SEC File No. 333-01161
SEC File No. 811-02047
As filed with the Securities and Exchange Commission on April 30, 1998
_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 2 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 14 [X]
(Check appropriate box or boxes)
MBL VARIABLE CONTRACT ACCOUNT-2
(Previously known as Mutual Benefit Variable Contract Account-2)
(Exact name of Registrant)
MBL LIFE ASSURANCE CORPORATION
Successor to The Mutual Benefit Life Insurance Company
(Name of Depositor)
520 Broad Street
Newark, New Jersey 07102-3111
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code: 1-800-435-3191
Judith C. Keilp, Esq.
Counsel
MBL Life Assurance Corporation
520 Broad Street
Newark, New Jersey 07102-3111
(Name and Address of Agent for Service)
_________________________________________________________________
This amendment shall become effective on May 1, 1998, pursuant to rule
485(b) under the Securities Act of 1933.
<PAGE>
MBL VARIABLE CONTRACT ACCOUNT-2
previously known as
MUTUAL BENEFIT VARIABLE CONTRACT ACCOUNT-2
______________________________________________________
CROSS REFERENCE SHEET
Cross reference sheet showing location in the Prospectus of
information required by the Items in Part A of Form N-4.
ITEM NUMBER HEADING IN PROSPECTUS
1 Cover Page
2 Index of Terms
3 Summary of Group Variable
Annuity Contracts
4 Performance Related Information;
Accumulation Unit Values
5 The Account
The Fund
6 Charges and Expenses
7 Accumulation Account;
General Rights;
Other Contract Provisions
8 Annuity
9 Accumulation Accounts - Death Benefit
10 Accumulation Accounts
11 Accumulation Account - Redemption
12 Federal Income Tax Status
13 Legal Developments
14 Statement of Additional Information
Table of Contents
________________________________________________________
<PAGE>
MBL VARIABLE CONTRACT ACCOUNT-2
MBL Life Assurance Corporation
520 Broad Street, Newark, New Jersey 07102
May 1, 1998
The group variable annuity contracts (the "Contracts") described
in this Prospectus were issued by the Mutual Benefit Life Insurance
Company ("Mutual Benefit Life") and assumptively reinsured by MBL
Life Assurance Corporation ("MBL Life") to provide for retirement
payments and other benefits for persons covered ("Participants")
under plans qualified for federal income tax advantages ("Qualified
Plans") under Section 401(a), 403(b), 408 or 457 of the Internal
Revenue Code of 1986, as amended (the "Code"). Contracts were issued
to employers or associations which established Qualified Plans or to
trustees or custodians serving in conjunction with such Plans
("Contract Holders"). The Contracts provide benefits for
Participants covered under those Plans and their beneficiaries. In
most cases, a Group Fixed Annuity Companion Contract (the "Companion
Contract"), which is not described in this Prospectus, was also
issued to the Contract Holder.
Sales of new Contracts ceased July 16, 1991. MBL Life does not
intend to resume sales of new Contracts. As of April 23, 1996,
however, additional purchase payments are being accepted from
existing and new Participants under existing Contracts.
Under the Contracts, purchase payments will be accumulated
before retirement ("Accumulation Period"), and annuity payments can
be received after retirement ("Annuity Period"), on a variable basis.
Variable accumulations and variable annuity payments are funded
through MBL Variable Contract Account-2 (the "Account"), which is a
"separate account" of MBL Life. The Account invests in shares of MBL
Growth Fund, Inc. (the "Fund"), a mutual fund with the primary
investment objective of long-term appreciation of capital.
All Contracts, were assumed and reinsured as of May 1, 1994 by
MBL Life, in accordance with the Rehabilitation Plan of Mutual
Benefit Life as approved by the Superior Court of New Jersey.
Substantially all of the assets and certain liabilities, including
all insurance liabilities, of Mutual Benefit Life were transferred to
MBL Life as of May 1, 1994 (the "Transfer"). In addition, the assets
and liabilities of the Account were transferred to a new separate
account of MBL Life. MBL Life agreed to assume all the assets and
liabilities of the Account. (See "The Account" - Legal
Developments".)
This Prospectus sets forth concisely the information about the
Account that Contract Holders and Participants should know before
investing. Additional information about the Account has been filed
with the Securities and Exchange Commission (the "SEC") including a
Statement of Additional Information which is incorporated herein by
reference. The Statement of Additional Information is available upon
request and without charge from MBL Life. Write to: Pension and
Investment Products, MBL Life Assurance Corporation, 520 Broad
Street, Newark, New Jersey 07102-3111, Attn: MBL VARIABLE CONTRACT
ACCOUNT-2, or telephone: 1-800-435-3191. Contract Holder or
Participant inquiries may be made to the same address or telephone
number. The table of contents for the Statement of Additional
Information appears on page 21.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOT HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE
CURRENT PROSPECTUS OF MBL GROWTH FUND, INC.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
The date of the Statement of Additional Information is May 1, 1998.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY OF GROUP VARIABLE
ANNUITY CONTRACTS
Fee Table 3
Eligible Contract Holders 4
Basic Provisions 4
Variable Accumulation Account 4
Variable Annuity 4
Assumption of Risks 5
Redemption and Death Benefit 5
ACCUMULATION UNIT VALUES 5
FINANCIAL STATEMENTS 6
PERFORMANCE RELATED INFORMATION 6
THE ACCOUNT
Organization 7
Legal Developments 7
Assets 8
Administration and Distribution 8
THE FUND 8
CHARGES AND EXPENSES
Premium Tax 9
Charges for Expense Risk, Mortality
Risk and Minimum Death Benefit 9
Investment Advisory Fee 9
Other Charges 9
ACCUMULATION ACCOUNT
Purchase Payments 9
Variable Accumulation Account 10
Transfers 10
Redemption 11
Death Benefit 12
ANNUITY
Annuity Commencement Date 12
Purchase of Annuity 12
Forms of Annuity 13
Annuity Payments 13
Variable Annuity Unit Value 14
GENERAL RIGHTS
Voting Rights 14
Confirmation of Transactions 14
Reports 15
457 Plan Participant 15
FEDERAL INCOME TAX STATUS
Introduction 15
Taxation of MBL Life 15
Tax Status of the Contract 16
Retirement Plans 16
Taxation of Distributions 17
Withholding 18
Possible Changes in Taxation 18
Other Tax Consequences 18
OTHER CONTRACT PROVISIONS
Beneficiary 19
Non-Assignability 19
Portability 19
Failure of Plan to Qualify 19
Discontinuance 19
Transfer to New Funding Agency 20
Changes in Contract 20
Other Changes 20
Year 2000 21
STATEMENT OF ADDITIONAL INFORMATION
Table of Contents 21
INDEX OF TERMS
The following terms are explained on the pages indicated.
Account 1
Accumulation Period 1
Annuity Commencement Date 12
Annuity Period 1
Beneficiary 19
Code 1
Companion Contract 1
Contract Holder 1
Contracts 1
First Priority 8
Fund 1
401(a) Plan 4, 17
403(b) Plan 4, 17
457 Plan 4, 17
IRA Plan 4, 17
MBL Life 1
Mutual Benefit Life 1
Net Purchase Payment 4
1940 Act 7
Participant 1
Qualified Plan 1
Rehabilitation Plan 1
SEC 1
Valuation Date 10
Variable Accumulation Account 4
Variable Accumulation Unit 10
Variable Annuity 4
Variable Annuity Unit 14
SUMMARY OF GROUP VARIABLE ANNUITY CONTRACTS
FEE TABLE
The purpose of the Fee Table is to help Contract Holders and
Participants (see "Basic Provisions") understand the various Account
and Fund expenses which they will bear, directly or indirectly. The
Fee Table, including the Example below, shows the expenses that are
deducted from both the Account and the Fund. For a description of
the Account's expenses, see "Charges and Expenses". For a
description of the Fund's expenses, see "Management" in the Fund
Prospectus.
ACCOUNT ANNUAL EXPENSES (as a percentage of average daily
Account value)
Expense Risk Charge 0.25%
Mortality Risk and Death Benefit Charge 0.12%
-----
Total Account Annual Expenses 0.37%
FUND ANNUAL EXPENSES (as a percentage of Fund's daily average
net assets)
Management Fees 0.61%
Other Expenses 0.31%
-----
Total Fund Expenses 0.92%
EXAMPLE
A $1,000 investment in the Account would be subject to the
expenses indicated, assuming (1) a 5.0% annual return and (2)
redemption at the end of each time period shown; *
1 year 3 years 5 years 10 years
$13 $41 $71 $156
This example should not be considered a representation of
past or future expenses for the Account.
Actual expenses may be greater or less than those shown
above. Similarly, the annual rate of return assumed in the
Example is not an estimate or guarantee of future investment
performance.
The expenses listed above do not include premium taxes,
currently charged by various states of up to 3.5%, which will be
deducted and paid to the states as required. (See "Charges and
Expenses - Premium Tax".)
________________________________________________
* There are no charges imposed upon redemption.
ELIGIBLE CONTRACT HOLDERS
The Contracts described in this Prospectus are designed to
provide variable benefits for the following Qualified Plans:
1. employees covered under annuity purchase arrangements
adopted pursuant to Section 403(b) of the Code by public
school systems and non-profit organizations described in
Section 501(c)(3) of the Code ("403(b) Plans"), including
former employees who have been covered under other such
annuity purchase arrangements and have not withdrawn their
account balances;
2. employees covered under plans maintained by corporations,
partnerships and sole proprietorships which are qualified
under Section 401(a) of the Code ("401(a) Plans");
3. employees covered under deferred compensation plans
qualified under Section 457 of the Code ("457 Plans");
4. employees covered under individual retirement account plans
or individual retirement annuitues qualified under Section
408 of the Code ("IRA Plans" or "408 Plans").
The Code affords certain federal income tax advantages to
employers, employees and beneficiaries covered under these plans.
(See "Federal Income Tax Status".)
BASIC PROVISIONS
Net Purchase Payments made for or by Participants are invested
during the Accumulation Period before retirement. "Net Purchase
Payment" means the amount of a purchase payment for a Participant,
less any premium tax. At retirement, the current value of the
accumulation may be used to buy annuities designed to provide
Participants with monthly payments for life or shorter specified
periods, during the Annuity Period following retirement.
The Companion Contract, which is not described in this
Prospectus, was issued to the Contract Holder in conjunction with
each Contract issued. The charges and benefits under the Companion
Contract are included in the terms of that contract, which is
separate from the Contracts described in this Prospectus.
New Participants, participating in plans qualified under Section
408 of the Code and, for residents of New York, plans qualified under
Section 403(b), are entitled to a return of their initial premium
payments without cost within ten days of purchase under a ten-day
revocation provision.
VARIABLE ACCUMULATION ACCOUNT: Under the Contract, Net Purchase
Payments and/or permitted transfers from the Companion Contract
and/or MBL Variable Contract Account-7 ("VCA-7") are allocated to an
Account established on behalf of a Participant ("Variable
Accumulation Account"). (See "Transfers".) Amounts allocated to a
Variable Accumulation Account are placed in the Account. The assets
of the Account are invested in shares of the Fund, a mutual fund with
the primary investment objective of long-term appreciation of
capital. The value of a Participant's Variable Accumulation Account
varies up or down from day to day, depending on the value of the
securities owned by the Fund, and no assurance of investment results
is made.
VARIABLE ANNUITY: The funds used to buy a variable annuity
remain in the Account. Since the Account invests in shares of the
Fund, the dollar amount of variable annuity payments varies up and
down from month to month, depending on the value of the securities
owned by the Fund, and no assurance of investment results is made.
ASSUMPTION OF RISKS
MBL Life assumes the expense and mortality risk charges under
the Contracts. In doing so, it agrees (1) to pay all expenses during the
life of the Contracts, even if the charges made under the Contracts
do not cover the actual expenses incurred, (2) to continue making
life annuity payments under the Contracts, even if Annuitants, as a
class, live longer than actuarially assumed, and, (3) to pay the
minimum death benefit due. (See "Accumulation Account - Death
Benefit".) A charge is imposed on the Account for MBL Life's
assumption of these risks. (See "Charges and Expenses - Risk and
Death Benefit Charges".)
REDEMPTION AND DEATH BENEFIT
Subject to any Qualified Plan restriction, the current value of
a Participant's Variable Accumulation Account may be withdrawn, in
whole or in part, at any time before the annuity payments begin (the
"Annuity Commencement Date") under a Contract. (See "Accumulation
Account - Redemption".) A penalty and/or tax may be incurred under
the Code upon withdrawal of amounts accumulated under the Contracts
offered by this Prospectus, including a 10% penalty generally imposed
on the taxable amount of withdrawals prior to age 59 1/2 (subject to
certain exceptions). (See "Federal Income Tax Status".)
If a Participant dies before retirement, his or her beneficiary
receives the greater of either (1) the current value of the
Participant's Variable Accumulation Account as of the date MBL Life
receives due proof of death, or (2) the full amount of all purchase
payments less all transfers and redemptions made for the Participant.
ACCUMULATION UNIT VALUES
The Accumulation Unit values as of the beginning of the period
and the end of the period for each of the last ten fiscal years, as
well as the total number of Accumulation Units outstanding at the end
of each fiscal year, are as follows:
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE- UNIT VALUE - UNITS
BEGINNING END OUTSTANDING
YEAR ENDING OF PERIOD OF PERIOD END OF PERIOD
<S> <C> <C> <C>
December 31, 1997 $144.176 $188.325 276,202
December 31, 1996 116.231 144.176 287,783
December 31, 1995 86.596 116.23 307,509
December 31, 1994 85.055 86.596 328,954
December 31, 1993 75.010 85.055 354,251
December 31, 1992 65.668 75.010 379,590
December 31, 1991 53.234 65.668 494,857
December 31, 1990 56.416 53.234 1,014,455
December 31, 1989 44.032 56.416 909,129
December 31, 1988 34.625 44.032 810,345
</TABLE>
FINANCIAL STATEMENTS
The financial statements for the Account (as well as the
auditor's report thereon) may be found in the Account's 1997 Annual
Report, which is incorporated by reference into the Account's
Statement of Additional Information. The Account will furnish
without charge an additional copy of the Annual Report upon request
made to: Pension and Investment Products, MBL Life Assurance
Corporation, 520 Broad Street, Newark, New Jersey 07102-3111, Attn:
MBL VARIABLE CONTRACT ACCOUNT-2, or by telephoning 1-800-435-3191.
The financial statements of MBL Life may be found in the
Statement of Additional Information.
PERFORMANCE RELATED INFORMATION
The Account may from time to time advertise "average annual
total return". Average annual total return measures the change in
the value of an investment in the Account's Variable Accumulation
Units over the periods illustrated. (See "Variable Accumulation
Account".) This performance-related information is based upon the
Account's past performance. The investment return and principal
value on an investment in the Account's units will fluctuate so that
the units, when redeemed, may be worth more or less than their
original cost.
When the Account advertises its average annual total return, it
will be calculated for one year, five years and ten years and will
assume a total redemption at the end of each period. Average annual
total return is calculated by comparing the value of a hypothetical
$1,000 investment in the Account at the beginning of the relevant
period to the value of the investment at the end of the period
assuming a redemption of all Variable Accumulation Units (see
"Variable Accumulation Account") at the end of the period. (See the
Account's Statement of Additional Information, "Calculation of
Performance Data".) There are no nonrecurring charges to be deducted
upon a redemption of all units.
Average annual total return at the Account level includes all
recurring Contract charges currently applicable. The only Contract
charges currently applicable is a charge of 0.37%, of which 0.25% is
allocated for MBL Life's assumption of expense risks and 0.12% is
allocated for its assumption of mortality risks and the provisions of
the minimum death benefit (see "Charges and Expenses - Charges for
Expense Risk, Mortality Risk and Minimum Death Benefit", and
"Accumulation Account - Death Benefit"). The one-time Participant
enrollment fee (up to $15.00) and annual administration charge (up to
$10.00 and up to $0.50 per purchase payment and transfer, or 2.00% of
accumulation accounts, if less) which were deducted until December
31, 1988, and which were eliminated as of January 1, 1989, are
included in the average annual total return figures illustrated. The
total return figures, as illustrated, do not take into account any
sales charge which would have been deducted from the purchase
payment, if made prior to January 1, 1989. The inclusion of the
sales charge in the total figures would have reduced the average
annual total return illustrated for each period.
The Account may from time to time advertise a comparison of its
average annual total return to the Standard and Poor's 500 Stock
Index (S&P 500) which represents an unmanaged, weighted index of 500
industrial, transportation, utility and financial companies widely
regarded by investors as representative of the stock market. As a
benchmark, this index is not subject to any charges for investment
advisory or other expenses of the type charged at either the Account
or the Fund level. Therefore, the comparison shown in any
advertising by the Account, with this benchmark, may be of limited
use.
To calculate the average annual total return, the value of a
Variable Accumulation Account terminated on December 31, 1997 is
divided by the $1,000 purchase payment made by a Participant at the
beginning of each period illustrated. The result of that calculation
is the total growth rate for that period. The total growth rate is
then "annualized" to obtain the average annual percentage increase
(decrease) during the period illustrated. An annualized rate assumes
that a single rate of return, applied each year during the period
illustrated, will produce the ending value, taking into account the
effect of compounding.
THE ACCOUNT
ORGANIZATION
The Account is registered with the SEC as an investment company,
in the form of a "unit investment trust", under the Investment
Company Act of 1940 (the "1940 Act"). Registration under the 1940
Act involves regulation by the SEC, but does not involve supervision
or management of investment practices or policies of either the
Account or the Registrant. The Account was established in 1969 under
New Jersey law pursuant to a resolution of the Board of Directors of
Mutual Benefit Life. The assets and liabilities of the Account were
transferred to a separate account of MBL Life as of May 1, 1994
pursuant to a resolution of the Board of Directors of MBL Life.
MBL Life is a New Jersey stock life insurance company,
incorporated in 1972, with its principal office at 520 Broad Street,
Newark, New Jersey. Its stock is held in a Stock Trust, with the New
Jersey Commissioner of Banking and Insurance as Trustee, pursuant to
the Rehabilitation Plan of Mutual Benefit Life, MBL Life's former
parent.
LEGAL DEVELOPMENTS
The Account was originally a separate account of Mutual Benefit
Life. On July 16, 1991, the Superior Court of New Jersey ("Court")
entered an Order ("Order") appointing the Commissioner of Banking and
Insurance of the State of New Jersey as Rehabilitator of Mutual
Benefit Life, thereby granting the Rehabilitator immediate exclusive
possession and control of, and title to, the business and assets of
Mutual Benefit Life, including those of the Account.
In view of the terms and conditions of the Order, on July 16,
1991, Mutual Benefit Life, on behalf of the Account, immediately
ceased acceptance of applications for new Contracts and additional
purchase payments under existing Contracts. The cessation of
additional purchase payments continued from July 16, 1991 until April
23, 1996. Because the Account was a separate account of Mutual
Benefit Life, the assets and liabilities of the Account were
maintained separate and apart from Mutual Benefit Life's general
account assets and liabilities. Transfers to the VCA-7 Contract were
temporarily suspended. Transfers from the Account to the Companion
Contract were temporarily prohibited and withdrawals from the
Companion Contract were restricted during the Rehabilitation Period.
Death benefit payments upon the death of each Participant continued
to be made to the beneficiaries.
A Rehabilitation Plan confirmed by the Court in January 1994,
stipulated that the assets and liabilities of the Account would be
transferred from Mutual Benefit Life to a separate account of MBL
Life. The transfer was effected pursuant to an assumption
reinsurance transaction on May 1, 1994. Under the Rehabilitation
Plan, MBL Life assumed substantially all of the business, assets and
liabilities of Mutual Benefit Life. MBL Life will operate under, and
is governed by, the terms and conditions of the Rehabilitation Plan
until the termination of the Rehabilitation Period, not later than
December 31, 1999. While the Rehabilitation Plan was developed based
on the Rehabilitator's best estimates, no assurance can be provided
that the Rehabilitation Plan will ultimately be successful. For more
information, see the financial statements of MBL Life contained in
the Statement of Additional Information.
As of May 1, 1994, all of the issued and outstanding shares of
MBL Life were placed in a Stock Trust which is to terminate at the
end of the Rehabilitation Period. The Commissioner of Banking and
Insurance was appointed Trustee of the Stock Trust. Pursuant to a
settlement agreement, an Order was issued on January 9, 1997 ending
all Plan-related litigation, and awarding 30% of the value of the
Trust at its termination to eligible MBL Life
policyholders/contractholders and 70% to the Class Four Creditors (as
defined in the Plan) of Mutual Benefit Life.
MBL Life reserves all rights regarding the use of its name, or
any part of its name, including the right to withdraw its use by the
Account or to grant its use to any other investment company or
entity.
ASSETS
The assets placed in the Account include (1) amounts allocated
to provide Variable Accumulation Accounts or variable annuities under
the Contracts and (2) advances made by MBL Life for support of its
obligations under the Contracts.
While the Account is an asset of MBL Life, it is held separately
from all other assets of MBL Life. The Contracts provide that any
income, gains or losses, whether or not realized, from assets
allocated to the Account, in accordance with the Contract, are
credited to or charged against the Account without regard to any
other income, gains or losses of MBL Life. The assets of the Account
may not be charged with liabilities arising out of any other business
of MBL Life. The Contracts also provide that MBL Life shall maintain
the assets of the Account in an amount at least equal to the amount
required for MBL Life to meet its obligations under the Contracts, as
determined at least once each year. MBL Life will transfer cash from
its general account to make up any deficiency in the Account and,
conversely, may transfer any excess assets in cash from the Account
to its general account or hold any such excess in the Account.
ADMINISTRATION AND DISTRIBUTION
The Account has no directors, officers, or employees. First
Priority Investment Corporation ("First Priority") serves as the
Account's principal underwriter. First Priority is a wholly-owned
indirect subsidiary of MBL Life. First Priority also serves as
principal underwriter for MBL Variable Contract Account-3, and MBL
Variable Contract Account-7, which are other separate accounts of MBL
Life, and as distributor for mutual funds sponsored by MBL Life.
First Priority also engages in the sale of other investment company
securities and other financial products. Administrative services
necessary for the operation of the Account and the Contracts are
provided by MBL Life. These administrative services include, but are
not limited to, processing purchase payments, annuity payments,
redemptions and transfers; making commission payments; furnishing
confirmation notices and periodic reports; preparing prospectuses,
voting materials and tax reports; and providing or arranging for
accounting, actuarial and legal services.
THE FUND
The primary objective of the Account is to provide annuity
payments which are designed to guard against adverse changes in the
cost of living both during the Accumulation Period and during the
Annuity Period. In seeking to achieve this objective, the assets of
the Account are invested in shares of the Fund, a mutual fund
investing primarily in common stocks and other equity type
investments. Information about the Fund, including its investment
objectives and policies, is set out in the Fund's Prospectus which
should be read together with this Prospectus. No assurance can be
given that the Account or the Fund will achieve its objective. The
investor should read the Fund's Prospectus carefully before
investing. Copies of the Fund's Prospectus and Statement of
Additional Information are available upon request and without charge
from MBL Life. Write to: Pension and Investment Products, MBL Life
Assurance Corporation, 520 Broad Street, Newark, New Jersey 07102-
3111, Attn: MBL GROWTH FUND, INC., or telephone: 1-800-435-3191.
The Fund's investment adviser is Markston Investment Management
("Markston"), a partnership between Markston International, Inc. and
MBL Sales Corporation ("MBL Sales"). MBL Sales is a wholly-owned
indirect subsidiary of MBL Life.
The Account buys Fund shares with no sales load. Any dividend
or capital gains distribution received from the Fund is ordinarily
credited in the form of additional Fund shares. To the extent
necessary to make payments promised under the Contracts, the Account
redeems Fund shares at net asset value with no redemption fee.
CHARGES AND EXPENSES
PREMIUM TAX
Premium taxes, ranging up to 3.50%, are currently levied by
certain states. If premium taxes are incurred by the Account, a
charge for the amount of these taxes will be made when the taxes are
incurred.
CHARGES FOR EXPENSE RISK, MORTALITY RISK AND MINIMUM DEATH BENEFIT
A charge at the annual rate of 0.37% is made daily against each
Participant's Variable Accumulation Account and against each
Annuitant's variable annuity. The allocation of the charge during
the Accumulation Period is 0.25% for MBL Life's assumption of expense
risks and 0.12% for its assumption of mortality risks and the
provision of the minimum death benefit. After the commencement of
annuity payments, all of this 0.37% is for mortality risks. MBL Life
reserves the right based on its experience in administering the
Contracts, to alter the allocation of the charge between these items.
If these charges are less than the expenses assumed, MBL Life
may suffer a loss. However, if the charges are more than the
expenses assumed by MBL Life, then there will be a contribution to
MBL Life's surplus, which may be used for any legitimate corporate
purpose, including distribution of the Contracts.
INVESTMENT ADVISORY FEE
For the investment advisory services of Markston, the Fund pays
a periodic fee based on a percentage of net assets. The fee is
reflected in the net asset value computation for the Fund, computed
and accrued daily and paid quarterly.
The investment advisory compensation arrangement as well as the
expenses of the Fund are fully described in the Fund's Prospectus and
the Fund's Statement of Additional Information.
OTHER CHARGES
Currently, no charges are made against the Account for MBL
Life's federal income taxes, or provisions for such taxes, that may
be attributable to the Account. MBL Life may charge the Account for
its portion of any income tax charged to MBL Life on the Account or
its assets. Under present laws, MBL Life may incur state and local
taxes (in addition to premium taxes) in several states. At present,
these taxes are not significant. If they increase, however, MBL Life
may decide to make charges for such taxes, or provisions for such
taxes, against the Account. Any charges made against the Account
could have an adverse effect on the investment experience of the
Account.
ACCUMULATION ACCOUNT
PURCHASE PAYMENTS
Initial Net Purchase Payments are invested at the value next
computed, not later than two business days, after an application in
good order and payment has been received by MBL Life at its Home
Office in Newark, New Jersey.
The Contracts offer flexible purchase payment arrangements which
may be tailored for individual plans as follows:
FREQUENCY: Purchase payments may be made for active Participants
whenever desired, except not more frequently than every two
weeks.
AMOUNT: Under 401(a), 403(b), 408, and 457 Plans, the annuity
purchase agreement or salary reduction agreement, between each
Participant and his or her employer must specify that
contributions on the Participant's behalf will be at least $240
during each year under the Plan.
CONTINUITY: Purchase payments for a Participant may be
discontinued at any time, without any effect on the
Participant's rights under the Contract. Purchase payments may
be resumed at a later date at no additional charge.
VARIABLE ACCUMULATION ACCOUNT
Net Purchase Payments and any transfers from VCA-7 are allocated
to a Participant's Variable Accumulation Account and are applied to
purchase Variable Accumulation Units. Each Variable Accumulation
Unit represents a proportionate interest in the assets of the
Account. The investment performance of the Fund and deduction of
charges and expenses (see "Charges and Expenses") affect the value of
the Variable Accumulation Units as described below.
The number of Variable Accumulation Units purchased is equal to
each Net Purchase Payment, divided by the current dollar value of a
Variable Accumulation Unit. The Variable Accumulation Unit is
calculated as of the end of each Valuation Date, which is a day when
the New York Stock Exchange is open for trading. For any Valuation
Date, the Variable Accumulation Unit value is equal to the value for
the preceding Valuation Date multiplied by the Net Investment Factor
for the current Valuation Date. For any day which is not a Valuation
Date, the Variable Accumulation Unit value is equal to the value for
the following Valuation Date. The Variable Accumulation Unit value
is affected by the investment experience of the Account and the
deduction of charges and may vary either up or down each Valuation
Date.
The value of a Variable Accumulation Unit was $10 for January
21, 1971, the day when sales of the Contracts commenced. For a list
of the Variable Accumulation Unit values on the last Valuation Date
of each of the last ten fiscal years, see "Accumulation Unit Values".
The Net Investment Factor for any Valuation Date is equal to the
Gross Investment Factor less a deduction at an effective annual rate
of 0.37% for the expense and mortality risk and death benefit
charges. The Gross Investment Factor as of a Valuation Date is equal
to (1) the net asset value of a Fund share computed as of the close
of regular trading on the New York Stock Exchange on that date, plus
the per share amount of any dividends and other distributions made by
the Fund since the preceding Valuation Date, less a deduction for any
applicable taxes (at present, no such federal tax is payable),
divided by (2) the net asset value of a Fund share computed as of
such close on the preceding Valuation Date. For a hypothetical
example illustrating the computation of the Variable Accumulation
Unit value and the Net Investment Factor, see the Account's Statement
of Additional Information. In effect, each Net Purchase Payment
(after the first) is invested in Variable Accumulation Units at the
value next computed after receipt of such payment by MBL Life.
Thereafter, Variable Accumulation Units credited under a Contract
will vary up or down in value, depending on the value of the Fund
shares held by the Account.
TRANSFERS
Transfers between the Companion Contract and the Variable
Accumulation Account will be subject to the transfer provisions
contained in the Companion Contract, including any limitations or
restrictions contained in that contract. Transfers may be made only
on a Valuation Date as defined in this Prospectus. All transfers
will be based on the Variable Accumulation Unit value calculated on
the effective date of the transfer.
MBL Life reserves the right to impose restrictions upon the
transfer privilege at any time, upon 30 days written notice to each
Contract Holder affected. In such event, transfers will be permitted
only once a quarter. This restriction may only be applied to
Contracts to the extent that (1) the expected total annual deposit by
a Contract Holder on behalf of all Participants to both the Variable
Accumulation Account and the Companion Contract and VCA-7 Contract,
if any, is $3 million or more, or (2) there are existing plan assets
under the Contracts representing purchase payments made by the
employer, association or corporation sponsoring the plan, other than
as a result of a Participant salary reduction arrangement, or (3) the
plan sponsor controls the allocation of contributions among this VCA-
2 Contract, the Companion Contract, and the VCA-7 Contract, or (4)
the plan sponsor controls transfers among the VCA-2 Contracts, the
Companion Contract and the VCA-7 Contract before imposing such a
restriction. MBL Life will submit appropriate changes to the
Contract to the state insurance commissions for approval as required.
To the extent that a VCA-2 Contract Holder also holds a contract
for VCA-7, the Contract Holder may provide Qualified Plan
Participants the opportunity to provide for retirement and other
benefits through pooled investments in short-term debt instruments.
The objective of VCA-7 is to provide as high a level of current
income as is consistent with preservation of capital and maintenance
of liquidity.
If a VCA-7 Contract was issued, amounts may be transferred
between a Qualified Plan Participant's Variable Accumulation Account
under the VCA-2 Contract to the VCA-7 Contract as described under
"Transfers" except that transfers to the VCA-7 Contract may not
exceed one per quarter. Transfers to the VCA-7 Contract are subject
to the charges, limitations and restrictions contained in the VCA-7
Contract. Amounts transferred to a VCA-2 Contract from a VCA-7
Contract will be subject to charges imposed under those contracts.
Until the termination of the Rehabilitation Period, not later
than December 31, 1999, transfers from the Variable Accumulation
Account under the VCA-2 Contract to the Companion Contract may only
be made upon retirement. (See "The Account - Legal Developments".)
Variable Accumulation Account values will also be transferred to
the Companion Contract upon the death of a Participant (see
"Accumulation Account - Death Benefit"), or if a Qualified Plan fails
to qualify under the Code (see "Other Contract Provisions - Failure
of Plan to Qualify").
A VCA-7 prospectus is available upon request made to Pension and
Investment Products, MBL Life Assurance Corporation, 520 Broad
Street, Newark, New Jersey 07102-3111, Attn: MBL VARIABLE CONTRACT
ACCOUNT-7 or by telephoning 1-800-435-3191.
REDEMPTION
The current value of a Participant's Variable Accumulation
Account may be withdrawn or transferred to another tax qualified
investment, in whole or in part, at any time before his or her
Annuity Commencement Date under the Contract. However, under 401,
403(b) or 457 Plans, the withdrawal right may be restricted in
accordance with applicable federal income tax law. (See "Federal
Income Tax Status".)
Certain plans may require forfeiture of non-vested employer
contributions, such as upon termination of employment, and may also
provide that certain contributions may not be withdrawn until the
occurrence of a specified event, such as attainment of age 59 1/2. The
terms of your plan should be reviewed to determine if contributions
on your behalf are so restricted. Any partial redemption must amount
to at least $240.
Redemption is effected by canceling a sufficient portion of the
Variable Accumulation Account to pay the amount requested. The
number of units canceled in the Variable Accumulation Account is
based on their value next computed after receipt of a written request
by MBL Life. Requests may be made on forms provided to Contract
Holders by MBL Life, or by letter. Forms may be obtained by calling
1-800-435-3191.
A request for partial redemption of a Participant's Variable
Accumulation Account is treated as a request for complete redemption
if the total value of the account would otherwise be less than $240,
or if the redemption request is for an amount which exceeds the value
of the account. After complete redemption of a Participant's
Variable Accumulation Account, no further purchase payments may be
made for the Participant without the consent of MBL Life.
Payment of the amount redeemed is made within seven days after
receipt of the request, unless (1) the New York Stock Exchange is closed
(for reasons other than holidays and weekends), or trading on the New
York Stock Exchange is restricted, (2) an emergency exists, as
determined by the SEC, so that valuation of the assets of the
Account, or redemption of the Fund shares held by the Account, is not
reasonably practicable, or (3) the SEC permits postponement by order.
The withdrawal of funds from the Account may adversely affect
tax benefits otherwise available under the Code. (See "Federal
Income Tax Status".) Under 403(b) Plans, current restrictions
imposed by the Code limit withdrawals. (See "Federal Income Tax
Status - 403(b) Plans".)
The preceding discussion of redemption applies only to the
Variable Accumulation Account. Redemption of amounts under the
Companion Contract will be subject to the redemption provisions
contained in the Companion Contract, including any limitations or
charges specified in that contract.
DEATH BENEFIT
If a Participant dies before the Annuity Commencement Date, a
death benefit is payable to the beneficiary. The death benefit is
equal to the greater of (1) the current value of the Participant's
Variable Accumulation Account (determined as of the date MBL Life
receives due proof of death), or (2) the full amount of all purchase
payments less all transfers and redemptions made for the Participant.
The death benefit may be paid in one of several ways. The beneficiary
may instruct MBL Life to pay the amount in a single sum. If the
beneficiary is a spouse of the participant, the Variable Accumulation
Account may be continued; however, no purchase payments may be made.
(In either case, the request must be in writing.)
In general, the rights of beneficiaries are subject to the same
conditions as corresponding rights of Participants. In addition, the
rights of a beneficiary may be subject to restrictions imposed by the
Participant in designating his or her beneficiary.
ANNUITY
ANNUITY COMMENCEMENT DATE
A Participant's Variable Accumulation Account Value generally
must begin to be distributed no later that the later of (1) the
calendar year in which the Participant reaches age 70 1/2, or (2)
retires from such employment. Distributions will be made in
accordance with the terms of the Contract. With respect to 403(b)
plans, the Code precludes distributions attributable to certain
elective purchase payments prior to attainment of age 59 1/2,
separation from service, disability or financial hardship, and
prohibits the distribution of income attributable to elective
contributions in the case of financial hardship. The preceding
distribution requirement does not apply to tax-deferred annuity
account balances accrued before January 1, 1987.
Five-percent owners and individuals covered under IRA Plans
continue to be subject to the rule that distributions must begin by
April 1 of the calendar year following the year the individual
attains age 70 1/2. A surviving spouse who has made the election in
Section 4.3(c) of the Contract must begin to receive the Variable
Accumulation Account Value no later than April 1 of the calendar year
following the calendar year in which the Participant would have
reached age 70 1/2. In no event may a Participant's Annuity
Commencement Date be later than the date under which distributions
must begin under the Code.
A Participant may elect to apply all or part of his or her
Account Value as consideration for the purchase of an annuity
("Annuity Consideration"). The date on which such annuity is to
begin, as elected by the Participant, shall be specified in a written
notice to MBL Life, provided however, that such date may not be
earlier than 15 days after the date of receipt by MBL Life of such
notice.
PURCHASE OF ANNUITY
Effective on a Participant's Annuity Commencement Date, as
specified in the written notice to MBL Life, the Participant's
Annuity Consideration shall be applied to provide an annuity for the
Participant subject to the following:
(a) Any premium tax on Annuity Consideration that MBL Life is
required to pay, based on the state of residence of the
Participant, will be deducted from the Annuity
Consideration.
(b) The amount remaining after deduction of the premium tax will
be applied to provide an annuity. Unless the use of another
table of annuity amounts shall have been agreed to in
writing by the Contract Holder and MBL Life, the amount of
each monthly payment of the annuity will be determined by
dividing the remaining Annuity Consideration by the
appropriate rate determined in accordance with the Variable
Annuity Table (Table 1 of the Contract) according to the
form of annuity and the age of the annuitant on the Annuity
Commencement Date.
If a Participant's first annuity payment would be less than $20,
the value of the Variable Accumulation Account may be paid to the
Participant in a lump sum as a complete redemption, at the discretion
of MBL Life.
MBL Life will issue a certificate to each Annuitant at the time
the first annuity payment becomes payable, describing the
Participant's rights under the annuity. Once any life annuity takes
effect, it may not be redeemed or changed to any other form of
annuity.
FORMS OF ANNUITY
The Participant may elect one of the alternate forms listed below:
(a) Period-Certain and Life Annuity
The Period-Certain and Life Option provides a monthly
annuity to the Participant during the Participant's
lifetime, the first 60, 120, 180 or 240 payments of which,
as specified by the Participant in the notice of election of
this option, shall be period-certain payments. If at the
death of the Participant any period-certain payments remain
unpaid, such unpaid period-certain payments shall be
continued to the Participant's beneficiary.
(b) Contingent Annuitant With Ten Years Certain
The Contingent Annuitant Option provides a monthly annuity
payable to the Participant during his or her lifetime, and
payable after his or her death to the Contingent Annuitant
designated by the Participant at the time of election of
this option, during such Contingent Annuitant's lifetime.
The first 120 payments are designated as period-certain
payments.
If at the death of the second to die of the Participant and
his or her Contingent Annuitant any period-certain payments
remain unpaid, such unpaid period-certain payments shall be
continued to the Participant's beneficiary. The amount of
monthly annuity payable to the Contingent Annuitant may be
100%, 67%, or 50% of the reduced annuity payable to the
Participant, as specified in the notice of election of this
option. Regardless of the selected percentage, however, the
annuity payable to the Contingent Annuitant, before 120
payments have been made, shall be equal to 100% of the
annuity payable to the Participant.
(c) Period-Certain Annuity
The Period-Certain Annuity provides a monthly annuity
payable for a period-certain of 60, 120 or 180 months as
selected by the Participant. Upon expiration of the period-
certain payments, no further payments are due. If at the
death of the Participant any period-certain payments remain
unpaid, they shall be continued to the Participant's
beneficiary until the total period-certain payments selected
have been made to the Participant and the beneficiary.
(d) Other Forms
Other forms of annuity may be selected by the Participant
with the written consent of MBL Life.
ANNUITY PAYMENTS
The first annuity payment is payable on the Annuitant's Annuity
Commencement Date under the Contract. The second and subsequent
annuity payments are payable monthly thereafter. The method for
determining the amount of the first, second and subsequent annuity
payments is described in the Account's Statement of Additional
Information.
VARIABLE ANNUITY UNIT VALUE
The value of a Variable Annuity Unit for any month is calculated
as of the end of the fourteenth day preceding the first day of the
month. It is equal to the Variable Annuity Unit value for the
previous month multiplied by the product of .997137 and the ratio of
(1) the Variable Accumulation Unit value for the fourteenth day
preceding the first day of the month, divided by (2) the Variable
Accumulation Unit value for the fourteenth day preceding the first
day of the previous month. The Variable Annuity Unit value may vary
either up or down each month.
The factor of .997137, applied each month, reflects an assumed
investment result at an effective annual rate of 3 1/2%. This assumed
investment result is also used in determining the rates which appear
in the tables in the Contracts and which are used to determine the
amount of the first payment under a variable annuity. An assumed
investment result higher than 3 1/2% may be used for a particular
group in order to provide larger variable annuity payments during the
initial months, by mutual agreement between the Contract Holder and
MBL Life. However, a higher assumed investment result also means a
lower factor than .997137 in the determination of the Variable
Annuity Unit values for that particular group. For example, if the
assumed investment result is 4 1/2% instead of 3 1/2%, the variable
annuity payments to a retired male Participant, age 65, under a life
annuity with 120 monthly payments certain will start about 8% higher,
but this advantage will steadily diminish, and the payments after the
eighth year (approximately) will become lower with the 4 1/2%
assumption than they would be with the 3 1/2% assumption.
The Variable Annuity Unit value will vary up or down each month
only to the extent that the actual net investment results are more or
less favorable than the assumed investment results. The actual net
investment results include both income and market value changes of
the Account value, as reflected in the ratio of the two applicable
Variable Accumulation Unit values. For a hypothetical example
illustrating the computation of the Variable Annuity Unit value see
the Account's Statement of Additional Information.
GENERAL RIGHTS
VOTING RIGHTS
Contract Holders have the right to instruct MBL Life as to
voting Fund shares held by the Account on all matters to be voted on
by Fund shareholders. The number of votes attributed to each
Contract Holder is determined by dividing the value of all Variable
Accumulation Accounts under the Contract by the net asset value of
one Fund share. The number of Fund shares attributable to Annuitants
under the Contract is determined by dividing the reserves maintained
in the Account to meet variable annuity obligations under the
Contract by the net asset value of one Fund share.
During the Accumulation Period, Participants have the right to
instruct Contract Holders as to casting applicable votes with respect
to Variable Accumulation Accounts under 403(b) Plans or their own
purchase payments under Qualified Plans. During the Annuity Period,
Annuitants have similar rights with respect to the variable
annuities. The number of votes attributable to an Annuitant
decreases as variable annuity payments are made.
MBL Life furnishes Fund proxy material and voting instruction
forms to each Contract Holder and Participant. Fund shares held by
the Account for which MBL Life receives no voting instructions will
be voted on each matter in the same proportion as such shares for
which voting instructions are received. Fund shares held by MBL Life
will also be voted on each matter in the same proportion as such
shares for which voting instructions are received.
CONFIRMATION OF TRANSACTIONS
Within five business days after the end of each calendar
quarter, a quarterly statement will be sent to each Participant
detailing all activity in the Participant's Variable Accumulation
Account for the previous quarter, including purchase payments,
redemptions and transfers, the dates of each such transaction, the
amounts allocated to the Variable Accumulation Account, the sales and
other charges deducted, and the total account value at the end of the
period. The quarterly statement for each Participant will show as of
a specified date (1) the number of units in his or her Variable
Accumulation Account and (2) the Variable Accumulation Unit value.
During the Annuity Period, MBL Life will include with each variable
annuity payment a statement showing the number of Variable Annuity
Units and the Variable Annuity Unit value used in determining the
amount of the annuity payment.
New Participants will be sent a confirmation upon receipt of the
first purchase payment, and quarterly statements thereafter.
In some cases, confirmations may be sent more frequently than
quarterly.
REPORTS
MBL Life will furnish each Participant and Annuitant with an
annual and semi-annual report showing the financial position of the
Account, and a schedule of the common stocks and other investments
held by the Fund.
457 PLAN PARTICIPANTS
The rights and benefits of employees participating in a 457 Plan
differ from those of Participants covered under Contracts issued
under other circumstances. Under a 457 Plan, the Contract Holder is
usually the employer, and the assets of such Plan are part of the
general assets of the employer, except in the case of certain
governmental plans which are required to hold all deferred amount and
earnings thereon in trust for the exclusive benefit of Participants
and their beneficiaries. A non-governmental plan Participant must
look exclusively to his or her employer and the employer's financial
resources for any benefits to which the Participant is entitled. In
such event, all rights of 457 Plan Participants referred to or
described in this Prospectus are vested in the Contract Holder.
FEDERAL INCOME TAX STATUS
INTRODUCTION
The following discussion is a general discussion of federal
income tax considerations relating to the Contract and is not
intended as tax advice. This discussion is not intended to address
the tax consequences resulting from all of the situations in which a
person may be entitled to or may receive a distribution under the
Contract. Any person concerned about these tax implications should
consult a competent tax advisor before initiating any transaction.
This discussion is based upon MBL Life's understanding of the present
federal income tax laws as they are currently interpreted by the
Internal Revenue Service ("IRS"). No representation is made as to
the likelihood of the continuation of the present federal income tax
laws or of the current interpretation by the IRS. Moreover, no
attempt has been made to consider any applicable state or other tax
laws.
TAXATION OF MBL LIFE
MBL Life is taxed as a life insurance company under Part I of
Subchapter L of the Code. Since the Account is not an entity
separate from the Company, and its operation forms a part of MBL
Life, it will not be taxed separately as a "regulated investment
company" under Subchapter M of the Code. Investment income and
realized capital gains are automatically applied to increase reserves
under the Contracts. Under existing federal income tax law, MBL Life
believes that the Account's investment income and realized net
capital gains will not be taxed to the extent that such income and
gains are applied to increase the reserves under the Contracts.
Accordingly, MBL Life does not anticipate that it will incur any
federal income tax liability attributable to the Separate Account
and, therefore, MBL Life does not intend to make provisions for any
such taxes. However, if changes in the federal tax laws or
interpretations thereof result in MBL Life being taxed on income or
gains attributable to the Account, then MBL Life may impose a charge
against the Account (with respect to some or all Contracts) in order
to set aside provisions to pay such taxes.
TAX STATUS OF THE CONTRACT
DIVERSIFICATION: Section 817(h) of the Code requires that with
respect to certain contracts, the investments of the Account must be
"adequately diversified" in accordance with Treasury Regulations in
order for those Contracts to qualify as annuity contracts under
federal tax law.
OWNER CONTROL: In certain circumstances, owners of variable
annuity contracts may be considered the owners, for federal income
tax purposes, of the assets of the separate accounts used to support
their contracts. In those circumstances, income and gains from the
separate account assets would be includible in the variable contract
owner's gross income. The IRS has stated in published rulings that a
variable contract owner will be considered the owner of separate
account assets if the contract owner possesses incidents of ownership
in those assets, such as the ability to exercise investment control
over the assets. The Treasury Department has also announced, in
connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control for the
investments of a segregated asset account may cause the investor
[i.e., the owner], rather than the insurance company, to be treated
as the owner of the assets in the account". This announcement also
stated that guidance would be issued by way of regulations or rulings
on the "extent to which policyholders may direct their investments
to particular Sub-Accounts without being treated as owners of the
underlying assets." As of the date of this Prospectus, no guidance
has been issued.
The ownership rights under the Contract are similar to, but
different in certain respects from those described by the IRS in
rulings in which it was determined that contract owners were not
owners of separate account assets. These differences could result in
an owner being treated as the owner of a pro rata portion of the
assets of the Account. In addition, MBL Life does not know what
standards will be set forth, if any, in the regulations or rulings
which the Treasury Department has stated it expects to issue. MBL
Life therefore reserves the right to modify the Contract as necessary
to attempt to prevent an owner from being considered the owner of a
pro rata share of the assets of the Account.
RETIREMENT PLANS
IN GENERAL: The Contract is designed for use with several types
of retirement plans. The tax rules applicable to participants and
beneficiaries in retirement plans vary according to the type of plan
and the terms and conditions of the plan. Special favorable tax
treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from
contributions in excess of specified limits; distributions prior to
age 59 1/2 (subject to certain exceptions); distributions that do not
conform to specified commencement and minimum distribution rules; and
in other specified circumstances. For example, a 10% penalty
generally will be imposed on the taxable amount of withdrawals prior
to age 59 1/2, subject to certain exceptions.
MBL Life makes no attempt to provide more than general
information about use of the Contracts with the various types of
retirement plans. Contract Holders and participants under retirement
plans, as well as annuitants and beneficiaries, are cautioned that
the rights of any person to any benefits under Contracts may be
subject to the terms and conditions of the plans themselves,
regardless of the terms and conditions of the Contracts issued in
connection with such a plan. The ultimate effect of federal income
taxes on the amounts held under a Contract, on annuity payments, and
on the economic benefit to the Contract Holder, the annuitant, or the
beneficiary may depend on the tax status of the individual concerned.
Some retirement plans are subject to distribution and other
requirements that are not incorporated in the administration of the
Contracts. Contract Holders are responsible for determining that
contributions, distributions and other transactions with respect to
the Contracts satisfy applicable law. Contract Holders, participants
and beneficiaries should consult their legal counsel and tax advisor
regarding the use of the Contract under the retirement plan.
For qualified plans under Section 401(a), 403(b) and 457, the
Code requires that distributions generally must commence no later
than the later of April 1 of the calendar year following the calendar
year in which the Contract Holder (or Participant) (i) reaches age 70
1/2 or (ii) retires, and must be made in a specified form or manner.
If the Participant is a "5 percent owner" (as defined in the Code),
distributions generally must begin no later than April 1 of the
calendar year following the calendar year in which the Contract
Holder (or Participant) reaches age 70 1/2. For IRAs described in
Section 408, distributions generally must commence no later than
April 1 of the calendar year following the calendar year in which the
Contract Holder (or Participant) reaches age 70 1/2.
CORPORATE PENSION AND PROFIT-SHARING AND H.R. 10 PLANS: Code
Section 401(a) permits employers to establish various types of
retirement plans for employees, and permits self-employed individuals
to establish retirement plans for themselves and their employees.
These retirement plans may permit the purchase of the Contracts to
accumulate retirement savings under the plans. Adverse tax
consequences to the plan, the participant, or both, may result if
this Contract is assigned or transferred to any individual as a means
to provide benefit payments.
SECTION 403(b) PLANS: Under Code Section 403(b), payments made
by public school systems and certain tax exempt organizations to
purchase annuity contracts for their employees are excludable from
the gross income of the employee, subject to certain limitations.
However, these payments may be subject to FICA (Social Security)
taxes and state income taxes.
Code Section 403(b)(11) restricts the distribution under Code
Section 403(b) annuity contracts of: (1) elective contributions made
in years beginning after December 31, 1988; (2) earnings on those
contributions; and (3) earnings in such years on amounts held as of
the last year beginning before January 1, 1989. Distribution of
those amounts may only occur upon death of the employee, attainment
of age 59 1/2, separation from service, disability, or financial
hardship. In addition, income attributable to elective contributions
may not be distributed in the case of hardship.
INDIVIDUAL RETIREMENT ANNUITIES AND SIMPLIFIED EMPLOYEE PENSION
PLANS: Sections 219 and 408 of the Code permit eligible individuals
to contribute to an individual retirement program known as an
Individual Retirement Annuity or Individual Retirement Account, each
hereinafter referred to as an "IRA". IRAs are subject to limitations
on the amount that may be contributed and deducted and the time when
distributions may commence. Also, distributions from certain other
types of qualified plans may be "rolled over" on a tax-deferred basis
into an IRA. Employers may establish Simplified Employee Pension
(SEP) Plans to provide IRA contributions on behalf of their
employees. The sale of a Contract for use with an IRA may be subject
to special disclosure requirements of the Internal Revenue Service.
Purchasers of a Contract for use with IRAs will be provided with
supplemental information required by the Internal Revenue Service or
other appropriate agency. Such purchasers will have the right to
revoke their purchase within seven days of the earlier of the
establishment of the IRA or their purchase. A Qualified Contract
issued in connection with an IRA will be amended as necessary to
conform to the requirements of the Code.
DEFERRED COMPENSATION PLANS: Code Section 457 provides for
certain deferred compensation plans. These plans may be offered with
respect to service for state governments, local governments,
political subdivisions, agencies, instrumentalities and certain
affiliates of such entities, and tax exempt organizations. These
plans are subject to various restrictions on contributions and
distributions. The plans may permit participants to specify the form
of investment for their deferred compensation account. In general,
for non-governmental plans, all investments are owned by the
sponsoring employer and are subject to the claims of the general
creditors of the employer. Depending on the terms of the particular
plan, the non-governmental employer may be entitled to draw on
deferred amounts for purposes unrelated to its Section 457 plan
obligations. In general, all amounts received under a Section 457
plan are taxable and are subject to federal income tax withholding as
wages.
RESTRICTIONS UNDER QUALIFIED CONTRACTS: Other restrictions with
respect to the election, commencement, or distribution of benefits
may apply under qualified Contracts or under the terms of the plans
in respect of which Qualified Contracts are issued.
TAXATION OF DISTRIBUTIONS
Section 72 of the Code governs taxation of distributions from
Section 401(a), 403(b) and 408 retirement plans in general. For this
purpose, the assignment, pledge, or agreement to assign or pledge any
portion of the Account Value or any portion of an interest in the
retirement plan generally will be treated as a distribution. The
taxable portion of a distribution (in the form of a single sum
payment or an annuity) is taxable as ordinary income.
In the case of a withdrawal, a ratable portion of the amount
received is taxable, generally based on the ratio of the "investment
in the contract" to the individual's total accrued benefit under the
retirement plan. The "investment in the contract" generally equals
the amount of any non-deductible purchase payments paid by or on
behalf of any individual. For a Contract issued in connection with
retirement plans, the "investment in the contract" will most likely
be zero. Special tax rules may be available for certain withdrawals.
Although the tax consequences may vary depending on the annuity
payment elected under the Contract, in general, only the portion of
the annuity payment that represents the amount by which the Account
Value exceeds the "investment in the contract" will be taxed; after
the "investment in the contract" is recovered, the full amount of any
additional Annuity payments is taxable. For variable annuity
payment, the taxable portion is generally determined by an equation
that establishes a specific dollar amount of each payment that is not
taxed. The dollar amount is determined by dividing the "investment
in the contract" by the total number of expected periodic payments.
However, the entire distribution will be taxable once the recipient
has recovered the dollar amount of his or her "investment in the
contract". For Fixed Annuity payments, in general there is no tax on
the portion of each payment which represents the same ratio that the
"investment in the contract" bears to the total expected value of the
Annuity payments for the term of the payments; however, the remainder
of each Annuity payment is taxable. Once the "investment in the
contract" has been fully recovered, the full amount of any additional
Annuity payments is taxable. If Annuity payments cease as a result
of an Annuitant's death before full recovery of the "investment in
the contract", consult a competent tax advisor regarding
deductibility of the unrecovered amount.
Amounts may be distributed from the Contract because of the
death of a retirement plan participant. Generally, such amounts are
includible in the income of the recipient as follows: (1) if
distributed in a lump sum, they are taxed in the same manner as a
full surrender as described above, or (2) if distributed under an
Annuity Option, they are taxed in the same manner as Annuity
payments, as described above. Other rules relating to distribution
at death apply to Qualified Contracts. You should consult your legal
counsel and tax advisor regarding these rules and their impact on
Qualified Contracts.
WITHHOLDING
Distributions from Contracts generally are subject to
withholding for the Contract Holder's (or Participant's) federal
income tax liability. The withholding rate varies according to the
type of distribution and the Contract Holder's tax status. The
Contract Holder (or Participant) will be provided the opportunity to
elect not to have tax withheld from distributions.
"Eligible rollover distributions" from 401(a) Plans and 403(b)
Plans are subject to a mandatory federal income tax withholding of
20%. An eligible rollover distribution is the taxable portion of any
distribution from such a plan, except certain distributions such as
distributions required by the Code or distributions in a specified
annuity form. The 20% withholding does not apply, however, if the
Contract Holder (or Participant) chooses a "direct rollover" from the
plan to another tax-qualified plan or IRA.
POSSIBLE CHANGES IN TAXATION
Although the likelihood of legislative change is
uncertain, there is always the possibility that the tax treatment of
the Contracts could change by legislation or other means. It is also
possible that any change could be retroactive (that is, effective
prior to the date of the change). A tax adviser should be consulted
with respect to legislative developments and their effect on the
Contract.
OTHER TAX CONSEQUENCES
As noted above, the foregoing discussion of the federal income
tax consequences is not exhaustive and special rules are provided
with respect to other tax situations not discussed in this
Prospectus. Further, the federal income tax consequences discussed
herein reflect MBL Life's understanding of the current law and the
law may change. Federal estate and gift tax consequences of
ownership or receipt of distributions under the Contract depend on
the individual circumstances of each Owner or recipient of a
distribution. A competent tax advisor should be consulted for
further information.
OTHER CONTRACT PROVISIONS
BENEFICIARY
The Participant may select a beneficiary to receive any benefit
at death, and may change the beneficiary by proper written notice to
MBL Life.
NON-ASSIGNABILITY
To the extent permitted by law, the right to benefits or
payments under the Contract is neither assignable nor subject to the
claim of any creditor, except as may be allowed under 457 Plans.
PORTABILITY
A Participant under a 403(b) Plan who becomes employed by a new
employer which is eligible under Section 403(b) of the Code, may
enter into an annuity purchase agreement with the new employer, at no
additional charge, so that purchase payments will be continued under
the Contract by the new employer on behalf of the Participant, if the
Contract so provides and if MBL Life consents.
FAILURE OF PLAN TO QUALIFY
If a previously issued Qualified Plan fails to qualify under the
Code, MBL Life has the right, without prior notice to or consent of
the Contract Holder, to transfer any amounts held in Variable
Accumulation Accounts to the Companion Contract, and to convert any
amounts of variable annuity to a fixed annuity under the Companion
Contract on the basis of equivalence as of the date of transfer and
conversion. Thereafter, the Contract shall be considered terminated.
Proof of qualification may be required by MBL Life.
DISCONTINUANCE
Purchase payments under a Contract will no longer be accepted by
MBL Life when any of the following events occurs:
(1) The Contract Holder so notifies MBL Life in writing.
(2) MBL Life so notifies the Contract Holder in writing after an
investment adviser other than Markston (or an affiliate) is
selected for the Fund. Such a notice would be sent to all
other Contract Holders participating in the Account.
(3) After receipt of an amendment or modification of the Plan,
MBL Life gives the Contract Holder written notice that the
effect of the amendment, in MBL Life's judgment based on
underwriting principles then in effect, might be detrimental
to MBL Life, and the Contract Holder and MBL Life are unable
to reach a mutual agreement within 30 days after the written
notice. If discontinuance occurs for this reason, the
amendment will not be given effect under the Contract.
Effective with any such discontinuance, no further purchase
payment will be accepted by MBL Life under the Contract. However,
MBL Life will continue to maintain Participants' existing
accumulation accounts unless otherwise requested, as explained below
under "Transfer to New Funding Agency". Discontinuance of purchase
payments will have no effect on the rights of Annuitants.
TRANSFER TO NEW FUNDING AGENCY
If MBL Life ceases to accept purchase payments, a Contract
Holder may designate a new funding agency to receive amounts to be
transferred in accordance with the following paragraphs.
With respect to a 403(b) Plan, or IRA Plan, each Participant has
the right to direct MBL Life, by proper written request to cancel his
or her accumulation account and transfer such dollar value to the new
funding agency, after deducting the administration charge. All such
transfers will be made in the aggregate and valued as of a single
transfer date, which will be 90 days after receipt by MBL Life of the
Contract Holder's notice.
With respect to a 401(a) or 457 Plan, the Contract Holder has
the right, with respect to all Participants, to direct MBL Life, by
proper written notice of the selection of a new funding agency, to
cancel each Participant's accumulation account and transfer such
aggregate dollar value to the new funding agency. The value of such
accounts will be determined as of the day MBL Life receives the
Contract Holder's notice at its Home Office, or any later transfer
date specified in the notice.
For any Plan, the aggregate transfer payment will be paid within
seven days after the transfer date.
CHANGES IN CONTRACT
MBL Life has the right, subject to compliance with the law as
currently applicable or subsequently changed, to give written notice
to the Contract Holder, at least six months in advance, of a change
to be effective on or after the fifth Contract anniversary in (1) the
tables of annuity rates, and (2) any of the charges specified in the
Contract. Participants will be informed of any such change.
Any such change which has an adverse effect on any Participant
will not apply to any amounts credited to accumulation accounts, or
to any annuities bought before the effective date of such change,
except that a change in the risk and death benefit charges may apply
uniformly to all Variable Accumulation Units, including those
credited before the effective date of the change (but not
retroactively). Because the tables of annuity rates remain in effect
with respect to purchase payments made before a change is effective,
until such purchase payments are applied on the Participant's Annuity
Commencement Date, this rate guarantee may extend many years into the
future.
The Contract may also be changed in any other respect at any
time by an agreement between the Contract Holder and MBL Life, but no
such change will be made without the consent of the persons entitled
to receive benefits under the Contract, unless (1) the change will
have no adverse effect on their rights with respect to the Variable
Accumulation Account balance already credited or annuities already
bought, or (2) the change is required to comply with a law or
governmental regulation or (3) the Plan is a 457 Plan. Such persons
will be informed of any such change which materially affects their
rights.
OTHER CHANGES
MBL Life reserves the right, subject to compliance with the law
as currently applicable or subsequently changed, (1) to substitute
the shares of any other registered investment company for the shares
of the Fund held by the Account, subject to prior approval by the
SEC, (2) to discontinue submitting certain matters for approval by
persons having voting rights under the Contracts, (3) to fund
additional classes of contracts through the Account, (4) to transfer
assets, determined by MBL Life, to be assigned to the class of
contracts to which the Contracts belong from the Account to another
separate account by withdrawing the same percentage of each
investment in the Account, with appropriate adjustments to avoid odd
lots and fractions, and (5) to operate the Account as another form of
registered investment company or unregistered entity. Contract
Holders will be given prompt notice after any action which results in
a change in the composition of the Account's assets.
YEAR 2000
Like all financial services providers, MBL Life and the
Fund, utilize systems that may be affected by Year 2000 transition
issues. In addition to MBL Life and the Fund, the Account relies on
service providers that also may be affected. MBL Life is in the
process of developing, and will be implementing, a Year 2000
transition plan; and the Fund is also so engaged. MBL Life and the
Fund are in the process of confirming that the service providers to
the Account are also engaged in similar transition plans. The
resources that are being devoted to this effort by all of the
affected parties are substantial and it is difficult to predict with
precision whether the amount of resources ultimately devoted, or the
outcome of these efforts, will have any negative impact on their
operations. However, as of the date of this Prospectus, it is not
anticipated that Contract Holders will experience negative effects on
their investment, or on the services provided in connection
therewith, as a result of Year 2000 transition plan implementation.
Both MBL Life and the Fund currently anticipate that their systems
will be Year 2000 compliant on or about January 1, 1999, but there
can be no assurance that MBL Life and the Fund will be successful, or
that interaction with other service providers will not impair
services in the future.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS PAGE
General Information and History 1
Services 1
Purchase and Pricing of Account Units 2
Annuity Payments 2
Calculation of Performance Data 4
Additional Information 5
Financial Statements 5
MBL VARIABLE CONTRACT ACCOUNT-2
OFFERED BY MBL LIFE ASSURANCE CORPORATION
520 Broad Street
Newark, New Jersey 07102-3111
1-800-435-3191
DISTRIBUTOR
FIRST PRIORITY INVESTMENT CORPORATION
520 Broad Street
Newark, New Jersey 07102-3111
1-800-559-5535
INVESTMENT ADVISER
MARKSTON INVESTMENT MANAGEMENT
1 North Lexington Avenue
White Plains, New York 10601-1702
(914) 761-4700
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO
PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH
THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS.
<PAGE>
MBL VARIABLE CONTRACT ACCOUNT-2
(Previously known as Mutual Benefit Variable Contract Account-2)
____________________________________________________________
CROSS REFERENCE SHEET
Cross reference sheet showing location in the Statement of Additional
Information of information required by the Items in Part B of Form N-4.
HEADING IN STATEMENT OF
ITEM NUMBER ADDITIONAL INFORMATION
15 Cover Page
16 Table of Contents
17 General Information and History
18 Services
19 Purchase and Pricing of
Account Units; Variable
Accumulation Unit Values
20 Services
21 Performance-Related Information
22 Annuity Payments; Variable
Annuity Unit Values
23 Financial Statements
_________________________________________________
* Indicates inapplicable.
<PAGE>
MBL VARIABLE CONTRACT ACCOUNT-2
MBL LIFE ASSURANCE CORPORATION
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
This Statement of Additional Information is not a prospectus but
has been incorporated by reference into, and should be read in
conjunction with, the Prospectus of MBL Variable Contract Account-2
dated May 1, 1998. Terms not defined in this Statement of Additional
Information shall have the same meaning given to them in the
incorporated Prospectus. A copy of the Prospectus may be obtained from
Pension and Investment Products, MBL Life Assurance Corporation, 520
Broad Street, Newark, New Jersey 07102-3111, Attn: MBL VARIABLE CONTRACT
ACCOUNT-2, telephone number 1-800-435-3191.
TABLE OF CONTENTS
CROSS REFERENCE TO
PAGE SECTION IN PROSPECTUS
General Information and The Variable Contract
History . . . . . . . . . . . 1 Account - Organization
Services . . . . . . . . . . . 1 The Variable Contract Account -
Administration and Distribution
Purchase and Pricing of
Account Units . . . . . . . . 2 Accumulation Account
Annuity Payments . . . . . . . 2 Annuity
Calculation of Performance
Data . . . . . . . . . . . . 4 Performance-Related
Information
Additional Information . . . . 5 --
Financial Statements . . . . . 5 --
GENERAL INFORMATION AND HISTORY
The business history of MBL Variable Contract Account-2 (the
"Account") (previously known as Mutual Benefit Variable Contract
Account-2), and the Depositor, MBL Life Assurance Corporation ("MBL
Life"), are described in the Account's Prospectus.
SERVICES
All administrative services of the Account are provided by MBL
Life as described in the Prospectus under the caption "The Variable
Contract Account - Administration and Distribution", except for sales
services, which are provided by First Priority Investment Corporation
("First Priority").
PURCHASE AND PRICING OF ACCOUNT UNITS
Net Purchase Payments are allocated to a Participant's Variable
Accumulation Account under the Contract and are applied to purchase
Variable Accumulation Units. The method of calculating the Variable
Accumulation Unit and the Net Investment Factor is described in the
Account's Prospectus under the caption "Variable Accumulation Account",
and is illustrated by the following hypothetical example.
Assume that July 1st and July 2nd of some year are both Valuation
Dates and that the value of a share of MBL Growth Fund, Inc. (the
"Fund") is $10.291111 on July 1st and $10.301112 on July 2nd, as of the
time of the close of trading on the New York Stock Exchange. Assume
also that there are no dividends or other distributions made by the Fund
on July 2nd and that there is no deduction for taxes. To determine the
Variable Accumulation Unit value for July 2nd, first find the ratio of
$10.301112 to $10.291111, which is 1.0009718. Then subtract from this
ratio of 1.0009718 the factor .0000101 (the daily equivalent of the
annual deduction of 0.37%). The difference of 1.0009617 is the Net
Investment Factor for July 2nd. When multiplied by the Variable
Accumulation Unit value for July 1st, it yields the unit value for July
2nd. For example, if the value for July 1st were $10.101111, the value
for July 2nd would be $10.110825, which would be rounded to $10.111 for
all purposes except in calculating the unit value for July 3rd.
ANNUITY PAYMENTS
On or after a Participant's Retirement Date, the value of the
Variable Accumulation Account, less any applicable premium tax, may be
applied to purchase a variable annuity. The amount of the variable
annuity payment depends upon the number and value of the Annuitant's
Variable Annuity Units. The computation of the Variable Annuity Unit
value is described in the Account's Prospectus under the caption
"Variable Annuity Unit Value".
The first annuity payment is payable on the Annuitant's Annuity
Commencement Date under the Contract. The second and subsequent annuity
payments are payable monthly thereafter.
The amount of the first variable annuity payment depends on the
amount of funds used to buy the annuity and the applicable annuity
purchase rate. Such funds are equal to the Annuitant's number of
Variable Accumulation Units multiplied by the value of such a Unit on
the fourteenth day before his or her Annuity Commencement Date, less any
applicable premium tax. The purchase rate is set out in a rate table in
the Contract and depends on the form of annuity selected, the age of the
Annuitant and any Contingent Annuitant, an assumed investment result and
a mortality assumption based on the 1951 Group Annuity Mortality Table
for Males.
The amount of the second and subsequent variable annuity payments
depends on the number and value of the Annuitant's Variable Annuity
Units. The number of Variable Annuity Units credited to an Annuitant is
determined by dividing the dollar amount of the Annuitant's first
variable annuity payment by the value of a Variable Annuity Unit for the
month of that payment. This number of Variable Annuity Units remains
constant. However, since the Account invests in shares of the Fund, the
dollar value of a Variable Annuity Unit and hence the dollar amount of
the variable annuity payments varies up or down from month to month,
depending on the value of the securities held by the Fund. The dollar
amount of annuity payments will not be affected by mortality experience
or by an increase in expenses in excess of the charges provided for in
the Contracts.
The computation of the first variable annuity payment, the number
of Variable Annuity Units, the Variable Annuity Unit value, and the
second variable annuity payment may be illustrated by the following
example.
Assume that a male participant, residing in a state where there is
no premium tax, elects to buy a variable annuity on his 65th birthday
and selects a life annuity with 120 monthly payments certain. Assume
also that, 14 days before his Annuity Commencement Date, the
Participant's Variable Accumulation Account consists of 2,500.000
Variable Accumulation Units, and the Variable Accumulation Unit Value
for the fourteenth day before his Annuity Commencement Date was $11.600.
The Participant's account has a value of 2,500.000 multiplied by
$11.600 or $29,000.00, for the purpose of buying his variable annuity.
The rate of the first monthly payment of the variable annuity in this
example is $6.50 per $1,000 applied, so that the first payment is equal
to 29.00000 multiplied by $6.50 or $188.50.
If the Variable Annuity Unit Value for the month when the annuity
is bought is $1.125, the number of Variable Annuity Units to be credited
to the Annuitant equals $188.50 divided by $1.125, or 167.56 units. The
dollar amount of each subsequent payment will be equal to 167.56
multiplied by the Variable Annuity Unit Value for the month in which the
payment is due.
To determine the dollar amount of the second variable annuity
payment, assume that the ratio of the Variable Annuity Unit value for
the fourteenth day before the first day of the second month, to the
Variable Annuity Unit value for the fourteenth day before the first day
of the first month, is 1.003780. Then the Variable Annuity Unit value
for the second month is equal to the first month's value of $1.125
multiplied by .997137 times 1.003780, which is $1.125 multiplied by
1.000906, or $1.126. Therefore, the second payment equals the number of
Variable Annuity Units (167.56) multiplied by the Variable Annuity Unit
value ($1.126) or 188.67.
CALCULATION OF PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN
(Period Ended December 31, 1997)
1 Year 5 Year 10 Year
VCA-2 30.62% 20.21% 18.18%
S & P 500 33.36% 20.25% 18.02%
Average annual total return for the one-year, five-year and ten-
year periods shown above are calculated individually for each period. A
hypothetical initial payment of $1,000 is made to the Account on the
first day of each period. No further payments are made. As of the date
of this Statement of Additional Information, the only Contract charge
applied is the charge for MBL Life's assumption of (1) expense risks
(0.25% annually), and (2) mortality risks and the provision of the
minimum death benefit (0.12% annually). Prior to January 1, 1989, a
one-time Participant enrollment fee (up to $15.00) and an annual
administration charge (up to $10.00 and up to $0.50 per purchase payment
and transfer, or 2.00% of accumulation accounts, if greater) were
deducted. These charges, although no longer in effect, are included in
the average annual total return figures illustrated, for the years that
such charges were applicable. All distributions, if any, from the Fund
are assumed to be reinvested. Each Participant is assumed to redeem the
total value of his or her Variable Accumulation Account at the end of
each period shown above for cash, rather than electing to apply the
value to purchase an annuity.
The ending redeemable value is the Variable Accumulation Account
value at the end of each period, and is calculated by multiplying the
total number of units at the end of each period by the net asset value
on the last day of the period. Although eliminated as of January 1,
1989 and no longer charged, the ending redeemable value takes into
account the annual deduction from the Participant's Variable
Accumulation Account of the $10.00 administration charge, for the years
that such charges were applicable.
The average annual total return quotations for the 1, 5, 10 year
periods ended on December 31, 1997 are computed by finding the average
annual compounded rates of return over the 1, 5, and 10 year periods
that would equate the initial amount invested to the ending redeemable
value.
The calculation does not take into account any sales charge which
would have been deducted from the purchase payment, if made prior to
January 1, 1989. The inclusion of the sales charge in the calculation
would have reduced the average annual total return illustrated for each
period. The sales charge, enrollment fee, and administration charge
provisions were deleted from all VCA-2 contracts, effective January 1,
1989. The fee and charges are no longer levied.
The performance figures shown above are compared to performance
data for the Standard and Poor's 500 Stock Index ("S & P 500"), which is
described in the Account's Prospectus under the caption "Performance
Related Information".
ADDITIONAL INFORMATION
This Statement of Additional Information, and the Prospectus to
which it relates, omit some information contained in the registration
statement filed with the Securities and Exchange Commission, Washington,
D.C. Copies of such information may be obtained from the Commission
upon payment of the prescribed fees.
FINANCIAL STATEMENTS
The Account incorporates by reference into this Statement of
Additional Information its audited Financial Statements and the Report
of Independent Accountants thereon contained in the 1997 Annual Report.
The following financial statements relate to the financial
position and operations of MBL Life. As explained in the Account's
Prospectus, the value of a Contract Holder's interest under the
Contracts described herein is affected solely by the investment results
of the Account. The MBL Life financial statements should be considered
by Contract Holders only as bearing upon the ability of MBL Life to meet
its obligations under the Contract.
Copies of the Account's Financial Statements are mailed to each
Contract Holder semiannually. The Account's annual financial statements
are audited by a firm of independent accountants. The firm of Coopers &
Lybrand L.L.P. has been selected for the current fiscal year. The
Account will furnish, without charge, an additional copy of the Annual
Report upon request made to: Pension and Investment Products, MBL Life
Assurance Corporation, 520 Broad Street, Newark, New Jersey 07102-3111,
Attn: MBL VARIABLE CONTRACT ACCOUNT-2, telephone number 1-800-435-3191.
MBL LIFE ASSURANCE CORPORATION
STATUTORY FINANCIAL STATEMENTS
As of December 31, 1997 and 1996
and for the years then ended
MBL LIFE ASSURANCE CORPORATION
INDEX
As of December 31, 1997 and 1996 and for the years then ended
Page(s)
Report of Independent Accountants 2-3
Statutory Financial Statements:
Statements of Admitted Assets,
Liabilities and Surplus 4
Statements of Operations 5
Statements of Changes in Surplus 6
Statements of Cash Flows 7
Notes to Statutory Financial Statements 8-38
Supplemental Schedule:
Schedule of Assets and Liabilities
for the year ended December 31, 1997 39-41
<PAGE>
Report of Independent Accountants
To the Board of Directors of
MBL Life Assurance Corporation:
We have audited the accompanying statutory statement of admitted
assets, liabilities and surplus of MBL LIFE ASSURANCE
CORPORATION (the "Company") as of December 31, 1997 and 1996 and
the related statutory statements of income, changes in surplus
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 audits 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.
As described more fully in Note 2 to the financial statements,
the Company prepared these financial statements using accounting
practices prescribed or permitted by the State of New Jersey
Department of Banking and Insurance ("statutory accounting
practices"), which practices differ from generally accepted
accounting principles ("GAAP"). The effects on the 1997
statutory financial statements of the variances between this
basis of accounting and GAAP which have not been determined as
of the date of this report, are presumed to be material. The
effects on the 1996 statutory financial statements are disclosed
in Note 2.
In our opinion, because of the effects of the matter discussed
in the preceding paragraph, the financial statements referred to
above do not present fairly, in conformity with GAAP, the
financial position of MBL Life Assurance Corporation as of
December 31, 1997 and 1996, or the results of its operations or
its cash flows for the years then ended.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the admitted assets,
liabilities and surplus of MBL Life Assurance Corporation as of
December 31, 1997 and 1996 and the results of its operations and
its cash flows for the years then ended on the basis of
accounting described in Note 2.
<PAGE>
Our audits were conducted for the purpose of expressing an
opinion on the statutory financial statements taken as a whole.
The Supplemental Schedule of Assets and Liabilities for the year
ended December 31, 1997 is presented to comply with the NAIC's
Annual Statement Instructions and is not a required part of the
basic statutory financial statements. Such information has been
subjected to the auditing procedures applied in the audits of
the basic statutory financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic
statutory financial statements taken as a whole.
As discussed in Note 1, on May 1, 1994 the Company assumed
substantially all of the business, assets and liabilities, of
Mutual Benefit Life Insurance Company in Rehabilitation and
began operating under the terms and conditions of the Third
Amended Plan of Rehabilitation of Mutual Benefit Life Insurance
Company in Rehabilitation (the "Plan"). As further discussed in
Note 1, the Company's management in conjunction with
representatives of the State of New Jersey Department of Banking
and Insurance, developed the Plan, which was based on actuarial,
valuation and other assumptions, and reflected management's best
estimates of: a) future operations; b) the nature, timing and
extent of policyholders' benefits; and c) the timing and
proceeds from the restructuring of assets to fund the Company's
obligations. Further, as discussed in Note 14, the Superior
Court of New Jersey entered an Order on January 9, 1997,
effecting certain amendments to the Plan which become final and
non-appealable on February 24, 1997.
COOPERS & LYBRAND L.L.P.
Jersey City, New Jersey
February 18, 1998
MBL LIFE ASSURANCE CORPORATION
STATUTORY STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND SURPLUS
As of December 31, 1997 and 1996
(in thousands)
ADMITTED ASSETS: 1997 1996
Bonds $ 6,016,007 $ 5,619,889
Stocks:
Preferred 27 27
Common 164,631 162,123
Mortgage loans on real estate 185,891 379,419
Real estate owned 40,243 208,291
Policy loans 4,701,052 4,877,528
Other invested assets 33,690 49,577
Short-term investments 334,026 30,785
Cash 12,884 11,089
Cash and invested assets 11,488,451 11,338,728
Investment income due and accrued 293,363 368,977
Federal income tax recoverable 1,502 10,547
Other assets 9,912 22,511
Total General Account assets 11,793,228 11,740,763
Separate Account assets:
Industry Separate Account 2,315,982 2,221,408
Net equity in Special Purpose
Asset Vehicle 67,006 140,009
Reaffirmed Separate Accounts 295,197 262,820
Total Separate Account assets 2,678,185 2,624,237
Total admitted assets $14,471,413 $14,365,000
LIABILITIES AND SURPLUS: 1997 1996
Policy and contract liabilities:
Life and annuity reserves $10,462,984 $10,925,068
Accident and health reserves 94,920 119,332
Policyholders' funds left on deposit 122,545 131,292
Dividends payable in following year 6,312 8,034
Policy and contract claims 56,265 52,308
Other 292,150 47,811
11,035,176 11,283,845
General liabilities:
Expenses, commissions and taxes 7,459 24,518
Asset valuation reserve 78,770 93,295
Interest maintenance reserve 1,991 1,950
Other 160,052 187,239
248,272 307,002
Total General Account liabilities 11,283,448 11,590,847
Separate account liabilities:
Industry separate account 2,315,982 2,221,408
Reaffirmed separate accounts 280,731 251,846
Total Separate Account liabilities 2,596,713 2,473,254
Total liabilities 13,880,161 14,064,101
Surplus:
Common stock, par value $100 per share;
25,000 shares authorized;
20,000 shares issued and outstanding 2,000 2,000
Paid-in and contributed surplus 21,446 21,448
Unassigned surplus 567,806 277,453
591,252 300,901
Less treasury stock, at cost (7 shares) - (2)
Total surplus 591,252 300,899
Total liabilities and surplus $14,471,413 $14,365,000
The accompanying notes are an integral part of these
statutory financial statements.
STATUTORY STATEMENTS OF OPERATIONS
For the years ended December 31, 1997 and 1996
(in thousands)
1997 1996
Premiums and annuity considerations $ 213,937 $1,240,049
Considerations for supplementary contracts 5,719 9,722
Investment income, net of investment
expenses of $54,764 and $116,611 865,472 930,697
Commissions and expense allowances on
reinsurance ceded, net of reserve
adjustment of $11,487 and $2,359 (7,287) 78
Amortization of interest maintenance reserve 514 (783)
Net income (loss) from operations from
Separate Accounts statements 10,772 (24,957)
Miscellaneous income 13,527 17,959
Total revenue 1,102,654 2,172,765
Benefits paid or provided:
Death benefits 223,811 249,906
Annuity benefits 33,205 36,403
Disability and A&H benefits 19,979 15,443
Surrender benefits 1,034,059 1,105,157
(Decrease) in policy and contract
liabilities (495,243) (37,908)
Payments on supplementary contracts 24,914 25,280
Other benefits 7,170 6,947
847,895 1,401,228
Expenses:
Commissions on premiums and annuity
considerations 7,939 8,383
Commissions and expense allowances
on reinsurance assumed 14,188 72,924
General insurance expenses 55,477 60,023
Insurance taxes, licenses and fees 6,024 5,641
Increase in loading, net (94) 193
Net transfers from Separate Accounts (107,185) (110,005)
Other expenses 24,197 19,593
546 56,752
Total benefits and expenses 848,441 1,457,980
Income before dividends, taxes and
net realized capital losses 254,213 714,785
Dividends to policyholders (86,801) (641,738)
Income after dividends and before
taxes and net realized capital losses 167,412 73,047
Federal income tax expense (28,265) (14,967)
Income after dividends and taxes,
before net realized capital losses 139,147 58,080
Net realized capital gains (losses),
net of tax (benefit) of $27,128
and ($5,054) 100,727 (27,224)
Net income $ 239,874 $ 30,856
The accompanying notes are an integral part
of these statutory financial statements.
<PAGE>
STATUTORY STATEMENTS OF CHANGES IN SURPLUS
For the years ended December 31, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
Paid-in
and Con- Un- Trea-
Common tributed assigned sury Total
Stock Surplus Surplus Stock Surplus
<S> <C> <C> <C> <C> <C>
Balance, beginning of year -
January 1, 1996 2,000 $ 21,448 $ 108,753 $(2) $132,199
Net income 30,856 30,856
Change in net unrealized capital
gains 82,972 82,972
Change in non-admitted assets 5,127 5,127
Change in asset valuation reserve 58,005 58,005
Change in net equity in Special
Purpose Asset Vehicle (after
funds transferred to the
General Account below) (208,874) (208,874)
Funds transferred to Industry
Separate Accounts (1,508) (1,508)
Funds received from Special
Purpose Asset Vehicle 210,116 210,116
Current year's Federal income
tax benefit not affecting
operations (375) (375)
Other (7,619) (7,619)
Balance, end of year -
December 31, 1996 2,000 21,448 277,453 (2) 300,899
Net income 239,874 239,874
Change in net unrealized capital
gains (72) (72)
Change in non-admitted assets 2,788 2,788
Change in asset valuation reserve 14,525 14,525
Change in net equity in Special
Purpose Asset Vehicle (after
funds transferred to the General
Account below) (80,243) (80,243)
Funds transferred to Industry
Separate Account (14,715) (14,715)
Funds received from Special
Purpose Asset Vehicle 80,204 80,204
Current year's Federal income tax
benefit not affecting operations (78) (78)
Settlement Agreement 31,837 31,837
Distribution from Liquidating
Trust 14,641 14,641
Other (2) 1,592 2 1,592
Balance, end of year -
December 31, 1997 $ 2,000 $ 21,446 $567,806 $ 0 $ 591,252
</TABLE>
The accompanying notes are an intergral part of these statutory
financial statements.
<PAGE>
STATUTORY STATEMENT OF CASH FLOWS
For the years ended December 31, 1997 and 1996
(in thousands)
1997 1996
Cash flows from operating activities:
Premiums and annuity considerations $ 215,755 $ 1,241,753
Considerations for supplementary contracts 5,719 9,721
Net investment income 942,225 947,519
Miscellaneous income 5,897 18,484
Benefits paid to policyholders (1,111,614) (1,432,037)
Commissions and operating expenses paid (91,330) (142,514)
Dividends paid to policyholders (88,522) (640,267)
Federal income taxes paid (40,300) (4,672)
Net transfer from Separate Accounts 93,726 113,661
Other cash provided 1,606 28,667
Net cash provided by (used in)
operating activities (66,838) 140,315
Cash flows from investing activities:
Proceeds from sales, maturities and
repayments of bonds and stocks 1,681,746 1,672,733
Proceeds from sales of real estate 285,907 237,219
Proceeds from sales and repayments of
other invested assets 22,697 40,262
Repayments of mortgage loans 190,407 915,133
Purchase of bonds and stocks (2,069,876) (3,146,529)
Purchase of real estate (12,755) (15,118)
Purchase of other invested assets (1,220) (22,017)
Funding of mortgage loans 0 (93,929)
Cash transferred from Special Purpose
Asset Vehicle 80,204 210,116
Tax on capital gains 0 (7,618)
Net decrease in policy loans 176,476 83,594
Other cash provided (used) 18,288 (21,813)
Net cash provided by (used in)
investing activities 371,874 (147,967)
Net increase (decrease) in cash 305,036 (7,652)
Cash and short-term investments,
beginning of year 41,874 49,526
Cash and short-term investments, end of year $ 346,910 $ 41,874
The accompanying notes are an integral part of these statutory
financial statements.
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1997
1. Organization and Rehabilitation of Mutual Benefit Life Insurance
Company
Organization
MBL Life Assurance Corporation ("MBL Life" or the "Company") is
a New Jersey domiciled stock life insurance company licensed in
each of the fifty states and the District of Columbia. Prior to
May 1, 1994, MBL Life was a wholly owned subsidiary of The
Mutual Benefit Life Insurance Company in Rehabilitation ("Mutual
Benefit Life"). As discussed below, substantially all of the
assets and liabilities of Mutual Benefit Life were transferred
to MBL Life as of May 1, 1994 under the terms of the Agreement
of Assumption and Reinsurance.
Rehabilitation of Mutual Benefit Life
On July 16, 1991, the Superior Court of New Jersey (the "Court")
entered an Order (the "Order") appointing the New Jersey
Commissioner of Banking and Insurance (the "Commissioner") as
the Rehabilitator of Mutual Benefit Life.
The Commissioner was empowered by the Order to take such steps
as deemed appropriate to remove the cause and conditions that
made rehabilitation necessary. The initial Plan of
Rehabilitation was filed with the Court on August 3, 1992. On
January 15, 1993, the Commissioner filed the First Amended Plan
of Rehabilitation (the "Plan") with the Court. On August 12,
1993, the Court approved the Plan with certain modifications.
Subsequently, two amendments to the Plan were filed and on
November 10, 1993, the Court entered an Order of Confirmation
provided certain further modifications to the Plan were made.
The Court entered an order approving the modified plan on
January 28, 1994 which provided for the implementation of the
Plan on April 29, 1994 (the effective date of which is deemed to
be May 1, 1994, the "Plan Implementation Date"), to extend
through December 31, 1999. The Plan is based on actuarial,
valuation and other assumptions and reflects management's best
estimates of: a) future operations; b) the nature, timing and
extent of policyholders' benefits; and c) the timing and
proceeds from the restructuring of assets to fund the Company's
obligation. In view of the operating environment and
circumstances under which the Company operates, there is
significant uncertainty inherent in the assumptions made by
management, and as such, the actual results may differ
materially from management's estimates.
On January 9, 1997 the court approved a Settlement Agreement
that amended certain aspects of the Plan (see Note 14).
<PAGE>
Under the terms of the Plan, the assets and liabilities of
Mutual Benefit Life were allocated to a number of distinct
entities as described below:
Mutual Benefit Life's insurance and annuity contracts were
restructured or reaffirmed and transferred to MBL Life under the
terms of the Agreement of Assumption and Reinsurance, along with
certain other liabilities and assets necessary to fund such
liabilities. A majority of the insurance and annuity contracts
which were restructured and reaffirmed according to the Plan
were guaranteed as to account values and stated interest rates
by various State Insurance Guaranty Associations, collectively
referred to as the Participating Guaranty Associations.
Those contract liabilities deemed not to be covered by the
Participating Guaranty Associations were restructured and
segregated into a separate account (the "Industry Separate
Account"). These liabilities were guaranteed by a consortium of
insurance companies (the "Industry Reinsurers").
Assets and liabilities which were not transferred to MBL Life
are held in a liquidating trust, of which the Commissioner is
the sole Trustee. These assets and liabilities are not included
in the accompanying statutory financial statements. The
residual value, if any, in the Liquidating Trust after
settlement of all liabilities, will be distributed to MBL Life,
the beneficiary of the Trust (see Note 3).
The assets not retained in the Liquidating Trust were allocated
to MBL Life's General Account ("General Account") and the
Industry Separate Account in proportion to the liabilities
assumed by each entity. This allocation generally resulted in
the assuming entities receiving assets with similar
characteristics and proportionate estimated fair values. In
addition, the General Account and the Industry Separate Account
each received a proportionate share of a Special Purpose Asset
Vehicle (the "SPAV") separate account. The SPAV was created
under the terms of the Plan and includes assets which could not
be allocated between the two entities in their entirety because
of their large size or other special characteristics (see Note 4).
In addition to the establishment of the entities discussed
above, the Plan also provided numerous other terms and
conditions which affected policyholders, contractholders,
creditors and other parties. The more significant of these
terms and conditions include:
A majority of policyholder liabilities were restructured based
upon estimates of the value and expected yield of the assets
owned by Mutual Benefit Life at the time the Plan was submitted
to the Court. Such restructuring generally resulted in the
value of such liabilities as of July 16, 1991 being retained,
however, future interest rates were tied to expected asset
yields with only minimum interest rates guaranteed. In
addition, restrictions were placed on policyholder accessibility
of guaranteed values including the imposition of early
withdrawal charges through December 31, 1999, the end of the
Rehabilitation Period (see Notes 13 and 14).
The Plan provided an option allowing Mutual Benefit Life
policyholders, annuitants and pension contract participants to
withdraw ("opt-out") their account values prior to the Plan
closing at substantial discounts from such values.
Approximately $103.7 million was paid to policyholders,
annuitants and pension contract participants who elected to
opt-out as of May 1, 1994.
Pursuant to the terms of the Plan, the ownership of the stock of
MBL Life was transferred to a Stock Trust, of which the
Commissioner is the sole Trustee. The beneficiaries of this
Stock Trust consist of the holders of general unsecured claims
as defined in the Plan (see Note 14 for certain amendments as a
result of a Settlement Agreement).
The Plan provided policyholders whose contracts were originally
issued by MBL Life with an option to withdraw, without penalty,
their account values as of the Plan Implementation Date. Actual
withdrawals amounted to $8.3 million.
Separate Account contract liabilities, and related assets, which
existed prior to the Plan implementation date, were considered
"reaffirmed contracts" pursuant to the terms of the Plan and
were not affected by the implementation of the Plan. These
contracts consist primarily of individual and group variable
annuities.
On September 15, 1997, the Board of Directors of MBL Life
announced that it had engaged an investment banking firm to
assist in exploring a possible sale of the Company before the
end of the Rehabilitation Period.
2. Significant Accounting Policies
Basis of Presentation
The accompanying statutory financial statements have been
prepared in accordance with accounting practices prescribed or
permitted by the State of New Jersey Department of Banking and
Insurance (the "Department") ("statutory accounting practices").
Prescribed statutory accounting practices are those practices
included in a variety of publications of the National
Association of Insurance Commissioners ("NAIC"), as well as
state laws, regulations and general administrative rules.
Permitted statutory accounting practices encompass all
accounting practices not so prescribed that have been approved
by the Department. In order to account for those transactions
which were uniquely related to the implementation of the Plan,
MBL Life received written approval from the Department for a
number of accounting practices which differed from or were
ambiguous to the prescribed statutory accounting practices. The
effects on surplus related to those permitted accounting
practices have not been determined.
Statutory accounting practices differ from generally accepted
accounting principles ("GAAP"). The effects on the 1997
statutory financial statements of the variances between
statutory accounting practices and GAAP which have not yet been
determined, are presumed to be material. The effects on the
1996 statutory financial statements of the variances between
statutory accounting practices and GAAP are an increase in GAAP
shareholders' equity of approximately $351 million. The
accompanying statutory financial statements do not purport to
represent the estimated fair value of the information presented
therein. Significant accounting policies, permitted statutory
accounting practices and the manner that such policies and
practices differ from GAAP for stock life insurance companies,
applied in preparing the statutory financial statements follow.
Certain prior year amounts have been reclassified to conform
with current year presentation.
Carrying Amounts of Assets and Liabilities
Under the Company's permitted accounting practices, the carrying
amount of assets transferred to MBL Life from Mutual Benefit
Life pursuant to the Plan was based upon the carrying amounts of
such assets as reflected in Mutual Benefit Life's accounting
records immediately prior to the transfer.
In addition, liabilities, other than those retained in the
Liquidating Trust and Policy and Contractholder Reserves
restructured pursuant to the Plan, were transferred at
historical carrying amounts of such liabilities as reflected in
Mutual Benefit Life's accounting records prior to the transfer.
Investments
Bonds and Stocks
Bonds qualifying for amortization based upon their
classification by the NAIC Securities Valuation Office ("SVO")
are stated at amortized cost; all other bonds are stated at
values prescribed by the SVO. Under GAAP, only those bonds
classified by MBL Life as held-to-maturity would be carried at
amortized cost. Bonds classified as available for sale or
trading would be carried at their estimated fair value.
Unaffiliated preferred stocks in good standing are carried at
cost. Unaffiliated preferred stocks not in good standing are
stated at the lower of cost or estimated fair value;
unaffiliated common stocks are carried at estimated fair value.
Under GAAP, unaffiliated preferred and common stock would be
carried at estimated fair value.
Investments in subsidiaries are stated at MBL Life's equity in
the subsidiaries' net assets and are included in stocks. Under
GAAP, the assets and liabilities and revenues and expenses of
the majority owned subsidiaries would be consolidated with those
of MBL Life.
Short-term investments generally maturing within one year, are
carried at amortized cost which approximates estimated fair
value.
Realized gains or losses from the sale of bonds and stocks are
determined on the basis of specific identification.
Derivative Investments
Under the Company's permitted accounting practices, the Company
has taken positions in certain derivative financial instruments
to mitigate the impact future changes in market value may have
on unrealized gains contained in the Company's common stock
portfolio. The Company employed a hedging strategy using a
"collar" structured with the purchase of S&P 500 index "put"
options and the sale of S&P 500 index "call" options.
The derivative financial instruments are valued consistently
with the hedged items and valuation adjustments are reported as
part of surplus. Hedges of items carried at market value are
valued at market value. Under GAAP, these financial instruments
would not qualify for special accounting as hedges.
Mortgage Loans on Real Estate
Under the Company's permitted accounting practices, all
commercial mortgage loans not included in the pool of mortgage
loans to be sold in a "bulk sale" during the first quarter of
1998, are carried at the lower of their individual unpaid
principal balance or discounted net recoverable amount based
upon ten year cash flows plus an eleventh year reversion at
estimated sales value.
With the exception of the mortgage loans which are not being
disposed of as part of the "bulk sale", the valuation reserve
held on the pool of mortgage loans is that which is necessary to
report the mortgage loans at the estimated net realizable value
to be derived from the sale (see Note 4).
As of December 31, 1996, the Company also established a
portfolio carrying value reserve for its mortgage loan portfolio
in light of the inherent credit risks associated with such a
portfolio. The mortgage portfolio reserve was approximately
2-4% of the mortgage portfolio's statutory carrying value at
December 31, 1996. The total valuation reserves established for
1997 and 1996 approximated that which would be required under
GAAP.
<PAGE>
Real Estate Owned
Home office real estate is stated at depreciated cost with
depreciation calculated using the straight-line basis. Real
estate acquired in satisfaction of debt, which is presumed to be
held for sale, is valued at the lower of the recorded investment
in the loan or estimated fair value based upon discounted cash
flow analyses at the date of foreclosure. Subsequent to its
initial valuation, such real estate is stated at the lower of
depreciated cost or estimated fair value by establishing a
valuation allowance for any differences between estimated fair
value and depreciated cost where the estimated fair value is
lower. Under GAAP, foreclosed properties are recorded at the
estimated fair value of the property at the date of foreclosure
and are depreciated from the date of foreclosure until such time
as the Company determines that the property will be sold and has
commenced marketing efforts. At such time, the property is
carried at the lower of depreciated value or estimated fair
value based on discounted cash flow analysis.
Policy Loans
Policy loans are stated at current unpaid principal balances and
are not in excess of cash surrender values.
Other Invested Assets
Other invested assets consist primarily of investments in joint
ventures and partnerships. Real estate joint ventures are
reported based on the equity method of accounting. Investments
in non-real estate partnerships are generally carried at cost,
adjusted for any unrealized gains or losses attributable to
partnership investments for which quoted market values are
available.
Certain Mutual Benefit Life industrial revenue bond guarantees
on real estate joint venture indebtedness were not carried over
to MBL Life because MBL Life is not a party to such guarantees.
Pursuant to the terms and conditions of the Plan, these
guarantees were not assumed by MBL Life (see Note 12). Negative
carrying values of the equity in these joint ventures resulting
from the industrial revenue bond guarantees as reflected in
Mutual Benefit Life's books prior to May 1, 1994 were reversed.
Other Assets and Other Liabilities
The accompanying statutory financial statements contain amounts
due to and due from the Industry Separate Account for
transactions handled by the General Account on its behalf. As
of December 31, 1997 and 1996 the net amounts due to the
Industry Separate Account approximate $14.1 million and $18.0
million, respectively.
Investment Valuation Reserves
Mandatory reserves have been established for General Account
investments in accordance with guidelines prescribed by
insurance regulatory authorities. Such reserves consist of an
Asset Valuation Reserve (AVR) for all General Account invested
assets (including the General Account's proportionate share of
the invested assets held in the SPAV), and an Interest
Maintenance Reserve (IMR), which defers General Account realized
capital gains and losses (including the General Account's
proportionate share of realized gains and losses incurred by the
SPAV) (net of tax) attributable to interest rate fluctuations on
fixed income investments and recognizes them over the estimated
remaining duration of the investments sold.
The AVR as of December 31, 1997 and 1996 for the General Account
was calculated using the prescribed formula. Under the
Company's permitted accounting practices, the opening balance
utilized in calculating the 1994 AVR was that of MBL Life's
December 31, 1993 AVR which was adjusted, to the extent
possible, for the appropriate realized and unrealized gains and
losses incurred in the General Account (including the General
Account's proportionate share of appropriate realized and
unrealized gains and losses in the SPAV) subsequent to May 1,
1994 and by MBL Life prior to May 1, 1994. The current year's
contribution to the AVR was based on the General Account assets
at December 31, 1997 (including the General Account's
proportionate share of assets held in the SPAV).
The IMR as of December 31, 1997 and 1996 was calculated, using
the prescribed formula, based upon the interest rate related
gains and losses of the General Account (including its
proportionate share of such gains and losses in the SPAV).
Under GAAP, AVR and IMR reserves are not established. MBL Life
also established voluntary investment valuation reserves for
certain General Account invested assets. Changes to the AVR and
voluntary investment reserves will be reported as direct
additions to or deductions from surplus. Transfers to the IMR
will be deducted from realized capital gains.
Non-Admitted Assets
Certain assets, principally furniture and equipment, leasehold
improvements, prepaid pension costs, certain due and accrued
interest on delinquent mortgage loans, accident and health
insurance premiums past due and agents' debit balances are
designated as "non-admitted" and are not included in the
statutory balance sheets. Under GAAP, these assets would be
included in the balance sheet, net of applicable depreciation,
amortization and valuation reserves.
Policy and contract reserves
Reserves for restructured life insurance policies (universal
life plans) and reaffirmed contracts amounted to $10.5 billion
and $10.9 billion at December 31, 1997 and 1996, respectively
and are comprised as follows:
Policyholder Reserves for Mutual Benefit Life traditional and
adjustable life policies that have been restructured as
Universal Life Insurance policies pursuant to the terms and
conditions of the Plan, amounted to $2.3 billion for 1997 and
1996. Under the Company's permitted accounting practices, these
reserves are carried at account value (without reduction for
moratorium charge), plus an excess interest reserve based on any
future guaranteed interest in excess of the 1994 valuation rate.
The basis for the opening July 16, 1991 (restructured date)
restructured account value for restructured policies was the
statutory life insurance reserve on Mutual Benefit Life's
accounting records for such policies. Under GAAP, life insurance
reserves for universal life plans are equal to policy account or
contract values.
Reserves for Corporate Owned Life Insurance ("COLI") policies
amounted to $4.7 billion and $5.1 billion at December 31, 1997
and 1996, respectively. Reserves for such policies are
generally computed under the Commissioners' Reserve Valuation
Method, using the Commissioner's 1980 Standard Ordinary
Mortality Table for individual policies and the Commissioner's
1958 Standard Ordinary Mortality Table for group policies, and
assuming interest rates ranging from 4.5% to 6.0%. Under GAAP,
such reserves are equal to contract value.
In December 1997, the Company was notified of the intention of a
COLI policyholder to surrender their contract with a liability
in the amount of $220 million related to this settlement which
was transferred from Life and Annuity Reserves and is included
in Other Policy and Contract Liabilities. Full payment was made
in January 1998.
Reserves for annuity contracts in the General Account amounted
to approximately $3.4 billion at December 31, 1997 and 1996.
For those annuity contracts which were restructured pursuant to
the Plan, reserves are based on crediting rates of 5.1% in 1997
and 1996. Under the Company's permitted accounting practices,
reserves for such contracts are generally equal to contract fund
balances (without reduction for moratorium charges), plus an
excess interest reserve based on any future guaranteed interest
in excess of the applicable valuation rate. For those contracts
not restructured pursuant to the Plan, reserves are based on
crediting rates ranging from 2.25% to 11.0%. Under GAAP,
reserves for annuity contracts are generally equal to contract
fund balances.
Policyholder reserves for Mutual Benefit Life policies that were
reaffirmed, pursuant to the terms of the Plan amounted to
approximately $42.0 million and $44.4 million at December 31,
1997 and 1996, respectively and consisted primarily of $24.6
million and $26.7 million in each year, respectively, for
individual supplementary contracts involving life contingencies
(SCILC). The individual SCILC reserves are calculated using the
1971 and 1983 Individual Annuity Mortality Tables and
Annuitants' 1949 Table, assuming interest rates of 3.5% to
8.75%. Under GAAP, individual SCILC reserves are calculated
using the Company's actual experience assuming the same interest
rates.
Reserves relating to guaranteed investment contracts and other
deposit-type contracts amounted to $28.4 million and $33.0
million at December 31, 1997 and 1996, respectively. These
reserves are equal to contract values.
Reserves for individual and group accident and health policies
amounted to $94.9 million and $119.3 million at December 31,
1997 and 1996, respectively, and are comprised as follows:
Active life reserves for individual accident and health
contracts, amounting to $34.5 million and $34.1 million at
December 31, 1997 and 1996, respectively, include unearned
premium reserves computed on a pro rata basis and additional
reserves based on the 1964 Commissioners' Disability Table,
combined with the 1958 and 1980 Commissioner's Standard Ordinary
Mortality Tables at interest rates ranging from 3.5% to 5.0%.
Under GAAP, such reserves would be accrued as GAAP premium is
recognized.
Reserves for individual disabled lives, $58.4 million and $83.1
million at December 31, 1997 and 1996, respectively, are
calculated principally using the 1964 Commissioners' Disability
Table at 3.5% interest and the 1985 Commissioners' Individual
Disability Table at 4.5% and 5.0% interest. Under GAAP, such
reserves would be accrued as GAAP premium is recognized,
representing the present value of future benefits to be paid to
policyholders, less the present value of future net premiums.
Reserves for group accident and health contracts amounting to
$2.0 million and $2.1 million at December 31, 1997 and 1996,
respectively.
Reserves for annuity contracts in the Industry Separate Account
amounted to approximately $2.1 billion and $2.0 billion at
December 31, 1997 and 1996, respectively. Reserves for those
annuity contracts which were restructured pursuant to the Plan
are based on crediting rates ranging from 6.35% to 9.75% in 1997
and 5.25% to 9.25% in 1996, respectively. Under the Company's
permitted accounting practices, reserves for such contracts are
generally equal to contract fund balances (without reduction for
moratorium charges), plus an excess interest reserve based on
any future guaranteed interest in excess of applicable valuation
rate. Under GAAP, reserves for these annuity contracts are
generally equal to fund balance.
Pension, Post-retirement and Post-employment Benefits
The Company has several employee benefit plans in effect that
provide for pension, post-retirement and post-employment
benefits (see Note 9).
MBL Life recognizes defined benefit pension plan costs based on
the annual amounts contributed to the plan. Under GAAP, pension
costs are accounted for in accordance with SFAS No. 87,
Employers' Accounting for Pensions.
MBL Life accounts for the costs of its retirees' post-retirement
healthcare and life insurance benefits plans using the statutory
method which accrues for retirees and fully eligible employees
only. Under GAAP, the post-retirement liability would include
an accrual for current employees who are not currently eligible
to receive post-retirement benefits, but are expected to become
eligible for these benefits, in addition to retirees and fully
eligible or vested employees.
The Company provides certain post-employment benefits which are
expensed as incurred and other benefits that are provided for
currently. Under GAAP, post-employment benefits are accounted
for in accordance with SFAS No. 112, Employers' Accounting for
Postemployment Benefits.
General Other Liabilities
Without giving regard to the validity of the claims or the
Settlement Agreement with the Class Four Creditors (see Note
14), the statutory statement of admitted assets, liabilities and
surplus at December 31, 1996 included an amount then estimated
to equal the potential liability of MBL Life of certain Class 1
claims as established by the Order of the Superior Court.
The Settlement Agreement fixed the amount of this Class 1 claim
at $26 million versus the $58 million which was the accrued
amount at December 31, 1996. The Settlement Agreement
stipulated that the Company would make a payment of $26 million
and the remaining $32 million would result in a one time gain to
the Company. MBL Life agreed to pay certain professional fees
incurred by the parties to the Settlement Agreement. The
Company accounted for this transaction as a direct increase in
unassigned surplus in 1997.
Under GAAP, the inclusion of these liabilities would be
determined by the applicable requirements of SFAS No. 5,
Accounting for Contingencies and the one time gain to the
Company would be reported as Other Income.
Industry Separate Account
Pursuant to the terms of the Plan of Operations of the Industry
Separate Account, as approved by the Department, a liability has
been established within the Industry Separate Account
representing the excess of the carrying value of the assets of
the Industry Separate Account over its liabilities. A receivable
from or payable to the Industry Reinsurers will be established
depending if statutory liabilities exceed statutory assets of
the account in the future. This amount will be adjusted
throughout the Rehabilitation Period with final payments being
made in accordance with the Participation and Reinsurance
Agreement which is part of the Plan.
Under the Company's permitted accounting practices, the Industry
Separate Account assets are reflected in the December 31, 1997
and 1996 statutory statements of admitted assets, liabilities
and surplus with all other separate account assets and separate
account liabilities, respectively, as a one line item. The
accounting practices of the Industry Separate Account are the
same as corresponding accounting practices of the General
Account. The Industry Separate Account has not established an
AVR nor an IMR.
Special Purpose Asset Vehicle
Under the Company's permitted accounting practices, the General
Account's net equity in the SPAV is reflected in the December
31, 1997 and 1996 statutory assets with all other separate
account assets. Funds transferred from the SPAV ($80 million in
1997 and $210 million in 1996) represent the General Account's
proportionate share of the distribution of cash flows from the
assets maintained in the SPAV. The accounting practices for
this separate account are the same as the corresponding
practices for the General Account. The General Account's
proportionate share of the assets in this separate account are
included in the calculation of the General Account's AVR and
IMR, as necessary (see Note 4). The General Account's
proportionate share of the net gain or loss from operations of
the SPAV are included in the accompanying statutory statements
of operations.
Reaffirmed Separate Accounts
Assets held in separate accounts which were reaffirmed pursuant
to the terms of the Plan are carried at market value. They are
reflected in the December 31, 1997 and 1996 statutory statements
of admitted assets, liabilities and surplus with all other
separate account assets. The liabilities of each of these
separate accounts are reported at participants' corresponding
equity in the accounts and shown with all other separate account
liabilities in the accompanying statutory statements of admitted
assets, liabilities and surplus. These liabilities are
considered to be reported at estimated fair value. The net gain
or loss from operations of the Reaffirmed Separate Accounts are
included in the accompanying statutory statements of operations.
The Reaffirmed Separate Accounts are pooled investment funds in
which investment income and gains or losses accrue directly to
account participants. The assets of these accounts are
segregated from and are not subject to the claims which may
arise out of any other business of MBL Life. The underlying
investment risks are assumed by the account participants.
Acquisition Costs
In accordance with statutory accounting practices, commissions
and other costs incurred in acquiring new business are charged
to operations as incurred. Under GAAP, the costs of acquiring
new business that vary with and are directly related to the
production of new or renewal business would be deferred to the
extent such costs are deemed recoverable and amortized over the
estimated duration of the underlying policies or contracts.
Revenue Recognition
Premium revenues for universal life and investment-type products
are recognized in income when due. Premiums are credited to
account funds and the cost of insurance is charged against
account values. Under GAAP, premiums are reported as deposits
to policyholders account balances.
Net realized investment gains and losses, less applicable income
taxes and amounts resulting from changes in interest rates which
have been deferred and charged or credited to the IMR are
reported in the accompanying statutory statements of operations
and are determined using the specific identification method.
Income Taxes
The provision for Federal income taxes is based on net gain from
operations after adjusting for certain income and expense items,
principally differences in statutory and tax reserves, accrual
of discount on bonds and specified policy acquisition expenses.
In accordance with statutory accounting practices, no provision
has been made for deferred income taxes, to account for the tax
effects of temporary differences between the tax and book basis
of assets and liabilities. Under GAAP, such a provision would
be made.
Statements of Cash Flows
The statements of cash flows are presented in accordance with
guidelines established by the NAIC rather than in accordance
with GAAP. For purposes of the statements of cash flows, MBL
Life considers all highly liquid investments with a maturity of
one year or less to be short-term investments.
Use of Estimates
The preparation of financial statements in conformity with
statutory accounting practices requires management to make
estimates and assumptions which affect the reporting of assets
and liabilities and disclosure of contingent liabilities as of
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from these estimates. Appropriate
disclosures regarding the use of estimates have been made
throughout these statutory financial statements.
3. Unconsolidated Subsidiaries and Other Affiliates
MBL Life's subsidiary operations primarily include real estate
investment management, brokerage activities and other investment
management and advisory services. At December 31, 1997 and 1996,
MBL Life's investment in the net equity of such unconsolidated
subsidiaries, including those carried in the SPAV, amounted to
approximately $15 million and $14 million, respectively. MBL
Life incurs charges on behalf of its subsidiaries which are
reimbursed pursuant to agreements for shared use of property,
personnel and facilities.
MBL Life's net equity in joint ventures and other partnerships,
principally real estate and venture capital, including those
transferred to the Industry Separate Account and the SPAV, was
approximately $86 and $149 million at December 31, 1997 and
1996, respectively. At December 31, 1996 MBL Life had
outstanding mortgage loans with several of its real estate joint
ventures, the carrying value of which was approximately $78
million. During 1997 these loans were either paid off or
otherwise disposed of as the Company's investments in these real
estate joint ventures were liquidated.
The carrying value of MBL Life's investment in the largest
project was approximately 38% and 33% of the SPAV assets at
December 31, 1997 and 1996, respectively. In addition, at
December 31, 1996 residential mortgage loans with a carrying
value of approximately 20% of the SPAV assets had been issued to
purchasers of units in this largest project. These loans were
sold during 1997 (see Note 4).
During 1996, a home improvement retailer in which the Company
had a controlling interest, filed for bankruptcy protection
under Chapter 11, which resulted in MBL Life's investment being
written off. Also during 1996, the Company sold its investment
in a children's clothing operation. The net gain to the SPAV
during 1996 relating to these two assets was $19.8 million.
The Company monitors and adjusts the carrying value of the SPAV
assets based upon the disposition plan of the individual assets
in the SPAV.
In November 1997, the Commissioner in her capacity as Trustee of
the Liquidating Trust, approved a distribution from the Trust to
MBL Life of $20 million. This distribution was shared
proportionately between the General Account (approximately $15
million) and the Industry Separate Account (approximately $5
million). The amount of any residual value available for future
distribution to the beneficiary of the Trust cannot currently be
determined.
<PAGE>
4. Investments
Net investment income for the years ended December 31, 1997 and
1996 was derived from the following sources (in
thousands):
1997 1996
Bonds $ 397,118 $ 330,670
Stocks:
Preferred - 4
Common 3,847 6,664
Mortgage loans on real estate 29,996 82,499
Real estate owned 40,906 104,172
Policy loans 423,208 513,114
Other invested assets 16,865 3,048
Short term investments 7,180 2,914
Other 1,116 4,223
Total investment income 920,236 1,047,308
Investment expenses (54,764) (116,611)
Net investment income $ 865,472 $ 930,697
Bonds
The amortized cost, gross unrealized gains and losses and NAIC
market values of bonds by category, as of December 31, 1997 and
1996, are shown below (in thousands).
<TABLE>
<CAPTION>
December 31, 1997 NAIC
Amortized Gross Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. Government
agencies $ 36,938 $ 357 $ - $ 37,295
Foreign governments 126,790 1,693 1,000 127,483
Corporate securities 5,560,862 25,591 594 5,585,859
Mortgage-backed securities 291,417 - - 291,417
Total $6,016,007 $27,641 $1,594 $6,042,054
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996 NAIC
Amortized Gross Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. Government
agencies $ 511,384 $ 514 $ 83 $ 511,815
Foreign governments 99,617 2,384 - 102,001
Corporate securities 4,705,137 21,673 533 4,726,277
Mortgage-backed securities 303,751 - - 303,751
Total $5,619,889 $ 24,571 $ 616 $5,643,844
</TABLE>
The amortized cost and NAIC market value of bonds, at December
31, 1997, respectively, by contractual maturity are shown below.
Bonds not due at a single maturity date have been included in
the table in the year of final maturity. Expected maturities may
differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without
prepayment penalties.
December 31, 1997
(in thousands)
Amortized NAIC
Cost Market Value
Due in one year or less $ 206,662 $ 207,370
Due after one year through five years 5,481,986 5,507,250
Due after five years through ten years 13,992 13,849
Due after ten years 21,950 22,168
5,724,590 5,750,637
Mortgage-backed securities 291,417 291,417
Total $6,016,007 $ 6,042,054
Proceeds from sales of investments in debt securities during
1997 and 1996 were $1.2 billion and $1.3 billion, respectively.
Gross gains of $2.7 and $11.7 million and gross losses of $3.8
million and $6.4 million were realized on those sales in 1997
and 1996, respectively.
<PAGE>
Stocks
The statement values, which also represent fair values, and the
cost of preferred and common stocks as of December 31, 1997 and
1996, are shown below (in thousands):
<TABLE>
<CAPTION>
December 31,
1997 1996
NAIC NAIC
Statement Statement
Cost Value Cost Value
<S> <C> <C> <C> <C>
Preferred stocks:
Industrial and miscellaneous $ 27 $ 27 $ 27 $ 27
Common stocks:
Public Utilities 750 2,509 990 3,208
Banks, thrifts and insurance
companies 436 3,801 610 2,904
Industrial and miscellaneous 112,919 156,708 111,867 141,813
Unconsolidated subsidiaries 6,101 15,072 5,754 14,198
Derivative instruments 0 (13,459) 0 0
120,206 164,631 119,221 162,123
Total stocks $120,233 $164,658 $119,248 $162,150
</TABLE>
Gross unrealized investment gains on preferred and common stocks
totaled $57.9 million and $43.7 million and gross unrealized
investment losses totaled $0 and $.8 million at December 31,
1997 and 1996, respectively. Gross unrealized investment gains
on the derivative investments amounted to $1.5 million and the
gross unrealized investment losses amounted to $15.0 million at
December 31, 1997.
Proceeds from sales of preferred and common stocks during 1997
and 1996 were $459.0 million and $398.8 million, respectively.
Gross gains of $19.1 million and $21.1 million and gross losses
of $875,000 and $1.7 million were realized on those sales in
1997 and 1996, respectively.
Mortgage Loans on Real Estate
As of December 31, 1997 and 1996, the carrying value of mortgage
loan investments in the General Account was $185.9 million and
$379.4 million, respectively. The carrying value is at admitted
asset value, therefore the effects of any valuation allowances,
either individually or in the aggregate, have been reflected in
the accompanying statutory financial statements.
<PAGE>
Mortgage loans are collateralized by properties located
throughout the United States. The states with the highest
concentrations as a percentage of carrying value at December 31,
1997 and 1996 were:
Concentration %
December 31,
1997 1996
State
California 8% 12%
Florida 7% 12%
Texas 14% 10%
Georgia <5% 10%
Michigan <5% 7%
Virginia 12% 7%
Pennsylvania 9% <5%
District of Columbia 9% <5%
Alabama 7% <5%
The remaining carrying value is geographically disbursed
throughout the country with no individual state concentration
exceeding 5%.
As of December 31, 1997 and 1996, the underlying collateral of
the mortgage loan investments as a percentage of total mortgages
were diversified as follows:
1997 1996
Office buildings 45% 34%
Retail 17% 14%
Apartment buildings 15% 30%
Industrial 11% 11%
Other 12% 11%
100% 100%
In October 1997, the Commissioner and the Board of Directors
authorized the Company to arrange for a bulk sale of mortgage
loans. The pool which was put together amounts to substantially
all of the General Account's mortgage loan portfolio which
remained on the Company's books at December 31, 1997. The
transaction is anticipated to close in the first quarter of 1998.
During 1996, the General Account sold in four separate
transactions, mortgage loans with a principal balance of
approximately $635 million which Mutual Benefit Life had
originated, including $40 million held in the Industry Separate
Account. These transactions resulted in a pre-tax loss to the
General Account of $39.6 million and a pre-tax gain of $.3
million to the Industry Separate Account for 1996.
A securitization of commercial mortgage loans with a principal
balance of approximately $128 million was completed effective
May 21, 1996. These mortgage loans were sold to a depositor
under an agreement which contained certain recourse and cure
provisions. The General Account would be required to repurchase
individual mortgage loans based on the discovery of a material
defect in a Trustee Mortgage File not cured within 90 days or a
material breach of any of the representations, warranties or
covenants of seller with respect to the mortgage loans, and
indemnify the depositor and the underwriter for securities law
violations based upon an untrue statement of material fact or
omission of a material fact by MBL Life in connection with
certain information in the prospectus and certain materials
delivered to the depositor in relation to the transaction.
The second transaction was a bulk sale of commercial mortgage
loans with a principal balance of approximately $119 million
sold effective in June 1996. These mortgage loans were sold to
investors under an agreement which contained certain recourse or
cure provisions. The General Account would be required to
repurchase individual mortgage loans in the event of a material
breach of a representation or warranty with respect to an asset.
The third transaction was a portfolio sale of residential
mortgage loans with a principal balance of approximately $28
million, including $7 million held in the Industry Separate
Account sold effective November 20, 1996. These mortgage loans
were sold to an investor under an agreement which contained
certain recourse or cure provisions. The General Account or
Industry Separate Account would be required to repurchase
individual mortgage loans in the event of a material breach of a
representation or warranty with respect to an asset.
The fourth transaction was a sale of the Company's farm mortgage
loan portfolio with a principal balance of approximately $360
million, including $33 million held in the Industry Separate
Account sold effective December 10, 1996. These mortgage loans
were sold to an investor under an agreement which contained
certain recourse or cure provisions. The General Account or
Industry Separate Account would be required to repurchase
individual mortgage loans in the event of a material breach of a
representation or warranty with respect to an asset.
<PAGE>
Through December 31, 1997 no payments have been made under the
terms of these agreements by either the General Account or
Industry Separate Account.
The sale of the mortgage loans held in the Industry Separate
Account in 1996 was the full responsibility of the Industry
Separate Account. The General Account has no future potential
for monetary investment or support.
Policy Loans
Policy loans consist of outstanding loans issued to holders of
COLI contracts and universal life contracts. Interest charged
on the COLI loans is adjustable and determined periodically
based on published market interest rates. The carrying value of
the COLI loans was approximately $4.4 billion and $4.5 billion
as of December 31, 1997 and 1996, respectively. The carrying
value of universal life policy loans as of December 31, 1997 and
1996 was approximately $347 million and $396 million,
respectively.
Assets on Deposit
As of December 31, 1997 and 1996, MBL Life had securities with a
carrying value of $5.4 and $5.5 million, respectively on deposit
with regulatory agencies. The securities on deposit are
reflected in the accompanying statutory statements of admitted
assets, liabilities and surplus as follows:
December 31,
1997 1996
Bonds $ 3.3 million $3.4 million
SPAV 2.1 million 2.1 million
<PAGE>
Special Purpose Asset Vehicle
The following is a summary of the carrying values of the net
assets in the SPAV (in thousands):
December 31,
1997 1996
Bonds $ 13,071 $ 17,559
Stocks:
Preferred - 1,500
Common 27,975 31,025
Mortgage loans on real estate - 38,951
Real estate owned 3,554 215
Other invested assets 47,880 88,969
Investment income due and accrued 158 264
Other assets 381 12,782
Liabilities (1,483) -
$ 91,536 $ 191,265
Net equity of SPAV:
Included in General Account $ 67,006 $ 140,009
Included in Industry Separate
Account 24,530 51,256
$ 91,536 $ 191,265
In March 1997, the SPAV sold residential mortgage loans with a
principal balance of approximately $43 million which Mutual
Benefit Life had originated. These mortgage loans were sold to
an investor under an agreement which contained certain recourse
or cure provisions. The SPAV would be required to repurchase
these mortgage loans in the event of a material breach of
certain representations or warranties with respect to an asset.
This transaction resulted in a pre-tax loss to the SPAV of $4.8
million.
5. Investment Contract Liabilities
Investment contracts represent policies or contracts that do not
incorporate significant insurance risk. Included in reserves
for life and annuity contracts are amounts classified as
investment contracts. The carrying value of such investment
contracts was approximately $3.1 billion as of December 31, 1997
and 1996.
Policyholder funds left on deposit, which are classified as
investment contracts, had a carrying value of approximately
$120.7 million and $129.4 million as of December 31, 1997 and
1996, respectively.
6. Fair Value Information
The estimated fair value amounts of financial instruments
included herein have been determined by MBL Life using market
information available as of December 31, 1997 and 1996 and
appropriate valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to
develop the estimates of fair value for financial instruments
for which there are no available market value quotations.
The estimates presented herein are not necessarily indicative of
the amounts MBL Life could realize in a market exchange. The use
of different market assumptions and/or estimation methodologies
may have a material effect on the estimated fair value amounts.
The following table discloses the fair value of financial
instruments included in the General Account. For financial
instruments not discussed below, the carrying amount is a
reasonable estimate of fair value.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
(in thousands) (in thousands)
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
<S> <C> <C> <C> <C>
Assets:
Bonds $6,016,007 $6,074,334 $5,619,889 $5,670,809
Stocks 164,658 164,680 162,150 162,154
Mortgage loans on real estate 185,891 186,201 379,419 380,821
Financial instruments included
in SPAV (General Account's
Share) 30,046 30,136 65,175 68,950
Liabilities:
Investment contracts:
Life and annuity contracts 3,082,636 3,035,389 3,082,098 2,913,511
Policyholder funds left on
deposit 120,749 121,258 129,352 127,767
Other liabilities:
Policy and contract 292,150 292,124 47,811 47,738
General 160,052 159,240 187,239 185,718
</TABLE>
The General Account's share of the net equity in the estimated
fair value of the SPAV includes only those financial
instruments, namely bonds, stocks and mortgage loans on real
estate, that qualify for disclosure under SFAS No. 107.
<PAGE>
Bonds
For debt securities that are publicly traded, estimated fair
value was obtained from an independent market pricing service.
Publicly traded securities represented approximately 99% of the
carrying value and estimated fair value of the total debt
securities as of December 31, 1997. For all other debt
securities, estimated fair value was determined by management
based on interest rates, maturity, credit quality and average
life.
Stocks
The estimated fair value for unaffiliated common stocks was
determined on the basis of values provided by the SVO.
Estimated fair value of affiliated common stock was determined
on the basis of MBL Life's equity in the subsidiary's net
assets, after adjusting the subsidiary's financial instruments
to an estimated fair value in a manner consistent with that of
MBL Life. For publicly traded preferred stocks, estimated fair
value was obtained from an independent market pricing service.
For all other preferred stock, estimated fair value was
determined by management based on such factors as interest
rates, credit quality, conversion options and dividend paying
status.
Mortgage Loans on Real Estate
The fair values of mortgage loans on real estate not included in
the pool of mortgage loans to be sold in the bulk sale were
estimated based on expected discounted cash flows with the
interest rates being adjusted for credit risk. For mortgage
loans which have not been identified for the bulk sale, the
estimated fair value presented is not necessarily indicative of
the amounts MBL Life could realize in a market exchange. For
the mortgage loans that have been identified for the bulk sale,
the carrying value is the estimated net realizable value to be
derived from the sale.
Policy Loans
All policy loans carried on MBL Life's books involve some
combination of variable loan rate and liability adjustment
factor to directly recognize the presence of policy loans.
These factors work to increase or decrease interest credited to
policy account values in a way that is tied to the actual policy
loan interest charged. These loans, therefore, are determined
to have a fair value equal to the face value of the policy loans.
Investment Contract Liabilities
The fair values for liabilities of investment contracts included
in both reserves for life and annuity contracts and policyholder
funds left on deposit are estimated using discounted projected
cash flows, based on interest rates which would be offered at
December 31, 1997 for similar contracts with maturities
consistent with those remaining for the contracts being valued.
Industry Separate Account
As indicated in Note 1, the purpose of the Industry Separate
Account is to segregate those assets which are supporting the
liabilities being guaranteed by the Industry Reinsurers. For
purposes of the disclosure requirements of SFAS No. 107, the
carrying value and estimated fair value of the financial
instruments in the Industry Separate Account have been
determined to be equivalent since the Industry Reinsurers would
be required to support any adjustment in the estimated fair
value of the assets to the extent such support is necessary to
cover the liabilities. To the extent the estimated fair value of
the assets exceeds the estimated fair value of the liabilities
at the end of the Rehabilitation Period, as defined in the Plan,
such excess would be paid out in accordance with the terms of
the Participation and Reinsurance Agreement, which is part of
the Plan.
7. Reinsurance Transactions
MBL Life has direct liability to the policy or contract holder
on policies ceded and would be responsible for payment if the
reinsurer is unable to meet its obligation under the reinsurance
agreements.
MBL Life has entered into a joint venture with another insurer
to operate MBL Life's COLI business. The joint venture agreement
calls for assumption of individual COLI policies as of November
4, 1992 and group COLI policies as of August 2, 1993 by the
other insurer with MBL Life retaining an 80% interest in future
profits and losses of that business. The agreements also gave
MBL Life the option to reinsure a specified percentage of new
COLI business issued by the other insurer. COLI policy reserves
and contract liabilities, including dividends to be paid in the
following year, amounted to $4.8 billion and $5.1 billion at
December 31, 1997 and 1996, respectively.
In addition, MBL Life has reinsured certain of its life, health,
and annuity contracts with other insurance companies under
various agreements. The financial statements are shown net of
reinsurance. Policy and contract liabilities have been reduced
by $142.0 million and $142.9 million at December 31, 1997 and
1996, respectively, for life, health and annuity reserve credits
taken on $1.0 billion and $1.2 billion of in-force life
reinsurance ceded. Under GAAP, assets would include amounts for
reinsurance recoverable, and policy and contract liabilities
would not be reduced for reserve credits.
8. Federal Income Taxes
For tax periods through May 1, 1994, MBL Life filed a
consolidated Federal income tax return with Mutual Benefit Life.
Tax allocations between MBL Life and Mutual Benefit Life
through May 1, 1994 were based on an agreement which provided,
among other things, that in the event MBL Life had a tax gain
(loss) from operations for any year, it would pay to (receive
from) Mutual Benefit Life an amount equal to the corresponding
increase (reduction) in the consolidated tax liability. For tax
periods subsequent to May 1, 1994, MBL Life files as a stand
alone company. MBL Life entered into a tax allocation agreement
with the Industry Reinsurers which provides, among other things,
that in the event the Industry Separate Account has a tax gain
(loss) for any year, it shall pay to (receive from) the General
Account an amount equal to the corresponding increase
(reduction) in MBL Life's overall tax liability. MBLLAC Holding
Corporation, a wholly-owned subsidiary, files a consolidated
Federal income tax return on behalf of itself and its eligible
subsidiaries.
MBL Life requested and received a private letter ruling from the
Internal Revenue Service stating that the transfer of assets
pursuant to the terms of the Plan qualified as a tax free
reorganization under the Internal Revenue Code.
As of December 31, 1997, MBL Life had reached agreement on its
federal tax liability with the Internal Revenue Service for all
tax periods through May 1, 1994. In the opinion of management,
MBL Life has taken appropriate positions in its tax filing and
has established adequate reserves to provide for the payment of
any additional taxes which might result from settlement of
possible deficiencies for periods subsequent to May 1, 1994.
Under pre-1984 life insurance company income tax laws, a portion
of current "gain from operations" of MBL Life for those years is
not subject to current taxation but is accumulated, for tax
purposes, in a memorandum account designated as "policyholders'
surplus". The aggregate accumulation in this account at December
31, 1997 was approximately $8 million. Subject to certain
limitations, "policyholders' surplus" is not taxed until
distributed or the insurance company no longer qualifies to be
taxed as a life insurance company. Taxes have not been provided
on amounts included in this memorandum account since MBL Life
contemplates no action or events that would create such a tax.
<PAGE>
9. Employee Benefit Plans
Early Retirement Plan
In October 1996, MBL Life announced its plan to reduce future
operating expenses through a reduction in the Company's
workforce. Such reduction was accomplished by a special
voluntary early retirement program affecting 121 eligible
employees. This was supplemented by an involuntary staff
reduction of 59 employees. This staff reduction was completed
by June 30, 1997.
The estimated cost of this program amounted to approximately $18
million pre-tax and included amounts for enhanced pension
benefits, post-retirement benefits and severance. These costs
have been reflected in the accompanying 1996 statutory statement
of operations.
Pension Plans
In accordance with the terms of the Plan, MBL Life assumed the
sponsorship of Mutual Benefit Life's defined benefit pension
plans covering all eligible employees, soliciting agents and
agency office employees of MBL Life and certain of its
subsidiaries. MBL Life is also the administrator of these plans.
Retirement benefits are based on years of credited service and
final average earnings history.
The funded status of the qualified defined benefit pension plans
at January 1, 1997 and 1996 the dates of the most recent
valuations, and the accumulated benefit obligation and plan
assets at January 1, 1997 and 1996 are as follows (in thousands):
January 1
1997 1996
Actuarial present value of obligations:
Vested $ 70,872 $ 65,824
Non-vested 6,651 6,030
Accumulated benefit obligation $ 77,523 $ 71,854
Plan assets available for benefits $118,489 $125,568
The impact of the early retirement program on the accumulated
benefit obligation is estimated to be an increase of
approximately $12.7 million at January 1, 1997. The present
value of accumulated benefit obligation does not include this
increase.
Prepaid pension costs of $40.9 million and $53.7 million for
1997 and 1996, respectively are non-admitted assets and are not
included in the accompanying statutory statements of assets,
liabilities and surplus. Due to the funded position of the
pension plans, no contributions were required to be made in 1997
and 1996.
The weighted average assumed rate of return used in determining
the actuarial present value of the accumulated plan benefits was
8% for 1997 and 1996.
MBL Life has established a liability of $14.4 million and $12.8
million at December 31, 1997 and 1996, respectively, to cover
estimated future funding requirements of the non-qualified
excess benefit plans, assuming an investment rate of return of
7.25% for both years.
Post-Retirement Benefits Other Than Pensions
In addition to pension benefits, MBL Life provides certain
health care and life insurance benefits ("post-retirement
benefits") for retired employees. Substantially all employees
may become eligible for these benefits if they reach retirement
age while working for MBL Life. Life insurance benefits are
generally set at a fixed amount.
In 1993, Mutual Benefit Life changed its method of accounting
for the costs of its retirees' benefit plans to the accrual
method, and elected to amortize its transition obligation for
retirees and fully eligible or vested employees over 20 years.
The unamortized portion of the transition obligation as of
December 31, 1997 and 1996 was $17.0 million and $18.1 million,
respectively.
Net periodic post-retirement benefits cost includes the
following (in thousands):
1997 1996
Accrued post-retirement benefit
cost at January 1 $ 21,600 $ 10,014
Service cost 100 571
Interest cost 2,197 9,938
Amortization of unrecognized
transition obligation 1,130 2,465
Net amortization and deferral 343 140
Total expense for the year 3,770 13,114
Actual benefits paid during the year (1,942) (1,528)
Accrued post-retirement benefit
cost at December 31 $ 23,428 $ 21,600
<PAGE>
The following represents the unfunded accumulated
post-retirement benefit obligation as determined by the plan's
actuaries (in thousands):
December 31,
1997 1996
Retirees $ (31,600) $ (39,032)
Other fully eligible plan participants (235) (46)
Accumulated post-retirement
benefit obligation (31,835) (39,078)
Unrecognized transition obligation 16,954 18,084
Unrecognized net (gain) (8,547) (606)
Accrued post-retirement benefit cost $ (23,428) $ (21,600)
The weighted average discount rate used in determining the
current year accumulated benefit obligation was 7.0% and 7.25%
for 1997 and 1996, respectively. The health care cost trend
rate was 8.0% graded to 5.0% over seven years for pre-age 65
claims and 7.5% graded to 5.0% over seven years for post-age 65
claims in 1997. The health care cost trend rate was 8.5%
graded to 5.0% over eight years for pre-age 65 claims and 8.0%
graded to 5.0% over right years for post-age 65 claims in 1996.
Post-employment Benefits
The Company has certain post-employment benefits provided to
former or inactive employees who are not retirees. These
benefits are for uninsured expenses that include long and
short-term disability medical and life insurance continuation.
The provision for these benefits at December 31, 1997 and 1996
and the incremental expense are insignificant.
Savings and Investment Plans
MBL Life sponsors savings and investment plans available for
substantially all employees and qualifying agents under which
MBL Life matches a portion of their contributions which vest
ratably over three years. MBL Life contributed approximately
$995,000 and $1.2 million in 1997 and 1996, respectively, which
is reflected in the accompanying statutory statements of
operations.
<PAGE>
10. Capital and Surplus
While not prohibited by the Plan, it is currently not
anticipated that any earnings of MBL Life will be distributed to
the stockholders prior to the end of the Rehabilitation Period,
as defined in the Plan. The amount of dividends which the
Company may pay to the stockholders without the prior approval
of the Commissioner is subject to restrictions relating to
profits on participating policies and contracts and to a
requirement that the Company maintain a statutory surplus equal
to 105% of required risk based capital. Under New Jersey
Insurance Law, MBL Life must maintain minimum statutory capital
and surplus of $7,650,000.
The NAIC has developed risk-based capital formulas to be applied
to all insurance companies. These formulas calculate a minimum
required statutory net worth, based on the underwriting,
investment and other business risks inherent in an individual
company's operations. Any insurance company which does not meet
threshold risk-based capital levels ultimately will be subject
to regulatory proceedings. MBL Life met its minimum risk-based
capital levels as of December 31, 1997.
11. Leases
MBL Life does not have any material operating or capital lease
obligations.
12. Other Commitments and Contingencies
Guarantees
MBL Life has entered into certain arrangements in the course of
its business which, under certain circumstances, may impose
financial obligations upon MBL Life (see Note 4) .
Pursuant to the terms and conditions of the Plan, certain Mutual
Benefit Life industrial revenue bond guarantees on real estate
joint venture indebtedness were not assumed by MBL Life.
Warrant Shares
Pursuant to the terms of the Plan, MBL Life granted to the
Participating Guaranty Associations and the Industry Reinsurers,
in exchange for nominal value, a nontransferable warrant to
purchase an interest in MBL Life's issued and outstanding
shares, which interests together shall constitute a 20%
interest. The warrants shall be exercisable for one year
commencing on the first day following the end of the
Rehabilitation Period, as defined in the Plan, at a formula
price as set forth in the warrant to be determined at the
exercise date. No value was assigned to these warrants upon
issuance.
Litigation
MBL Life is involved in litigation arising in the ordinary
course of business or as may be related to the Rehabilitation
proceedings involving its former parent, Mutual Benefit Life
(see Note 14).
Lines of Credit
As of December 31, 1997 and 1996, MBL Life had no lines of
credit.
13. Rehabilitation Plan Events During 1996
Pursuant to the terms of the Plan, the Commissioner, prior to
July 1996, was to determine whether, in her opinion, the General
Account had sufficient liquidity and has performed adequately to
allow Restructured Contract Holders to make withdrawals prior to
the end of the Rehabilitation Period with a reduction or
elimination of the early withdrawal charges (i.e. moratorium
charges). Any such determination would have required approval
by both the Participating Guaranty Associations and the Industry
Reinsurers. The Commissioner decided not to reduce or eliminate
the early withdrawal charge and as part of the Settlement
Agreement (see Note 14), the moratorium charges as defined in
the Plan will remain in effect for the duration of the
Rehabilitation Period.
In accordance with the terms and conditions under which the Life
Insurance Company Guaranty Corporation of New York (the
"LICGCNY") agreed to become a Participating Guaranty Association
under the Plan, the LICGCNY has agreed to provide to each New
York covered policyholder, no later than July 16, 1996, the
following enhancement to the Plan. The LICGCNY will assure
payment of the full non-loaned account balance without the
application of any early withdrawal charges, to any New York
covered policyholder who elects to receive the full amount of
their non-loaned account balance on or after July 16, 1996 and
who (a) submits an affidavit stating that the funds will not be
transferred to other insurance policies or rolled over to other
tax-qualified vehicles, or (b) is eligible to elect retirement
benefits from MBL Life pursuant to the terms of the Plan, and
submits an affidavit stating that the funds will be used in
their entirety to purchase a life annuity (with no cash value to
the annuitant) from another insurance company. The LICGCNY had
the option to either absorb the moratorium charges or substitute
itself as the policyholder. As of December 31, 1997, $40
million of surrenders pursuant to the terms of the New York
enhancement have been processed by the Company. New York
policyholders were paid out their full account value, less
policy loans, upon request and the LICGCNY immediately
reimbursed MBL Life for any moratorium charges that would
normally have been charged against the policyholders' account
value. The LICGCNY is also reimbursing MBL Life for the net
account values paid out as of each year end and the LICGCNY will
be "refunded" these monies plus normal interest credited at the
end of the Rehabilitation period. A substitute liability
amounting to $30.3 million representing these amounts due to the
LICGCNY has been included in the accompanying statutory
financial statements.
14. Rehabilitation Plan Appeals and Settlement Agreement
Several appeals had been filed by parties to the Plan
challenging the constitutionality of the application of the New
Jersey Life and Health Insurers Rehabilitation and Liquidation
Law to the Mutual Benefit Life Rehabilitation, as well as the
order of priority imposed upon claimants under the Plan. In
general, the appellants: (1) asserted that general unsecured
creditors were entitled to parity of treatment with
policyholders; (2) requested reclassification of certain claims
as policyholder claims rather than general unsecured claims; and
(3) challenged the crediting of interest to policyholders
during certain periods subsequent to the commencement of the
Rehabilitation.
Further, the Commissioner had appealed certain of the Court's
modifications to the Plan. The modifications of the Court
included: (1) a change to the beneficiaries of the stock trust
from holders of restructured policyholder contracts in the
general account to the unsecured creditors (and to give the
unsecured creditors a right to approve a sale of MBL Life stock
or assets); (2) the elimination of the possibility that holders
of restructured policyholder contracts in the general account
would receive a bonus crediting rate at the end of the
Rehabilitation Period in the event MBL Life has assets in excess
of minimum risk based capital requirements for insurance
companies; and (3) a requirement that MBL Life distribute to the
unsecured creditors at the end of the Rehabilitation Period any
assets in excess of 105% of its risk based capital requirement.
On January 9, 1997 the Superior Court of New Jersey entered an
order approving a Settlement Agreement among the Commissioner,
in her capacity as Rehabilitator and Trustee of the Stock Trust,
the Company and the Class Four Creditors ("Settlement
Agreement") as identified in the Plan. The key elements of the
Settlement Agreement are:
The appeals, cross appeals, and other related litigation,
including challenges to interest crediting rates filed in
connection with the approval of the Plan of Rehabilitation, will
be dismissed.
Interest rates credited to restructured General Account
insurance liabilities each year for 1996 through 1999 will be
fixed at the rates in effect in 1996. Those rates ranged from
4.35% to 5.35%.
Policyholder guarantees, the length of the Rehabilitation
Period, and the current schedule of moratorium charges remain in
effect and unchanged.
Class Four Creditors and eligible policyholders who accept a
post-Rehabilitation policy will share in the future value of the
Company. The sharing will be based on a ratio of 70% to the
Class Four Creditors and 30% to eligible policyholders, if MBL
Life meets its capital growth projections (the policyholder
share may be reduced if the Company does not meet its capital
growth projections).
As an incentive to stay with the Company, eligible policyholders
will earn the right to share in future value in four stages over
three and one-half years, beginning January 1, 2000.
The account values of Industry Separate Account contracts will
be paid in full immediately on or about December 31, 1999. The
option to delay payouts or to pay out account values in five
installments, as defined in the Plan, will be eliminated. In
return for the certainty of full access on December 31, 1999,
Industry Separate Account contractholders will waive their right
to dispute their eligibility for guaranty association coverage.
After a 45 day appeal period ending February 24, 1997, the
Settlement Agreement became final and non-appealable.
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES
For the year ended December 31, 1997
The following is a summary of certain financial data included in
other exhibits and schedules of the 1997 Statutory Annual
Statement subjected to audit procedures by our independent
auditors and utilized by our actuaries in the determination of
reserves.
Investment Income Earned:
U.S. Government bonds $ 11,690,671
Other bonds (unaffiliated) 385,426,985
Bonds of affiliates 0
Preferred stocks (unaffiliated) 0
Preferred stocks of affiliates 0
Common stocks (unaffiliated) 3,235,900
Common stocks of affiliates 610,684
Mortgages loans 29,996,437
Real estate 40,905,731
Premium notes, policy loans and liens 423,208,406
Collateral loans 0
Cash on hand and on deposit 66,855
Short-term investments 7,180,058
Other invested assets 16,864,642
Derivative Instruments 0
Aggregate write-ins for investment income 1,049,177
Gross investment income $ 920,235,546
Real Estate Owned - Book Value less Encumbrances 40,242,621
Mortgage Loans - Book Value:
Farm mortgages $ 0
Residential mortgages 0
Commercial mortgages 213,410,202
Total mortgages loans $ 213,410,202
Mortgage Loans By Standing - Book Value:
Good standing 120,662,266
Good standing with restructured terms 92,747,936
Interest overdue more than three months, not in
foreclosure 0
Foreclosure in process 0
Other Long-term Assets - Statement Value - Other
Invested Assets 33,690,750
Collateral Loans 0
Bonds and Stocks of Parents, Subsidiaries and
Affiliates - Book Value:
Bonds 0
Preferred Stocks 0
Common Stocks 43,463,471
Bonds and Short-term Investments by Class and Maturity:
Bonds by Maturity - Statement Value
Due within one year less $ 574,873,574
Over 1 year through 5 years 5,738,958,994
Over 5 years through 10 years 13,991,438
Over 10 years through 20 years 2,187,183
Over 20 years 20,021,068
Total by Maturity $ 6,350,032,257
Bonds by Class - Statement Value
Class 1 $ 4,787,527,969
Class 2 1,514,724,181
Class 3 34,717,845
Class 4 12,062,262
Class 5 1,000,000
Class 6 0
Total by Class $ 6,350,032,257
Total Bonds Publicly Traded 6,282,182,783
Total Bonds Privately Placed 67,849,474
Preferred Stocks - Statement Value 27,246
Common Stocks - Market Value 178,090,109
Short-term Investments - Book Value 334,025,675
Options, Caps and Floors Owned - Statement Value 0
Options, Caps and Floors Written and
In-force - Statement Value 0
Collar, Swap and Forward Agreements Open -
Statement Value (13,458,825)
Futures Contracts Open - Current Price 0
Cash on Deposit 12,714,127
Life Insurance In Force: (000's omitted)
Industrial 0
Ordinary 44,169,460
Credit Life 0
Group Life 657,783
Amount of Accidental Death Insurance In Force
Under (000's omitted)
Ordinary Policies 399,129
Life Insurance Policies with Disability Provisions
In Force (000's omitted):
Industrial 0
Ordinary 2,322,802
Credit Life 0
Group Life 0
Supplementary Contracts In Force:
Ordinary - Not Involving Life Contingencies
Amount on Deposit $ 80,279,356
Income Payable 5,539,734
Ordinary - Involving Life Contingencies
Income Payable 3,911,905
Group - Not Involving Life Contingencies
Amount of Deposit 12,987,948
Income Payable 4,457,500
Group - Involving Life Contingencies
Income Payable 440,000
Annuities:
Ordinary
Immediate - Amount of Income Payable 341,888
Deferred - Fully Paid Account Balance 6,492,485
Deferred - Not Fully Paid - Account Balance 112,134,563
Group
Amount of Income Payable 28,903,898
Fully Paid Account Balance 50,270,684
Not Fully Paid - Account Balance 3,010,860,802
Accident and Health Insurance - Premiums In Force:
Ordinary 11,992,523
Group 0
Credit 0
Deposit Funds and Dividend Accumulations:
Deposit Funds - Account Balance 28,364,966
Dividend Accumulation - Account Balance 1,750,824
Claim Payments 1997:
Group Accident and Health year - ended
December 31, 1997
1997 0
1996 86,694
1995 and prior 557,246
Other Accident & Health
1997 (77,235)
1996 1,511,596
1995 and prior 17,578,805
Other coverages that use developmental methods to
calculate claims reserves
1997 0
1996 0
1995 and prior 0
<PAGE>
MBL VARIABLE CONTRACT ACCOUNT-2
formerly known as
MUTUAL BENEFIT VARIABLE CONTRACT ACCOUNT-2
____________________________________________________
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS
The following Financial Statements are incorporated into Part B of this
Registration Statement by reference from the Annual Report dated
December 31, 1997, as filed with the Commission under the Investment
Company Act of 1940 on February 23, 1998 (Accession No. 0001047469-98-
007199):
MBL VARIABLE CONTRACT ACCOUNT-2:
Report of Independent Accountants.
Statement of Assets and Liabilities, December 31, 1997.
Statement of Operations (year ended December 31, 1997).
Statements of Changes in Net Assets (two years ended December 31,
1997).
The following Financial Statements are filed pursuant to Item 23 of Part
B of this Registration Statement:
MBL LIFE ASSURANCE CORPORATION:
Report of Independent Accountants.
Balance Sheet as of December 31, 1997.
Statement of Operations (year ended December 31, 1997).
Statement of Changes in Capital and Surplus
(year ended December 31, 1997).
Statement of Cash Flows (year ended December 31, 1997).
(b) EXHIBITS*
(1)(A) Resolution of the Board of Directors of The Mutual Benefit Life
Insurance Company establishing Mutual Benefit Variable Contract
Account-2, incorporated by reference to earlier filing on March
20, 1970, SEC File No. 811-2047, Exhibit #A(1) of Form N-8B-2
Registration Statement of Registrant.
(B) Resolution of the Board of Directors of MBL Life Assurance
Corporation establishing MBL Variable Contract Account-2,
incorporated by reference to earlier filing on April 29, 1994,
SEC File Nos. 2-36664 and 811-2047, Exhibit #(1)(B) to Post-
Effective Amendment No. 41 of Form N-4 Registration Statement.
(2) Not Applicable.
(3)(A) Variable Annuity Supervision Agreement dated January 5, 1971,
incorporated by reference to earlier filing on January 6, 1971,
SEC File No. 811-2047, Exhibit #(3)(a) to Post-Effective
Amendment No. 1 of Form N-8B-2 Registration Statement.
(B) Form of Variable Contract Agreement For Enrollees, incorporated
by reference to earlier filing on January 6, 1971, SEC File No.
811-2047, Exhibit #(3)(b) to Post-Effective Amendment No. 1 of
Form N-8B-2 Registration Statement.
(4)(A) Form of Group Tax Deferred Annuity Contract.
(B) Form of Group Tax Deferred Annuity Contract.
Both (A) and (B) incorporated by reference to earlier filing on
March 2, 1987, SEC File No. 2-3664, Exhibit #(4)(a) and (4)(b)
to Post-Effective Amendment No. 33 of Form N-4 Registration
Statement.
(C) Form of Group Tax Deferred Annuity Contract.
(D) Form of Group Variable Annuity Contract.
Both (C) and (D) incorporated by reference to earlier filing on
March 3, 1988, SEC File No. 2-36664, Exhibit #(4)(c) and (4)(d)
to Post-Effective Amendment No. 35 of Form N-4 Registration
Statement.
(E) Form of Endorsement to Contracts in (4)(A), (4)(B), (4)(C) and
(4)(D).
(F) Form of Amendment to Group Variable Annuity Contracts in (4)(A),
(4)(B), (4)(C) and (4)(D) above, adding the restrictions on
redemption imposed by Section 403(b)(11) of the Internal Revenue
Code of 1986, as amended. Both (E) and (F) incorporated by
reference to earlier filing on April 28, 1989, SEC File No. 2-
36664, Exhibit #(4)(e) and (4)(f) to Post-Effective Amendment
No. 37 of Form N-4 Registration Statement.
(G) Form of Group Tax Deferred Variable Annuity Contract, Deposit
Administration, Individual Allocation.
(H) Form of Group Annuity Deposit Administration Individual
Allocation Companion to VCA-2. Both (G) and (H) incorporated by
reference to earlier filing on April 28, 1989, SEC File No. 2-
36664, Exhibit #(4)(g) and (4)(h) to Post-Effective Amendment
No. 37 of Form N-4 Registration Statement.
(I) Form of Assumption Certificate (CRT-AC1 and CRT-AA2C),
incorporated by reference to filing of Mutual Benefit Variable
Contract Account-7 on April 29, 1994, SEC File Nos. 2-86722 and
811-3853, Exhibit (6)(H) and (6)(I), respectively, to Post-
Effective Amendment No. 12 of Form N-3 Registration Statement.
(J) Form of Certificate of Participation (CRT-TDAO), incorporated by
reference to filing of Mutual Benefit Variable Contract Account-
7 on April 29, 1994, SEC File Nos. 2-86722 and 811-3853, Exhibit
(6)(J) to Post-Effective Amendment No. 12 of Form N-3
Registration Statement.
(K) Form of Contract GVA-VCA2, incorporated by reference to earlier
filing on April 29, 1994, SEC File Nos. 2-36664 and 811-3853,
Exhibit #(4)(K) to Post-Effective Amendment No. 41 of Form N-4
Registration Statement.
(5)(A) Form of Application used with Contracts under IRC Section
403(b), incorporated by reference to earlier filing on May 1,
1991, SEC File No. 2-36664, Exhibit #(5)(A) to Post-Effective
Amendment No. 40 of Form N-4 Registration Statement.
(B) Form of Application used with Contracts under IRC Section 408,
incorporated by reference to earlier filing on March 2, 1987,
SEC File No. 2-36664, Exhibit #(5)(b) to Post-Effective
Amendment No. 33 of Form N-4 Registration Statement.
(C) Form of Acknowledgement of Statutory TDA Withdrawal
Restrictions, incorporated by reference to earlier filing on
April 28, 1989, SEC File No. 2-36664, Exhibit #(5)(c) to Post-
Effective Amendment No. 37 of Form N-4 Registration Statement.
(6)(A) Charter, as amended, of The Mutual Benefit Life Insurance
Company.
(B) By-Laws, as amended, of The Mutual Benefit Life Insurance
Company. Both (6)(A) and (6)(B) incorporated by reference to
earlier filing on May 1, 1991, SEC File No. 2-36664, Exhibit #
(6)(A) and (6)(B), respectively, to Post-Effective Amendment No.
40 of Form N-4 Registration Statement.
(C) Second Amended and Restated Articles of Redomestication and
Incorporation of MBL Life Assurance Corporation, incorporated by
reference to filing of Mutual Benefit Variable Contract Account-
7 on April 29, 1994, SEC File Nos. 2-86722 and 811-3853, Exhibit
(8)(C) to Post-Effective Amendment No. 12 of Form N-3
Registration Statement.
(D) Draft By-Laws of MBL Life Assurance Corporation, incorporated by
reference to filing of Mutual Benefit Variable Contract Account-
7 on April 29, 1994, SEC File Nos. 2-86722 and 811-3853, Exhibit
(8)(D) to Post-Effective Amendment No. 12 of Form N-3
Registration Statement.
(7) Not applicable.
(8) Not applicable.
(9) OPINION OF FRANK D. CASCIANO, GENERAL COUNSEL, MBL LIFE
ASSURANCE CORPORATION.
(10) CONSENT OF COOPERS & LYBRAND L.L.P., INDEPENDENT ACCOUNTANTS.
(11) Not applicable.
(12) Not applicable.
(13) SCHEDULES FOR COMPUTATION OF EACH PERFORMANCE QUOTATION.
(I) ONE-YEAR PERFORMANCE.
(II) FIVE-YEAR PERFORMANCE.
(III) TEN-YEAR PERFORMANCE.
(14) Not applicable.
(15) Mutual Benefit Fund et al. No-Action Letter, dated October 27,
1993, incorporated by reference to filing of Mutual Benefit
Variable Contract Account-7 on April 29, 1994, SEC File Nos. 2-
86722 and 811-3853, Exhibit (19) to Post-Effective Amendment No.
12 of Form N-3 Registration Statement.
(16) Mutual Benefit Life Insurance Company Information Statement Plan
of Rehabilitation and Related Documents, including the
Confirmation Order, dated January 28, 1994, incorporated by
reference to filing of Mutual Benefit Variable Contract Account-
7 on April 29, 1994, SEC File Nos. 2-86722 and 811-3853, Exhibit
(20) to Post-Effective Amendment No. 12 of Form N-3 Registration
Statement.
(17) Powers of Attorney.
(A) Powers of Attornery, incorporated by reference to earlier
filing on February 22, 1996, SEC File No. 333-01161, Exhibit
(17) to Registration Statement of Form N-3.
(B) Powers of Attorney, incorporated by reference to earlier
filings on April 5, 1996, SEC File No. 333-01161, Exhibit (17)
to Registration Statement of Form N-3.
(C) Powers of Attorney, incorporated by reference to earlier
filings on April 30, 1997, SEC File No. 333-01161, Exhibit (17)
to Registration Statement of Form N-3.
(D) POWERS OF ATTORNEY FILED HEREWITH.
________________________________________
* Page numbers inserted in manually signed copy only.
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF MBL LIFE ASSURANCE CORPORATION.
The Directors of MBL Life, their principal business addresses
and their positions and offices with MBL Life, are as
follows:
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
Alan J. Bowers Director, President
MBL Life Assurance and Chief Executive
Corporation Officer
520 Broad Street
Newark, NJ 07102
Elizabeth E. Randall Director, Chairman
20 W. State Street of the Board
CN-325
Trenton, NJ 08625
Janine J. Akey Director
20 W. State Street
CN-325
Trenton, NJ 08625
Patrick G. Boyle Director
New York Life
Insurance Company
260 Cherry Hill Road
Parsippany, NJ 07054
Donald Bryan Director
20 W. State Street
CN-325
Trenton, NJ 08625
Thomas P. Gallagher Director
20 W. State Street
CN-325
Trenton, NJ 08625
Harry D. Garber Director
76 Mulberry Avenue
Garden City, NY 11530
Ronald P. Joelson Director
Prudential Investments
71 Hanover Road
Florham Park, NJ 07932
John C. Kerr, Jr. Director
20 W. State Street
CN-325
Trenton, NJ 08625
Richard W. Klipstein Director
National Organization
of Life and Health
Insurance Guaranty
Association
13873 Park Center Road
Herndon, VA 22071
_____________________________________
Officers (Other than Directors) of MBL Life whose activities
relate to the Account are listed below.
Frank D. Casciano Executive Vice President,
General Counsel and Secretary
Robert T. Budwick Executive Vice President -
Chief Investment Officer
Kenneth A. Watson Executive Vice President -
Chief Financial Officer
Kathleen M. Koerber Executive Vice President -
Insurance Operations and
Chief Operating Officer
Kenneth K. Schaefer Second Vice President
and Treasurer
David A. James Senior Vice President,
Securities Investment
Albert W. Leier Vice President
and Controller
William G. Clark Senior Vice President,
Pension and Investment Products
All of these Officers maintain a principal business address at 520
Broad Street, Newark, New Jersey 07102.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
THE DEPOSITOR OR REGISTRANT.
MBL Variable Contract Account-2 was formerly a separate
account of Mutual Benefit Life. In accordance with the
Rehabilitation Plan of Mutual Benefit Life, the assets and
liabilities of Mutual Benefit Variable Contract Account-2
were transferred to a separate account of MBL Life, and named
MBL Variable Contract Account-2 (the "Account").
The Account is a separate account of MBL Life, a stock life
insurance company organized under the laws of New Jersey. The
voting stock of MBL Life was transferred to a Stock Trust
established by the Plan appointing the New Jersey
Commissioner of Banking and Insurance as Trustee through the
end of the Rehabilitation Period, scheduled to terminate not
later than December 31, 1999. Pursuant to a settlement
agreement, an Order was issued on January 9, 1997 ending all
Plan-related litigation, and awarding 30% of the value of the
Trust at its termination to eligible MBL Life policyholders,
and 70% to the Class Four Creditors (as defined in the Plan)
of Mutual Benefit Life.
As of April 1, 1998, those persons under common control with
the Depositor (MBL Life) are as follows:
MBLLAC Holding Corporation is a holding company; First
Priority Investment Corporation is a registered investment
adviser and broker/dealer; Metro IRB, Inc., Fisher Island
Corporation, Pelican Apartment Properties, Inc. and Metro JV,
Inc. act as general partners in joint ventures; Mutual
Benefit Marketing Group, Inc. markets insurance products; MAP
Advisors, Inc. is a registered investment adviser; EHC
Companies, Inc. is a holding company for Ernst Home Centers,
Infotech Corp., Extraspace Inc., and EDC, Inc., a home and
garden chain, a data service provider, specialty retail
stores, and a warehousing operation, respectively; and NWD
Investment Company is a holding company for WD Holdings,
Inc., a distribution company. Markston Investment
Management, a registered investment adviser, is a partnership
owned 51 percent by MBL Sales Corporation; Hawaiian Macadamia
Company, Inc., a processing company; Tong Yang Benefit Life
Insurance Company, a foreign insurance company; and
International Corporate Marketing Group, an insurance broker.
MAP-Equity Fund, MBL Growth Fund, Inc. and MAP-Government
Fund, Inc. are investment companies as defined by the
Investment Company Act of 1940. Registrant does not own any
controlling interest in any of the Funds. First Priority
Investment Corporation ("First Priority"), a wholly-owned
indirect subsidiary of Depositor, serves as distributor for
the shares of both MAP-Equity Fund and MBL Growth Fund, Inc.
Markston Investment Management, a partnership between
Markston International, Inc. and MBL Sales Corporation,
serves as investment adviser to MAP-Equity Fund and MBL
Growth Fund, Inc. Shares of MBL Growth Fund, Inc. may be
purchased only by insurance company separate accounts which
are registered under the Investment Company Act of 1940.
First Priority also serves as distributor and investment
adviser for MAP-Government Fund, Inc. The Funds file
separate financial statements.
ITEM 27. NUMBER OF CONTRACT OWNERS.
As of March 31, 1998 - 110
ITEM 28. INDEMNIFICATION.
To the extent permitted by law of the State of New Jersey and
subject to all applicable requirements thereof, MBL Life has
undertaken to indemnify each of its directors and officers
who is made or threatened to be made a party to any action or
proceeding, whether civil or criminal, by reason of the fact
that he, his testate or intestate, is or was a director or
officer of MBL Life.
Insofar as indemnification for liability arising under the
Act may be permitted to Directors and Officers pursuant to
the foregoing provisions, or otherwise, MBL Life has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act, and is therefore, unenforceable. In
the event that a claim for indemnification against such
liabilities (other than the payment by MBL Life of expenses
incurred or paid by a Director or Officer in the successful
defense of any action, suit or proceeding) is asserted by
such Director or Officer in connection with the securities
being registered, MBL Life will, unless if in the opinion of
its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question of 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. Notwithstanding any
agreement or document to the contrary, MBL Life undertakes
not to indemnify any Director or Officer for any liability,
the indemnification of which has been determined to be
prohibited under the Federal securities laws.
ITEM 29. PRINCIPAL UNDERWRITER.
(a)
First Priority, is the Account's principal underwriter.
First Priority will also serve as principal underwriter for
the following registered investment companies:
MAP-Equity Fund, MBL Growth Fund, Inc., and MAP-Government
Fund, Inc., as well as MBL Variable Contract Account-7, a
separate account of MBL Life.
First Priority will serve as the investment adviser to MAP-
Government Fund, Inc. and MBL Variable Contract Account-7.
(b)
Information regarding First Priority's officers and directors:
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH FIRST PRIORITY
William G. Clark Director, President
Frank D. Casciano Director, Vice President
and General Counsel
Robert T. Budwick Director, Vice President
and Chief Investment
Officer
Alan J. Bowers Director
Kathleen M. Koerber Director
Albert W. Leier Director, Vice President
and Treasurer
Hal R. Rose Senior Vice President
Judith C. Keilp Vice President
and Secretary
Richard C. Allen Vice President
Christopher S. Auda Vice President,
Operations
James Switlyk Second Vice President
Marketing Support
Roger A. Vellekamp Assistant Secretary
* All of these Officers and Directors maintain a principal business
address at 520 Broad Street, Newark, New Jersey 07102.
(c)
Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of
1940 and the rules thereunder are maintained at the offices
of the Depositor, 520 Broad Street, Newark, New Jersey 07102.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Administration" in
the Prospectus constituting Part A of this Registration
Statement, and under "Services" in the Statement of
Additional Information constituting Part B, the Account is
not a party to any management-related service contract.
ITEM 32. UNDERTAKINGS.
(a) Registrant undertakes to file a post-effective amendment to
its Securities Act of 1933 Registration Statement as
frequently as is necessary to ensure that the audited
financial statements in the registration statement are never
more than 16 months old for so long as payments under the
variable annuity contracts may be accepted.
(b) Registrant undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus,
a space that an applicant can check to request a Statement of
Additional Information, or (2) a post card or similar written
communication affixed to or included in the Prospectus that
the applicant can remove to send for a Statement of
Additional Information, or (3) the entire text of the
Statement of Additional Information within the Prospectus.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made
available under this form promptly upon written or oral
request.
(d) Registrant undertakes to rely upon American Council of Life
Insurance (Ref. No. IP-6-88, pub. avail. November 28, 1988)
(the "Letter"), which permits restrictions on cash
distributions to Participants in retirement plans meeting the
requirements of Section 403(b) of the Internal Revenue Code
of 1986, and represents that the following provisions of the
Letter have been complied with:
(1) That Registrant has included appropriate disclosure regarding
the redemption restrictions imposed by Section 403(b)(11) in
this Registration Statement, including the Prospectus;
(2) That Registrant has included appropriate disclosure regarding
the redemption restrictions imposed by Section 403(b)(11) in
all sales literature used in connection with the offer of the
Contract;
(3) That the Account's Distributor has instructed sales
representatives, who solicit Participants to purchase the
Contract, specifically to bring the redemption restrictions
imposed by Section 403(b)(11) to the attention of potential
Participants;
(4) That Registrant has obtained from each Participant purchasing
a Section 403(b) Contract, prior to or at the time of
purchase, a signed statement acknowledging the Participant's
understanding of: (a) the restrictions on redemption imposed
by Section 403(b)(11), and (b) the investment alternatives
available under the employer's Section 403(b) arrangement to
which the Participant may elect to transfer his or her
Contract value.
(f) MBL Life Assurance Corporation ("MBL Life") hereby represents
that the fees and charges deducted under the annuity
contracts decribed in the Account's prospectus, in the
aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks
assumed by MBL Life.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Act
of 1940, the Registrant has caused this Post-Effective Amendment to the
Registration Statement to be signed on its behalf, in the City of
Newark, and State of New Jersey, on the 29th day of April, 1998
MBL VARIABLE CONTRACT ACCOUNT-2
(Registrant)
By: JUDITH C. KEILP
Judith C. Keilp, Counsel
MBL Life Assurance Corporation
By: MBL LIFE ASSURANCE CORPORATION
(Depositor)
By: FRANK D. CASCIANO
Frank D. Casciano
Executive Vice President,
General Counsel and Secretary
As required by the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
ALAN J. BOWERS Chief Executive Officer April 29, 1998
Alan J. Bowers Director, President
KENNETH A. WATSON Chief Financial Officer April 29, 1998
Kenneth A. Watson
ALBERT W. LEIER Chief Accounting Officer April 29, 1998
Albert W. Leier
Directors:
Elizabeth E. Randall *
Janine J. Akey *
Patrick G. Boyle **
Donald Bryan *
Thomas Gallagher **
Harry D. Garber *
Ronald P. Joelson **
John Kerr *
Richard W. Klipstein *
By: FRANK D. CASCIANO Date: April 29, 1998
Frank D. Casciano
Attorney-in-Fact
* Executed by Frank D. Casciano, Attorney-in-Fact, on behalf of
those indicated pursuant to the Powers of Attorney.
** Executed by Frank D. Casciano, Attorney-in-Fact, on behalf of
those indicated pursuant to the Powers of Attorney, filed
herewith.
<PAGE>
EXHIBIT INDEX
EXHIBIT*
(9) Opinion of Frank D. Casciano, General Counsel, MBL Life
Assurance Corporation.
(10) Consent of Coopers & Lybrand L.L.P., Independent
Accountants.
(13) Schedules for computation of each performance quotation.
(i) One-Year Performance.
(ii) Five-Year Performance.
(iii) Ten-Year Performance.
(17) Powers of Attorney.
* Page numbers inserted in manually signed copy only.
Exhibit (9)
[MBL Life Assurance Corporation Letterhead]
April 23, 1998
MBL Life Assurance Corporation
520 Broad Street
Newark, NJ 07102-3111
Gentlemen:
This opinion is furnished in connection with the Registration
Statement, File No. 333-01161 of MBL Variable Contract Account-2 (the
"Variable Contract Account") under the Securities Act of 1933, as
amended (the "Act"), relating to units of interest ("Units") in the
Variable Contract Account under Group Tax-Qualified and Non-Qualified
Variable Annuity Contracts (the "Contracts") assumed by MBL Life
Assurance Corporation ("MBL Life"). The Contracts are designed to
provide retirement payments and other benefits for persons covered under
plans qualified for Federal income tax advantages under Section 401,
403, 408, or 457 of the Internal Revenue Code of 1986, as amended, and
for persons covered under payroll deduction and other non-qualified
plans. The securities are offered in the manner described in the
Registration Statement.
I have examined or caused to be examined all relevant corporate
records of MBL Life and such laws as I consider appropriate as a basis
for the opinion hereinafter expressed. On the basis of such
examination, it is my opinion that:
1. MBL Life is a corporation duly organized and validly existing
under the laws of the State of New Jersey.
2. The Variable Contract Account was originally established
pursuant to a resolution of the Board of Directors of
The Mutual Benefit Life Insurance Company ("Mutual
Benefit Life") and in accordance with the provisions
of New Jersey Insurance Law.
On July 16, 1991, the Superior Court of New Jersey entered an
Order appointing the Insurance Commissioner (now Commissioner of
Banking and Insurance) of the State of New Jersey
("Commissioner"), as Rehabilitator of Mutual Benefit Life,
thereby granting the Rehabilitator immediate exclusive
possession and control of, and title to, the business and assets
of Mutual Benefit Life, including those of the Variable Contract
Account.
Pursuant to the terms and conditions of the Plan of
Rehabilitation submitted by the Commissioner and approved by the
Superior Court, and pursuant to a resolution of the Board of
Directors of MBL Life, the assets and liabilities of the
Variable Contract Account were transferred by Mutual Benefit
Life to a separate account of MBL Life.
3. The assets of the Variable Contract Account are the property of
MBL Life and are held separately from all other assets of MBL
Life. Under New Jersey law, any income, gains and losses,
whether realized or not, from the Variable Contract Account's
investment operations must be credited to or charged against the
Variable Contract Account without regard to any other income,
gains or losses of MBL Life. MBL Life maintains the assets of
the Variable Contract Account in an amount at least equal to the
amount required for MBL Life to meet its obligations under the
Contracts, as determined at least once each year. Annuity
payments, when based on the investment experience of the
Variable Contract Account, will vary with the performance of the
Variable Contract Account.
4. The New Jersey Insurance Law provides that to the extent
provided in the applicable contract or contracts, assets held in
a Variable Contract Account shall not be chargeable with
liabilities arising out of any other business of an insurance
company, but makes no explicit provision as to whether or not
the assets of a Variable Contract Account are as a matter of law
absolutely insulated from the claims of other policyholders or
creditors of the insurance company. Accordingly, no
representation can be made that, in all possible contingencies,
the assets held in the Variable Contract Account cannot, as a
matter of law, be subject to such claims. However, it is my
opinion that any such claims could be made only upon insolvency
of MBL Life, in which event equitable principles would be
applied by the Commissioner or by a court dealing with any
resulting liquidation or rehabilitation of MBL Life under New
Jersey Insurance Law and should afford appropriate protection to
Contract Holders participating in the Variable Contract Account.
5. When executed, the Contracts, as amended, and the Units have
been duly authorized and each of the Contracts (including any
Units when duly credited thereunder) constitutes a validly
issued and binding obligation of MBL Life in accordance with the
terms of such Contracts. Individuals having an interest under a
Contract are subject only to the deductions, charges and fees
set forth in the Prospectus included in the Registration
Statement, including any Amendments thereto.
6. The discussion of tax matters set forth in the Prospectus
included in the Registration Statement is an accurate summary of
the effect of applicable Federal income tax laws, but no
representation is made that such discussion is exhaustive or
that it purports to cover all situations.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
MBL LIFE ASSURANCE CORPORATION
By: FRANK D. CASCIANO
Frank D. Casciano
Executive Vice President and
General Counsel, and Secretary
Exhibit (10)
[Coopers & Lybrand L.L.P. Letterhead]
CONSENT OF INDEPENDENT ACCOUNTANTS
_______________
We consent to the incorporation by reference in this Post-Effective
Amendment No. 2 to the Registration Statement of MBL Variable Contract
Account-2 on Form N-4 (File No. 333-01161 and 811-02047) of our report
dated February 10, 1998, on our audit of the financial statements and
financial highlights of MBL Variable Contract Account-2 and the
inclusion of our report dated February 18, 1998, on our audit of the
financial statements of MBL Life Assurance Corporation.
We also consent to the reference of our firm under the caption
"Financial Statements" in the Statement of Additional Information.
COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
April 28, 1998
Item 24, Exhibit (b)(13)(i)
SCHEDULE OF COMPUTATION FOR PERFORMANCE QUOTATIONS
ONE-YEAR PERIOD
Initial Enrollment Net
Payment - Fee = Purchase
Payments
$1,000 $0 $1,000
_____________________________________________
Number of Unit Value Gross Annual Ending
Units x at = Surrender - Administration = Redemption
Purchased 12/31/97 Value Charge Value
6.936 $188.325 $1,306 $0 $1,306
TOTAL RETURN FORMULA:
P (1 + T) to the power of n = ERV
$1,000.00 (1 + 30.62%) to the power of 1 = 1,306
Where: P = a hypothetical initial payment (of $1,000) invested
on 12/31/96.
T = average annual total return assuming reinvestment
of dividends and capital gains distributions.
n = A number of years
ERV = ending redeemable value
Item 24, Exhibit (b)(13)(ii)
SCHEDULE OF COMPUTATION FOR PERFORMANCE QUOTATIONS
FIVE-YEAR PERIOD
Initial Enrollment Net
Payment - Fee = Purchase
Payment
$1,000 $0 $1,000
______________________________________________
Number Unit Value Gross Annual Ending
of Units x at end of = Surrender - Administration = Redemption
Owned each year Value Charge Value
13.332 $ 85.055 (1993) $1,134 $0 $1,134
13.332 86.596 1,154 0 1,154
13.332 116.231 1,550 0 1,550
13.332 144.176 1,922 0 1,922
13.332 188.325 (1997) 2,511 0 2,511
TOTAL RETURN FORMULA:
P (1 + T) to the power of n = ERV
$1,000.00 (1 + 20.21%) to the power of 5 = 2,511
Where: P = a hypothetical initial payment (of $1,000) invested
on 12/31/92.
T = average annual total return assuming reinvestment
of dividends and capital gains distributions.
n = A number of years
ERV = ending redeemable value
Item 24, Exhibit (b)(13)(iii)
SCHEDULE OF COMPUTATION FOR PERFORMANCE QUOTATIONS
TEN-YEAR PERIOD
Initial Enrollment Net Purchase
Payment - Fee = Payment
$1,000 $15 $985
_____________________________________________________
Number Unit Value Gross Annual Ending
of Units x at end = Surrender - Administration = Redemption
Owned of each year Value Charge* Value
28.448 $44.032 (1988) $1,253 $10 $1,243
28.221 56.416 1,592 0 1,592
28.221 53.234 1,502 0 1,502
28.221 65.668 1,853 0 1,853
28.221 75.010 2,117 0 2,117
28.221 85.055 2,400 0 2,400
28.221 86.596 2,444 0 2,444
28.221 116.231 3,280 0 3,280
28.221 144.176 4,069 0 4,069
28.221 188.325 (1997) 5,315 0 5,315
TOTAL RETURN FORMULA:
P (1 + T) to the power of n = ERV
$1,000.00 (1 + 18.18%) to the power of 10 = 5,315
Where: P = a hypothetical initial payment (of $1,000) invested
on 12/31/87.
T = average annual total return assuming reinvestment
of dividends and capital gains distributions.
n = A number of years
ERV = ending redeemable value
* Represents an annual administration charge of $10.
For purposes of this example, the annual administration charge is
computed by reference to the actual aggregate annual administration
charges as a percentage of total assets held under the Contracts. The
administration charge was eliminated on January 1, 1989.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Alan J. Bowers, Frank D.
Casciano, Kathleen M. Koerber, and Kenneth A. Watson, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement and any and all
amendments to the Registration Statement for MBL Variable Contract
Account-2 and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Signature Title Date
PATRICK G. BOYLE Director April 8, 1998
Patrick G. Boyle
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Alan J. Bowers, Frank D.
Casciano, Kathleen M. Koerber, and Kenneth A. Watson, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement and any and all
amendments to the Registration Statement for MBL Variable Contract
Account-2 and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Signature Title Date
THOMAS P. GALLAGHER Director April 8, 1998
Thomas P. Gallagher
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature
appears below constitutes and appoints Alan J. Bowers, Frank D.
Casciano, Kathleen M. Koerber, and Kenneth A. Watson, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement and any and all
amendments to the Registration Statement for MBL Variable Contract
Account-2 and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Signature Title Date
RONALD P. JOELSON Director April 8, 1998
Ronald P. Joelson
