<PAGE>
MBL VARIABLE CONTRACT ACCOUNT -- 7
To Contract Holders and Participants
The value of a Variable Accumulation Unit of MBL Variable Contract Account -- 7
(the "Account") as of December 31, 1996 was $18.706, an increase of 5.10% from
the value of $17.799 on December 31, 1995.
After reducing the Federal Funds rate by 25 basis points from 5.50% to 5.25% in
February, 1996, the Federal Reserve Board took a passive stance on interest
rates for the remainder of 1996. Economic growth during the year remained at an
acceptable level with no evidence of inflation to be found. Other short-term
interest rates reflected the inactivity of the Federal Reserve Board as the
three month treasury bill hovered around the 5.00% level all year and the prime
lending rate of the banks was pegged at 8.25%.
The outlook for 1997 appears to be a repeat of 1996, slow economic growth in the
2% to 3% range with little pressure on prices. This economic environment should
lead to stable interest rates as the Federal Reserve Board, in our view, will
not be forced to take action to combat inflation nor stimulate the economy.
We thank you for your continued confidence in MBL Variable Contract
Account -- 7. We remain committed to providing you with quality investment
management and superior customer service.
Following are the audited financial statements of the Account as of, and for the
year ended, December 31, 1996.
Sincerely,
[SIG]
William G. Clark
Senior Vice President
Pension and Investment Products
MBL Life Assurance Corporation
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Management Committee and Contract Holders
MBL Variable Contract Account -- 7
We have audited the accompanying statement of assets and liabilities of MBL
Variable Contract Account -- 7 (the "Account") as of December 31, 1996, the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the three years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Account's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for each of the seven years in the period ended December 31, 1993
(with the exception of Total Return for each of the five years in the period
ended December 31, 1991) were audited by other auditors whose reports dated
February 7, 1994 and February 21, 1992 expressed unqualified opinions on those
statements, with an explanatory paragraph relating to Mutual Benefit Life
Insurance Company in Rehabilitation.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MBL
Variable Contract Account -- 7 as of December 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the three years in the period then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
February 10, 1997
2
<PAGE>
MBL VARIABLE CONTRACT ACCOUNT -- 7
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments (98.3%):
U.S. Treasury Bills, principal amount $1,025,000 and $950,000, 4.70% and
4.83%, due January 30, 1997 and February 6, 1997, respectively......... $1,966,531
Cash....................................................................... 33,330
----------
Total assets............................................................... 1,999,861
LIABILITIES -- NOTE C...................................................... --
----------
NET ASSETS................................................................. $1,999,861
----------
----------
Net assets attributable to variable annuity Contract Holders -- 106,910
accumulation units at $18.706 per unit................................... $1,999,861
----------
----------
</TABLE>
See notes to financial statements.
3
<PAGE>
MBL VARIABLE CONTRACT ACCOUNT -- 7
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
Investment income:
Interest................................................... $ 101,352
Expenses -- Notes C and D:
Investment advisory fee.................................... $ 8,168
Expense and expense risk charge............................ 7,548
-----------
15,716
Less expenses waived and assumed by MBL Life -- Note C..... (15,716) --
----------- -----------
Net investment income...................................... 101,352
Net realized gain from investment transactions............. 70
-----------
Net increase in net assets resulting from investment
activity............................................... $ 101,422
-----------
-----------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS
Investment income............................................................ $ 101,352 $ 114,541
Net realized gain from investment transactions............................... 70 --
------------ ------------
Net increase in net assets resulting from investment activity.............. 101,422 114,541
FROM CONTRACT HOLDERS' TRANSACTIONS -- NOTES B AND E
Accumulation units surrendered............................................... (151,330) (286,220)
------------ ------------
Decrease in net assets resulting from Contract Holders' transactions....... (151,330) (286,220)
------------ ------------
Net decrease in net assets................................................. (49,908) (171,679)
NET ASSETS
Beginning of year............................................................ 2,049,769 2,221,448
------------ ------------
End of year.................................................................. $ 1,999,861 $ 2,049,769
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
4
<PAGE>
MBL VARIABLE CONTRACT ACCOUNT -- 7
NOTES TO FINANCIAL STATEMENTS
NOTE A -- ACCOUNTING POLICIES
MBL Variable Contract Account -- 7 (the "Account") is a diversified open-end
management investment company registered under the Investment Company Act of
1940, as amended, and a separate account of the MBL Life Assurance Corporation
("MBL Life") established under the Insurance Laws of New Jersey. MBL Life
provides for variable accumulation and benefits under the Account's contract by
crediting annuity considerations to the Account or fixed accumulation and
benefits to the Companion Contract, as elected by the Participant. Significant
accounting policies of the Account are as follows:
INVESTMENTS -- Investments in short-term securities which mature in 60 days or
less are valued at amortized cost, which approximates market value. Short-term
securities which mature in more than 60 days are valued at market values based
on quoted bid and asked prices or yield equivalent. Investment transactions are
recorded on the date of purchase or sale. Interest is recorded as earned.
FEDERAL INCOME TAXES -- The Account does not provide for Federal income taxes
since the operations of the Account form a part of, and are taxed with, those of
MBL Life which is taxed as a "life insurance company" under the Internal Revenue
Code. Income and capital gains, if any, of the Account attributable to the
Contract Holders are excluded in the determination of the Federal income tax
liability of MBL Life.
REALIZED GAINS -- The net realized gain (loss) on investment transactions is
determined on the basis of identified cost.
ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from these estimates.
NOTE B -- REHABILITATION
On April 29, 1994, the Third Amended Plan of Rehabilitation (the "Plan") of
Mutual Benefit Life Insurance Company in Rehabilitation ("Mutual Benefit Life"),
which as confirmed by the Superior Court of New Jersey reaffirmed the status of
the Account as a separate account, was implemented. Pursuant to the terms of the
Plan, substantially all of the assets and liabilities of Mutual Benefit Life
were transferred to MBL Life. In addition, the assets and liabilities of the
Account were transferred to a new separate account of MBL Life. Also, as of
April 29, 1994, the ownership of the stock of MBL Life was transferred to a
Trust, of which the New Jersey Commissioner of Banking and Insurance is the sole
Trustee.
While the terms of the Plan currently prohibit or limit redemptions from the
Companion Contract and transfers from the Companion Contract to the Account,
annuity payments which commenced prior to July 16, 1991 and any death benefits
payable, both before and after July 16, 1991, are unaffected and will continue
to be paid under the terms of the Plan. In addition, the Plan permits
redemptions of amounts from the Account to continue, as requested, and transfers
to MBL Variable Contract Account -- 2 for the purchase of variable annuities.
5
<PAGE>
NOTE B -- REHABILITATION -- (CONTINUED)
In view of the above, applications for new contracts and requests for transfer
of amounts to the Companion Contract from the Account are currently not being
accepted.
Approximately 53% of the Accounts outstanding units are owned by four separate
Contract Holders.
NOTE C -- EXPENSE AND EXPENSE RISK CHARGES
The contracts offered by the Account provide that a charge, at the annual rate
of .37%, be made daily against Account assets for expenses and expense risks
assumed by MBL Life. MBL Life has informed the Account that it would not assess
the expense and expense risk charges against the Account's assets and would
assume payment of the investment advisory fee (see Note D). This waiver of
charges to the Account is for one year periods ending on May 1. Each year
hereafter the waiver may be extended for additional one year periods. MBL Life
reserves the right to reinstate the expense and expense risk charges and to
cease assumption of payment of the investment advisory fee at the expiration of
any waiver period.
NOTE D -- INVESTMENT ADVISORY AND SERVICE AGREEMENTS
The Account has an investment advisory, a service and a distribution agreement
with First Priority Investment Corporation ("FPIC"). FPIC is a wholly-owned
subsidiary of MBLLAC Holding Corporation, a wholly-owned subsidiary of MBL Life.
Under the investment advisory and service agreement, FPIC receives a periodic
fee at the annual rate of .40% of the first $300,000,000 of the Account's
average daily net assets, .35% of the next $400,000,000 of such value, and .30%
of all such value in excess of $700,000,000. (See Note C).
The compensation of each "disinterested" member of the Management Committee is
included in those expenses and expense risks assumed by MBL Life as described in
Note C. Such fees are paid at the rate of $400 per meeting attended plus an
annual retainer of $1,200. No remuneration has been paid to any other member or
officer. Aggregate fees paid during the year ended December 31, 1996 to the
Account's "disinterested" members amounted to $7,200.
NOTE E -- ACCUMULATION UNIT TRANSACTIONS
The change in the number of accumulation units outstanding was as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Balance at beginning of year.......................................... 115,163 131,726
Accumulation units surrendered........................................ (8,253) (16,563)
--------- ---------
Balance at end of year................................................ 106,910 115,163
--------- ---------
--------- ---------
</TABLE>
6
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for each accumulation unit outstanding throughout the years
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit Value,
Beginning of Year........... $17.799 $16.864 $16.238 $15.772 $15.232 $14.415 $13.345 $12.328 $11.588 $11.043
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment income......... 0.907 0.935 0.626 0.466 0.540 0.812 1.070 1.017 0.740 0.545
Net gain from investment
transactions................ -- -- -- -- -- 0.005 -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net increase in net assets
resulting from operations... 0.907 0.935 0.626 0.466 0.540 0.817 1.070 1.017 0.740 0.545
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Accumulation Unit Value, End
of Year..................... $18.706 $17.799 $16.864 $16.238 $15.772 $15.232 $14.415 $13.345 $12.328 $11.588
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Return.................. 5.10 % 5.54 % 3.86 % 2.95 % 3.55 % 5.67 % 8.02 % 8.25 % 6.39 % 4.94 %
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year
(thousands)................. $ 2,000 $ 2,050 $ 2,221 $ 2,519 $ 3,266 $ 5,448 $ 3,960 $ 2,033 $ 1,141 $ 773
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Ratio of Expenses(1) to
Average Net Assets.......... 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.00 % 0.03 % 0.02 %
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Ratio of Net Investment
Income(1) to Average Net
Assets...................... 5.0 % 5.4 % 3.8 % 2.9 % 3.5 % 6.2 % 7.6 % 7.9 % 6.6 % 4.9 %
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
- --------------------------------
(1) Without waiver and assumption of expenses by MBL Life, the ratio of expenses
to average net assets would have been 0.77%, and the ratio of net investment
income to average net assets would have been 4.2%. (See Note C of the Notes
to Financial Statements.)
7
<PAGE>
- ---------------------------------------------
MBL VARIABLE CONTRACT ACCOUNT -- 7
MBL Life Assurance Corporation
520 Broad Street - Newark, New Jersey 07102
- ---------------------------------------------
THIS REPORT HAS BEEN PREPARED FOR CONTRACT HOLDERS AND PARTICIPANTS IN MBL
VARIABLE CONTRACT ACCOUNT -- 7. IT IS NOT AUTHORIZED FOR OTHER DISTRIBUTION
UNLESS PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS WHICH INCLUDES
INFORMATION CONCERNING THE ACCOUNT AND THE APPLICABLE SALES COMMISSIONS.
FS-634 (2-97)
Annual Report
December 31, 1996
MBL VARIABLE
CONTRACT ACCOUNT -- 7
Group Variable Annuity Contracts
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