency protection
In order to enhance the regulation of insurer solvency, the National
Association of Insurance Commissioners enforces minimum Risk Based Capital
("RBC") requirements. The requirements are designed to monitor capital adequacy
and to raise the level of protection that statutory surplus provides for
policyholders. The RBC model law requires that life insurance companies report
on a formula-based RBC standard which is calculated by applying factors to
various asset, premium and reserve items. The formula takes into account risk
characteristics of the life insurer, including asset risk, insurance risk,
interest risk and business risk. If an insurer's ratio falls below certain
thresholds, regulators will be authorized, and in some circumstance required, to
take regulatory action.
The Company's policy is to maintain capital and surplus balances well
in excess of the minimums required under government regulations in all
jurisdictions in which the Company does business.
Impact of year 2000
Preparing computer systems to deal with the Year 2000 risk has become a
major issue for businesses throughout the world. Within the Manulife group, a
group-wide program has been underway since 1996 to make all critical systems
compliant by the end of 1998 and other systems compliant by the end of 1999.
Included in this program are all systems applicable to and shared by the
Company with Manulife. Based on a detailed assessment, Manulife determined that
a portion of its software needs to be modified or replaced so that its computer
systems will function properly into the Year 2000 and beyond. Like most
companies, the Year 2000 issue represents a significant challenge for Manulife
and extensive resources have been dedicated to modifying existing software and
to converting to new software. However, there can be no assurances that
Manulife's systems, nor those of other companies on which Manulife relies, will
be fully converted on a timely basis and therefore that all adverse effect on
the Company due to the Year 2000 risk will be avoided. Manulife is presently
consulting with vendors, customers, subsidiaries, third-parties and other
businesses with which it deals to ensure that no material aspect of its, or the
Company's operations will be hindered by the Year 2000 risk.
The costs of the project and the date on which Manulife plans to
complete the modifications are based on management's best estimates and are
subject to some uncertainty. Manulife is using both internal and external
resources to reprogram, or replace, and test the software for Year 2000
modifications. The total cost of this program to Manulife is estimated to be
$64 million, comprised of $55 million for specifically budgeted programs and
$9 million for general contingencies. Manulife has incurred $15 million as at
December 31, 1997 of which the Company will receive an allocation due to its
shared systems. The costs allocated are not expected to have a material effect
on the net operating income of the Company.
24
<PAGE> 28
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Quarter
Ended
March 31 For the Years Ended December 31
--------------------------------------------------------------------------------
1998 1997 1996 1995 1994* 1993*
---- ---- ---- ---- ----- -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Revenues $ 4,635 $ 14,881 $ 10,075 $ 8,373
Net Income 1,126 586 1,542 833
Total Separate Account Assets 687,458 597,193 361,310 216,808
Total Assets 857,498 769,168 474,936 320,716
Shareholder's Equity 78,761 77,762 28,769 15,212
</TABLE>
* Selected financial data under generally accepted accounting principles is not
available for the 1994 and 1993 fiscal year. See Management's Discussion and
Analysis and Notes to the Financial Statements for additional information.
OFFICERS AND DIRECTORS OF THE COMPANY
The following table presents certain information regarding the
Directors and executive officers of the Company including their age and
principal occupations, which, unless specific dates are shown, are of more than
five years duration.
<TABLE>
<CAPTION>
Name Position with the Principal Occupation
Company
<S> <C> <C>
Bruce Avedon Director* Director, Manulife New York, March 1992 to
Age: 68 present; Consultant (self-employed) September
1983 to present.
John D. DesPrez III Director* Director, WLA, October 1996 to present;
Age: 41 Director and President of the Manulife North
America, September 1996 to present;
President, MIT September 1996 to present;
Senior Vice President, U.S. Annuities,
Manulife, September 1996 to present; Vice
President, Mutual Funds, Manulife, January,
1995 to September 1996; Director, MWL,
December 1995 to present; Director, Wood
Logan Distributors, March 1993 to present;
President, North American Funds, March 1993
to September 1996; Director, Manulife New
York March 1992 to present; Vice President,
Secretary and General Counsel, Manulife
North America, January 1991 to June 1994.
Ruth Ann Flemming Director* Director, Manulife New York, March 1992 to
Age: 39 present; Homemaker.
Bruce Gordon Director* Vice President, Pensions, Manulife, 1990 to
Age: 53 present; Director, Man America, May 1996 to
present; Director, Manulife New York, January
1996 to present; Director, MWL, December 1995
to present; Vice President, Individual Insurance,
Manulife, 1989 - 1990.
Tracy A. Kane Secretary and Assistant Vice President and Counsel, Manulife North
</TABLE>
25
<PAGE> 29
<TABLE>
<CAPTION>
Name Position with the Principal Occupation
Company
<S> <C> <C>
Age: 35 Counsel America, April 1993 to present; Secretary and
Counsel, Manulife New York, May 1994 to
present; Counsel, Fidelity Investments, prior
to April 1993.
</TABLE>
26
<PAGE> 30
<TABLE>
<CAPTION>
Name Position with the Principal Occupation
Company
<S> <C> <C>
Theodore F. Kilkuskie Director* Director, Manulife New York, November 1997
Age: 42 to present; Vice President, U.S. Individual
Insurance Man America, August 1997 to
present; Director, Man America, May 1996 to
present; Director, MWL, April 1996 to
present; Vice President, U.S. Individual
Insurance, Manulife, June 1995 to present;
Executive Vice President, Mutual Fund Sales
& Marketing, State Street Research &
Management, March 1994 to May 1995; Vice
President, Mutual Fund Sales & Marketing,
MetLife, prior to March 1994.
David W. Libbey Treasurer Vice President, Treasurer and Chief
Age: 50 Financial Officer, Manulife North America,
December 1997 to present; Treasurer,
Manulife New York, November 1997 to present;
Vice President, Finance, Manulife North
America, June 1997 to December 1997; Vice
President, Finance, Annuities, Manulife,
June 1997 to present; Vice President &
Actuary, Paul Revere Insurance Group June
1970 to March 1997.
Neil M. Merkl, Esq. Director* Director, Manulife New York, December 1995 to
Age: 66 present; Attorney (self-employed), April 1994
to present; Attorney, Wilson Elser, 1979 to 1994.
Robert C. Perez, Ph.D. Director* Director, Manulife New York, March 1992 to
Age: 70 present; Associate Professor, Iona College,
Hagen Business School, 1982 to present.
John Richardson Director and Chairman of the Board, MWL, April 1997 to
Age: 60 Chairman of the present; Director and Chairman of the Board
Board Manulife North America, March 1997 to
present; of Directors* Director and Chairman
of the Board, Manulife New York, November
1996 to present; Director, MWL, December
1995 to present; Director and Chairman of
the Board, Man America, January 1995 to
present; Senior Vice President and General
Manager, U.S. Operations, Manulife, January
1995 to present; Senior Vice President and
General Manager, Canadian Operations,
Manulife, June 1992 to January 1995.
James K. Robinson Director* Director, Manulife New York, March 1992 to
Age: 70 present; Attorney and Assistant Secretary,
Eastman Kodak Company, 1958 to present.
A. Scott Logan Director* and Director and President, Manulife New York,
Age: 59 President February 1998 to present; Director, MWL,
December 1995 to present; Director and
President, WLA, August 1986 to present;
Director, Wood Logan Distributors July 1990
to present.
John G. Vrysen Vice President and Vice President and Chief Financial Officer,
Age: 42 Chief Actuary U.S. Operations, Manulife, January 1996 to
present; Chief Financial Officer and
Treasurer, MWL, April 1997 to present;
Director, MWL, December 1995 to present;
Appointed Actuary, Man America, May 1996 to
present; Vice President and Chief, Manulife
North America, January 1986 to present.
</TABLE>
*Each Director is elected to serve until the next annual meeting of shareholders
or until his or her successor is elected and qualified.
27
<PAGE> 31
EXECUTIVE COMPENSATION
The Company's executive officers may also serve as officers of one or
more of the Company's affiliates including Manulife North America and Manulife
and its affiliates. Allocations have been made as to such officers' time devoted
to duties as executive officers of the Company. No executive officer had
allocated cash compensation in excess of $100,000. The Company's Chief Executive
Officer did not have any allocated compensation paid or awarded to or earned by
him for services provided to the Company since he provided services to the
Company pursuant to a service agreement between the Company and Manulife.
Certain other officers of the Company also provide services to the Company
pursuant to this service agreement.
No executive officer of either the Company or Manulife North America
participates in the formulation of his or her compensation. The compensation of
executive officers is determined by the individual to whom the officer reports
and is approved by Manulife.
In addition to cash compensation, all officers of the Company and
Manulife North America are entitled to a standard benefit package including
medical, dental, pension, basic and dependent life insurance, defined
contribution plan and long- and short-term disability coverage. There are no
other benefit packages which currently enhance overall compensation by more than
10%.
Directors of the Company, who are also officers or employees of the
Company or its affiliates, receive no compensation in addition to their
compensation as officers or employees of the Company or its affiliates.
Directors of the Company who are not officers and employees of the Company or
its affiliates receive the following compensation: $5,000 annual retainer, paid
quarterly, $1,000 per meeting attended in person, and $200 per meeting attended
by telephone. The Chief Executive Officer of the Company is a minority owner of
MWL which is an affiliated company of Manulife New York.
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK SEPARATE ACCOUNT G
The Company established The Manufacturers Life Insurance Company
Separate Account G, formerly FNAL Fixed Separate Account, (the "Fixed Account")
in 1997 as a separate account under the laws of the State of New York. The Fixed
Account holds assets that are segregated from all of the Company's other assets.
The Fixed Account is currently used only to support the obligations under the
contracts offered by this prospectus. These obligations are based on interest
rates credited to the contracts and do not depend on the investment performance
of the Fixed Account. Any gain or loss in the Fixed Account accrues solely to
the Company and the Company assumes any risk associated with the possibility
that the value of the assets in the Fixed Account might fall below the reserves
and other liabilities that must be maintained. Should the value of the assets in
the Fixed Account fall below reserve and other liabilities, the Company will
transfer assets from its General Account to the Fixed Account to make up the
shortfall. The Company reserves the right to transfer to its General Account any
assets of the Fixed Account in excess of such reserves and other liabilities and
to maintain assets in the Fixed Account which support any number of annuities
which the Company offers or may offer. The assets of the Fixed Account are not
insulated from the claims of the Company's creditors and may be charged with
liabilities which arise from other business conducted by the Company. Thus the
Company may, at its discretion if permitted by applicable state law, transfer
existing Fixed Account assets to, or place future Fixed Account allocations in,
it General Account for purposes of administration.
The assets of the Fixed Account will be invested in those assets chosen
by the Company and permitted by applicable New York State laws for separate
account investment.
DISTRIBUTION OF THE CONTRACT
MSS, 73 Tremont Avenue, Boston, Massachusetts 02108, a wholly-owned
subsidiary of Manulife North America, the parent of the Company, is the
principal underwriter of the contracts in addition to providing advisory
services to Manufacturers Investment Trust. MSS is a broker-dealer
28
<PAGE> 32
registered under the 1934 Act and a member of the National Association of
Securities Dealers, Inc. ("NASD"), and a duly appointed and licensed agent of
the Company in New York state.
Sales of the contracts will be made by registered representatives of
broker-dealers authorized by MSS to sell them. Such registered representatives
will also be licensed insurance agents of the Company. MSS will pay distribution
compensation to selling brokers in varying amounts which under normal
circumstances are not expected to exceed 1% of purchase payments plus 0.80% of
the contract value per year commencing one year after each initial purchase
payment. MSS may from time to time pay additional compensation pursuant to
promotional contests. Additionally, MSS will be providing marketing support for
the distribution of the contracts.
CONFIRMATION STATEMENTS
Owners will be sent confirmation statements for certain transactions in
their account. Owners should carefully review these statements to verify their
accuracy. Any mistakes should immediately be reported to the Company's Annuity
Service Office. If the owner fails to notify the Company's Annuity Service
Office of any mistake within 60 days of the mailing of the confirmation
statement, the owner will be deemed to have ratified the transaction.
LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation, to which the Company is a party or to which any of its
property is subject and, to the best knowledge of the Company, no such
proceedings are contemplated by any governmental authority.
LEGAL MATTERS
All matters of applicable state law pertaining to the contract,
including the Company's right to issue the contract thereunder, have been passed
upon by Tracy A. Kane, Esq., Secretary and Counsel of the Company.
INDEPENDENT AUDITORS
The financial statements of the Company at December 31, 1997 and 1996
and for the years then ended appearing in this Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and is included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The consolidated statements of income, changes in shareholder's equity
and cash flows of the Company for the year ended December 31, 1995, appearing in
this Registration Statement have been included elsewhere herein in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
NOTICES AND REPORTS TO CONTRACT OWNERS
At least once each contract year, the Company will send to contract
owners a statement showing the contract value of the contract as of the date of
the statement. The statement will also show premium payments and any other
information required by any applicable law or regulation.
CONTRACT OWNER INQUIRIES
All contract owner inquiries should be directed to the Company's
Annuity Service Office at Corporate Center, 555 Theodore Fremd Avenue, Rye, New
York 10580
FEDERAL TAX MATTERS
INTRODUCTION
29
<PAGE> 33
The following discussion of the federal income tax treatment of the
Contracts is not exhaustive, does not purport to cover all situations, and is
not intended as tax advice. The federal income tax treatment of the Contracts is
unclear in certain circumstances, and a qualified tax adviser should always be
consulted with regard to the application of law to individual circumstances.
This discussion is based on the Code, Treasury Department regulations, and
interpretations existing on the date of this Prospectus. These authorities,
however, are subject to change by Congress, the Treasury Department, and
judicial decisions.
This discussion does not address state or local tax consequences
associated with the purchase of the Contracts. In addition, THE COMPANY MAKES NO
GUARANTEE REGARDING ANY TAX TREATMENT, FEDERAL, STATE OR LOCAL, OF ANY CONTRACT
OR OF ANY TRANSACTION INVOLVING A CONTRACT.
THE COMPANY'S TAX STATUS
The Company is taxed as a life insurance company under the Code. The
assets in the separate account will be owned by the Company, and the income
derived from such assets will be includible in the Company's income for federal
income tax purposes.
TAXATION OF ANNUITIES IN GENERAL
Tax Deferral During Accumulation Period
Under existing provisions of the Code, except as described below, any
increase in an owner's contract value is generally not taxable to the owner or
annuitant until received, either in the form of annuity payments as contemplated
by the Contracts, or in some other form of distribution. However, this rule
applies only if the owner is an individual.
As a general rule, deferred annuity contracts held by "non-natural
persons," such as a corporation, trust or other similar entity, as opposed to a
natural person, are not treated as annuity contracts for federal income tax
purposes. The income on such contracts (as defined in the tax law) is taxed as
ordinary income that is received or accrued by the owner during the taxable
year. There are several exceptions to this general rule for non-natural contract
owners. First, annuity contracts will generally be treated as held by a natural
person if the nominal owner is a trust or other entity which holds the contract
as an agent for a natural person. However, this exception will not apply in the
case of any employer which is the nominal owner of an annuity contract under a
non-qualified deferred compensation arrangement for its employees.
Other exceptions to the general rule for non-natural contract owners
will apply with respect to (1) annuity contracts acquired by an estate of a
decedent by reason of the death of the decedent, (2) certain annuity contracts
issued in connection with various qualified retirement plans, (3) annuity
contracts purchased by employers upon the termination of certain qualified
retirement plans, (4) certain annuity contracts used in connection with
structured settlement agreements, and (5) annuity contracts purchased with a
single premium when the annuity starting date is no later than a year from
purchase of the annuity and substantially equal periodic payments are made, not
less frequently than annually, during the annuity period.
In addition to the foregoing, if the Contract's maturity date occurs,
or is scheduled to occur, at a time when the annuitant is at an advanced age,
such as over age 85, it is possible that the owner will be taxable currently on
the annual increase in the contract value.
The remainder of this discussion assumes that the contract will
constitute an annuity for federal tax purposes.
Taxation of Partial and Total Withdrawals
In the case of a partial withdrawal, amounts received generally are
includible in income to the extent the owner's contract value before the
withdrawal exceeds his or her "investment in the contract." In the case of a
total withdrawal, amounts received are includible in income to the extent they
exceed the "investment in the contract."
30
<PAGE> 34
For these purposes the investment in the contract at any time equals the total
of the purchase payments made under the Contract to that time (to the extent
such payments were neither deductible when made nor excludable from income as,
for example, in the case of certain employer contributions to Qualified Plans)
less any amounts previously received from the Contract which were not included
in income.
Other than in the case of Contracts issued in connection with certain
Qualified Plans (which generally cannot be assigned or pledged), any assignment
or pledge (or agreement to assign or pledge) any portion of the contract value
is treated as a withdrawal of such amount or portion. The investment in the
contract is increased by the amount includible in income with respect to such
assignment or pledge, though it is not affected by any other aspect of the
assignment or pledge (including its release). If an owner transfers his or her
interest in a Contract without adequate consideration to a person other than the
owner's spouse (or to a former spouse incident to divorce), the owner will be
taxed on the difference between his or her contract value and the investment in
the contract at the time of transfer. In such case, the transferee's investment
in the contract will be increased to reflect the increase in the transferor's
income.
There is some uncertainty regarding the treatment of the market value
adjustment for purposes of determining the amount includible in income as a
result of any partial withdrawal or transfer without adequate consideration.
Congress has given the Internal Revenue Service ("IRS") regulatory authority to
address this uncertainty. However, as of the date of this Prospectus, the IRS
has not issued any regulations addressing these determinations.
Taxation of Annuity Payments
Normally, the portion of each annuity payment taxable as
ordinary income is equal to the excess of the payment over the exclusion amount.
The exclusion amount is the amount determined by multiplying (1) the payment by
(2) the ratio of the investment in the contract, adjusted for any period certain
or refund feature, to the total expected value of annuity payments for the term
of the Contract (determined under Treasury Department regulations). A simplified
method of determining the taxable portion of annuity payments applies to
Contracts issued in connection with certain Qualified Plans other than IRAs.
Once the total amount of the investment in the contract is excluded
using this ratio, annuity payments will be fully taxable. If annuity payments
cease because of the death of the annuitant and before the total amount of the
investment in the contract is recovered, the unrecovered amount generally will
be allowed as a deduction to the annuitant in his last taxable year.
There may be special income tax issues present in situations where the
owner and the annuitant are not the same person or are not married. A tax
advisor should be consulted in those situations.
Taxation of Death Benefit Proceeds
Amounts may be distributed from a contract because of the death of an
owner or the annuitant. Prior to the maturity date, such death benefit proceeds
are includible in income as follows: (1) if distributed in a lump sum, they are
taxed in the same manner as a full withdrawal, as described above, or (2) if
distributed under an annuity option, they are taxed in the same manner as
annuity payments, as described above. After the maturity date, where a
guaranteed period exists under an annuity option and the annuitant dies before
the end of that period, payments made to the beneficiary for the remainder of
that period are includible in income as follows: (1) if received in a lump sum,
they are includible in income to the extent that they exceed the unrecovered
investment in the contract at that time, or (2) if distributed in accordance
with the existing annuity option selected, they are fully excludable from income
until the remaining investment in the contract is deemed to be recovered, and
all annuity payments thereafter are fully includible in income.
Penalty Tax on Premature Distributions
Where a Contract has not been issued in connection with a Qualified
Plan, there generally is a 10% penalty tax on the taxable amount of any payment
from the Contract unless the payment is: (a) received on or after the owner
reaches age 59-1/2; (b) attributable to the owner becoming disabled (as defined
in the tax law); (c) made on or after the death of the owner or, if the owner is
not an individual, on or after the death of the primary
31
<PAGE> 35
annuitant (as defined in the tax law); (d) made as a series of substantially
equal periodic payments (not less frequently than annually) for the life (or
life expectancy) of the annuitant or the joint lives (or joint life
32
<PAGE> 36
expectancies) of the annuitant and a "designated beneficiary" (as defined in the
tax law), or (e) made under a Contract purchased with a single premium when the
maturity date is no later than a year from purchase of the Contract and
substantially equal periodic payments are made, not less frequently than
annually, during the annuity period.
Aggregation of Contracts
In certain circumstances, the IRS may determine the amount of an
annuity payment or a withdrawal from a Contract that is includible in income by
combining some or all of the annuity contracts owned by an individual which are
not issued in connection with a Qualified Plan. For example, if a person
purchases a Contract offered by this Prospectus and also purchases at
approximately the same time an immediate annuity, the Service may treat the two
contracts as one contract.
In addition, if a person purchases two or more deferred annuity
contracts from the same insurance company (or its affiliates) during any
calendar year, all such contracts will be treated as one contract for purposes
of determining whether any payment not received as an annuity (including
withdrawals prior to the maturity date) is includible in income. Thus, if during
a calendar year a person buys two or more of the Contracts offered by this
Prospectus (which might be done, for example, in order to invest amounts in
different guarantee periods), all of such Contracts would be treated as one
Contract in determining whether withdrawals from any of such Contracts are
includible in income.
The effects of such aggregation are not clear and depend on the
circumstances. However, aggregation could affect the amount of a withdrawal that
is taxable and the amount that might be subject to the 10% penalty tax described
above.
Loss of Interest Deduction Where Contracts are Held by or for the
Benefit of Certain Non-Natural Persons
In the case of Contracts issued after June 8, 1997 to a
non-natural taxpayer (such as a corporation or a trust) or held for the benefit
of such an entity, recent changes in the tax law may result in otherwise
deductible interest no longer being deductible by the entity, regardless of
whether the interest relates to debt used to purchase or carry the Contract.
However, this interest deduction disallowance does not affect Contracts where
the income on such Contracts is treated as ordinary income that is received or
accrued by the owner during the taxable year. Entities that are considering
purchasing the Contract, or entities that will be beneficiaries under a
Contract, should consult a tax advisor.
QUALIFIED RETIREMENT PLANS
In General
The Contracts are also designed for use in connection with
certain types of qualified retirement plans which receive favorable treatment
under the Code. Numerous special tax rules apply to participants in such
Qualified Plans and to Contracts used in connection with such Qualified Plans.
Therefore, no attempt is made in this Prospectus to provide more than general
information about the use of the Contact with the various types of Qualified
Plans.
33
<PAGE> 37
The tax rules applicable to qualified plans vary according to the type
of plan and the terms and conditions of the plan itself. For example, for both
withdrawals and annuity payments under certain qualified contracts, there may be
no "investment in the contract" and the total amount received may be taxable.
Also, loans from Qualified Contracts where allowed, are subject to a variety of
limitations, including restrictions as to the amount that may be borrowed, the
duration of the loan, and the manner in which the loan must be repaid. (Owners
should always consult their tax advisors and retirement plan fiduciaries prior
to exercising their loan privileges.) Both the amount of the contribution that
may be made, and the tax deduction or exclusion that the owner may claim for
such contribution, are limited under qualified plans. Those who are considering
purchase of a contract for use in connection with a qualified retirement plan
should consider, in evaluating the suitability of the contract, that the
contract allows only a single premium purchase payment in an amount of at least
$5,000. If this Contract is used in connection with a Qualified Plan, the owner
and annuitant must be the same individual. If a co-annuitant is named, all
distributions made while the annuitant is alive must be made to the annuitant.
Also, if a co-annuitant is named who is not the annuitant's spouse, the annuity
options which are available may be limited, depending on the difference in ages
between the annuitant and co-annuitant. Furthermore, the length of any guarantee
period may be limited in some circumstances to satisfy certain minimum
distribution requirements under the Code.
In addition, special rules apply to the time at which
distributions must commence and the form in which the distributions must be
paid. For example, failure to comply with minimum distribution requirements
applicable to Qualified Plans will result in the imposition of an excise tax.
This excise tax generally equals 50% of the amount by which a minimum required
distribution exceeds the actual distribution from the Qualified Plan. In the
case of IRAs (other than Roth IRAs), distributions of minimum amounts (as
specified in the tax law) must generally commence by April 1 of the calendar
year following the calendar year in which the owner attains age 70-1/2. In the
case of certain other Qualified Plans, distributions of such minimum amounts
generally must commence by the later of this date or April 1 of the calendar
year following the calendar year in which the employee retires.
There is also a 10% penalty tax on the taxable amount of any
payment from certain qualified contracts. (The amount of the penalty tax is 25%
of the taxable amount of any payment received from a "SIMPLE retirement account"
during the 2 year period beginning on the date the individual first participated
in any qualified salary reduction agreement (as defined in the tax law)
maintained by the individual's employer.) There are exceptions to this penalty
tax which vary depending on the type of qualified plan. In the case of an
"Individual Retirement Annuity" or an IRA, including a "SIMPLE IRA," exceptions
provide that the penalty tax does not apply to a payment (a) received on or
after the owner reaches age 59-1/2, (b) received on or after the owner's death
or because of the owner's disability (as defined in the tax law), or (c) made as
a series of substantially equal periodic payments (not less frequently than
annually) for the life (or life expectancy) of the owner or for the joint lives
(or joint life expectancies) of the owner and designated beneficiary (as defined
in the tax law). These exceptions, as well as certain others not described
herein, generally apply to taxable distributions from other qualified plans
(although, in the case of plans qualified under sections 401 and 403, exception
"c" above for substantially equal periodic payments applies only if the owner
has separated from service). In addition, the penalty tax does not apply to
certain distributions from IRAs taken after December 31, 1997 which are used for
qualified first time home purchases or for higher education expenses. Special
conditions must be met to qualify for these two exceptions to the penalty tax.
Owners wishing to take a distribution from an IRA for these purposes should
consult their tax advisor.
When issued in connection with a Qualified Plan, a Contract will be
amended as generally necessary to conform to the requirements of the plan.
However, owners, annuitants, and beneficiaries are cautioned that the rights of
any person to any benefits under Qualified Plans may be subject to the terms and
conditions of the plans themselves, regardless of the terms and conditions of
the Contract. In addition, the Company shall not be bound by terms and
conditions of Qualified Plans to the extent such terms and conditions contradict
the Contract, unless the Company consents.
Qualified Plan Types
Following are brief descriptions of various types of Qualified Plans in
connection with which the Company may issue a Contract.
34
<PAGE> 38
Individual Retirement Annuities. Section 408 of the Code
permits eligible individuals to contribute to an individual retirement program
known as an IRA. IRAs are subject to limits on the amounts that may be
contributed, the persons who may be eligible and on the time when distributions
may commence. Also, distributions from certain Qualified Plans may be "rolled
over" on a tax-deferred basis into an IRA. The Contract may not, however, be
used in connection with an "Education IRA" under Section 530 of the Code.
Simplified Employee Pensions (SEP-IRAs). Section 408(k) of the Code
allows employers to establish simplified employee pension plans for their
employees, using the employees' IRAs for such purposes, if certain criteria are
met. Under these plans the employer may, within specified limits, make
deductible contributions on behalf of the employees to IRAs. Employers intending
to use the Contract in connection with such plans should seek competent advice.
SIMPLE IRAs. Section 408(p) of the Code permits certain small employers
to establish "SIMPLE retirement accounts," including SIMPLE IRAs, for their
employees. Under SIMPLE IRAs, certain deductible contributions are made by both
employees and employers. SIMPLE IRAs are subject to various requirements,
including limits on the amounts that may be contributed, the persons who may be
eligible, and the time when distributions may commence.
Roth IRAs. Recently enacted Section 408A of the Code permits
eligible individuals to contribute to a type of IRA known as a "Roth IRA." Roth
IRAs differ from other IRAs in several respects. Among the differences is that,
although contributions to a Roth IRA are not deductible, "qualified
distributions" from a Roth IRA will be excludable from income. Additionally, the
eligibility and mandatory distribution requirements for Roth IRAs differ from
non-Roth IRAs. Furthermore, a rollover may be made to a Roth IRA only if it is a
"qualified rollover contribution." A "qualified rollover contribution" is a
rollover contribution to a Roth IRA from another Roth IRA or from a non-Roth
IRA, but only if such rollover contribution meets the rollover requirements for
IRAs under section 408(d)(3) of the Code. In the case of a qualified rollover
contribution or a transfer from a non-Roth IRA to a Roth IRA, any portion of the
amount rolled over which would be includible in gross income were it not part of
a qualified rollover contribution or a nontaxable transfer will be includible in
gross income. However, the 10 percent penalty tax on premature distributions
generally will not apply.
All or part of amounts in a non-Roth IRA may be converted into a Roth
IRA. Such a conversion can be made without taking an actual distribution from
the IRA. For example, an individual may make a conversion by notifying the IRA
issuer or trustee, whichever is applicable. The conversion of an IRA to a Roth
IRA is a special type of qualified rollover distribution. Hence, the IRA
participant must be eligible to make a qualified rollover distribution in order
to convert an IRA to a Roth IRA. A conversion typically will result in the
inclusion of some or all of the IRA value in gross income, as described above.
Persons with adjusted gross incomes in excess of $100,000 or who are married and
file a separate return are not eligible to make a qualified rollover
contribution or a transfer in a taxable year from a non-Roth IRA to a Roth IRA.
Any "qualified distribution" from a Roth IRA is excludable from gross
income. A "qualified distribution" is a payment or distribution which satisfies
two requirements. First, the payment or distribution must be (a) made after the
Owner attains age 59-1/2, (b) made after the Owner's death, (c) attributable to
the Owner being disabled, or (d) a qualified first-time homebuyer distribution
within the meaning of section 72(t)(2)(F) of the Code. Second, the payment or
distribution must be made in a taxable year that is at least five years after
(a) the first taxable year for which a contribution was made to any Roth IRA
established for the Owner, or (b) in the case of a payment or distribution
properly allocable to a qualified rollover contribution from a non-Roth IRA (or
income allocable thereto), the taxable year in which the rollover contribution
was made. A distribution from a Roth IRA which is not a qualified distribution
is generally taxed in the same manner as a distribution from non-Roth IRAs.
Distributions from a Roth IRA need not commence at age 70-1/2.
Corporate and Self-Employed ("H.R. 10" and "Keogh") Pension and
Profit-Sharing Plans. Sections 401(a) and 403(a) of the Code permit corporate
employers to establish various types of tax-favored retirement plans for
employees. The Self-Employed Individuals' Tax Retirement Act of 1962, as
amended, commonly referred to as "H.R. 10" or "Keogh," permits self-employed
individuals also to establish such tax-favored retirement plans for themselves
and their employees. Such retirement plans may permit the purchase of the
Contract in order to
35
<PAGE> 39
provide benefits under the plans. Employers intending to use the Contract in
connection with such plans should seek competent advice.
Tax-Sheltered Annuities. Section 403(b) of the Code permits public
school employees and employees of certain types of charitable, educational and
scientific organizations specified in Section 501(c)(3) of the Code to have
their employers purchase annuity contracts for them and, subject to certain
limitations, to exclude the amount of purchase payments from gross income for
tax purposes. These annuity contracts are commonly referred to as "tax-sheltered
annuities." Purchasers of the Contracts for such purposes should seek competent
advice as to eligibility, limitations on permissible amounts of purchase
payments and other tax consequences associated with the Contracts.
Section 403(b) Policies contain restrictions on withdrawals of (i)
contributions made pursuant to a salary reduction agreement in years beginning
after December 31, 1988, (ii) earnings on those contributions, and (iii)
earnings in such years on amounts held as of the last year beginning before
January 1, 1989. These amounts can be paid only if the employee has reached age
59-1/2, separated from service, died, become disabled, or in the case of
hardship. Amounts permitted to be distributed in the event of hardship are
limited to actual contributions; earnings thereon cannot be distributed on
account of hardship. (These limitations on withdrawals do not apply to the
extent the Company is directed to transfer some or all of the contract value to
the issuer of another tax-sheltered annuity or into a Section 403(b)(7)
custodial account.)
Direct Rollover Rules
In the case of Contracts used in connection with a pension,
profit-sharing, or annuity plan qualified under Sections 401(a) or 403(a) of the
Code, or in the case of a Section 403(b) tax sheltered annuity, any "eligible
rollover distribution" from the Contract will be subject to direct rollover and
mandatory withholding requirements. An eligible rollover distribution generally
is any taxable distribution from a qualified pension plan under Section 401(a)
of the Code, qualified annuity plan under Section 403(a) of the Code, or Section
403(b) tax sheltered annuity or custodial account, excluding certain amounts
(such as minimum distributions required under Section 401(a)(9) of the Code and
distributions which are part of a "series of substantially equal periodic
payments" made for life or a specified period of 10 years or more).
Under these requirements, withholding at a rate of 20% will be imposed
on any eligible rollover distribution. In addition, the participant in these
qualified retirement plans cannot elect out of withholding with respect to an
eligible rollover distribution. However, this 20% withholding will not apply if,
instead of receiving the eligible rollover distribution, the participant elects
to have amounts directly transferred to certain qualified retirement plans (such
as to an Individual Retirement Annuity). Prior to receiving an eligible rollover
distribution, a notice will be provided explaining generally the direct rollover
and mandatory withholding requirements and how to avoid the 20% withholding by
electing a direct rollover.
FEDERAL INCOME TAX WITHHOLDING
The Company will withhold and remit to the U.S. government a part of
the taxable portion of each distribution made under a Contract unless the
distributee notifies the Company at or before the time of the distribution that
he or she elects not to have any amounts withheld. In certain circumstances, the
Company may be required to withhold tax. The withholding rates applicable to the
taxable portion of periodic annuity payments are the same as the withholding
rates generally applicable to payments of wages. The withholding rate applicable
to the taxable portion of non-periodic payments (including withdrawals prior to
the maturity date and rollovers from non-Roth IRAs to Roth IRAs) is 10%. As
described above, the withholding rate applicable to eligible rollover
distributions is 20%.
36
<PAGE> 40
APPENDIX A
EXAMPLES OF CALCULATION OF WITHDRAWAL CHARGE
EXAMPLE 1 - Assume a single payment of $50,000 is made into the contract, there
are no transfers or partial withdrawals and the withdrawal is not made at the
end of a guarantee period. The table below illustrates three examples of the
withdrawal charges that would be imposed if the contract is completely withdrawn
during the contract year shown, based on hypothetical contract values and
assuming no market value adjustment.
<TABLE>
<CAPTION>
AMOUNT
AVAILABLE
WITHOUT WITHDRAWAL
HYPOTHETICAL IMPOSITION OF AMOUNT SUBJECT CHARGE
CONTRACT CONTRACT WITHDRAWAL TO WITHDRAWAL ----------------
YEAR VALUE CHARGE CHARGE PERCENT AMOUNT
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2 55,000 5,000(a) 50,000 6% 3,000
6 60,000 5,000(b) 55,000 2% 1,100
8 70,000 5,000 0(c) 0% 0
</TABLE>
(a) During any contract year the amount available without the imposition of
a withdrawal charge is 10% of the single payment made under the
contract less any prior partial withdrawals in that contract year. Ten
percent of payments less prior withdrawals equals $5,000 ($5,000-0).
Consequently, on total withdrawal $5,000 is withdrawn without
imposition of the withdrawal charge and the withdrawal charge is
assessed against the remaining balance of $50,000 (contract value less
amount available without imposition of a withdrawal charge).
(b) The amount available without imposition of a withdrawal charge is again
equal to $5,000 and the withdrawal charge is applied to the remaining
balance of $55,000 (contract value less amount available without
imposition of a withdrawal charge).
(c) There is no withdrawal charge after 7 contract years.
EXAMPLE 2 - Assume a single payment of $50,000 is made into the contract and
that no transfers are made. The table below illustrates two partial withdrawals
made during the third contract year of $2,000 and $7,000 and assumes no market
value adjustment applies.
<TABLE>
<CAPTION>
AMOUNT
AVAILABLE
WITHOUT WITHDRAWAL
HYPOTHETICAL PARTIAL IMPOSITION OF AMOUNT SUBJECT CHARGE
CONTRACT WITHDRAWAL WITHDRAWAL TO WITHDRAWAL ---------------
VALUE REQUESTED CHARGE CHARGE PERCENT AMOUNT
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
65,000 2,000 2,000(a) 0 5% 0
63,000 7,000 3,000(b) 4,000 5% 200
</TABLE>
(a) The amount available without imposition of a withdrawal charge during
any contract year is 10% of the single payment made under the contract
less any prior withdrawals in that contract year. Ten percent of the
payment less prior withdrawals equals $5,000 ($5,000-0). The amount
requested ($2,000) is less than the amount available without imposition
of a withdrawal charge; therefore, no withdrawal charge applies.
37
<PAGE> 41
(b) Since $2,000 has already been withdrawn in the current contract year,
the remaining amount available without imposition of a withdrawal
charge during the third contract year is $3,000. The $7,000 partial
withdrawal will consist of $3,000 without imposition of withdrawal
charge, and the remaining $4,000 will be subject to a withdrawal
charge.
Withdrawals may be subject to a market value adjustment in addition to the
withdrawal charge described above (see "MARKET VALUE ADJUSTMENT.")
38
<PAGE> 42
APPENDIX B
MARKET VALUE ADJUSTMENT EXAMPLES
The market value adjustment factor is determined by the following formula:
((1+i)/(1+j))(n/12) where:
i - The initial guaranteed interest rate or renewal guaranteed interest
rate currently being earned on the contract.
j - The guaranteed interest rate available, on the date the request is
processed by the Company, for a guarantee period with the same length
as the period remaining in the initial guarantee period or renewal
guarantee period. If the guarantee period of this length is not
available, the guarantee period with the next highest duration which is
maintained by the Company will be chosen.
n - The number of complete months remaining to the end of the initial
guarantee period or renewal guarantee period.
Example 1
Payment $100,000
Initial guarantee period 5 years
Initial guaranteed interest
rate 5.00% per annum
Guaranteed interest rate for
three year guarantee period 6.00% per annum
Transfer to a different
guarantee period middle of contract year 3
Contract value at middle of
contract year 3 =$100,000 x 1.05(2.5)=$112,972.63
Amount transferred to a
different guarantee period =$112,972.63 x market value adjustment factor
Market value adjustment
factor =((1+i)/(1+j))(n/12)
i = .05
j = .06
n = 30
=(1.05/1.06)(30/12)
=0.9765817
Amount transferred to a
different guarantee period =$112,972.63 x 0.9765817
=$110,327.00
39
<PAGE> 43
Example 2
Payment $100,000
Initial guarantee period 5 years
Initial guaranteed interest
rate 5.00% per annum
Guaranteed interest rate for
three year guarantee period 4.00% per annum
Transfer to a different
guarantee period middle of contract year 3
Contract value at middle of
contract year 3 =$100,000 x 1.05(2.5)=$112,972.63
Amount transferred to a
different guarantee period =$112,972.63 x market value adjustment factor
Market value adjustment
factor =((1+i)/(1+j))(n/12)
i = .05
j = .04
n = 30
=(1.05/1.04)(30/12)
=1.0242121
Amount transferred to a
different guarantee period =$112,972.63 x 1.0242121
=$115,707.93
40
<PAGE> 44
APPENDIX C
STATE PREMIUM TAXES
Premium taxes vary according to the state and are subject to change. In
many jurisdictions there is no tax at all. For current information, a tax
adviser should be consulted.
<TABLE>
<CAPTION>
TAX RATE
QUALIFIED NON-QUALIFIED
STATE CONTRACTS CONTRACTS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CALIFORNIA........................................... .50% 2.35%
DISTRICT OF COLUMBIA................................. 2.25% 2.25%
KENTUCKY............................................. 2.00% 2.00%
MAINE................................................ .00% 2.00%
NEVADA............................................... .00% 3.50%
PUERTO RICO.......................................... 1.00% 1.00%
SOUTH DAKOTA*........................................ .00% 1.25%
WEST VIRGINIA........................................ 1.00% 1.00%
WYOMING.............................................. .00% 1.00%
</TABLE>
* Premium tax paid upon receipt of premium (no tax at annuitization if tax paid
on premium at issue).
41
<PAGE> 45
FINANCIAL STATEMENTS
<PAGE> 46
The Manufacturers Life Insurance Company of New York
Balance Sheets
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
--------------------------
(Unaudited)
<S> <C> <C>
ASSETS:
Investments:
Fixed maturities available-for-sale, at fair value $119,641,710 $129,150,862
Short-term investments 15,987,678 9,998,179
Policy loans 379,814 398,270
---------------------------
136,009,202 139,547,311
Cash and cash equivalents 953,074 1,431,114
Accrued investment income 2,292,084 2,401,173
Deferred policy acquisition costs 30,646,611 28,363,714
Other assets 138,731 231,211
Separate account assets 687,458,221 597,193,343
---------------------------
Total assets $857,497,923 $769,167,866
===========================
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Policyholder funds $ 84,953,148 $ 86,611,035
Payable to affiliates 2,113,400 4,345,038
Deferred tax liability 2,714,329 2,269,418
Other liabilities 1,497,466 987,521
Separate account liabilities 687,458,221 597,193,343
---------------------------
Total liabilities 778,736,564 691,406,355
Shareholders' equity:
Common stock (shares authorized, issued and
outstanding: 2,000,000; par value $1) 2,000,000 2,000,000
Additional paid-in capital 72,530,624 72,530,624
Unrealized appreciation on available-for-sale securities 969,084 1,095,152
Retained earnings 3,261,651 2,135,735
---------------------------
Total shareholder's equity 78,761,359 77,761,511
---------------------------
Total liabilities and shareholder's equity $857,497,923 $769,167,866
===========================
</TABLE>
See accompanying notes.
<PAGE> 47
The Manufacturers Life Insurance Company of New York
Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1998 1997
----------------------
<S> <C> <C>
Revenues:
Fees from separate account and
policyholder funds $2,298,929 $1,393,523
Net investment income 2,259,078 1,479,058
Net realized investment gain 77,064 137,300
-----------------------
4,635,071 3,009,881
Benefits and expenses:
Benefits to policyholders 1,273,387 1,086,264
Amortization of deferred policy
acquisition costs 193,157 671,247
Other insurance expenses 1,436,348 611,012
-----------------------
2,902,892 2,368,523
-----------------------
Income before provision for income
taxes 1,732,179 641,358
Provision for income taxes
Current 93,469 23,743
Deferred 512,794 201,135
-----------------------
606,263 224,878
-----------------------
Net income $1,125,916 $ 416,480
=======================
</TABLE>
See accompanying notes.
<PAGE> 48
The Manufacturers Life Insurance Company of New York
Statements of Changes in Shareholder's Equity
Period ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
ADDITIONAL ON AVAILABLE- RETAINED TOTAL
COMMON PAID-IN FOR-SALE EARNINGS SHAREHOLDER'S
STOCK CAPITAL SECURITIES (DEFICIT) EQUITY
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $2,000,000 $72,530,624 $1,095,152 $2,135,735 $77,761,511
Net income 1,125,916 1,125,916
Change in unrealized
appreciation of available-for-
sale securities, net of tax and
adjustment for DPAC (126,068) (126,068)
---------------------------------------------------------------------------
Balance at March 31, 1998 $2,000,000 $72,530,624 $ 969,084 $3,261,651 $78,761,359
===========================================================================
</TABLE>
See accompanying notes.
<PAGE> 49
The Manufacturers Life Insurance Company of New York
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31
1998 1997
---------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 1,125,916 $ 416,480
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Amortization of bond discount and premium 91,427 61,908
Net realized investment gain (77,067) (137,299)
Deferred income tax provision 512,794 201,135
Amortization of deferred policy acquisition costs 193,157 671,247
Policy acquisition costs deferred (2,823,411) (2,202,205)
Return credited to policyholders and other
benefits 1,273,387 1,086,264
Changes in assets and liabilities:
Accrued investment income 109,089 101,873
Other assets 92,476 (1,061)
Payable to affiliates (2,273,824) 283,567
Other liabilities 552,131 1,214,628
--------------------------
Net cash (used in) provided by operating activities (1,223,925) 1,696,537
INVESTING ACTIVITIES
Purchase of fixed maturities (3,027,578)
Proceeds from fixed maturities sold, matured or 9,648,198 9,979,376
repaid
Net change in short-term investments (5,989,497) (9,856,248)
Net change in policy loans 18,458 (50,783)
--------------------------
Net cash used in investing activities 3,677,159 (2,955,233)
FINANCING ACTIVITIES
Receipts credited to policyholder funds 1,090,787 5,038,224
Return of policyholder funds (4,022,061) (5,173,992)
--------------------------
Net cash provided by financing activities (2,931,274) (135,768)
--------------------------
Net decrease in cash and cash equivalents (478,040) (1,394,464)
Cash and cash equivalents at beginning of year 1,431,114 4,104,731
--------------------------
Cash and cash equivalents at end of year $ 953,074 $ 2,710,267
==========================
</TABLE>
See accompanying notes.
<PAGE> 50
The Manufacturers Life Insurance Company of New York
Notes to Financial Statements
Unaudited
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of The Manufacturers Life
Insurance Company of New York has 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 for the year ended December 31, 1997.
Operating results for the three months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the full
year ending December 31, 1998.
<PAGE> 51
The Manufacturers Life Insurance Company of New York
Audited Financial Statements
Years ended December 31, 1997, 1996 and 1995
CONTENTS
Report of Independent Auditors........................................... 1
Audited Financial Statements
Balance Sheets........................................................... 3
Statements of Income..................................................... 4
Statements of Changes in Shareholder's Equity............................ 5
Statements of Cash Flows................................................. 6
Notes to Financial Statements............................................ 7
<PAGE> 52
Report of Independent Auditors
The Board of Directors and Shareholder
The Manufacturers Life Insurance Company of New York
We have audited the accompanying balance sheets of The Manufacturers Life
Insurance Company of New York (formerly First North American Life Assurance
Company and hereinafter referred to as the Company) as of December 31, 1997 and
1996, and the related statements of income, changes in shareholder's equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1997 and 1996 financial statements referred to above present
fairly, in all material respects, the financial position of The Manufacturers
Life Insurance Company of New York at December 31, 1997 and 1996, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 18, 1998
1
<PAGE> 53
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholder of
The Manufacturers Life Insurance Company of New York:
We have audited the accompanying statements of income, changes in stockholder's
equity and cash flows of The Manufacturers Life Insurance Company of New York
(formerly First North American Life Assurance Company) for the year ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of The
Manufacturers Life Insurance Company of New York for the year ended December
31, 1995 in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Company adopted
Financial Accounting Standards Board Interpretation No. 40 (FIN 40) and
Statement of Financial Accounting Standards No. 120 (SFAS 120), which required
implementation of several accounting pronouncements not previously adopted. The
effects of adopting FIN 40 and SFAS 120 were retroactively applied to the
Company's previously issued financial statements, consistent with the
implementation guidance of those standards.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 22, 1998
2
<PAGE> 54
The Manufacturers Life Insurance Company of New York
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available-for-sale, at fair value $129,150,862 $ 83,466,225
Short-term investments 9,998,179 3,984,370
Policy loans 398,270 183,070
---------------------------
139,547,311 87,633,665
Cash and cash equivalents 1,431,114 4,104,731
Accrued investment income 2,401,173 1,528,000
Deferred policy acquisition costs 28,363,714 20,208,071
Other assets 231,211 152,140
Separate account assets 597,193,343 361,309,525
---------------------------
Total assets $769,167,866 $474,936,132
===========================
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Policyholder funds $ 86,611,035 $ 80,033,667
Payable to affiliates 4,345,038 2,016,646
Deferred tax liability 2,269,418 1,935,001
Other liabilities 987,521 872,306
Separate account liabilities 597,193,343 361,309,525
---------------------------
Total liabilities 691,406,355 446,167,145
Shareholder's equity:
Common stock (shares authorized, issued and
outstanding: 2,000,000; par value $1) 2,000,000 2,000,000
Additional paid-in capital 72,530,624 24,800,000
Unrealized appreciation on available-for-sale securities 1,095,152 419,378
Retained earnings 2,135,735 1,549,609
---------------------------
Total shareholder's equity 77,761,511 28,768,987
---------------------------
Total liabilities and shareholder's equity $769,167,866 $474,936,132
===========================
</TABLE>
See accompanying notes.
3
<PAGE> 55
The Manufacturers Life Insurance Company of New York
Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-------------------------------------------
<S> <C> <C> <C>
Revenues:
Fees from separate account and
policyholder funds $ 7,395,201 $ 4,761,702 $ 3,139,174
Net investment income 6,716,053 5,224,209 4,767,914
Net realized investment gain 769,361 88,772 466,164
-------------------------------------------
14,880,615 10,074,683 8,373,252
Benefits and expenses:
Benefits to policyholders 4,746,668 4,189,360 4,734,027
Amortization of deferred policy
acquisition costs 3,393,073 2,318,595 1,162,044
Other insurance expenses 5,845,047 1,191,984 1,193,232
-------------------------------------------
13,984,788 7,699,939 7,089,303
-------------------------------------------
Income before provision for income taxes
895,827 2,374,744 1,283,949
Provision for income taxes
Current 339,161 612,686 101,510
Deferred (29,460) 220,079 349,000
-------------------------------------------
309,701 832,765 450,510
-------------------------------------------
Net income $ 586,126 $ 1,541,979 $ 833,439
===========================================
</TABLE>
See accompanying notes.
4
<PAGE> 56
The Manufacturers Life Insurance Company of New York
Statements of Changes in Shareholder's Equity
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
ADDITIONAL ON AVAILABLE- RETAINED TOTAL
PAID-IN FOR-SALE EARNINGS SHAREHOLDER'S
COMMON STOCK CAPITAL SECURITIES (DEFICIT) EQUITY
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994, as
previously reported $ 2,000,000 $ 8,500,000 $ (2,396,360) $ 8,103,640
Cumulative effect of applying
new basis of accounting $(567,943) 1,570,551 1,002,608
----------------------------------------------------------------------------
Balance at January 1, 1995 2,000,000 8,500,000 (567,943) (825,809) 9,106,248
Capital contribution 3,000,000 3,000,000
Net income 833,439 833,439
Change in unrealized
appreciation of
available-for-sale
securities, net of tax and
adjustment for DPAC 2,272,070 2,272,070
----------------------------------------------------------------------------
Balance at December 31, 1995 2,000,000 11,500,000 1,704,127 7,630 15,211,757
Capital contribution 13,300,000 13,300,000
Net income 1,541,979 1,541,979
Change in unrealized
appreciation of available-for-
sale securities, net of tax and
adjustment for DPAC (1,284,749) (1,284,749)
----------------------------------------------------------------------------
Balance at December 31, 1996 2,000,000 24,800,000 419,378 1,549,609 28,768,987
Capital contribution 47,730,624 47,730,624
Net income 586,126 586,126
Change in unrealized
appreciation of available-for-
sale securities, net of tax and
adjustment for DPAC 675,774 675,774
----------------------------------------------------------------------------
Balance at December 31, 1997 $2,000,000 $72,530,624 $ 1,095,152 $ 2,135,735 $77,761,511
=============================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 57
The Manufacturers Life Insurance Company of New York
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-----------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 586,126 $ 1,541,979 $ 833,439
Adjustments to reconcile net income to net cash
(used) provided by operating activities:
Amortization of bond discount and premium 333,012 141,447 46,319
Net realized investment gain (769,361) (88,772) (466,164)
Deferred income tax provision (29,460) 220,079 349,000
Amortization of deferred policy acquisition costs 3,393,073 2,318,595 1,162,044
Policy acquisition costs deferred (11,684,074) (7,224,022) (5,481,175)
Return credited to policyholders and other
benefits 4,746,668 4,189,360 4,734,027
Changes in assets and liabilities:
Accrued investment income (873,173) (6,987) (1,191,261)
Other assets (79,071) 195,420 68,994
Payable to affiliates 2,328,392 864,422 327,843
Other liabilities 115,215 (152,572) 580,171
-----------------------------------------------
Net cash (used) provided by operating activities (1,932,653) 1,998,949 963,237
INVESTING ACTIVITIES
Purchase of fixed maturities (103,382,988) (41,409,440) (69,601,388)
Proceeds from fixed maturities sold, matured or
repaid 59,307,170 31,658,755 18,834,870
Net change in short-term investments (6,011,270) (3,984,370)
Net change in policy loans (215,200) (115,747) (67,323)
-----------------------------------------------
Net cash used in investing activities (50,302,288) (13,850,802) (50,833,841)
FINANCING ACTIVITIES
Receipts credited to policyholder funds 17,212,556 18,408,172 40,048,872
Return of policyholder funds (15,381,856) (24,676,276) (1,915,371)
Change in notes payable (2,000,000) 2,000,000
Capital contribution 47,730,624 13,300,000 3,000,000
-----------------------------------------------
Net cash provided by financing activities 49,561,324 5,031,896 43,133,501
-----------------------------------------------
Net decrease in cash and cash equivalents (2,673,617) (6,819,957) (6,737,103)
Cash and cash equivalents at beginning of year 4,104,731 10,924,688 17,661,791
-----------------------------------------------
Cash and cash equivalents at end of year $ 1,431,114 $ 4,104,731 $ 10,924,688
===============================================
</TABLE>
See accompanying notes.
6
<PAGE> 58
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION
The Manufacturers Life Insurance Company of New York (formerly First North
American Life Assurance Company and hereinafter referred to as the Company), a
stock life insurance company, was organized on February 10, 1992 under the laws
of the state of New York. Subsequently, on July 22, 1992, the Company was
granted a license by the New York State Insurance Department. The Company is a
wholly-owned subsidiary of The Manufacturers Life Insurance Company of North
America (formerly North American Security Life Insurance Company and hereinafter
referred to as MNA or the Parent).
On January 1, 1996, North American Life Assurance Company (NAL), the previous
owner of the Parent, merged with The Manufacturers Life Insurance Company (MLI).
The surviving company conducts business under the name "The Manufacturers Life
Insurance Company."
Concurrent with the merger, the Company's Parent went through a corporate
restructuring which resulted in the formation of a newly organized holding
corporation, Manulife Wood Logan Holding Company, Inc. (formerly NAWL Holding
Company, Inc. and hereinafter referred to as MWL). At that time, all of the
assets and liabilities of MNA and its subsidiaries, the Company and NASL
Financial Services, Inc. (NASL Financial), were transferred from MLI to MWL. In
addition, MLI's 20.2% ownership interest in Wood Logan Associates, Inc. (Wood
Logan) was transferred to MWL. In exchange, MLI received all Class A shares of
MWL common stock. On January 1, 1997, MLI contributed 62.5% of its 85% ownership
interest to its indirect wholly-owned subsidiary, The Manufacturers Life
Insurance Company (U.S.A.). Effective December 18, 1997, MLI transferred its
remaining 22.5% interest to MRL Holding, LLC, a newly formed Delaware limited
liability company.
Also effective January 1, 1996, as part of the restructuring, the remaining
79.8% of Wood Logan was purchased by MWL. In exchange for the remaining shares
of Wood Logan, certain employees and former owners of Wood Logan received Class
B voting shares of MWL representing a 15% ownership interest. Until October 1,
1997, Wood Logan was the promotional agent for the sale of the insurance
products of the Company and MNA.
7
<PAGE> 59
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (continued)
1. ORGANIZATION (CONTINUED)
On December 22, 1995, the New York State Insurance Department approved the
application submitted by MLI to acquire control of the Company subject to
commitment letters given to the Department by MNA and the Company. As part of
the agreement, MLI contributed $13,300,000 of additional surplus to the Company
in 1996.
On April 17, 1997, a revised plan of operation was submitted to the New York
State Insurance Department in connection with the Company's intention to expand
its product offerings. On October 21, 1997, the Company received approval of the
revised plan including modifications from the New York State Insurance
Department, and as part of the agreement, MNA contributed $47,730,624 in support
of the new plan of operations.
The Company issues variable annuity and individual life insurance contracts in
the State of New York. Amounts invested in the fixed portion of the contracts
are allocated to the general account of the Company. Amounts invested in the
variable portion of the contracts are allocated to the separate account of the
Company. The separate account assets are invested in shares of the Manufacturers
Investment Trust (formerly NASL Series Trust and hereinafter referred to as
MIT), a no-load, open-end management investment company organized as a
Massachusetts business trust.
Prior to October 1, 1997, NASL Financial acted as investment adviser to MIT and
as principal underwriter of the annuity contracts issued by the Company. NASL
Financial had an agreement with Wood Logan to act as the promotional agent for
the sale of the annuity contracts.
Effective October 1, 1997, Manufacturers Securities Services, LLC (MSS), an
affiliate of the Company, replaced NASL Financial as the investment advisor to
MIT and as the principal underwriter of the annuity contracts. Wood Logan
provides marketing services for the sale of annuity contracts under an
Administrative Services Agreement dated October 7, 1997, between the Company and
MLI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements of the Company have been prepared in
conformity with generally accepted accounting principles (GAAP).
8
<PAGE> 60
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Prior to 1996, the Company prepared its financial statements in conformity with
accounting practices prescribed or permitted by the New York Insurance
Department which practices were considered GAAP for mutual life insurance
companies. FASB Interpretation 40, Applicability of Generally Accepted
Accounting Principles to Mutual Life Insurance and other Enterprises (FIN 40),
as amended, which is effective for 1996 annual financial statements, no longer
permits statutory-basis financial statements to be described as being prepared
in conformity with GAAP. Accordingly, the Company has adopted various accounting
pronouncements, principally Statement of Financial Accounting Standards No. 120,
Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts (SFAS No. 120),
which addresses the accounting for long-duration insurance contracts.
Pursuant to the requirements of the above pronouncements, the effect of the
changes in accounting have been applied retroactively and the previously issued
1995 financial statements have been restated for the change. The effect of the
change applicable to years prior to January 1, 1995 has been presented as a
restatement of shareholder's equity as of this date.
The adoption had the effect of increasing net income for 1995 by $1,412,338.
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and the
accompanying notes. Such estimates and assumptions could change in the future as
more information becomes known, which could impact the amounts reported and
disclosed herein.
INVESTMENTS AND INVESTMENT INCOME
The Company accounts for its fixed maturities in accordance with Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities (SFAS 115). SFAS 115 requires that fixed maturities
be designated as either held-to-maturity, available-for-sale or trading at the
time of purchase. Held-to-maturity
9
<PAGE> 61
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
fixed maturities are reported at amortized cost and the remainder of fixed
maturities are reported at fair value with unrealized holding gains and losses
reported in income for those designated as trading and as a separate component
of shareholder's equity for those designated as available-for-sale.
The Company has classified all of its fixed maturities as available-for-sale. As
a result, these securities are reported in the accompanying financial statements
at fair value. Changes in fair values, after adjustment for deferred policy
acquisition costs (DPAC) and deferred income taxes, are reported as unrealized
appreciation or depreciation directly in shareholder's equity, and accordingly,
have no effect on net income. The DPAC offset to the unrealized appreciation or
depreciation represents valuation adjustments or reinstatements of DPAC that
would have been required as a charge or credit to operations had such unrealized
amounts been realized.
The cost of fixed maturities is adjusted for the amortization of premiums and
accretion of discounts using the interest method. This amortization or accretion
is included in net investment income.
For the mortgage-backed bond portion of the fixed maturities portfolio, the
Company recognizes amortization using a constant effective yield based on
anticipated prepayments and the estimated economic life of the securities. When
actual prepayments differ significantly from anticipated prepayments, the
effective yield is recalculated to reflect actual payments to date and
anticipated future payments. The net investment in the security is adjusted to
the amount that would have existed had the new effective yield been applied
since the acquisition of the security. That adjustment is included in net
investment income.
Short-term investments generally consist of instruments which have a maturity of
less than one year at the time of acquisition. Short-term investments are
reported at cost, which approximates fair value.
Policy loans are reported at unpaid balances, not in excess of the underlying
cash value of the policies.
Realized gains or losses on investments sold and declines in value judged to be
other-than-temporary are determined on the specific identification basis.
10
<PAGE> 62
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity date of three months or less to be cash equivalents. Cash
equivalents are stated at cost plus accrued interest, which approximates fair
value.
DEFERRED POLICY ACQUISITION COSTS
Commissions and other costs of acquiring new business that vary with and are
primarily related to the production of new business have been deferred. These
acquisition costs are being amortized generally in proportion to the present
value of expected gross profits from surrender charges and investment, mortality
and expense margins. That amortization is adjusted retrospectively when
estimates of current or future gross profits to be realized from a group of
products are revised.
SEPARATE ACCOUNT ASSETS AND LIABILITIES
Separate account assets and liabilities that are reported in the accompanying
balance sheets represent investments in MIT, which are mutual funds that are
separately administered for the exclusive benefit of the annuity policyholders
and are reported at fair value. Such policyholders, rather than the Company,
bear the investment risk. The operations of the separate accounts are not
included in the accompanying financial statements. Fees charged on separate
account policyholder funds are included in revenues.
POLICYHOLDER FUNDS AND BENEFITS TO POLICYHOLDERS
Policyholder funds for the fixed portion of variable annuity contracts are
computed under a retrospective deposit method and represent account balances
before applicable surrender charges. Benefits to policyholders include interest
credited to policyholders and other benefits that are charged to expense
including benefit claims incurred in the period in excess of the related
policyholder account balances. Interest crediting rates for the fixed portion of
annuity contracts range from 4.10% to 6.15% in 1997; 4.00% to 6.15% in 1996 and
4.20% to 7.00% in 1995.
11
<PAGE> 63
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECOGNITION OF REVENUES
Fees from separate accounts and policyholder funds represent fees assessed
against policyholder account balances, and include mortality and expense risk
charges, surrender charges and an annual administrative charge.
INCOME TAXES
Income taxes have been provided using the liability method in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that likely
will be in effect when the differences are expected to reverse. The measurement
of deferred tax assets is reduced by a valuation allowance if, based upon the
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized.
3. INVESTMENTS
The major components of net investment income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-----------------------------------------
<S> <C> <C> <C>
Fixed maturities $ 6,342,800 $ 4,476,472 $ 4,436,994
Short-term investments 475,545 873,146 403,497
-----------------------------------------
6,818,345 5,349,618 4,840,491
Less investment expenses (102,292) (125,409) (72,577)
-----------------------------------------
Net investment income $ 6,716,053 $ 5,224,209 $ 4,767,914
=========================================
</TABLE>
12
<PAGE> 64
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (continued)
3. INVESTMENTS (CONTINUED)
The gross unrealized gains and losses for available-for-sale fixed maturities
held at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1997 Fixed maturities:
U.S. Treasury securities and
obligations of U.S. Government
agencies $ 7,422 $ 284 $ 7,706
Corporate securities 108,682 1,879 $ 23 110,538
Mortgage-backed securities 5,016 69 5,085
States, territories and possessions 5,594 228 5,822
-----------------------------------------------------
Total $126,714 $2,460 $ 23 $129,151
=====================================================
DECEMBER 31, 1996
Fixed maturities:
U.S. Treasury securities and
obligations of U.S. Government
agencies $ 3,244 $ 193 $ 3,437
Corporate securities 73,366 1,082 $ 191 74,257
Mortgage-backed securities 1,017 5 1,012
States, territories and possessions 4,578 182 4,760
-----------------------------------------------------
Total $ 82,205 $1,457 $ 196 $ 83,466
=====================================================
</TABLE>
13
<PAGE> 65
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO FINANCIAL STATEMENTS (continued)
3. INVESTMENTS (CONTINUED)
The amortized cost and fair value of fixed maturities at December 31, 1997, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers or lenders may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
-------------------------------------
(In Thousands)
<S> <C> <C>
FIXED MATURITIES AVAILABLE-FOR-SALE
Due in one year or less $ 12,618 $ 12,617
Due after one year through five years 59,514 60,938
Due after five years through ten years 28,353 28,627
Due after ten years through twenty years 1,921 1,967
Due after twenty years 19,292 19,917
Mortgage-backed securities 5,016 5,085
-------------------------------------
Total fixed maturities available-for-sale $126,714 $129,151
=====================================
</TABLE>
The proceeds from sales of available-for-sale fixed maturities for the year
ended December 31, 1997, 1996 and 1995 were $45,217,170, $6,558,755 and
$11,634,871, respectively. Gross gains of $772,361, $90,811 and $466,164 and
gross losses of $5,539, $2,039 and $0 were realized on these sales,
respectively.
Fixed maturities with a fair value of $414,100 at December 31, 1997 are in a
custody account on behalf of the New York State Insurance Department to satisfy
regulatory requirements. At December 31, 1996, the comparable amount was
$401,651.
4. FEDERAL INCOME TAXES
Beginning in 1996, the Company participates as a member of the MWL affiliated
group consolidated federal income tax return. In 1995, the Company participated
as a member of the MNA consolidated federal income tax return. The Company files
separate state income tax returns. The method of allocation between companies is
subject to a written tax sharing agreement. The tax liability is allocated to
each member on a pro rata basis based on the relationship that the member's tax
liability computed on a separate return
14
<PAGE> 66
The Manufacturers Life Insurance Company of New York
Notes to Financial Statements (continued)
4. FEDERAL INCOME TAXES (CONTINUED)
basis bears to the tax liability of the consolidated group. The tax charge to
the Company shall not be more than the Company would have paid on a separate
return basis. The Company settles its current income tax each year through an
intercompany account.
The Company's effective income tax rate varies from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
1997 1996 1995
------------------
<S> <C> <C> <C>
Statutory federal income tax rate applied to income
before federal income taxes 35% 35% 35%
Add (deduct):
Disallowed meals, entertainment 2
Nondeductible consulting fees 4
Reversal of deferred asset valuation allowance
(6)
------------------
Effective income tax rate 35% 35% 35%
==================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred tax liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------------------------
<S> <C> <C>
Deferred tax assets:
Investment amortization $ 92,345 $ 62,711
Reserves 117,558
--------------------------
Total deferred tax assets 92,345 180,269
--------------------------
Deferred tax liabilities:
Deferred policy acquisition costs (1,134,971) (1,283,150)
Reserves (3,683)
Unrealized gain on fixed maturities,
net of DPAC effect (589,696) (225,819)
Other (633,413) (606,301)
--------------------------
Total deferred tax liabilities (2,361,763) (2,115,270)
--------------------------
Net deferred tax liability $(2,269,418) $(1,935,001)
==========================
</TABLE>
15
<PAGE> 67
The Manufacturers Life Insurance Company of New York
Notes to Financial Statements (continued)
4. FEDERAL INCOME TAXES (CONTINUED)
In the opinion of management, it is more likely than not that the Company will
realize the benefit of the deferred tax assets and, therefore, no valuation
allowance has been established.
5. SHAREHOLDER'S EQUITY
The net assets of the Company available for the Parent as dividends are
generally limited to and cannot be made except from earned statutory-basis
profits. The maximum amount of dividends that may be paid by life insurance
companies without prior approval of the New York Insurance Commissioner is
subject to restrictions relating to statutory surplus and net gain from
operations on a statutory basis.
Net income (loss) and capital and surplus, as determined in accordance with
statutory accounting principles, for the Company were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss) $ (1,562,544) $ 231,315 $ (578,899)
Net capital and surplus 68,336,238 22,265,070 8,821,782
</TABLE>
The components of the balance sheet caption "Unrealized appreciation on
available-for-sale securities" in shareholder's equity are summarized as
follows:
<TABLE>
DECEMBER 31
1997 1996
----------------------
(In Thousands)
<S> <C> <C>
Fair value of securities $ 129,151 $ 83,466
Amortized cost of securities 126,714 82,205
----------------------
Unrealized appreciation 2,437 1,261
Adjustment to deferred policy
acquisition costs (752) (616)
Deferred income taxes (590) (226)
----------------------
Unrealized appreciation on securities
available-for-sale $ 1,095 $ 419
======================
</TABLE>
16
<PAGE> 68
The Manufacturers Life Insurance Company of New York
Notes to Financial Statements (continued)
6. RELATED-PARTY TRANSACTIONS
The Company utilizes various services administered by its Parent and affiliates
such as legal, personnel, investment accounting and other corporate services. In
1995, NAL charged the Company approximately $456,000 and, in 1996, MLI and MNA
charged the Company approximately $661,000 for those services. At December 31,
1996, the Company had a net liability of $1,965,338 to MLI and MNA for these
charges. For the first nine months of 1997, MLI and MNA charged the Company
approximately $623,000. Effective October 1, 1997, pursuant to a new Plan of
Operations, all intercompany expenses were billed through MLI. For the fourth
quarter of 1997, MLI billed the Company expenses of $869,000. At December 31,
1997, the Company had a net liability to MLI of $2,977,176 for these services.
For the nine months ended September 30, 1997 and the two years ended December
31, 1996 and 1995, the Company paid underwriting commissions to NASL Financial
of $8,421,182, $7,049,687 and $5,348,500, respectively. NASL Financial then
reimbursed Wood Logan for promotional agent services. Effective October 1, 1997,
MSS replaced NASL Financial as underwriter. Thereafter, all commissions were
paid to MSS by the Company, and Wood Logan marketing services were paid by MLI
who was reimbursed by the Company. Underwriting commissions and marketing
services expense of $4,431,068 was incurred during the fourth quarter of 1997.
At December 31, 1997 and 1996, the Company had a net liability of $1,367,857 and
$51,308, respectively, for these services.
The financial statements have been prepared from the records maintained by the
Company and may not necessarily be indicative of the financial conditions or
results of operations that would have occurred if the Company had been operated
as an unaffiliated corporation (see also Notes 1, 4, 5 and 8 for additional
related-party transactions).
7. NOTES PAYABLE
The Company has an unsecured line of credit with State Street Bank and Trust in
the amount of $5,000,000, bearing interest at the bank's money market rate plus
50 basis points. There were no outstanding advancements under the line of credit
at December 31, 1997 and 1996.
17
<PAGE> 69
The Manufacturers Life Insurance Company of New York
Notes to Financial Statements (continued)
8. RETIREMENT PLANS
MLI, and formerly NAL prior to the merger, sponsors a defined benefit pension
plan (the Plan) covering substantially all of the Company's employees. The
benefits are based on years of service and the employee's compensation during
the last five years of employment. MLI's funding policy is to contribute
annually the normal cost up to the maximum amount that can be deducted for
federal income tax purposes and to charge each subsidiary for its allocable
share of such contributions based on a percentage of payroll. No pension costs
were allocated to the Company in 1997, 1996 or 1995, as the Plan was subject to
the full funding limitation under the Internal Revenue Code.
The Company participates in a defined contribution retirement plan sponsored by
the Parent pursuant to regulation 401(k) of the Internal Revenue Code. All
employees who are 21 years old are eligible after one year of service. The
Company contributes two percent of base pay plus fifty percent of the employee
savings contribution. The employee savings contribution is limited to six
percent of base pay.
9. LEASES
The Company leases office space under an operating lease agreement which expires
in 1999 and is subject to a renewal option at market rates prevailing at the
time of renewal. For the years ended December 31, 1997, 1996 and 1995, the
Company incurred rent expense of $83,809, $79,950 and $72,695, respectively. The
minimum lease payments associated with the office space are as follows:
<TABLE>
<CAPTION>
MINIMUM LEASE
PAYMENTS
--------------
<S> <C>
Year ended:
1998 $ 81,648
1999 61,236
--------------
Total $142,884
==============
</TABLE>
18
<PAGE> 70
The Manufacturers Life Insurance Company of New York
Notes to Financial Statements (continued)
10. FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (SFAS 107), Disclosures
About Fair Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
consolidated balance sheet, for which it is practicable to estimate that value.
In cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
SFAS No. 107 also excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements and allows companies to forego the
disclosures when those estimates can only be made at excessive cost.
Accordingly, the aggregate fair value amounts presented herein are limited by
each of these factors and do not purport to represent the underlying value of
the Company.
The following methods and assumptions were used by the Company in estimating the
fair value disclosures for financial instruments:
Fixed Maturities: Fair values for fixed maturities are obtained from an
independent pricing service.
Short-Term Investments and Cash and Cash Equivalents: The carrying amounts
reported in the accompanying balance sheet for short-term investments, cash
and cash equivalents approximate their fair values.
Policy Loans: The carrying amount in the balance sheet for policy loans
approximates the fair value.
Policyholder Funds: Fair values of the Company's liabilities under
contracts not involving significant mortality risk (deferred annuities) are
estimated to be the cash surrender value, or the cost the Company would
incur to extinguish the liability.
19
<PAGE> 71
The Manufacturers Life Insurance Company of New York
Notes to Financial Statements (continued)
10. FINANCIAL INSTRUMENTS (CONTINUED)
The carrying values and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Fixed maturities $129,150,862 $129,150,862 $83,466,225 $83,466,225
Short-term investments 9,998,179 9,998,179 3,984,370 3,984,370
Policy loans 398,270 398,270 183,070 183,070
Cash and cash equivalents 1,431,114 1,431,114 4,104,731 4,104,731
Liabilities:
Policyholder funds 86,611,035 81,715,263 80,033,667 74,985,163
</TABLE>
11. YEAR 2000 ISSUES (UNAUDITED)
Like other business organizations and individuals, the Company would be
adversely affected if its computer systems and those of its service providers do
not properly process and calculate date-related information and data from and
after January 1, 2000. The Company is completing an assessment of the Year 2000
impact on its systems and business processes. Management believes that the
Company will complete its Year 2000 project for all critical systems and
processes by September 30, 1998, prior to any anticipated impact on the critical
systems and processes.
The date on which the Company believes it will complete the Year 2000 project is
based on management's best estimates, which were derived utilizing numerous
assumptions of future events. However, there can be no guarantee that these
estimates will be achieved and actual results could differ materially from those
anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer code, and
other similar uncertainties.
20
<PAGE> 72
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
<PAGE> 73
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee $ 2,950
Printing $10,000*
Edgarization Expenses $ 5,500*
Accounting fees and expenses $20,000*
Legal fees and expenses $ 2,000*
</TABLE>
*Estimates
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 10 of the Charter of the Company provides as follows:
TENTH: No director of the Corporation shall be personally liable to the
Corporation or any of its shareholders for damages for any breach of duty as a
director; provided, however, the foregoing provision shall not eliminate or
limit (i) the liability of a director if a judgment or other final adjudication
adverse to such director established his or her such acts or omissions were in
bad faith or involved intentional misconduct or were acts or omissions (a) which
he or she knew or reasonably should have known violated the New York Insurance
Law or (b) which violated a specific standard of care imposed on directors
directly, and not by reference, by a provision of the New York Insurance Law (or
any regulations promulgated thereunder) or (c) which constituted a knowing
violation of any other law, or establishes that the director personally gained
in fact a financial profit or other advantage to which the director was not
legally entitled or (ii) the liability of a director for any act or omission
prior to the adoption of this Article by the shareholders of the Corporation.
Any repeal or modification of this Article by the shareholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
Article VII of the By-laws of the Company provides as follows:
Section VII.1. Indemnification of Directors and Officers. The Corporation may
indemnify any person made, or threatened to be made, a party to an action by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that he or she, his or her testator, testatrix or intestate, is or was
a director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of any other corporation of any type or
kind, domestic or foreign, of any partnership, joint venture, trust, employee
benefit plan or other enterprise, against amounts paid in settlement and
reasonable expenses, including attorneys' fees, actually and necessarily
incurred by him or her in connection with the defense or settlement of such
action, or in connection with an appeal therein, if such director or officer
acted, in good faith, for a purpose which he or she reasonably believed to be
in, or, in the case of service for any other corporation or any partnership,
joint venture, trust, employee benefit plan or other enterprise, not opposed to,
<PAGE> 74
the best interests of the Corporation, except that no indemnification under this
Section shall be made in respect of (1) a threatened action, or a pending action
which is settled or is otherwise disposed of, or (2) any claim, issue or matter
as to which such person shall have been adjudged to be liable to the
Corporation, unless and only to the extent that the court in which the action
was brought, or , if no action was brought, any court of competent jurisdiction,
determines upon application that, in view of all the circumstances of the case,
the person is fairly and reasonably entitled to indemnity for such portion of
the settlement amount and expenses as the court deems proper.
The Corporation may indemnify any person made, or threatened to be made, a party
to an action or proceeding (other than one by or in the right of the Corporation
to procure a judgment in its favor), whether civil or criminal, including an
action by or in the right of any other corporation of any type or kind, domestic
or foreign, or any partnership, joint venture, trust, employee benefit plan or
other enterprise, which any director or officer of the Corporation served in any
capacity at the request of the Corporation, by reason of the fact that he or
she, his or her testator, testatrix or intestate, was a director or officer of
the Corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such director or officer acted, in good
faith, for a purpose which he or she reasonably believed to be in, or, in the
case of service for any other corporation or any partnership, joint venture,
trust, employee benefit plan or other enterprise, not opposed to, the best
interests of the Corporation and, in criminal actions or proceedings, in
addition, had no reasonable cause to believe that his or her conduct was
unlawful.
The termination of any such civil or criminal action or proceeding by judgment,
settlement, conviction or upon a plea of nolo contendere, of its equivalent,
shall not in itself create a presumption that any such director or officer did
not act, in good faith, for a purpose which he or she reasonably believed to be
in, or, in the case of service for any other corporation or any partnership,
joint venture, trust, employee benefit plan or other enterprise, not opposed to,
the best interest of the Corporation or that he or she had reasonable cause to
believe that his or her conduct was unlawful.
Notwithstanding the foregoing, Registrant hereby makes the following undertaking
pursuant to Rule 484 under the Securities Act of 1933:
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
<PAGE> 75
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
Exhibit No. Description
- ----------- -----------
1(a) Underwriting and Distribution Agreement between The Manufacturers
Life Insurance Company of New York (the "Company") and
Manufacturers Securities Services, LLC. (Underwriter) --
Incorporated by reference to Exhibit (b)(3)(a) to post effective
amendment no. 7 on Form N-4, file number 33-46217, filed March 25,
1998.
1(b) Selling Agreement between The Manufacturers Life Insurance Company
of New York, Manufactures Securities Services, LLC (Underwriter),
Selling Broker Dealers, and General Agent Incorporated by reference
to Exhibit (b)(3)(b) to post effective amendment no. 7 on Form N-4,
file number 33-46217, filed March 25, 1998.
2 Not Applicable
3(i)(a) Declaration of Intention and Charter of the Company Incorporated by
reference to Exhibit (b)(6)(a)(i) to post effective amendment no. 7
on Form N-4 filed March 25, 1998.
3(i)(b) Certificate of amendment of the Declaration of Intention and
Charter of the Company Incorporated by reference to Exhibit
(b)(6)(a)(ii) to post effective amendment no. 7 on Form N-4, file
number 33-46217, filed March 25, 1998.
3(i)(c) Certificate of amendment of the Declaration of Intention and
Charter of the Company Incorporated by reference to Exhibit
(b)(6)(a)(iii) to post effective amendment no. 7 on Form N-4, file
number 33-46217, filed March 25, 1998.
3(ii) By-laws of the Company Incorporated by reference to Exhibit
(b)(6)(b) to post effective amendment no. 7 on Form N-4, file
number 33-46217, filed March 25, 1998
4(i) Form of Individual Single Payment Deferred Fixed Annuity
Non-Participating Contract -- Previously filed as Exhibit 4(i) to
pre-effective amendment no. 1 to Form S-1 filed July 17, 1997.
4(ii) Individual Retirement Annuity Endorsement -- Previously filed as
Exhibit 4(ii) to pre-effective amendment no. 1 to Form S-1 filed
July 17, 1997.
4(iii) ERISA Tax-Sheltered Annuity Endorsement -- Previously filed as
Exhibit 4(iii) to pre-effective amendment no. 1 to Form S-1 filed
July 17, 1997.
4(iv) Tax-Sheltered Annuity Endorsement -- Previously filed as Exhibit
4(iv) to pre-effective
<PAGE> 76
amendment no. 1 to Form S-1 filed July 17, 1997.
4(v) Section 401 Plans Endorsement -- Previously filed as Exhibit 4(vi)
to pre-effective amendment no. 1 to Form S-1 filed July 17, 1997.
5 Opinion and Consent of Tracy A. Kane, Esq. -- Filed herewith
6 Not Applicable
7 Not Applicable
8 Not Applicable
9 Not Applicable
10 Form of broker-dealer agreement between the Company, NASL Financial
Services, Inc. (Underwriter), Wood Logan Associates, Inc.
(Promotional Agent) and broker-dealers -- Previously filed as
Exhibit 10 to pre-effective amendment no. 1 to Form S-1 filed July
17, 1997.
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 Not Applicable
22 Not Applicable
23(i) Consent of Ernst & Young. LLP -- Filed herewith.
23(ii) Consent of PricewaterhouseCoopers LLP -- Filed herewith.
24 Power of Attorney -- Power of Attorney - The Manufacturers Life
Insurance Company of New York Directors Incorporated by reference
to Exhibit 7 to pre-effective amendment no. 1 on Form S-6, file
number 333-33351, filed March 16, 1998.
25 Not Applicable
<PAGE> 77
26 Not Applicable
27 Financial Data Schedule -- Filed herewith.
28 Not Applicable
(b) FINANCIAL STATEMENT SCHEDULES
Schedule I - Summary of Investments
Schedule II - Supplementary Insurance Information
Schedule IV - Reinsurance
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
<PAGE> 78
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
SCHEDULE I - SUMMARY OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Amount at which
Shown in the
Cost Value Balance Sheet
----------- ----------- ---------------
<S> <C> <C> <C>
Fixed maturities:
U.S. Government 7,422,072 7,705,702 7,705,702
Corporate debt securities 108,681,555 110,537,915 110,537,915
Mortgage-backed securities 5,016,448 5,085,196 5,085,196
States, territories and possession 5,594,331 5,822,049 5,822,049
----------- ----------- -----------
Total fixed-maturity securities 126,714,406 129,150,862 129,150,862
Policy loans 398,270 xxx 398,270
Short-term investments 9,998,179 xxx 9,998,179
----------- ----------- -----------
Total investments 137,110,855 xxx 139,547,311
=========== =========== ===========
</TABLE>
<PAGE> 79
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
SCHEDULE II - SUPPLEMENTARY INSURANCE INFORMATION
($ THOUSANDS)
<TABLE>
<CAPTION>
Future Other Amortization
Policy Policy Benefits, of
Deferred Benefits Claims Claim Deferred
Policy Losses, and Net Losses and Policy Other
Acquisition Claims and Unearned Benefits Premium Investment Settlement Acquisition Operating
Segment Costs Loss Expenses Premiums Payable Revenue Income Expenses Costs Expenses
------- ----------- ------------- -------- -------- ------- ---------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997
Life insurance and
annuities 28,363 86,611 -- -- -- 6,716 4,746 3,393 5,846
Mutual funds -- -- -- -- -- -- -- -- --
------ ------ ----- ----- ----- ----- ----- ----- -----
Total 28,363 86,611 -- -- -- 6,716 4,746 3,393 5,846
====== ====== ===== ===== ===== ===== ===== ===== =====
1996
Life insurance and
annuities 20,208 80,033 -- -- -- 5,224 4,190 2,319 1,192
Mutual funds -- -- -- -- -- -- -- -- --
------ ------ ----- ----- ----- ----- ----- ----- -----
Total 20,208 80,033 -- -- -- 5,224 4,190 2,319 1,192
====== ====== ===== ===== ===== ===== ===== ===== =====
1995
Life insurance and
annuities 15,919 82,112 -- -- -- 4,768 4,734 1,162 1,193
Mutual funds -- -- -- -- -- -- -- -- --
------ ------ ----- ----- ----- ----- ----- ----- -----
Total 15,919 82,112 -- -- -- 4,768 4,734 1,162 1,193
====== ====== ===== ===== ===== ===== ===== ===== =====
</TABLE>
<PAGE> 80
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
SCHEDULE IV - REINSURANCE
($ THOUSANDS)
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of Amount
Gross Other from Other Gross Assumed
Segment Amount Companies Companies Amount to Net
------- ------ --------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Life insurance inforce 3,000 2,800 -- 200 0%
Insurance premiums life -- -- -- -- 0%
----- ----- ----- ----- -----
Total -- -- -- -- 0%
===== ===== ===== ===== =====
Year ended December 31 1996
Life insurance inforce -- -- -- -- 0%
Insurance premiums life -- -- -- -- 0%
----- ----- ----- ----- -----
Total -- -- -- -- 0%
===== ===== ===== ===== =====
Year ended December 31 1995
Life insurance inforce -- -- -- -- 0%
Insurance premiums life -- -- -- -- 0%
----- ----- ----- ----- -----
Total -- -- -- -- 0%
===== ===== ===== ===== =====
</TABLE>
<PAGE> 81
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this amended Registration Statement to be signed on its behalf, by
the undersigned, thereunto duly authorized in the City of Boston and
Commonwealth of Massachusetts on this 24 day of July, 1998.
THE MANUFACTURERS LIFE
INSURANCE COMPANY OF NEW YORK
(Registrant)
By: /s/ A. Scott Logan
A. Scott Logan, President
Attest:
/s/ Tracy A. Kane
Tracy A. Kane, Secretary
<PAGE> 82
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed by the following persons in the
capacities with the Registrant and on July 24, 1998.
SIGNATURE TITLE
/s/ A. Scott Logan Director, and President
_____________________ (Principal Executive Officer)
A. Scott Logan
*____________________ Chairman of the Board
John D. Richardson of Directors
*_____________________ Director
Bruce Avedon
*_____________________ Director
John D. DesPrez, III
*_____________________ Director
Ruth Ann Flemming
*_____________________ Director
Bruce Gordon
*_____________________ Director
Theodore Kilkuskie
*_____________________ Director
Neil M. Merkl
*_____________________ Director
Robert C. Perez
*_____________________ Director
James K. Robinson
<PAGE> 83
/s/ David W. Libbey Treasurer (Principal
- ------------------------- Financial and Accounting
David W. Libbey Officer)
*By: /s/ Tracy A. Kane
-------------------------
Tracy A. Kane
Attorney-in-Fact Pursuant
to Powers of Attorney
<PAGE> 84
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
5 Opinion and Consent of Tracy A. Kane, Esq.
23 (i) Consent of Ernst & Young LLP
23(ii) Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedules - December 31, 1997 and
March 31, 1998
<PAGE> 1
Exhibit 5
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK
International Corporate Center at Rye
555 Theodore Fremd Avenue, Suite C-209
Rye, New York 10580
July 24, 1998
To whom it may concern,
This opinion is written in reference to individual and group deferred fixed
annuity non-participating contracts (the "Contracts") to be issued by The
Manufacturers Life Insurance Company of New York (formerly First North American
Life Assurance Company), a New York corporation (the "Company") pursuant to a
Registration Statement, as amended on Form S-1 (the "Registration Statement")
filed under the Securities Act of 1933, as amended (the"Act").
As Counsel to the Company, I have examined such records and documents and
reviewed such questions of law as I deemed necessary for purposes of this
opinion.
1. The Company has been duly incorporated under the laws of the state of New
York and is a validly existing corporation.
2. The Contracts, when issued in accordance with the prospectus contained in the
effective Registration Statement and upon compliance with applicable local law,
will be legal and binding obligations of the Company.
I consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit to pre-effective amendment no. 1 to the Registration
Statement and to the reference to my name in the prospectus included as part of
this Registration Statement on Form S-1.
Very truly yours,
/s/ Tracy A. Kane
Tracy A. Kane
Secretary and Counsel
<PAGE> 1
Exhibit 23(i)
Consent of Independent Auditors
We consent to the reference of our firm under the caption "Independent
Auditors" and to the use of our report dated February 18, 1998 in Pre Effective
Amendment No. 1 to the Registration Statement (form S-1 File No. 333-31491) of
the Manufacturers Life Insurance Company of New York (formerly First North
American Life Assurance Company and hereinafter referred to as the Company).
Our audit also included the financial statement schedules of the Company listed
in Item 16(b). These schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG L.L.P.
Boston, Massachusetts
July 24, 1998
<PAGE> 1
Exhibit 23(ii)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Pre-Effective Amendment No. 1 to this
Registration Statement on Form S-1 (File No. 333-31491) of our report which
includes an explanatory paragraph, regarding the adoption of Financial
Accounting Standards Board Interpretation No. 40 and Statement of Financial
Accounting Standards No. 120, dated January 22, 1998, on our audit of the
financial statements of The Manufacturers Life Insurance Company of New York
(formerly First North American Life Assurance Company). We also consent to the
reference to our firm under the caption "Independent Auditors."
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
July 23, 1998
<TABLE> <S> <C>
<ARTICLE> 7
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 119,642
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 136,009
<CASH> 953
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 30,647
<TOTAL-ASSETS> 857,498
<POLICY-LOSSES> 84,953
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 687,458
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,000
<OTHER-SE> 76,761
<TOTAL-LIABILITY-AND-EQUITY> 857,498
0
<INVESTMENT-INCOME> 2,259
<INVESTMENT-GAINS> 77
<OTHER-INCOME> 0
<BENEFITS> 1,273
<UNDERWRITING-AMORTIZATION> 193
<UNDERWRITING-OTHER> 1,436
<INCOME-PRETAX> 1,732
<INCOME-TAX> 606
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,126
<EPS-PRIMARY> 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>
<TABLE> <S> <C>
<ARTICLE> 7
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 129,151
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 139,547
<CASH> 1,431
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 28,364
<TOTAL-ASSETS> 769,168
<POLICY-LOSSES> 86,611
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 597,193
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,000
<OTHER-SE> 75,762
<TOTAL-LIABILITY-AND-EQUITY> 769,168
0
<INVESTMENT-INCOME> 6,716
<INVESTMENT-GAINS> 769
<OTHER-INCOME> 0
<BENEFITS> 4,746
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</TABLE>
