SEC File No. 333-01151
SEC File No. 811-3853
As filed with the Securities and Exchange Commission on April 29, 1998
__________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-3
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. 18 [X]
MBL VARIABLE CONTRACT ACCOUNT-7
(Previously known as Mutual Benefit Variable Contract Account-7)
(Exact Name of Registrant)
MBL LIFE ASSURANCE CORPORATION
(Name of Insurance Company)
520 Broad Street, Newark, New Jersey 07102-3111
(Address of Insurance Company's Principal Executive Offices)
Insurance Company'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 of Service)
Copies to:
Paul J. Mason, Esq.
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Ave., N.W.
Washington, D.C. 20004-2515
_________________________________________________________________
This amendment shall become effective on May 1, 1998, pursuant to
Rule 485(b) under the Securities Act of 1933.
MBL VARIABLE CONTRACT ACCOUNT-7
previously known as
MUTUAL BENEFIT VARIABLE CONTRACT ACCOUNT-7
________________________________________________________________
CROSS REFERENCE SHEET
Cross reference sheet showing location in the Prospectus of information
required by the Items in Part A of Form N-3.
Item Number Heading in Prospectus
1 Cover Page
2 Index of Terms
3 Summary of Prospectus
4 Condensed Financial Information
Financial Highlights
Performance Related Information,
5 The Variable Contract Account
6 Management; Investment Management
7 Charges
8 Group Tax Deferred Annuity
Contracts; General Rights;
Other Contract Provisions
9 Annuity
10 Payment at Death
11 Accumulation Account
12 Redemption
13 Federal Income Tax Status
14 Legal Developments
15 Table of Contents - Statement of
Additional Information
_________________________________________________________________
MBL VARIABLE CONTRACT ACCOUNT-7
MBL Life Assurance Corporation
520 Broad Street, Newark, New Jersey 07102
May 1, 1998
The group tax-deferred 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")
for use with retirement plans and arrangements meeting applicable
requirements of Section 401(a), 403(b), 408 or 457 ("Qualified
Plans") of the Internal Revenue Code of 1986, as amended (the
"Code"). Contracts were issued to employers establishing Qualified
Plans or to trustees or custodians serving in conjunction with those
Qualified Plans ("Contract Holders").
Sales of new Contracts ceased July 16, 1991. MBL Life does not
currently intend to resume sales of new Contracts. However,
additional purchase payments are being accepted from existing and new
Participants (defined below) under existing Contracts.
The Contracts offer flexible purchase payment arrangements. Net
purchase payments made on behalf of a participant of a Qualified Plan
("Participant") are allocated to an account established on behalf of
the Participant ("Variable Accumulation Account") and placed in MBL
Variable Contract Account-7, previously known as Mutual Benefit
Variable Contract Account-7 (the "Account"). At retirement, the
value of a Participant's Variable Accumulation Account may be applied
to provide a fixed or variable annuity.
The investment objective of the Account is to provide as high a
level of current income as is consistent with preservation of capital
and liquidity through investments in a diversified portfolio of high
quality short-term money market instruments. There are no sales or
redemption charges under the Contracts.
All Contracts were assumed and reinsured as of May 1, 1994 by
MBL Life in accordance with the Plan of Rehabilitation 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 Variable Contract 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, 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 by writing to: Pension and Investment
Products, MBL Life Assurance Corporation, 520 Broad Street, Newark,
New Jersey 07102-3111, Attn: MBL VARIABLE CONTRACT ACCOUNT-7, 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
25.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR 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. AN
INVESTMENT IN THIS ACCOUNT IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
The date of the Statement of Additional Information is May 1, 1998.
TABLE OF CONTENTS
Page
SUMMARY OF PROSPECTUS
Fee Table 3
The Contracts 4
The Account 4
Investment Adviser and
Principal Underwriter 4
Expense Charges 4
Waiver of Charges 4
Minimum Investment 5
Investment Objective of
the Account 5
Redemption 5
Certain Investment Risks 5
PERFORMANCE RELATED
INFORMATION 5
CONDENSED FINANCIAL
INFORMATION
Financial Highlights 6
Financial Statements 6
GROUP TAX-DEFERRED
VARIABLE ANNUITY CONTRACTS
Eligible Contract Holders 7
Basic Provisions 7
Assumption of Expense Risk 8
Redemption and Payment at
Death 8
Companion Contract and
VCA-2 Contract 8
THE VARIABLE CONTRACT ACCOUNT
Organization 8
Legal Developments 9
Assets 9
Investment Objective and
Policies 10
Portfolio Turnover-Value 12
Certain Investment Risks 12
Investment Restrictions 12
CHARGES
Expense and Expense Risk
Charges 12
Investment Advisory Fee 13
Other Charges 13
Premium Taxes 13
ACCUMULATION ACCOUNT
Purchase Payments 13
Variable Accumulation
Account 13
Transfers Between Contracts 14
Redemption 15
Payment at Death 15
ANNUITY
Annuity Commencement Date 16
Purchase of Annuity 16
GENERAL RIGHTS
Voting Rights 16
Confirmation of Transaction
and Account Statements 17
Reports 17
457 Plan Participants 17
MANAGEMENT 17
INVESTMENT MANAGEMENT 18
Preparing for the Year 2000 18
FEDERAL INCOME TAX STATUS
Introduction 18
Taxation of MBL Life 19
Tax Status of the Contract 19
Retirement Plans 20
Taxation of Distributions 21
Withholding 22
Possible Changes in
Taxation 22
Other Tax Consequences 22
OTHER CONTRACT PROVISIONS
Beneficiary 23
Non-Assignability 23
Portability 23
Failure of Plan to Qualify 23
Discontinuance 23
Transfer to New Funding
Agency 24
Changes in Contract 24
Other Changes 24
STATEMENT OF ADDITIONAL INFORMATION
Table of Contents 25
INDEX OF TERMS
The following terms are explained on the page indicated.
Account 1
Accumulation Period 4
Annuity 16
Annuity Commencement Date 16
Code 1
Companion Contract 4
Contract(s) 1
Contract Holder(s) 1
Contract Year 14
First Priority 4
401(a) Plan 7
403(b) Plan 7
457 Plan 7
IRA Plan 7
MBL Life 1
Mutual Benefit Life 1
Net Purchase Payment 7
1940 Act 4
Participant 1
Qualified Plans 1
Rehabilitation 9
SEC 8
Transfer 1
Variable Accumulation
Account 1
Variable Accumulation Unit 13
Variable Contract
Account - 2 4
Variable Contract
Account - 7 1
VCA-2 Contract 4
SUMMARY OF PROSPECTUS
FEE TABLE
The purpose of the Fee Table is to help Contract Holders and
Participants understand the various Account expenses that would be
paid prior to commencement of annuity payments, at which time the
investment in the Account will end. The Fee Table, including the
Example below, shows the expenses that are deducted from the assets
of the Account. For a description of these expenses, see "Charges".
The Fee Table does not include premium taxes currently charged by
certain states ranging up to 3.5%, which will be deducted and paid to
the states as required.
ANNUAL EXPENSES (as a percentage of average net assets)
Investment Advisory Fee (after expense waiver)* . 0.00%
Expense and Expense Risk Charges (after expense waiver)* 0.00%
-----
Total Annual Expenses 0.00%
EXAMPLE
A $1,000 investment in the Account would be subject to the
expenses indicated, assuming (1) a 5% annual return and (2)
redemption at the end of each time period shown: **
1 year 3 years 5 years 10 years
$0 $0 $0 $0
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.
* Prior to the Transfer, Mutual Benefit Life ceased assessment
of the expense and expense risk charges and assumed payment of the
investment advisory fee. (See "Charges".) MBL Life has voluntarily
agreed to continue with the cessation of the expense and expense risk
charge and assume payment of the investment advisory fee for the one-
year period beginning May 1, 1998, but reserves the right to
reinstate assessment of the expense and expense risk charges and
cease assumption of the investment advisory fee at the expiration of
this one-year period. (See "Waiver of Charges".) If these charges
had not been waived, the total expenses in 1997 would have been .77%.
** There are no additional charges imposed upon redemption.
THE CONTRACTS
The Contracts described in this Prospectus provide for
retirement and other benefits for persons covered under plans
qualified for federal income tax advantages under Section 401(a),
403(b), 408 or 457 of the Code. The Contracts are funded through the
Account, the value of which will vary up or down depending upon its
investment experience. At the time a Contract was issued, a group
fixed annuity companion contract ("Companion Contract"), which is not
described in this Prospectus, was also issued to the Contract Holder.
In addition, at the option of the Contract Holder, another group
variable annuity contract may also have been issued that was funded
through MBL Variable Contract Account-2 ("VCA-2 Contract").
The Contracts, Companion Contracts and VCA-2 Contracts,
including any riders thereto, were issued by Mutual Benefit Life and
assumptively reinsured by MBL Life. The Contracts offer variable
investment accumulations. The VCA-2 Contracts offer variable
accumulations, as well as annuities with underlying investments in
common stocks and other equity-type securities. Fixed annuities are
available through the Companion Contract.
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.
THE ACCOUNT
The Account operates as a separate account of MBL Life. The
Account was established by Mutual Benefit Life under New Jersey law
in 1983. The assets and liabilities of the Account were transferred
to a new separate account of MBL Life as of May 1, 1994, and is
registered under the Investment Company Act of 1940 (the "1940 Act")
as an open-end, diversified management investment company. The
Account is available only during the period when funds are
accumulated before they are used to provide annuity benefits
("Accumulation Period"). As noted above, at retirement fixed or
variable annuity benefits are available under the Companion Contract
or a VCA-2 Contract, as elected under a Qualified Plan.
INVESTMENT ADVISER AND PRINCIPAL UNDERWRITER
First Priority Investment Corporation ("First Priority") serves
as the Account's investment adviser and principal underwriter. First
Priority is a wholly-owned indirect subsidiary of MBL Life. For
managing the Account's investments, First Priority receives a
periodic fee based on a percentage of net assets. For a description
of this fee, see "Investment Advisory Fee". First Priority is a
registered investment adviser under the Investment Advisers Act of
1940 (the "Advisers Act"). (See "Investment Management".) First
Priority also engages in the sale of other investment company
securities and financial products.
EXPENSE CHARGES
The Contract provides for an expense and expense risk charge.
The Contract also provides for an investment advisory fee. There are
no sales or redemption charges under the Contracts, but sales,
administrative or other charges may be imposed under the Companion
Contract. Premium taxes may also be imposed in certain jurisdictions.
(See "Charges - Premium Taxes".)
WAIVER OF CHARGES
Prior to the Transfer, Mutual Benefit Life ceased assessment of
the expense and expense risk charge and assumed payment of the
investment advisory fee. MBL Life has voluntarily agreed to continue
the cessation of the expense and expense risk charges and assume
payment of the investment advisory fee for the one-year period
beginning May 1, 1998, but reserves the right to reinstate assessment
of the expense and expense risk charge and cease assumption of
payment of the advisory fee at the expiration of this one-year
period.
MINIMUM INVESTMENT
The minimum annual contribution for each Participant under a
Contract is $240. (See "Accumulation Account - Purchase Payments".)
INVESTMENT OBJECTIVE OF THE ACCOUNT
The Account's objective is to provide as high a level of current
income as is consistent with the preservation of capital and
maintenance of liquidity. It seeks to achieve this goal through
investments in high quality short-term money market instruments.
REDEMPTION
At any time during the Accumulation Period, the current value of
a Participant's Variable Accumulation Account under a Contract may be
withdrawn, in whole or in part. For a description of redemption
procedures, see "Redemptions". There is no charge or fee assessed by
MBL Life for such withdrawals. 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".)
CERTAIN INVESTMENT RISKS
The value of the Account's assets is not insured or guaranteed
by the U.S. Government, nor is its yield fixed. The yields realized
by the Account will generally rise or fall with short-term interest
rates. (See "The Variable Contract Account - Portfolio Turnover -
Value".)
PERFORMANCE RELATED INFORMATION
The Account may from time to time advertise its "yield" and
"effective yield". Both yield figures are based upon the Account's
past performance only and are not intended to be an indication of
future performance. Set forth below is the manner in which the data
contained in such advertisements will be calculated.
The "yield" of the Account refers to the income generated by an
investment in the Account over a seven-day period (which period will
be stated in any advertisement). This income is then "annualized".
That is, the amount of income generated by the investment during that
week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" is
calculated similarly but, when annualized, the income earned by an
investment in the Account is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of
the compounding effect of this assumed reinvestment. For an
explanation of the calculation of "yield" and "effective yield", see
the Account's Statement of Additional Information.
As earlier noted, the expense and expense risk charges are not
currently being assessed and MBL Life is paying the investment
advisory fee. Therefore, when the Account advertises its "yield" and
"effective yield", neither quotation includes any Contract charges.
MBL Life has agreed to continue with the cessation of the expense
risk charge and assumption of the investment advisory fee for the
one-year period beginning May 1, 1998, but reserves the right after
that period to reinstate assessment of the expense and expense risk
charge and cease payment of the investment advisory fee. (See
"Summary of Prospectus - Waiver of Charges".) Such charges and fees,
if included, would reduce the "yield" and "effective yield".
For the seven-day period ended December 31, 1997 the Account's
"yield" was 5.04% and its "effective yield" was 5.17%.
CONDENSED FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS
Selected data for each accumulation unit outstanding throughout the years
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit Value,
Beginning of Year $18.706 $17.799 $16.864 $16.238 $15.772 $15.232 $14.415 $13.345 $12.328 $11.588
Net investment income 0.952 0.907 0.935 0.626 0.466 0.540 0.812 1.070 1.017 0.740
Net gain from investment
transactions --- --- --- --- --- --- 0.005 --- --- ---
Net increase in net assets
resulting from operations 0.952 0.907 0.935 0.626 0.466 0.540 0.817 1.070 1.017 0.740
Accumulation Unit Value,
End of Year $19.658 $18.706 $17.799 $16.864 $16.238 $15.772 $15.232 $14.415 $13.345 $12.328
Total Return 5.09% 5.10% 5.54% 3.86% 2.95% 3.55% 5.67% 8.02% 8.25% 6.39%
Ratios/Supplemental Data
Net Assets,
End of Year (thousands) $1,918 $2,000 $ 2,050 $ 2,221 $ 2,519 $ 3,266 $ 5,448 $ 3,960 $ 2,0335 $ 1,141
Ratio of Expenses<F1> to
Average Net Assets 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.03%
Ratio of Net Investment
Income <F1> to Average Net
Assets. 5.0 % 5.0 5.4% 3.8% 2.9% 3.5% 6.2% 7.6% 7.9% 6.6%
<FN>
<F1> Without waiver and assumption of expenses by MBL Life, the ratio of
expenses to average net assets would have been 0.77% for each year, and the
ratio of net investment income to average net assets would have been 4.2%,
4.2%, 4.6%, 3.0% and 2.1% for each year ended December 31, 1997, through
1993, respectively. (See Note C of the Notes to Financial Statements.)
</FN>
</TABLE>
FINANCIAL STATEMENTS
Further information about the Account's performance is contained in the
Account's 1997 Annual Report, which also contains the Account's audited
financial statements. The Account will furnish without charge, an additional
copy of the Account's 1997 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-7, or by
telephoning 1-800-435-3191.
The financial statement for the Account (as well as the auditor's report
thereon) are described in the Statement of Additional Information.
The financial statements of MBL Life may be found in the Statement of
Additional Information.
GROUP TAX-DEFERRED ANNUITY CONTRACTS
ELIGIBLE CONTRACT HOLDERS
The Contracts described by this Prospectus are designed to fund
retirement and other benefits, through employers, trustees or custodians,
to the following categories of Participants, and their beneficiaries:
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 had been covered
under other such annuity purchase arrangements and who have not
withdrawn their account balances or commenced receiving their
annuity benefits.
2. Employees covered under plans maintained by partnerships and
sole proprietorships which are qualified under Section 401(a) of the
Code ("401(a) Plans"). These plans were commonly referred to as HR-
10 Plans prior to the Tax Equity and Fiscal Responsibility Act of
1982.
3. Employees covered under deferred compensation plans qualified
under Section 457 of the Code ("457 Plans").
4. Individuals covered under Individual Retirement Account Plans
or Individual Retirement Annuities 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 one or more of the above plans
or arrangements. (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. (See "Premium Taxes".)
At retirement, the current value of a Participant's Variable
Accumulation Account may be used to purchase fixed annuities under a
Companion Contract, or variable annuities under a VCA-2 Contract, if
currently available.
VARIABLE ACCUMULATION ACCOUNT. Under the Contracts, Net Purchase
Payments are allocated to a Participant's Variable Accumulation Account.
Amounts allocated to a Variable Accumulation Account purchase Variable
Accumulation Units. The value of a Participant's Variable Accumulation
Account varies up or down from day to day depending on the investment
experience of the Account. No assurance of investment results can be
given. The investment experience of a Participant's Variable
Accumulation Account reflects the investment income and realized and
unrealized capital gains and losses, if any, of the Account.
RETIREMENT ANNUITY. Whenever funds accumulated under the Contracts
are to be applied to purchase a fixed rate annuity, the funds will be
transferred to the Companion Contract and the annuity will be funded
through MBL Life's General Account. (See "The Variable Contract Account
- - Legal Developments".) If a VCA-2 Contract has been issued to the
Contract Holder and the Participant has elected to receive all or part of
the annuity as a variable annuity, the appropriate funds will be
transferred to the VCA-2 Contract and the annuity will be funded through
MBL Variable Contract Account-2. (See "Annuity".)
ASSUMPTION OF EXPENSE RISK
MBL Life assumes the expense risks under the Contracts to the extent
that the charges for expenses made under the Contracts do not cover the
actual expenses incurred. (See "Waiver of Charges".)
REDEMPTION AND PAYMENT AT DEATH
The current value of a Participant's Variable Accumulation Account
may be withdrawn, in whole or in part, at any time before his or her
Annuity Commencement Date under the Contract. The Annuity Commencement
Date is the first day of any month on which the Participant elects to
begin receiving payments under an annuity. Withdrawals prior to
retirement, however, may involve adverse tax consequences, or may be
restricted. (See "Redemption" and "Federal Income Tax Status".)
If a Participant dies before retirement, MBL Life will cancel the
Participant's Variable Accumulation Account and transfer the value of
such account, as of the date MBL Life receives satisfactory written
notice of death, to the Companion Contract, where the proceeds will be
held at the rate of interest specified in the Companion Contract until
final disposition. (See "The Variable Contract Account - Legal
Developments".) However, in lieu of such transfer, upon election by the
Participant's beneficiary, the beneficiary may receive the current value
of the Participant's Variable Accumulation Account as of the date MBL
Life receives satisfactory written notice of death. Payments will be
made within seven days thereafter, subject to receipt by MBL Life of all
necessary information concerning the beneficiary. (See "Payment at
Death".)
COMPANION CONTRACT AND VCA-2 CONTRACT
At the time a Contract was issued, the Contract Holder was also
issued a Companion Contract. A Companion Contract is a group fixed
annuity contract that provides for, among other things, the purchase of
fixed annuities. (See "The Variable Contract Account - Legal
Developments".)
VCA-2 Contracts were issued to Contract Holders who wished to be
provided with variable annuities under the Plans. Purchase payments
under a VCA-2 Contract are invested through MBL Variable Contract
Account-2, an MBL Life separate account, in shares of MBL Growth Fund,
Inc. ("MBL Growth"), a mutual fund with the primary investment objective
of long-term appreciation of capital.
The terms "Companion Contract" and "VCA-2 Contract", as used in this
Prospectus, refer to both a previously issued Companion Contract or VCA-2
Contract, respectively, and any contracts amended by rider as the context
indicates.
The Contracts, Companion Contracts, and VCA-2 Contracts, including
any riders issued thereto, are part of MBL Life's overall tax-qualified
annuity program which may be utilized by the Plans. This Prospectus does
not furnish detailed information as to the Companion Contract, VCA-2
Contract or any riders thereto, MBL Variable Contract Account-2 or MBL
Growth. The charges and benefits under the Companion Contract and the
VCA-2 Contract are specified in those contracts. Prospectuses for MBL
Variable Contract Account-2, including the VCA-2 Contract, and MBL Growth
are 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-2.
THE VARIABLE CONTRACT ACCOUNT
ORGANIZATION
The Account is registered with the Securities and Exchange
Commission ("SEC") as an open-end, diversified management investment
company under 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 MBL Life, the
sponsoring insurance company. The Account was originally established by
Mutual Benefit Life in 1983 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 by 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
As noted above, 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 VCA-
2 Contracts 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,
which is to terminate not later than December 31, 1999. Death Benefit
payments 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 assurances 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
While the Account is an asset of MBL Life, it is held separately
from all other assets of MBL Life and may not be charged with liabilities
arising out of any other business of MBL Life. The Contracts provide
that any income, gains or losses from the Account's investment operations
shall be credited to or charged against the Account without regard to any
other income, gains or losses of MBL Life. The obligations arising under
the Contracts are not obligations of MBL Life during the Accumulation
Period.
As of March 31, 1998, Participants under the Long Island Jewish
Medical Center 403(b) Plan, New Hyde Park, New York, the largest Contract
Holder of the Account, owned 32.49% of the outstanding Variable
Accumulation Units of the Account.
INVESTMENT OBJECTIVE AND POLICIES
The Account offers Participants the opportunity to provide for
retirement and other benefits available under the Contracts through
pooled investments in short-term debt instruments normally available in
denominations of $100,000 or more. These securities, or "money market"
instruments, will be the Account's only investments. The Account's
objective, which may not be changed without the approval of a majority of
Contract Holders, is to provide as high a level of current income as is
consistent with preservation of capital and maintenance of liquidity.
The Account will seek to achieve its objective through investments in the
securities and repurchase agreements relating thereto, described below,
all of which will be U.S. dollar denominated obligations. All
investments will have remaining maturities of 397 days or less ("Eligible
Securities") with a dollar-weighted average maturity not exceeding 90
days. The Account will limit its investments to securities that are
determined to have "minimal credit risks" and that are "Eligible
Securities". They are rated in one of the two highest rating categories
by at least two nationally recognized statistical rating organizations
("NRSRO's") (or by the only NRSRO that has rated the security), or, if
unrated, are of comparable investment quality. The Account will not
invest more than five percent of its assets in Eligible Securities which
are not rated in the highest short-term rating category by at least two
NRSRO's (or by the only NRSRO that has rated the instrument), or
comparable unrated securities ("Second Level Securities").
U.S. GOVERNMENT SECURITIES. The Account may purchase obligations
issued or guaranteed as to principal and interest by the United States
Government, or its agencies or instrumentalities. Direct obligations of
the United States Government include Treasury Bills, Treasury Notes and
Treasury Bonds, and are backed by the full faith and credit of the United
States Government.
The Account may purchase securities of agencies and
instrumentalities of the United States Government, such as the Federal
Housing Administration, Government National Mortgage Association, General
Services Administration, Tennessee Valley Authority, Federal Home Loan
Banks, Federal Land Banks and the United States Postal Service. Some of
the securities are backed by the full faith and credit of the United
States Government or guaranteed by the United States Treasury.
Obligations of some of the agencies and instrumentalities are only
supported by the issuing agency's or instrumentality's credit or right to
borrow from the United States Treasury. The latter may be no guarantee
against default.
BANK OBLIGATIONS. The Account may purchase certificates of deposit,
banker's acceptances and other obligations of U.S. banks which have total
assets of $1 billion or more and capital surplus and undivided profits of
at least $100 million as of the date of their most recently published
financial statements, including foreign branches of U.S. banks.
Normally these banks will be members of the Federal Reserve System
and the Federal Deposit Insurance Corporation, but this is not an
investment requirement.
SAVINGS AND LOAN OBLIGATIONS. The Account may invest in negotiable
certificates of deposit and other short-term obligations of savings and
loan associations which have total assets in excess of $1 billion and are
insured by the Federal Deposit Insurance Corporation.
COMMERCIAL PAPER. The Account may invest in commercial paper
obligations which may include variable amount master demand notes. These
notes permit the investment of fluctuating amounts by the Account at
varying rates of interest pursuant to direct arrangements between the
Account, as lender, and the borrower. Daily changes in the amounts
borrowed are permitted and the Account has the right to increase the
amount under the note at any time up to the full amount provided by the
note agreement, or to decrease the amount. The borrower, typically a
large industrial or finance company which also issues commercial paper,
may repay up to the full amount of the note at any time without penalty.
Because variable amount master demand notes are direct lending
arrangements between the lender and borrower, it is not generally
contemplated that such instruments will be traded, and there is no
secondary market for these notes, although they are redeemable (and thus
immediately repayable by the borrower) at face value, plus accrued
interest, at any time. Accordingly, the receipt of payment by the
Account is dependent on the ability of the borrower to pay principal and
interest on demand. It is not expected that the notes will be backed by
bank letters of credit.
The Account's investment adviser will value any master demand notes
held by the Account, taking into consideration such factors as earning
power, cash flow and other liquidity ratios of the issuer.
OTHER CORPORATE DEBT SECURITIES. The Account may purchase other
non-convertible corporate obligations, including bonds and debentures,
which at the time of purchase have less than 397 days remaining to
maturity.
REPURCHASE AGREEMENTS. These involve the purchase of government
securities with the concurrent agreement by the seller, a bank or
securities dealer, to repurchase the securities at an agreed upon price
and date.
The repurchase price exceeds the cost of the securities subject to
the agreement, thereby providing a determinable yield for the holding
period. Repurchase agreements are short-term investments, usually one
week or less. They are fully collateralized by the purchased securities
and are considered loans under the 1940 Act. During the term of a
repurchase agreement, the seller will be required to provide such
additional collateral as is necessary to maintain the value of all the
collateral under a repurchase agreement at a level at least equal to the
repurchase price. The Account will make payment for such securities only
upon delivery or evidence of book entry transfer to the Custodian. If
the seller defaults, the Account might incur a loss if the value of the
collateral securing the repurchase agreement declines. It might also
incur disposition costs in connection with the liquidation of the
collateral. In addition, if bankruptcy proceedings are commenced with
respect to the seller of the security, realization upon the collateral by
the Account may be delayed or limited. In no event will the Account
enter into a repurchase agreement having a repurchase date more than 397
days after the date of acquisition. Repurchase agreements afford an
opportunity for the Account to earn a higher return on temporarily
available cash than would otherwise be the case.
REVERSE REPURCHASE AGREEMENTS. The Account may invest in reverse
repurchase agreements, which involve the sale of any of the securities
held by the Account (except master demand notes), with an agreement to
repurchase at an agreed upon price, date, and interest payment.
Reverse repurchase agreements are considered borrowing under the
1940 Act and may represent a form of leveraging. The Account will use
the proceeds of reverse repurchase agreements to make other investments
which either mature or are under an agreement to resell at a date
simultaneous with or prior to the expiration of the reverse repurchase
agreement.
The Account may utilize reverse repurchase agreements only if the
interest income to be earned from the investment of proceeds of the
transaction is greater than the interest expense of the reverse
repurchase transaction. Reverse repurchase agreements will only be
entered into with a bank or securities dealer, and only under
circumstances where the repurchase is not more than 397 days after the
date the repurchase agreement is entered into.
PORTFOLIO TURNOVER-VALUE
Although it is not the Account's objective to make investments for
capital growth, it may engage in some short-term trading to take
advantage of market fluctuations and may sell any portfolio investment
before it matures to protect principal, improve liquidity or enhance
yield.
The value of the Account's portfolio will vary inversely to changes
in prevailing interest rates. If interest rates increase after the
purchase of a security, its value normally will decline. Conversely, a
drop in interest rates normally will result in an increase in the
security's value. These changes, however, will not generally result in
gains or losses for the Account since it intends to hold its investments
to maturity when the entire principal and accrued interest is due.
CERTAIN INVESTMENT RISKS
The value of the Account's assets is not insured or guaranteed by
the U.S. Government, nor is its yield fixed. Interest rates on money
market securities fluctuate in response to various economic factors and,
similarly, the yields realized by the Account will generally rise or fall
with short-term rates. Although the Account's investments are regarded
as high quality instruments, many are not guaranteed by any government
and some present special risks such as in the case of obligations of
foreign branches of U.S. banks. The obligations of foreign branches of
U.S. banks involve risk considerations different from those associated
with U.S. domestic banks. These include foreign economic and political
developments, foreign governmental restrictions which may adversely
affect payment of principal and interest on the obligations,
expropriation, limitations on removal of funds, foreign withholding and
other taxes on interest income, and difficulties in obtaining and
enforcing a judgment against a foreign branch.
INVESTMENT RESTRICTIONS
The Account is subject to certain investment restrictions which are
considered fundamental policies and, unlike the other investment policies
described herein, cannot be changed without approval of the holders of a
majority (as defined in the 1940 Act) of the outstanding units in the
Account. Among other restrictions, the Account will not enter into
repurchase agreements if, as a result thereof, more than 10% of the
Account's total assets would be subject to repurchase agreements maturing
in more than seven days. The Account also will not enter into reverse
repurchase agreements if the Account's obligations would be greater than
20% of the Account's total assets. The Account may mortgage, pledge or
hypothecate its assets only in limited circumstances and never in excess
of 5% of its total assets taken at cost. The Account will also not hold
more than 10% of any class of securities of any one issuer nor invest
more than 25% of the value of the Account's total assets in securities of
any one industry except that these limitations will not apply with
respect to investments in obligations issued or guaranteed by the United
States Government, but do apply to investments in securities of agencies
and instrumentalities of the United States Government which are only
supported by their own credit or right to borrow from the United States
Treasury. The Account's investment restrictions are described in full in
the Statement of Additional Information, under "Investment Restrictions".
CHARGES
EXPENSE AND EXPENSE RISK CHARGES
Prior to the Transfer, Mutual Benefit Life ceased assessment of the
expense and expense risk charge. MBL Life has voluntarily agreed to
continue with the cessation of the expense and expense risk charge, but
reserves the right to reinstate assessment of the expense and expense
risk charge. Absent the waiver of the expense and expense risk charge, a
charge, payable to MBL Life, at the annual rate of 0.35% would be made
daily against the Account's assets for expenses and 0.02% for the expense
risk assumed by MBL Life. Expenses include the costs attributable to the
establishment, maintenance and operation of the Account, other than
investment advisory fees and any brokerage commissions or fees relating
to securities transactions, which are paid by the Account. Expense risk
means the contingency that expenses will be greater than the 0.35%
expense charge. This charge may not be changed, except as described in
"Other Contract Provisions - Changes in Contract". Because these charges
would be imposed as a percentage of assets, administrative charges under
larger contracts may be greater than actual expenses under those
contracts and larger contracts may subsidize smaller contracts.
INVESTMENT ADVISORY FEE
Prior to the Transfer, Mutual Benefit Life assumed payment of the
investment advisory fee. MBL Life will continue to assume payment of the
fee for additional one-year periods, but reserves the right to cease
assumption of payment of the investment advisory fee at the expiration of
any one-year period. Absent MBL Life's payment of the advisory fee, for
the investment advisory services of First Priority, described in
"Investment Management", the Account would pay 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 the Account's average
daily net assets and .30% of the Account's average daily net assets in
excess of $700,000,000. For a discussion of how the fee is calculated,
see the Account's Statement of Additional Information, under "Investment
Advisory and Other Services".
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.
PREMIUM TAXES
Premium taxes, ranging up to 3.5%, are currently levied by certain
states. If premium taxes are incurred by the Account, a charge for the
amount of those taxes will be made when the taxes are incurred.
ACCUMULATION ACCOUNT
PURCHASE PAYMENTS
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 or 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 to all Contracts 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, and will again be subject to the minimum of $240 per
year per participant.
VARIABLE ACCUMULATION ACCOUNT
Net Purchase Payments are allocated to a Participant's Variable
Accumulation Account under the Contract and are applied to purchase
Variable Accumulation Units. Each Variable Accumulation Unit represents a
proportionate interest in the assets of the Account.
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 value 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 Net Investment Factor for any Valuation Date is equal to (1) the
net value of the Account determined as of the close of regular trading on
the New York Stock Exchange on that date (exclusive of any purchase
payments or redemptions on such date), less a deduction no greater than
an effective annual rate of 0.37% for the expense and expense risk
charges (currently, no deduction is being made) and less a deduction at a
maximum rate no greater than .40% for the investment management charge
(currently, no deduction is being made), and less a deduction for federal
tax attributable to the maintenance and operation of the Account
(currently, no such federal tax is payable); divided by (2) the value of
the Account determined 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.
The Account's portfolio securities are valued as follows:
Investments in short-term securities which mature in 60 days or less are
valued under the amortized cost method of valuation. Under this method,
securities are initially valued at cost on their acquisition date (or the
date on which they first have a maturity of 60 days or less), and their
subsequent value is based on such initial value, assuming a constant
accretion of a discount or amortization of a premium to maturity,
regardless of any subsequent minor fluctuations in the market value of
the security. 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.
Each Net Purchase Payment (after the first) is invested in Variable
Accumulation Units at the value next determined after receipt of the
payment by MBL Life. Thereafter, the Variable Accumulation Units
credited under a Contract will vary up or down in value, depending on the
value of the assets held by the Account which is affected by investment
performance, expenses and charges.
TRANSFERS BETWEEN CONTRACTS
A Participant may transfer between the Variable Accumulation Account
and the VCA-2 Contract, on proper written request to MBL Life. During
any Contract Year a Participant may transfer, once a quarter, from the
Contract to the VCA-2 Contract. Until the termination of the
Rehabilitation Period, no later than December 31, 1999, transfers between
the Variable Accumulation Account, and the Companion Contract, may be
subject to restrictions imposed by the Companion Contract. (See "The
Variable Contract Account - Legal Developments".)
The Variable Accumulation Account values will also be transferred to
the Companion Contract upon the death of a Participant (see "Accumulation
Account - Payment at Death"), or if a Qualified Plan fails to qualify
under the Code. (See "Other Contract Provisions - Failure of Plan to
Qualify".)
A request to transfer from a Participant's Variable Accumulation
Account under a Contract to a VCA-2 Contract is treated as a request to
transfer the entire Variable Accumulation Account if the total value
remaining in the Contract after the transfer would otherwise be less than
$240 or if the amount specified to be transferred exceeds the value of
the Variable Accumulation Account.
No transfer may be made within 15 days of a Participant's Annuity
Commencement Date. The amount of each transfer must be at least $240.
Transfers from the VCA-2 Contract to the Contract described in this
Prospectus will be subject to the transfer provisions contained in such
other contract, including any limitations or charges 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
will send Participants written confirmation of all transfers when they
are effected.
REDEMPTION
The current value of a Participant's Variable Accumulation Account
may be withdrawn, in whole or in part, or transferred to another tax-
qualified investment vehicle, at any time before his or her Annuity
Commencement Date under the Contract. However, under 401, 403(b) and 457
Plans, the redemption right may be restricted in accordance with the
Plan. Any partial withdrawal must amount to at least $240. Certain
plans may require forfeiture of non-vested employer contributions, and
may also provide that certain contributions may not be redeemed until the
occurrence of a specified event, such as attainment of age 59 1/2. The
terms of the Plan should be reviewed to determine if contributions are so
restricted.
Redemption is effected by redeeming a sufficient number of Variable
Accumulation Units in the Variable Accumulation Account to pay the amount
requested in cash. The number of units redeemed in the Variable
Accumulation Account is based on their value next determined after
receipt of a proper written request by MBL Life.
A request for partial redemption of a Participant's Variable
Accumulation Account under the Contract is treated as a request for
complete redemption if the total remaining value of the Variable
Accumulation Account would otherwise be less than $240 or if the
redemption request is for an amount which exceeds the value of such
account.
In this event, the Participant's Variable Accumulation Account may
be reduced by deducting any applicable administration charge otherwise
deducted at the end of the year and the remaining value of the Variable
Accumulation Account is paid to the Participant (or, in the case of a
transfer, to the financial institution designated by the Participant)
less any federal taxes withheld. (See "Federal Income Tax Status -
Withholding".) After complete redemption by a Participant, 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 securities held by the Account, is not practicable, or (3) the SEC
permits postponement by order.
Redemption 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".)
PAYMENT AT DEATH
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.] The Contracts require the beneficiary to make the written
request within 90 days of the Participant's death.
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 covered under an annuity purchase agreement adopted
pursuant to a Section 401(a) plan, Section 403(b) plan or 457 plan, may
elect an Annuity Commencement Date under the Contracts, which, as
discussed above, will be the first day of any month on which the
Participant elects to begin receiving payments under an annuity. In no
event may a Participant's Annuity Commencement Date be later than the
date under which distributions must begin under the Code. The Code
generally requires distributions to begin no later than the later of (1)
the calendar year in which a Participant attains age 70 1/2, or (2) retires
from such employment. With respect to 403(b) Plan, the Code precludes
distributions attributable to certain elective purchase payments prior to
attainment of age 59 1/2, separation from service, death, disability or
financial hardship, and prohibits the distribution of income attributable
to elective contributions in the case of financial hardship. The
selection of an Annuity Commencement Date must be made in writing, on a
form furnished by MBL Life, and received in MBL Life's Home Office at
least 15 days in advance of the Annuity Commencement Date.
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.
PURCHASE OF ANNUITY
On a Participant's normal or optional Annuity Commencement Date, the
value of the Variable Accumulation Account, less any applicable premium
tax, may be applied to purchase a fixed annuity and, if a VCA-2 Contract
has been issued to the Contract Holder, a variable annuity. In such
event, the full value of the Participant's Variable Accumulation Account
will be transferred in the appropriate amounts to the Companion Contract
and/or VCA-2 Contract. The amounts transferred will be as elected by the
Participant, in order to achieve the desired balance between the fixed
and variable annuities. The fixed annuity will then be purchased under
the Companion Contract, and the variable annuity will be purchased under
the VCA-2 Contract.
GENERAL RIGHTS
VOTING RIGHTS
All Contract Holders have voting rights with respect to the Account.
The number of votes attributed to each Contract Holder is equal to the
number of Variable Accumulation Units in the Account under the Contract.
Fractional votes are counted. Participants may have the right to
instruct Contract Holders as to casting votes with respect to their
Variable Accumulation Accounts arising from their own purchase payments
under 401, 403(b), IRA, or 457 Plans, as may be provided under the terms
of the Plan. Votes with respect to units for which no voting
instructions are received from Participants are voted by the Contract
Holder on each matter in the same proportion as those units for which
voting instructions are received. MBL Life votes its units on each
matter in the same proportion as such units are voted by Contract
Holders.
At a Special Meeting of Contract Holders held on April 12, 1995, the
Contract Holders voted to elect the five Committee Members; ratify the
appointment of Coopers & Lybrand L.L.P., as the Account's independent
accountants; approve the continuance of the Account's investment advisory
agreement with First Priority; and approve the continuance of the
Account's Service Agreement among the Account, First Priority and MBL
Life.
The Account is not required to hold regular annual Contract Holder
meetings and, in the normal course, does not expect to hold such
meetings. The Account is, however, required to hold Contract Holder
meetings for such purposes as, for example: (1) approving certain
agreements as required by the 1940 Act; (2) changing fundamental
investment objectives and restrictions; and (3) filling vacancies in the
membership of the Management Committee of the Account ("Committee") in
the event that less than a majority of the Committee members were elected
by Contract Holders. In addition, holders of record of not less than
two-thirds of the outstanding Accumulation Units of the Account may
remove a Committee Member from office by a vote cast in person or by
proxy at a Contract Holder meeting called for that purpose at the request
of holders of 10% or more of the outstanding Accumulation Units of the
Account. The Account has the obligation to assist in such Contract
Holder communications. Except as set forth above, Committee Members will
continue in office and may appoint successor Committee Members.
CONFIRMATION OF TRANSACTIONS AND ACCOUNT STATEMENTS
Within five business days after the end of each calendar quarter a
quarterly statement will be sent to each Participant under the Contract
detailing all activity in the Participant's Variable Accumulation Account
for the previous quarter, including any purchase payments, redemptions
and transfers; the dates of each such transaction; the amounts allocated
to the Variable Accumulation Account; the administration charges
deducted, if any, and the total Variable Accumulation 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 Variable Accumulation Units
in his or her Variable Accumulation Account under the Contract and (2)
the Variable Accumulation Unit value.
New Participants will be sent a confirmation upon receipt of their
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 with semi-annual reports
showing the financial position of the Account and a schedule of the
investments held by the Account.
457 PLAN PARTICIPANTS
The rights and benefits of Participants 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 a 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 Participants
referred to or described in this Prospectus are vested in the Contract
Holder.
MANAGEMENT
The Account is managed by a Management Committee in accordance with
the Rules and Regulations adopted by the Management Committee. The names
and addresses of the Chairman, Members, and Officers of the Management
Committee together with a brief description of their principal
occupations during the past five years are found in the Account's
Statement of Additional Information, "Management of the Account".
INVESTMENT MANAGEMENT
The Investment Advisory Agreement between the Account and First
Priority was last approved by the Management Committee on March 11, 1998,
and approved by Contract Holders on April 12, 1995. Under the Investment
Advisory Agreement with the Account, First Priority provides the Account
with investment advisory and management services and, subject to the
authority of the Management Committee, is responsible for overall
management of the Account's business affairs. Under a separate Service
Agreement among the Account, First Priority and MBL Life, last approved
by the Management Committee on March 11, 1998, and approved by Contract
Holders on April 12, 1995, MBL Life provides First Priority with certain
facilities required for performance of its duties under the Investment
Advisory Agreement.
First Priority was incorporated in 1993 under the laws of the State
of New Jersey. It is a registered investment adviser under the Advisers
Act, a registered broker-dealer under the Securities Exchange Act of
1934, and a member of the National Association of Securities Dealers,
Inc. First Priority serves as investment adviser for MAP-Government
Fund, Inc., a money-market mutual fund sponsored by MBL Life, and also
engages in the sale of other investment company securities and other
financial products.
A description of the services provided by First Priority pursuant to
the Investment Advisory Agreement, and a discussion of the Service
Agreement, appear in the Account's Statement of Additional Information,
"Investment Advisory and Other Services".
PREPARING FOR THE YEAR 2000
Like all financial services providers, MBL Life as well as the
investment advisor to the Account, First Priority (the "Advisor"),
utilize systems that may be affected by Year 2000 transition issues. In
addition to MBL Life and the Advisor, the Account relies on service
providers, including the custodian of the Account, that also may be
affected. MBL Life is in the process of developing, and will be
implementing, a Year 2000 transition plan; and the Advisor is also so
engaged. MBL Life is 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. MBL Life currently
anticipates that its systems will be Year 2000 compliant on or about
January 1, 1999, but there can be no assurance that MBL Life will be
successful, or that interaction with other service providers will not
impair services in the future.
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. MBL Life believes that all contracts issued in accordance with this
Prospectus are pension plan contracts to which Section 817(h) is not
presently applicable.
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 excludible 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
distributions 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
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 to the Companion Contract any amounts held
in Variable Accumulation Accounts under the Contract described in this
Prospectus, on the basis of equivalence as of the date of transfer.
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 First Priority is selected for the
Account. Such a notice would be sent to all 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 payments
will be accepted by MBL Life under the Contract and no further transfers
will be allowed between the Variable Accumulation Account and the VCA-2
Contract. However, MBL Life will continue to maintain the Participant's
existing Variable 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 additional 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 an IRA Plan, each Participant has
the right to direct MBL Life, by proper written request, to cancel his or
her Variable Accumulation Account and transfer its dollar value to a new
funding agency. 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 Variable 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 applicable
law, 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 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 amount credited to Variable Accumulation Accounts before
the effective date of such change, except that a change in the risk
charge may apply uniformly to all Variable Accumulation Units, including
those credited before the effective date of the change (but not
retroactively).
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, (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 discontinue
submitting certain matters for approval by persons having voting rights
under the Contracts, (2) to fund additional classes of contracts through
the Account, (3) 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, (4) to operate the Account
as another form of registered investment company or unregistered entity,
and (5) to change the investment policies described in this Prospectus.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS PAGE
General Information and History 2
Investment Restrictions 2
Commercial Paper and Bond Ratings 4
Management of the Account 5
Investment Advisory and Other Services 6
Purchase and Pricing of Securities 9
Calculation of Performance Data 10
Additional Information 11
Financial Statements 11
MBL VARIABLE CONTRACT ACCOUNT-7
OFFERED BY
MBL LIFE ASSURANCE CORPORATION
520 Broad Street
Newark, New Jersey 07102-3111
1-800-435-3191
INDEPENDENT ACCOUNTANTS
COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
INVESTMENT ADVISER
and
PRINCIPAL UNDERWRITER
FIRST PRIORITY INVESTMENT CORPORATION
520 Broad Street
Newark, New Jersey 07102-3111
1-800-559-5535
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO PERSON IS
AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS.
MBL VARIABLE CONTRACT ACCOUNT-7
previously known as
Mutual Benefit Variable Contract Account-7
_______________________________________________________________
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-3.
HEADING IN STATEMENT OF
ITEM NUMBER ADDITIONAL INFORMATION
16 Cover Page
17 Table of Contents
18 General Information
and History
19 Investment Restrictions
20 Management of the Account
21 Investment Advisory and
Other Services
22 Portfolio Transactions
23 Purchase and Pricing of
Securities
24 Investment Advisory and
Other Services
25 Calculation of
Performance Data
26 *
27 Financial Statements
____________________________________________________
* Indicates inapplicable.
<PAGE>
MBL VARIABLE CONTRACT ACCOUNT-7
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 must be read in conjunction with,
the Prospectus of MBL Variable Contract Account-7 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-7, telephone number 1-800-435-3191.
TABLE OF CONTENTS
CROSS REFERENCE TO
PAGE SECTION IN PROSPECTUS
General Information and The Variable Contract
History . . . . . . . . . 2 Account - Organization
Investment Restrictions . . 2 The Variable Contract
Account - Investment
Restrictions
Commercial Paper and Bond The Variable Contract
Ratings . . . . . . . . . 4 Account - Investment
Objective and Policies
Management of the Account . 5 Management
Investment Advisory and
Other Services . . . . . 6 Investment Management
Summary of Prospectus -
Investment Adviser and
Principal Underwriter
Purchase and Pricing of
Securities . . . . . . . 9 Accumulation Account -
Purchase Payments
Calculation of Performance Performance Related
Data . . . . . . . . . . 10 Information
Additional Information . . 11 -----
Financial Statements . . . 11 Condensed Financial
Information
GENERAL INFORMATION AND HISTORY
The business history of MBL Variable Contract Account-7 (the "Account")
(previously known as Mutual Benefit Variable Contract Account-7), and the
sponsoring insurance company, MBL Life Assurance Corporation ("MBL Life"),
is described in its Prospectus.
INVESTMENT RESTRICTIONS
The Account is subject to the following investment restrictions in
addition to those described in the Prospectus. The following restrictions
are considered fundamental policies and cannot be changed without the
approval of the Contract Holders of a majority (as defined in the Investment
Company Act of 1940) of the outstanding Variable Accumulation Units of the
Account. The Account may not:
1. purchase securities other than those in which the Account is
authorized to invest, as set forth under "Investment
Objective and Policies" in the Prospectus;
2. borrow money in excess of 5% of its total assets taken at
cost, and then only from banks as a temporary measure for
extraordinary or emergency purposes, such as to facilitate
redemption requests which might otherwise require untimely
dispositions of portfolio securities; the Account will not
borrow to increase income (leveraging), provided however,
that this restriction shall not apply to reverse repurchase
agreements (see Prospectus, "Investment Restrictions");
3. make loans, except by the purchase of obligations in which
the Account may invest; provided, however, that this
restriction shall not apply to repurchase agreements (see
Prospectus, "Investment Restrictions");
4. invest more than 5% of the value of the Account's total
assets in the securities of any one issuer;
5. write, or invest in, put, call, straddle, or spread options
or invest in interests in oil, gas or other mineral
exploration or development programs;
6. purchase securities on margin or sell any securities short;
7. invest more than 5% of the value of its total assets in the
securities of companies having a record of less than three
years continuous operations, including the operations of any
predecessor, but this limitation does not apply to
securities issued or guaranteed as to interest and principal
by agencies or instrumentalities of the United States
Government; but does apply to investments in securities of
agencies and instrumentalities of the United States
Government which are only supported by their own credit or
right to borrow from the United States Treasury;
8. underwrite the securities of other issuers or purchase
securities subject to restrictions on disposition under the
Securities Act of 1933 (so-called "restricted securities");
9. purchase securities which are not freely marketable,
except under repurchase agreements and master demand
notes;
10. invest in real estate, real estate investment trust
securities, commodities, or commodity contracts; however,
the Account may buy commercial paper issued by companies
which invest in real estate or interests therein;
11. invest in companies for the purpose of exercising control;
12. purchase equity securities, voting securities, or local or
state government securities; or
13. invest in securities of other investment companies; except
as they may be acquired as part of a merger, consolidation
or acquisition of assets.
With respect to Investment Restriction 4. above, the Account, as a
matter of operating policy, may invest more than 5% of the value of its
total assets in U.S. Government Securities and repurchase agreements that
are fully collateralized by U.S. Government Securities. As a matter of
operating policy, the Account will not invest more than (i) the greater of
1% of its total assets or $1,000,000 in Second Tier Securities (as defined
in Rule 2a-7 under the 1940 Act) of a single issuer and (ii) 5% of the
Account's total assets, when acquired, in Second Tier Securities.
NEW JERSEY INSURANCE LAW REQUIREMENTS
The Account limits its investments in accordance with the provisions of
the New Jersey Insurance Law that govern the separate account operations of
a New Jersey life insurance company.
Investments will be made in accordance with the insurance law in effect
at the time. In general, a separate account may only make investments that
an insurance company's general account is permitted to make. However, an
investment not otherwise eligible under these limitations may be made if,
after giving effect to the investment, the total cost of such non-eligible
investment does not exceed 5% of the total assets of the Account.
Investments in the assets of foreign issuers may not exceed 10% of the total
admitted assets of the Account. Additionally, New Jersey Insurance Law
provides that securities of any one institution may not exceed 5% of the
total admitted assets of the insurer including those assets of the insurer's
separate accounts. An investment opportunity, therefore, may be postponed
if a purchase would cause the combined holdings to exceed this 5% limit.
COMMERCIAL PAPER and BOND RATINGS
A-1 AND PRIME-1 COMMERCIAL PAPER RATINGS
A commercial paper rating of A-1 by Standard & Poor's implies that an
issue has the following characteristics: liquidity ratios are adequate to
meet cash requirements; long-term senior debt is rated "A" or better; the
issuer has access to at least two additional channels of borrowing; basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances; typically, the issuer's industry is well established and the
issuer has a strong position within the industry; and the reliability and
quality of management are unquestioned. The relative strength or weakness
of the above factors determine whether the issuer's commercial paper is A-1,
A-2, or A-3.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are
the following: evaluation of the issuer's industry or industries and the
appraisal of speculative-type risks which may be inherent in certain areas;
evaluation of the issuer's products in relation to competition and customer
acceptance; liquidity; amount and quality of long-term debt; trend of
earnings over a period of ten years; financial strength of a parent company
and the relationships which exist with the issuer; and, recognition by the
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations. These
factors determine whether an issuer's commercial paper is rated Prime-1,
Prime-2, or Prime-3.
AA AND AA BOND RATINGS
Bonds rated AA by Standard & Poor's are judged by them to be high-grade
obligations, and in the majority of instances differ only in small degrees
from issues rated AAA. Bonds rated AAA are considered by Standard & Poor's
to be the highest grade obligations and possess the ultimate degree of
protection as to principal and interest. Bonds rated Aa by Moody's are
judged to be of high quality by all standards. Together with the Aaa group,
they comprise what are generally known as high-grade bonds. They are rated
lower than Aaa bonds because margins of protection may not be as large or
fluctuations of protective elements may be of greater amplitude or there may
be other elements present which made the long-term risks appear somewhat
larger.
MANAGEMENT OF THE ACCOUNT
The Account is managed by a Management Committee in accordance with the
Rules and Regulations adopted by the Management Committee. The Chairman,
Members, and Secretary of the Management Committee, together with a brief
description of their principal occupations during the past five years, are
as follows:
Gordon Boyd, Member
P.O. Box 234, Convent Station, New Jersey 07961
Retired.
Joseph Lindner, Jr., M.D., Member
31 Old Fort Drive, Hilton Head Island, SC 29926
President, J. Lindner, Inc. since 1991.
+ Jerome M. Scheckman, Member
P.O. Box 807, Plandome, New York 11030
Formerly Consultant and Managing Director, Salomon
Brothers, Inc.; Member of the Corporation, Babson
College; Member of the Auxillary Board, Mt. Sinai
Hospital; Member of the Business Advisory Counsel,
Alfred University.
* David A. James, Member and Chairman
520 Broad Street, Newark, New Jersey 07102-3111
Senior Vice President - Securities Investments, MBL Life.
+ * William G. Clark, Member
520 Broad Street, Newark, New Jersey 07102-3111.
Senior Vice President - Pension and Investment Products,
MBL Life since 1995, prior thereto Vice President - Group
Pension Operations; Director and President, First Priority
Investment Corporation since 1993.
+ * Judith C. Keilp, Secretary of the Committee
520 Broad Street, Newark, New Jersey 07102-3111
Counsel, MBL Life since 1993; Vice President and
Secretary of First Priority Investment Corporation since 1993.
+ * Albert W. Leier, Assistant Secretary of the Committee
520 Broad Street, Newark, New Jersey 07102-3184
Vice President, Controller, MBL Life; Director, Vice President
and Treasurer of First Priority Investment Corporation since
1993.
____________________________
+ These persons hold similar positions with MBL Growth Fund, Inc., MAP-
Government Fund, Inc. and MAP-Equity Fund.
* Interested persons of the Account. Prior to May 1, 1994 each officer
named above maintained a similar position and/or title with Mutual Benefit
Life that he or she now holds with MBL Life.
The Account paid no remuneration to Members who also served as officers
or employees of MBL Life, Mutual Benefit Life, the investment adviser or the
distributor. An annual retainer of $1,200 and a fee of $400 for every
meeting attended are paid to "disinterested" Members. Aggregate compensation
of such Members by the Account during 1997 is shown below. These amounts
are paid from the expense charges.
Aggregate Total Compensation
Compensation from Account and
Name of Person, from Account Complex
Position Account Paid to Members
Gordon Boyd, $2,800 $ 2,800
Committee Member
Joseph Lindner, Jr., $2,400 $ 2,400
Committee Member
Jerome M. Scheckman, $2,800 $10,700
Committee Member
INVESTMENT ADVISORY AND OTHER SERVICES
ADVISORY AND MANAGEMENT SERVICES
First Priority Investment Corporation ("First Priority"), a wholly-
owned indirect subsidiary of MBL Life and a New Jersey corporation
incorporated in 1993, provides the Account with investment advisory and
management services, including investment recommendations based on a
continued study of the general economy and specific industries and
companies, placement of orders for the purchase and sale of investment
securities, office space, all necessary office facilities, all personnel
reasonably necessary for the Account's operations and ordinary clerical
services.
In this connection First Priority has entered into a separate Service
Agreement with MBL Life and the Account under which MBL Life will furnish,
through its Securities Investment Division, on a cost reimbursement basis,
investment advisory and other personnel, research and statistical
facilities, and services required by First Priority in connection with its
performance under the Investment Advisory Agreement. The Investment Advisory
Agreement and Service Agreement among the Account, MBL Life and First
Priority were last approved by the Account's Management Committee on March
11, 1998. These Agreements were approved by Contract Holders on April 12,
1995.
Each Agreement will continue from year to year, provided that such
continuance is approved at least annually: (a) by the vote, at a meeting, of
a majority of the Management Committee members who are not parties to the
Agreements or interested persons (as defined in the Investment Company Act
of 1940) of such parties and (b) by the Account's Management Committee or by
the vote of Contract Holders. Each Agreement may be terminated at any time
by any party on written notice of not more than 60 days, nor less than 30
days, and automatically terminates in the event of assignment.
For the investment advisory services of First Priority, the Account has
agreed to pay 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 the Account's average daily net assets and .30% of the
Account's average daily net assets in excess of $700,000,000. Absent the
assumption by MBL Life of the advisory fee, described below, the fee would
be reflected in the unit value computation, accrued daily and paid
quarterly.
Prior to the Transfer, Mutual Benefit Life assumed payment of the
investment advisory fee. MBL Life will continue to assume payment of the
fee for additional one-year periods, but reserves the right to cease
assumption of payment of the fee at the expiration of any one-year period.
The assumption of payment of this fee by MBL Life was extended again in 1998
for an additional one-year period.
For 1995, 1996, and 1997, First Priority received advisory fees from
MBL Life, pursuant to its agreement, of $8,536, $8,168, and $7,741,
respectively. No reimbursement was made to MBL Life under the Service
Agreement.
DISTRIBUTION SERVICES
First Priority is also the Account's distributor. First Priority is a
registered broker-dealer under the Securities Exchange Act of 1934, and a
member of the National Association of Securities Dealers, Inc.
First Priority serves as exclusive distributor of the Account under a
Sales Agreement which is subject to the same annual renewal requirements and
termination provisions as the Investment Advisory Agreement and Service
Agreement. No new Contracts will be offered; however, additional purchase
payments will be accepted under existing Contracts. First Priority will not
receive fees or commissions as distributor for the Account. Brokerage
commissions or fees relating to securities transactions are paid by the
Account.
The Sales Agreement was last approved on March 11, 1998 by the Members
of the Account's Management Committee who are not interested persons (as
defined in the Investment Company Act of 1940) of the Account or of First
Priority and who have no financial interest in the operation of the Sales
Agreement. The Sales Agreement will continue from year to year, provided
the Management Committee, including Members who are not interested persons,
approve such continuance annually.
PORTFOLIO TRANSACTIONS
First Priority makes decisions as to buying and selling investment
securities for the Account, subject to supervision by the Account's
Management Committee. The Account's portfolio securities normally will be
purchased on a principal basis directly from issuers, underwriters or
dealers. Accordingly, minimal brokerage charges and mark-ups, if any, are
expected to be paid by the Account on its portfolio transactions. Purchases
from an underwriter generally include a commission or concession paid by the
issuer, and transactions with dealers usually include a dealer's mark-up.
During 1995, 1996, and 1997 no brokerage commissions were incurred on
behalf of the Account.
In placing orders for the purchase and sale of the Account's investment
securities, First Priority seeks the best execution at the most favorable
price, considering all of the circumstances. First Priority does not pay
for research or other services through the use of concessions or mark-ups
charged by underwriters or dealers in a principal (including riskless
principal) capacity. Both the relatively low level of assets in the Account
and the Account's investment objective and policies serve to limit the
Account to investment in United States government securities and commercial
paper with maturities of less than one year. To accomplish the necessary
portfolio transactions thereby, First Priority, through its Service
Agreement with MBL Life, has access to financial statements of those
issuers, brokers and dealers with which the Account executes portfolio
transactions. In addition, at no cost to First Priority or the Account,
First Priority has access to a variety of publications which monitor the
financial condition of issuers, brokers and dealers, thereby enabling a
review of each individually. During the past year, no transactions occurred
in which furnishing of research was a factor in the selection of dealers. No
payment was allocated for any products or services providing a research or
non-research function. First Priority does not "pay up" for research in
principal transactions.
Securities purchased for the portfolio of the Account are not normally
made contemporaneously with purchases for other accounts managed by First
Priority or MBL Life. In light of the Service Agreement among First
Priority, MBL Life, and the Account, under which MBL Life furnishes, through
its Securities Investment Division, investment advisory and other personnel,
research and statistical facilities, and services required by First Priority
in connection with its performance under the Investment Advisory Agreement,
such investment advisory personnel serve as advisers to the MBL Life general
account and other accounts that may or may not be registered investment
companies. Securities of the same issuer may be included, from time to time,
in the portfolio of the Account and the portfolios of these other entities
where it is consistent with their respective investment objectives. Because
of the difficulty in purchasing commercial paper in small sizes, when
commercial paper is bought in large denominations for the general portfolio
of MBL Life, First Priority will from time to time request the seller to
issue the commercial paper in smaller denominations for the Account, but at
a higher rate as if it were purchased in the larger denomination. Not all
sellers provide this service. As of December 31, 1997, the Account was
almost fully invested in government securities with a small amount of cash
on hand to meet redemptions.
Bankers Trust Company New Jersey Limited, 34 Exchange Place, Jersey
City, New Jersey 07302, is the Custodian of the portfolio securities of the
Account. Due to the nature and duration of securities purchased by Adviser
for the Account, most of the securities purchased are held by the Depository
Trust Company or through the Book-Entry System of the Federal Reserve Bank.
PURCHASE AND PRICING OF SECURITIES
PURCHASE
Sales of new Contracts ceased July 16, 1991. MBL Life will not resume
sales of new Contracts.
A description of the flexible purchase payment arrangements is
described in the Account's Prospectus under "Accumulation Account-Purchase
Payments".
PRICING
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,
"Accumulation Account-Variable Accumulation Account", and may be 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 the Account as of the close of regular trading on the
New York Stock Exchange on July 1 was $2,000,000 and the Variable
Accumulation Unit value was $10.291111. Also, assume that on July 2 there
was investment income of $600, no realized or unrealized capital gains, and
the daily charge for expenses and expense risk and investment management was
$40. The Variable Accumulation Unit value for July 2nd would be determined
as follows:
(a) Account value at close of day, July 1 $2,000,000
(b) Variable Accumulation Unit value for July 1 $10.291111
(c) Investment Income, July 2 $ 600
(d) Realized and unrealized capital gains, July 2 $ 0
(e) Daily accrual for expenses and expense
risk charge and investment advisory fee ** $ 40
(f) Account value at close of day, July 2,
excluding any new purchase payments or
redemption (a) + (c) + (d) - (e) $2,000,560
(g) Net Investment Factor (f) divided by (a) $1.0002800
(h) Variable Accumulation Unit value for
July 2 (b) x (g) $10.293992
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.
______________________________
** Prior to the Transfer, Mutual Benefit Life ceased assessment of the
expense and expense risk charge and assumed payment of the investment
advisory fee. MBL Life has voluntarily continued to waive the expense and
expense risk charge and to assume payment of the investment advisory fee for
an additional one-year period, but reserves the right to reinstate
assessment of the expense and expense risk charge and cease assumption of
payment of the investment advisory fee at the expiration of such period.
CALCULATION OF PERFORMANCE DATA
The Account's yield is its investment income, less expenses, expressed
as a percentage of assets on an annualized basis for a specified period.
The yield is expressed as a current annualized yield and as a compounded
effective yield. From time to time, it may be quoted in sales literature,
advertisements and reports.
The yield is computed by determining the net change, exclusive of
capital changes and income other than investment income, in the value of a
hypothetical pre-existing account having a balance of one Accumulation Unit
of the Account at the beginning of the period, and dividing the difference
by the value of the Account at the beginning of the base period to obtain
the base period return, and then multiplying the base period return by
(365/7) with the resulting yield figure carried to at least the nearest
hundredth of one percent.
The effective yield is computed by determining the net change,
exclusive of capital changes and income other than investment income, in the
value of a hypothetical pre-existing Account having a balance of one
Accumulation Unit of the Account at the beginning of the period, subtracting
a hypothetical charge reflecting deductions from Participant Accounts, and
dividing the difference by the value of the Account at the beginning of the
base period to obtain the base period return, and then compounding the base
period return by adding 1, raising the sum to a power equal to 365 divided
by 7, and subtracting 1 from the result, according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) 365/7] - 1;
with the resulting effective yield figure carried to at least the nearest
hundredth of one percent. The effective yield assumes that any income
earned by an investment is reinvested in the Account. The effective yield
is slightly higher than the yield because of the compounding effect of this
assumed reinvestment.
The yield and effective yield illustrated do not include an expense
charge and expense risk charge at an annual rate of 0.35% and 0.02%,
respectively, of the Account's assets, premium taxes of up to 3.5% in those
jurisdictions which apply such a tax, and an investment advisory 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 the Account's average daily net
assets and .30% of the Account's average daily net assets in excess of
$700,000,000. There are no sales charges or redemption charges incurred
upon a partial or total redemption from the Account. Such charges and fees,
if included, would reduce the yield and effective yield.
Prior to May 1, 1994, Mutual Benefit Life ceased assessment of expense
and expense risk charges against the Account's assets and assumed payment of
the investment advisory fee. Since May 1, 1994, MBL Life has stated that it
will continue to assume payment of the investment advisory fee for
additional one-year periods, but reserves the right to reinstate the
assessment of the expenses and expense risk charge and cease assumption of
payment of the investment advisory fee at the expiration of any waiver
period.
Although the calculation of yield does not recognize any realized or
unrealized gains or losses on the Account's investments, the dividends paid
during a period will include any realized gains or losses and, therefore,
may not be the same on an annualized basis as the yield. (See the
Prospectus, "Performance Related Information".)
For the seven-day period ended December 31, 1997, the Account's "yield"
was 5.04% and its "effective yield" was 5.17%.
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 from its Annual Report 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. MBL Life's 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 and Participant 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 to audit the Account's
financial statements for the current fiscal year. The Account will furnish,
without charge, an additional copy of the Account's Audited Financial
Statements (including the accountants report thereon) 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, 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-7
previously known as
MUTUAL BENEFIT VARIABLE CONTRACT ACCOUNT-7
______________________________________________________________
PART C
OTHER INFORMATION
ITEM 28. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS.
The following Financial Statements are incorporated into Part B of this
Registration Statement by reference from the Audited Financial
Statements dated December 31, 1997, as filed with the Commission under
the Investment Company Act of 1940 on February 23, 1998 Accession No.
0001047469-98-007200).
MBL VARIABLE CONTRACT ACCOUNT-7:
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).
Financial Highlights for Each of the Five Years in the
Period 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 Mutual Benefit
Life establishing Mutual Benefit Variable Contract
Account-7, incorporated by reference to earlier filing on
September 23, 1983, SEC File No. 2-86722, Exhibit #(1)(c)
of Form N-1 Registration Statement of Registrant.
(1)(B) Resolution of the Board of Directors of MBL Life
Assurance Corporation establishing MBL Variable Contract
Account-7, incorporated by reference to earlier filing on
April 29, 1994, SEC File No. 811-3853, Exhibit (1)(B) to
Amendment No. 12 of Form N-3 Registration Statement.
(2) Rules and Regulations of Mutual Benefit Variable Contract
Account-7, as amended, incorporated by reference to
earlier filing on May 1, 1990, SEC File No. 2-86722,
Exhibit (2) to Post-Effective Amendment No. 7 of Form N-3
Registration Statement.
(3) Form of Custody Agreement among MBL Life Assurance
Corporation, MBL Life Variable Contract Account-7 and
Bankers Trust Company New Jersey Limited.
(4)(A) Investment Advisory Agreement, dated April 29, 1994
between Registrant and First Priority Investment
Corporation, incorporated by reference to earlier filing
on April 29, 1994, SEC File No. 811-3853, Exhibit (4)(A)
to Amendment No. 12 of Form N-3 Registration Statement.
(4)(B) Service Agreement, dated April 29, 1994 among the
Registrant, First Priority Investment Corporation and MBL
Life Assurance Corporation, incorporated by reference to
earlier filing on April 29, 1994, SEC File No. 811-3853,
Exhibit (4)(B) to Amendment No. 12 of Form N-3
Registration Statement.
(5) Sales Agreement, dated April 29, 1994 among the
Registrant, MBL Life Assurance Corporation and First
Priority Investment Corporation, incorporated by
reference to earlier filing on April 29, 1994, SEC File
No. 811-3853, Exhibit (5) to Amendment No. 12 of Form N-3
Registration Statement.
(6)(A) Form of Group Tax Deferred Annuity Contract [403(b) Plans].
(6)(B) Form of Group Tax Deferred Annuity Contract [IRA Plans].
(6)(C) Form of Group Tax Deferred Annuity Contract [HR-10 Plans].
(6)(D) Form of Group Tax Deferred Annuity Contract [457 Plans].
Exhibits (6)(A)-(D) incorporated by reference to earlier
filing on September 23, 1983, SEC File No. 2-86722,
Exhibits #(4)(a)-(d), respectively, of Form N-1
Registration Statement of Registrant.
(6)(E) Form of Group Tax-Deferred Annuity Contract, Individual
Allocation [403(b) Plans].
(6)(F) Form of Group Annuity Deposit Administration Individual
Allocation Companion Contract [403(b) Plans].
(6)(G) Form of First Amendment to Group Variable Annuity Contracts.
Exhibits (6)(E)-(G) incorporated by reference to earlier
filing on April 28, 1989, SEC File No. 2-86722, Exhibits
#(6)(E)-(G), respectively, of Form N-3 Registration
Statement.
(6)(H) Form of Contract Assumption CRT-AC1.
(6)(I) Form of Certificate Assumption CRT-AA2C.
(6)(J) Form of Certificate of Participation CRT-TDA0.
Exhibits (6)(H)-(J) incorporated by reference to earlier
filing on April 29, 1994, SEC File No. 811-3853, Exhibits
#(6)(H)-(J), respectively, to Amendment No. 12 of Form N-3
Registration Statement.
(7)(A) Form of Application used with Contracts listed in
response to Exhibit (6) above, incorporated by reference
to earlier filing on May 1, 1991, SEC File No. 2-86722,
Exhibit (6)(A) to Post-Effective Amendment No. 8 of Form
N-3 Registration Statement.
(7)(B) Form of Acknowledgment of Statutory TDA Withdrawal
Restrictions, incorporated by reference to earlier filing
on April 28, 1989, SEC File No. 2-86722, Exhibit #(7)(b)
of Form N-3 Registration Statement.
(8)(A) Charter, as amended, of Mutual Benefit Life.
(8)(B) By-Laws, as amended, of Mutual Benefit Life.
Exhibits (8)(A) and (8)(B) incorporated by reference to
earlier filing on May 1, 1991, SEC File No. 2-86722,
Exhibits (8)(A) and (8)(B), respectively, to Post-
Effective Amendment No. 8 of Form N-3 Registration
Statement.
(8)(C) Second Amended and Restated Articles of Redomestication
and Incorporation of MBL Life Assurance Corporation.
(8)(D) By-Laws of MBL Life Assurance Corporation.
Exhibits (8)(C) and (8)(D) incorporated by reference to
earlier filing on April 29, 1994, SEC File No. 811-3853,
Exhibits (8)(C) and (8)(D), respectively, to Amendment
No. 12 of Form N-3 Registration Statement.
(9) Not applicable.
(10) Not applicable.
(11) Consent of Coopers & Lybrand L.L.P., Independent Accountants;
Report of Arthur Andersen LLP, Independent Public Accountants;
Consent of Arthur Andersen LLP, Independent Public Accountants;
(12) Opinion of Frank D. Casciano, General Counsel, MBL Life
Assurance Corporation.
(13) Not applicable.
(14) Not applicable.
(15) Initial Capital Undertaking by Mutual Benefit Life,
incorporated by reference to earlier filing on September
23, 1983, SEC File No. 2-86722, Exhibit #13 of Form N-1
Registration Statement of Registrant.
(16)(A) Schedule of Computation for Yield Quotation.
(16)(B) Schedule of Computation for Effective Yield
Quotation.
(17)(A) Powers of Attorney, incorporated by reference to
earlier filing on February 22, 1996, SEC File No. 333-01151,
Exhibit (17) of Form N-3 Registration Statement.
(B) Powers of Attorney, incorporated by reference to
earlier filing on April 5, 1996, SEC File No. 333-01151,
Exhibit (17) of Form N-3 Registration Statement.
(C) Powers of Attorney, incorporated by reference to
earlier filing on April 30, 1997, SEC File No. 333-01151,
Exhibit (17) of Form N-3 Registration Statement.
(D) Powers of Attorney filed herewith.
(18) Consent Order to Show Cause with Temporary Restraints of
the Superior Court of New Jersey entered July 16, 1991,
incorporated by reference to earlier filing on April 30,
1992, SEC File No. 811-3853, Exhibit (18) to Amendment
No. 10 of Form N-3 Registration Statement.
(19) Mutual Benefit Fund et al. No-Action Letter, dated
October 27, 1993, incorporated by reference to earlier
filing on April 29, 1994, SEC File No. 811-3853, Exhibit
(19) to Amendment No. 12 of Form N-3 Registration
Statement.
(20) 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 earlier filing on April 29,
1994, SEC File No. 811-3853, Exhibit (19) to Amendment
No. 12 of Form N-3 Registration Statement.
(27) Financial Data Schedule.
__________________________________________________________
* Page numbers inserted in manually signed copy only.
ITEM 29. 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 WITH
BUSINESS ADDRESS SPONSORING INSURANCE COMPANY
Alan J. Bowers Director, President
MBL Life and Chief Executive
520 Broad Street Officer
Newark, New Jersey 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 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
Prudentional Insurance
Company
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
and 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 30. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
THE SPONSORING INSURANCE COMPANY OR REGISTRANT.
Mutual Benefit Variable Contract Account-7 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-7 were transferred to a separate
account of MBL Life, and named MBL Variable Contract Account-7 (the
"Account").
The Account is under the general supervision of a Management Committee
("Committee").
MBL Life is 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 Rehabilitation Plan appointing the
Commissioner of Banking and Insurance of the State of New Jersey as
Trustee until the end of the Rehabilitation Period, scheduled for 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/contractholders, 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
sponsoring insurance company (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., a registered adviser; EHC
Companies, Inc. is a holding company for Ernst Home Center, 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 (the "Act"). First Priority Investment Corporation ("First
Priority"), a wholly-owned indirect subsidiary of the 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 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.
As of March 31, 1998 Participants under the Long Island Jewish Medical
Center 403(b) Plan, New Hyde Park, New York, owned 33.49% percent of
the outstanding Variable Accumulation Units of the Account. Registrant
does not believe that this degree of ownership constitutes an exercise
of control over the activities of the Account, for the following
reasons:
(1) The Contract Holder passes its voting rights through to
Participants under the Contract,
(2) Each Participant controls the right to withdraw his or her funds
attributable to Variable Accumulation Units held in the Account, and
(3) The Contract Holder cannot exercise control over the direction of
the Participant interest in the Account.
ITEM 31. NUMBER OF CONTRACT HOLDERS.
As of March 31, 1998: 57
ITEM 32. INDEMNIFICATION.
The Account maintains investment errors and omissions insurance ("E &
O") covering each officer and those Management Committee Members who
are not interested persons of the Account. This policy protects those
Committee Members from legal liabilities and expenses which they may
incur as a result of claims for breach of duty, negligent acts, errors,
omissions, misstatements or misleading statements committed or alleged
to have been committed by them in their capacity as members of the
Committee. The policy would also insure the Account according to the
terms and conditions of the policy. The policy excludes expenses and
liabilities based upon, among other things, any claim alleging
dishonesty or fraudulent acts or omissions, or any criminal or
malicious acts or omissions.
The limits on the policy are $3,000,000 each wrongful act and
$3,000,000 aggregate. Notwithstanding any agreement or document to the
contrary, the Account undertakes not to insure any Committee Member for
any liability the indemnification of which has been determined to be
prohibited under the federal securities laws.
The Account is the joint owner of the E & O policy with MAP-Equity
Fund, MBL Growth Fund, Inc. and MAP-Government Fund, Inc., and the
premiums are allocated based on the proportion of each entity's net
assets to the total net assets of all the joint insured entities.
The Account also maintains an Investment Companies Blanket Bond
covering the Account against larceny and embezzlement committed by
specified individuals who may have access to funds of the Account.
In addition to the aforementioned E & O insurance and Blanket Bond, to
the extent permitted by law of the State of New Jersey under NJSA
14A:3-5 and subject to all applicable requirements thereof, MBL Life
has undertaken to indemnify each of the Account's officers and each
Management Committee Member, his heirs, executors and administrators,
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 is
or was an officer of the Account or a Committee Member.
Under the Sales Agreement between the Account and First Priority, First
Priority agrees to indemnify the Account and its Officers and Committee
Members and Controlling Persons from all liabilities and expenses
arising out of certain actual or alleged material misstatements or
other mistakes, negligence or willful misconduct of First Priority or
any of its agents or employees in connection with sales of the
Account's units.
Insofar as indemnification for liability arising under the Act may be
provided to Officers and Committee Members of the Account 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 an Officer, or Committee Member of
the Account in the successful defense of any action, suit or
proceeding) is asserted by such Officer, or Committee Member 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 Account
Officer or Committee Member for any liability, the indemnification of
which has been determined to be prohibited under the Federal securities
laws.
ITEM 33. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
First Priority is the Registrant's investment adviser. First Priority
is a wholly-owned indirect subsidiary of MBL Life. First Priority also
acts as principal distributor of shares of the Registrant, MBL Growth
Fund, Inc., MAP-Equity Fund, and MAP-Government Fund, Inc., as well as
MBL Variable Contract Account-2 and MBL Variable Contract Account-3, and
engages in the sale of other investment company securities and other
financial products as described in the Prospectus constituting Part A of
this Registration Statement and in the Statement of Additional
Information constituting Part B. The table below sets forth certain
information as to First Priority's directors and officers.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL
BUSINESS PROFESSION, AND
NAME AND PRINCIPAL POSITION WITH VOCATION OF EMPLOYMENT
BUSINESS ADDRESS* FIRST PRIORITY WITHIN PAST TWO YEARS
<S> <C> <C>
William G. Clark Director, President Senior Vice President -
Pension and Investment
Products, MBL Life.
Frank D. Casciano Director, Vice Executive Vice President,
President and General Counsel and
General Counsel Secretary, MBL Life.
Robert T. Budwick Director, Vice Executive Vice President
President and Chief Securities Investment, and
Investment Officer Chief Investment Officer
MBL Life.
Alan J. Bowers Director President and CEO, MBL Life
since 7/1/95.
Kathleen M. Koerber Director Executive Vice President -
Insurance Operations
and Chief Operating
Officer, MBL Life.
Albert W. Leier Director, Vice Vice President and
President and Controller, MBL Life.
Treasurer
Hal R. Rose Senior Vice President - - -
Judith C. Keilp Vice President and Counsel, MBL Life.
Secretary
Richard C. Allen Vice President - - -
Christopher S. Auda Vice President, - - -
Operations
James Switlyk Second Vice President, - - -
Marketing Support
Roger A. Vellekamp Assistant Secretary Second Vice President -
Tax, MBL Life.
</TABLE>
* All of the Officers and Directors named maintain a principal business
address at 520 Broad Street, Newark, New Jersey 07102-3111.
ITEM 34. PRINCIPAL UNDERWRITER.
(a) First Priority, the Account's principal underwriter, pursuant
to a Sales Agreement, serves as principal underwriter for the
following registered investment companies: MAP-Equity Fund,
MBL Growth Fund, Inc., and MAP-Government Fund, Inc., and for
the following unit investment trusts: MBL Variable Contract
Account-2 and MBL Variable Contract Account-3, each a
separate account of MBL Life.
First Priority also serves as the investment adviser to MAP-
Government Fund, Inc.
(b) Information regarding First Priority's officers and directors:
See Item 33 above.
(c) Not applicable.
ITEM 35. LOCATION OF ACCOUNTS AND BOOKS.
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 Account and
the Account's Custodian, Bankers Trust Company New Jersey Limited,
34 Exchange Place, Jersey City, New Jersey 07302.
ITEM 36. MANAGEMENT SERVICES.
Other than as set forth under the caption "Investment Management"
in the Prospectus, as amended, constituting Part A of this
Registration Statement, and under "Investment Advisory and Other
Services" in the Statement of Additional Information constituting
Part B, the Account is not a party to any management-related
service contract.
ITEM 37. UNDERTAKINGS.
(a) Not applicable.
(b) Registrant undertakes to file a post-effective amendment to
its Securities Act of 1933 Registration Statement as
frequently as 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.
(c) 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.
(d) 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.
(e) 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 the Account has included appropriate disclosure
regarding the redemption restrictions imposed by
Section 403(b)(11) in this registration statement,
including the prospectus;
(2) That the Account 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 the Account 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 described in this 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.
SIGNATURES
As required by the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets the
requirements of Securities Act Rule 485(b) for effectiveness of the
Post-Effective Amendment to the Registration Statement and 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 28
day of April, 1998.
MBL VARIABLE CONTRACT ACCOUNT-7
(Registrant)
By: JUDITH C. KEILP
Judith C. Keilp
Secretary of the Management Committee
of MBL Variable Contract Account-7
As required by the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
MBL VARIABLE CONTRACT ACCOUNT-7
Signature Title Date
DAVID A. JAMES Chairman, April 28, 1998
David A. James Member
GORDON BOYD Member April 28, 1998
Gordon Boyd
WILLIAM G. CLARK Member April 28, 1998
William G. Clark
JOSEPH LINDNER, JR. Member April 28, 1998
Joseph Lindner, Jr.
JEROME M. SCHECKMAN Member April 28, 1998
Jerome M. Scheckman
SIGNATURES
As required by the Securities Act of 1933 and the Investment Act
of 1940, the Sponsoring Insurance Company 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 29 day of April,
1998.
By: MBL Life Assurance Corporation
(Sponsoring Insurance Company)
By: FRANK D. CASCIANO
Frank D. Casciano
Executive Vice President,
General Counsel and Secretary
As required by the Securities Act of 1933, this 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 April 29, 1998
Albert W. Leier Officer
Directors:
Elizabeth E. Randall *
Patrick G. Boyle **
Donald Bryan *
Harry D. Garber *
Ronald P. Joelson **
John Kerr *
Richard W. Klipstein *
Janine J. Akey *
Thomas Gallagher **
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 incorporated
into previous filings.
** Executed by Frank D. Casciano, Attorney-in-Fact, on behalf of
those indicated pursuant to the Powers of Attorney, filed
herewith.
EXHIBIT INDEX*
Exhibit No.
(3) Form of Custody Agreement among MBL Life Assurance
Corporation, MBL Life Variable Contract Account-7 and Bankers
Trust Company New Jersey Limited.
(11) Consent of Coopers & Lybrand L.L.P., Independent Accountants;
Report of Arthur Andersen LLP, Independent Public Accountants;
Consent of Arthur Andersen LLP, Independent Public Accountants;
(12) Opinion of Frank D. Casciano, General Counsel, MBL Life
Assurance Corporation.
(16)(A) Schedule of Computation for Yield Quotation.
(16)(B) Schedule of Computation for Effective Yield Quotation.
(17) Powers of Attorney.
(27) Financial Data Schedule.
* Pages numbers inserted in manually signed copy only.
CUSTODY AGREEMENT
AGREEMENT dated as of among MBL LIFE ASSURANCE CORPORATION
("MBL Life"), a stock life insurance company organized and existing
under the laws of the State of New Jersey, with its principal office and
place of business at 520 Broad Street, Newark, New Jersey 07102-3111,
MBL VARIABLE CONTRACT ACCOUNT-7 ("VCA-7"), a separate investment account
of MBL Life, and BANKERS TRUST COMPANY NEW JERSEY LIMITED (the
"Custodian"), a New Jersey banking corporation with its principal place
of business at 34 Exchange Place, Jersey City, New Jersey 07302.
W I T N E S S E T H :
That for and in consideration of the mutual promises hereinafter
set forth the parties agree as follows:
1. DEFINITIONS
Whenever used in this Agreement or in any Schedules to this
Agreement, the following words and phrases, unless the context otherwise
requires, shall have the following meanings:
(a) "Authorized Person(s) of VCA-7" shall be deemed to include
the Chairman, and any Vice President, the Secretary, the Assistant
Secretary or any other person, whether or not any such person is a
member of the Management Committee, officer or employee of VCA-7, duly
authorized by the Management Committee to give Instructions on behalf of
VCA-7 and listed in the certifications annexed hereto as APPENDIX A and
APPENDIX B, or such other written certification as may be received from
the Management Committee of VCA-7 by the Custodian from time to time.
"Authorized Person(s) of the Custodian" shall include any person,
duly authorized by the Custodian to execute and modify agreements and
fee schedules on behalf of the Custodian and listed in the certification
annexed hereto as Appendix C, or such other certification as may be
received from the Custodian by VCA-7 from time to time.
(b) "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and Federal Agency Securities, its
successor or successors and its nominee or nominees.
(c) "Depository" shall mean The Depository Trust Company ("DTC"),
a clearing agency registered with the Securities and Exchange Commission
under Section 17A of the Securities Exchange Act of 1934, as amended,
its successor or successors and its nominee or nominees, in which the
Custodian is hereby specifically authorized to make deposits. The term
"Depository" shall further mean and include any other person authorized
to act as a securities depository under the 1940 Act, its successor or
successors and its nominee or nominees, if the use of such depository is
approved by vote of the Management Committee.
(d) "Instructions" shall mean Oral Instructions or Written
Instructions.
(e) "Management Committee" or "Committee" shall mean the
committee elected by vote of the holders of Units to manage VCA-7 in
accordance with the Rules and Regulations adopted by the Management
Committee.
(f) "Money Market Security" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to interest and
principal by the Government of the United States or agencies or
instrumentalities thereof, commercial paper, bank certificates of
deposit, bankers' acceptances and short-term corporate obligations,
where the purchase or sale of such securities normally requires
settlement in federal funds on the same day as such purchase or sale,
and repurchase and reverse repurchase agreements with respect to any of
the foregoing types of securities.
(g) "Oral Instructions" shall mean verbal instructions actually
received by the Custodian from a person reasonably believed by the
Custodian to be an Authorized Person of VCA-7.
(h) "Prospectus" shall mean VCA-7's current prospectus and
statement of additional information relating to the registration of VCA-
7's Units under the Securities Act of 1933, as amended.
(i) "Security" or "Securities" shall be deemed to include bonds,
debentures, notes, stocks, shares, evidences of indebtedness, repurchase
agreements, reverse repurchase agreements and other securities and
investments from time to time owned by VCA-7.
(j) The "1940 Act" refers to the Investment Company Act of 1940,
and the General Rules and Regulations thereunder, all as amended from
time to time.
(k) "Units" refers to the units of beneficial interest in VCA-7.
(l) "Written Instructions" shall mean a written communication
actually received by the Custodian from a person reasonably believed by
the Custodian to be an Authorized Person of VCA-7 by any system whereby
the receiver of such communication is able to verify through codes or
otherwise with a reasonable degree of certainty the authenticity of the
sender of such communication. Written Instructions shall include, but
not be limited to, instructions received by computer, electronic
instruction system, telecommunications terminals (including telex, TWXS,
facsimile transmitter or bank wire), or POL*ARIS, and shall be performed
in conformity with appropriate procedures established by mutual
agreement of the Custodian and VCA-7, which procedures shall be
compatible with the operating procedures of the Custodian, and which
procedures shall be subject to review by the Management Committee upon
its request.
(m) "VCA-7 Documents" shall mean the resolution of the Board of
Directors of MBL Life, authorizing the appropriate officers of MBL Life
to establish and maintain VCA-7, adopted at its meeting held on
September 7, 1983, and the "Rules and Regulations" for the conduct of
the business of VCA-7, adopted by vote of the Committee of VCA-7 on
September 19, 1983, as the same may be amended from time to time.
2. APPOINTMENT OF CUSTODIAN
(a) MBL Life and VCA-7 hereby employ, pursuant to Article V of
VCA-7's Rules and Regulations, the Custodian as custodian of all the
Securities and cash at the time owned by or in the possession of VCA-7.
(b) The Custodian hereby accepts such employment as custodian for
VCA-7 and agrees to perform the duties thereof as hereinafter set forth.
3. COMPENSATION
(a) VCA-7 will compensate the Custodian for its services rendered
under this Agreement in accordance with the fees set forth in the Fee
Schedule annexed hereto as Schedule A and incorporated herein. Such Fee
Schedule does not include out-of-pocket disbursements of the Custodian
for which the Custodian shall be entitled to bill separately. Out-of-
pocket disbursements are for incidental expenses, which shall include,
but shall not be limited to, the items specified in the Schedule of out-
of-pocket charges annexed hereto as Schedule B and incorporated herein,
which schedule may be modified by the Custodian upon not less than
ninety days prior written notice to VCA-7, provided, however, that the
Custodian shall not transfer any fees, listed on Schedule A at the
beginning of the term of this Agreement, or any of the underlying costs
of the Schedule A fees, from Schedule A to Schedule B.
(b) Schedule A of this Agreement, agreed to hereunder, may be
amended from time to time by attaching to Schedule A of this Agreement a
revised Schedule A, dated and signed by an Authorized Person of VCA-7
and an Authorized Person of the Custodian.
(c) The Custodian will submit its billings to MBL Life as soon as
practicable after the end of each calendar month, and said billings will
be detailed in accordance with Schedule A and Schedule B for prompt
payment to the Custodian.
4. CUSTODY OF CASH AND SECURITIES
(a) RECEIPT AND HOLDING OF ASSETS. VCA-7 will deliver or cause
to be delivered to the Custodian all Securities and cash owned by it at
any time during the period of this Agreement. The Custodian will not be
responsible for such Securities and cash until actually received by it.
The Custodian shall hold in a separate account, physically segregated at
all times from any property of Custodian and any property of other
persons, firms, or corporations, pursuant to the provisions hereof, all
Securities received by it for the account of VCA-7, except that the
Custodian may make use of the Book-Entry System or the Depository as
provided in this Agreement.
(b) BOOK-ENTRY SYSTEM AND DEPOSITORY. The Custodian may deposit
and/or maintain securities of VCA-7 in the Book-Entry System or the
Depository, subject to the following conditions:
(1) Securities and cash of VCA-7 deposited in the Book-Entry
System or the Depository will be represented in accounts
which include only assets held by the Custodian for
customers, including, but not limited to, accounts in which
the Custodian acts in a fiduciary or representative capacity.
(2) The records of the Custodian with respect to Securities of
VCA-7 which are maintained in the Book-Entry System or
Depository shall identify by book-entry those securities
allocable to VCA-7.
(3) Such Book-Entry System or Depository may be used to hold,
receive, exchange, release, deliver and otherwise deal with
the Securities allocated to VCA-7, including stock dividends,
rights and other items of like nature, and to receive and
remit to the Custodian all income and other payments thereon
and to take all steps necessary and proper in connection with
the collection thereof.
(4) Payment for Securities purchased and sold may be made through
the clearing medium employed by the Book-Entry System or
Depository for transactions of participants acting through
it.
(5) The Custodian shall pay for Securities purchased for the
account of VCA-7 through and in accordance with the
procedures of the Book-Entry System or Depository, and, upon
notification from the Book-Entry System or Depository that
such Securities have been transferred, the Custodian shall
make an entry on its records to reflect such payment and
transfer for the account of VCA-7. The Custodian shall
transfer Securities sold for the account of VCA-7 upon (i)
receipt of notification from the Book-Entry System or
Depository that payment for such Securities has been
transferred to the account of Custodian, and (ii) the making
of an entry on the records of the Custodian to reflect such
transfer and payment for the account of VCA-7. Copies of all
advices from the Book-Entry System and Depository of
transfers of Securities for the account of VCA-7 shall
identify VCA-7, be maintained for VCA-7 by the Custodian and
be provided to VCA-7 at its request. The Custodian shall
comply with all other requirements of Rule 17f-4(d)(3) under
the 1940 Act.
(6) At their election, MBL Life and VCA-7 shall be entitled to be
subrogated to the rights of the Custodian with respect to
each individual claim against the Book-Entry System or
Depository, or their agents or employees, or any other person
which the Custodian may have as a consequence of any loss or
damage if and to the extent that MBL Life and VCA-7 have not
been made whole for any such loss or damage. Custodian shall
cooperate with MBL Life and VCA-7 in their efforts to enforce
each individual claim to the extent of producing relevant
records and, to the extent necessary, witnesses.
(c) ACCOUNTS; CREDITING AND DISBURSEMENTS OF CASH. The Custodian
shall establish and maintain a separate account for VCA-7 and shall
credit to VCA-7 all cash received by it for the account of VCA-7 and,
only upon the receipt of proper Instructions, shall disburse the same.
(d) CONFIRMATION AND STATEMENTS. Promptly after the close of
business on each day, the Custodian shall furnish VCA-7 with
confirmations and a summary of all transfers to or from the account of
VCA-7 during said day. Where Securities purchased by VCA-7 are in a
fungible bulk of securities registered in the name of the Custodian (or
its nominee) or shown on the Custodian's account on the books of the
Depository or the Book-Entry System, the Custodian shall by Book-Entry
or otherwise identify the quantity of those Securities belonging to VCA-
7. At least monthly, or more often upon request, the Custodian shall
furnish VCA-7 with a detailed statement of the Securities and cash held
for VCA-7 under this Agreement.
(e) REGISTRATION OF SECURITIES AND PHYSICAL SEPARATION. All
Securities held for VCA-7 which are issued or issuable only in bearer
form, except such Securities as are held in the Depository or the Book-
Entry System, shall be held by the Custodian in that form; all other
Securities held for VCA-7 may be registered in the name of VCA-7, in the
name of any duly appointed registered nominee of the Custodian as the
Custodian may from time to time determine, or in the name of the Book-
Entry System or Depository or their successor or successors, or their
nominee or nominees. VCA-7 reserves the right to instruct the Custodian
as to the method of registration and safekeeping of the Securities.
VCA-7 agrees to furnish to the Custodian appropriate instruments to
enable the Custodian to hold or deliver in proper form for transfer, or
to register in the name of its registered nominee or in the name of the
Book-Entry System or the Depository, any Securities which it may hold
for VCA-7 and which may from time to time be registered in the name of
VCA-7.
(f) RECEIPT OF INCOME AND OTHER MATTERS AFFECTING SECURITIES.
Unless instructed to the contrary by Instructions, the Custodian by
itself, or through the use of the Book-Entry System or the Depository
and in accordance with Section 4(b) above, shall, with respect to
Securities therein deposited, promptly with respect to all Securities
held for VCA-7 in accordance with this Agreement:
(1) Receive all income due or payable;
(2) Present for payment and receive the amount payable upon
all Securities which may mature or be called, redeemed or
retired, or otherwise become payable, provided that, should
any Securities held in the Book-Entry System or the
Depository be called for a partial redemption by the issuer
of such Securities, the Custodian is authorized to accept
allocation as determined pursuant to the program operated by
and at the direction of the Book-Entry System or Depository
therefor then in effect at the Book-Entry System or
Depository or, in the absence of any such program, in
Custodian's sole discretion, to allot the called portion to
the respective holders in any manner deemed to be fair and
equitable in Custodian's judgment;
(3) Surrender Securities in temporary form for definitive
Securities;
(4) Execute any necessary declarations or certificates of
ownership under the Federal income tax laws or the laws or
regulations of any other taxing authority now or hereafter in
effect; and
(5) Hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for
the account of VCA-7, stock dividends, rights, and other
items of like nature issued with respect to any Securities
held by the Custodian hereunder for VCA-7.
(g) DELIVERY OF SECURITIES AND EVIDENCE OF AUTHORITY.
Upon receipt of Instructions and not otherwise, the Custodian
directly or through the use of the Book Entry System or the Depository,
and in accordance with section 4(b) above, shall:
(1) Execute and deliver or cause to be executed and
delivered to such persons as may be designated in such
Instructions proxies, consents, authorizations, and any other
instruments whereby the authority of VCA-7 as owner of any
Securities may be exercised;
(2) Deliver or cause to be delivered any Securities held
for VCA-7 in exchange for other Securities or cash issued or
paid in connection with the liquidation, reorganization,
refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
(3) Deliver or cause to be delivered any Securities held
for VCA-7 to any protective committee, reorganization
committee or other person in connection with the
reorganization, refinancing, merger, consolidation or
recapitalization or sale of assets of any corporation, and
receive and hold under the terms of this Agreement in the
separate account for VCA-7 such certificates of deposit,
interim receipts or other instruments or documents as may be
issued to it to evidence such delivery;
(4) Make or cause to be made such transfers or exchanges of
the assets of VCA-7 and take such other steps as shall be
stated in said Instructions to be for the purpose of
effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of
VCA-7.
(5) Deliver Securities owned by VCA-7 upon sale of such
securities for the account of VCA-7 pursuant to Section 5 of
this Agreement;
(6) Deliver Securities owned by VCA-7 upon the receipt of
payment in connection with any repurchase agreement related
to such Securities entered into by VCA-7, subject to the
provisions of Section 5(d) hereof;
(7) Deliver Securities owned by VCA-7 to the issuer thereof
or its agent when such Securities are called, redeemed,
retired or otherwise become payable; provided, however, that
in any such case the cash or other consideration is to be
delivered to the Custodian;
(8) Deliver Securities owned by VCA-7 for delivery in
connection with any loans of securities made by VCA-7 but
only against receipt of adequate collateral as agreed upon
from time to time by the Custodian and VCA-7;
(9) Deliver Securities owned by VCA-7 for delivery as
security in connection with any borrowings by VCA-7 requiring
a pledge of VCA-7 assets, but only against receipt of amounts
borrowed;
(10) Deliver Securities owned by VCA-7 for delivery to the
transfer agent or to the holders of Units in connection with
distributions in kind, as may be described from time to time
in VCA-7's prospectus, in satisfaction of requests by holders
of Units for repurchase or redemption; and
(11) Deliver Securities owned by VCA-7 for any other proper
business purpose, but only upon receipt of, in addition to
Instructions, a certified copy of a resolution of the
Committee signed by an Authorized Person of VCA-7 and
certified by the Secretary of VCA-7, specifying the
Securities to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose to
be a proper business purpose, and naming the person or
persons to whom delivery of such Securities shall be made.
(h) ENDORSEMENT AND COLLECTION OF CHECKS, ETC. The Custodian is
hereby authorized to endorse and process for collection all checks,
drafts or other orders for the payment of money received by the
Custodian for the account of VCA-7.
5. PURCHASE AND SALE OF INVESTMENTS OF VCA-7
(a) Promptly after placing each order to purchase Securities for
VCA-7, VCA-7 shall transmit to the Custodian Instructions specifying
with respect to each purchase:
(1) The name of the issuer and the title of the Securities;
(2) The number of shares or the principal amount purchased and
accrued interest, if any;
(3) The date of purchase and settlement;
(4) The purchase price per unit;
(5) The total amount payable upon such purchase;
(6) The name of the person from whom or the dealer through whom
the purchase was made; and
(7) Whether or not such purchase is to be settled through the
Book-Entry System or the Depository.
The Custodian shall receive all Securities purchased by or for
VCA-7 and upon receipt of Securities (including purchases effected
through the Book-Entry System or Depository in accordance with Section
4(b), above) shall pay out of the cash held for the account of VCA-7 the
total amount payable upon such purchase, provided that the same conforms
to the total amount payable as set forth in such Instructions.
(b) Promptly after each sale of Securities of VCA-7, VCA-7 shall
transmit to the Custodian Instructions specifying with respect to such
sale:
(1) The name of the issuer and the title of the Securities;
(2) The number of shares or principal amount sold, and accrued
interest, if any;
(3) The date of sale;
(4) The sale price per unit;
(5) The total amount payable to VCA-7, upon such sale;
(6) The name of the dealer through whom or the person to whom the
sale was made; and
(7) Whether such sale is to be settled through the Book-Entry
System or the Depository.
The Custodian shall deliver or cause the Securities to be
delivered to the dealer or other person designated by VCA-7 only upon
receipt of the total amount payable to VCA-7 as set forth in such
Instructions. Subject to the foregoing, the Custodian may accept
payment in such form as shall be satisfactory to it, and may deliver
Securities and arrange for payment in accordance with the customs
prevailing among dealers in Securities as further described in (d)
below.
(c) In connection with the transactions described in this
Agreement, Custodian is not obligated to effect any transaction or make
any payment in connection therewith unless there are sufficient
available funds on deposit in VCA-7's account or funds have otherwise
been made available to Custodian therefor to its satisfaction. The
amount by which payments made by Custodian with respect to property in,
or to be received for, the account of VCA-7, or with respect to other
transactions pursuant to this Agreement, exceed available funds and
result in an account overdraft shall be deemed a loan from Custodian to
VCA-7 in the amount of such overdraft, payable on demand and bearing
interest at the rate customarily charged by Custodian on similar loans.
All such loans shall be based on Custodian's sole determination to make
the underlying advance in each case.
(d) MBL Life acknowledges familiarity with the current securities
industry practice of delivering physical securities against later
payment on delivery date. Notwithstanding instructions to deliver
securities against payment, Custodian is authorized to make delivery
against a temporary receipt (sometimes called a "window ticket") in lieu
of payment. Custodian agrees to use its best efforts to obtain payment
therefor during the same business day, but MBL Life confirms its sole
assumption of all risks of payment for such deliveries, except for those
acts or omissions, if any, of Custodian arising from Custodian's own
negligence or willful misconduct. Custodian may accept checks, whether
certified or not, in payment for securities delivered in accordance with
Instructions and assumes sole responsibility for the risks of
collectability of such checks.
(e) In order to secure the payment and performance of all
liabilities to Custodian at any time outstanding hereunder, MBL Life
hereby grants Custodian a lien and right of setoff as to the balance in
any non-custodian account of MBL Life (except to the extent that such
accounts hold assets of VCA-7), from time to time, and Custodian may, at
any time or from time to time, at Custodian's sole option and without
notice, appropriate and apply toward the payment of such liabilities,
the balance of each such account and/or take such other action(s) or
exercise any other options, powers and rights which Custodian now or
hereafter has as a secured party under the New Jersey Uniform Commercial
Code or any other applicable law. The phrase "liabilities" shall
include all liabilities arising hereunder, including, but not limited to
loans, other advances, interest, fees, charges, expenses and attorneys'
fees.
6. PERSONS HAVING ACCESS TO ASSETS OF VCA-7
(a) No Committee member, officer, employee or agent of VCA-7, and
no officer, director, employee or agent of the investment adviser (the
"Adviser") of VCA-7, if any, acting pursuant to any provision of the
Investment Advisory Agreement (the "Advisory Agreement") between VCA-7
and the Adviser, shall have physical access to the assets of VCA-7 held
by the Custodian or be authorized or permitted to withdraw any
securities or cash of VCA-7, nor shall the Custodian deliver any assets
of VCA-7 to any such person. No officer, director, employee or agent of
the Custodian who holds any similar position with VCA-7 or who performs
duties under the Advisory Agreement shall have access to the assets of
VCA-7.
(b) Subject to paragraph (f) of Section 4. hereof, nothing in
this Section 6. shall prohibit any Authorized Persons of VCA-7, who may
be officers, employees or agents of VCA-7, or officers, employees or
agents of the Adviser, from giving Instructions to the Custodian
consistent with the terms of this Agreement so long as such instructions
do not result in delivery of or access to assets of VCA-7 prohibited by
paragraph (a) of this Section 6.
7. CONCERNING THE CUSTODIAN
(a) STANDARD OF CONDUCT. Except as otherwise provided herein,
neither the Custodian nor its nominee shall be liable for any loss or
damage, including counsel fees, resulting from its action or omission to
act or otherwise, except for any loss or damage arising out of its own
negligence, willful misfeasance or willful misconduct. The Custodian
may, with respect to questions of law, apply for and obtain the advice
and opinion of counsel to the Custodian and shall be fully protected
with respect to anything done or omitted by it in good faith in
conformity with such advice or opinion. The Custodian shall indemnify
VCA-7 and MBL Life for any loss or damage resulting from or arising by
reason of any negligence, willful misfeasance or willful misconduct on
the part of the Custodian or any of its employees or agents. In no
event shall the Custodian be liable for special, indirect or
consequential damages. The Custodian shall take all appropriate and
necessary steps to obtain replacement of any security in its possession
that has been lost, apparently destroyed or wrongfully taken.
(b) LIMIT OF DUTIES. Without limiting the generality of the
foregoing, the Custodian shall not be liable for:
(1) The validity of the issue of any Securities purchased
by VCA-7, the legality of the purchase thereof, or the
propriety of the amount paid therefore;
(2) The legality of the sale of any Securities by VCA-7, or
the propriety of the amount for which the same are
sold;
(3) The legality of the issue or sale of any Units, or the
sufficiency of the amount to be received therefore;
(4) The legality of the redemption of any Units, or the
propriety of the amount to be paid therefore;
(5) The legality of any borrowing for temporary or
emergency administrative purposes.
(c) NO LIABILITY UNTIL RECEIPT. The Custodian shall not be
liable for or considered to be the Custodian of any cash, whether or not
represented by check, draft, or other instrument for the payment of
money (other than a Security or Money Market Security), received by it
on behalf of VCA-7 until the Custodian actually receives and collects
such cash and promptly and properly evidences such receipt by the final
crediting of the account representing VCA-7's interest in the Book-Entry
System or the Depository.
(d) AMOUNTS DUE FROM TRANSFER AGENT. The Custodian shall not be
under any duty or obligation to take action to effect collection of any
amount due to VCA-7 from the transfer agent nor to take any action to
effect payment or distribution by the transfer agent of any amount paid
by the Custodian to the transfer agent in accordance with this
Agreement.
(e) COLLECTION WHERE PAYMENT IN DEFAULT OR REFUSED. The
Custodian shall promptly notify VCA-7 in writing if any income or any
other amount due or payable with respect to a Security is in default or
if payment is refused after due demand or presentation. The Custodian
shall not be under any duty or obligation to take action to effect
collection of any amount if the Securities upon which such amount is
payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such
action by Instructions and (ii) it shall be assured to its satisfaction
of reimbursement of its costs and expenses in connection with any such
action.
(f) APPOINTMENT OF AGENTS AND SUB-CUSTODIANS. The Custodian may
appoint one or more United States banking institutions satisfying the
requirements of Section 17(f) of the 1940 Act and the rules thereunder,
as Sub-Custodians of Securities and cash at any time owned by VCA-7,
upon terms and conditions specified in Written Instructions.
(g) NO DUTY TO ASCERTAIN AUTHORITY. The Custodian shall not be
under any duty or obligation to ascertain whether any Securities at any
time delivered to or held by it for VCA-7 are such as may properly be
held by VCA-7 under the provisions of the VCA-7 Documents and
Prospectus.
(h) COMPENSATION OF THE CUSTODIAN. The Custodian shall be
entitled to receive, and VCA-7 agrees to pay the Custodian, such
compensation as may be agreed upon from time to time between the
Custodian and VCA-7 pursuant to Section 3 herein.
(i) RELIANCE ON INSTRUCTIONS. The Custodian shall be entitled to
rely upon any Instructions in accordance with Section 1, paragraph (d)
hereof reasonably believed by the Custodian to be genuine and to conform
to the requirements of this Agreement.
(j) INSPECTION OF BOOKS AND RECORDS.
(1) The books and records of the Custodian shall be
open to inspection and audit at reasonable times
by officers and auditors or independent public
accountants employed by VCA-7, by employees or
agents of the Securities and Exchange Commission
and by employees or agents of state insurance
departments.
(2) The Custodian or its agent, if any, that deposits
the Securities shall promptly provide VCA-7 with
any report received by the Custodian on the system
of internal accounting control of the Book-Entry
System or the Depository and with such reports on
its own systems of internal or other accounting
control as VCA-7 may reasonably request from time
to time, except as such reports may be required to
be kept confidential by law or governmental
action.
8. POL*ARIS
MBL Life and VCA-7 understand that they have the option to elect
to participate in Custodian's POL*ARIS Service (an on-line system) which
provides custody clients, on a daily basis, the ability to view on-line
or to print out hard copy of: (i) all transactions involving the
delivery in and out of Securities on a free or payment basis; (ii)
payments of principal and interest or dividends; (iii) pending
transactions and fails; and (iv) schedules of custody account holdings
plus the market values thereof.
MBL Life and VCA-7 have elected to subscribe to the POL*ARIS
Service. MBL Life and VCA-7 shall be fully responsible for the security
of their connecting terminal(s), access thereto, the proper and
authorized use thereof and the initiation and application of continuing
effective safeguards. In this connection, except for any instance
involving Custodian's own gross negligence or willful misconduct, and in
addition to any other undertakings by MBL Life and VCA-7 in this
Agreement, MBL Life and VCA-7 agree to indemnify Custodian for any loss
or damage resulting from or arising by reason of any improper or
unauthorized use of such terminal as a result of any negligence, willful
misfeasance, or willful misconduct by MBL Life and VCA-7 or an
investment adviser approved by MBL Life and VCA-7 for access to POL*ARIS
on its or their premises. In no event shall MBL Life or VCA-7 be liable
for special, indirect, or consequential damages.
To the extent that the POL*ARIS Service shall include market
values of VCA-7's holdings, MBL Life and VCA-7 acknowledge receipt from
Custodian of its advices that the Custodian now obtains and will in the
future obtain such information from outside sources (presently Mellon
Invest Data Corporation and Telstat) which Custodian deems to be
reliable and confirms that Custodian does not verify, represent or
warrant either the accuracy or the completeness of any such information
furnished or transmitted by or through the POL*ARIS Service.
9. TERM AND TERMINATION
(a) This Agreement shall become effective on the date first set
forth above (the "Effective Date") and shall continue in effect
thereafter as the parties may mutually agree.
(b) Either of the parties hereto may terminate this Agreement by
giving to the other party a notice in writing specifying the date of
such termination, which shall be not less than ninety (90) days after
the date of receipt of such notice. In the event such notice is given
by VCA-7, it shall be accompanied by a certified resolution of VCA-7's
Management Committee, electing to terminate this Agreement and
designating a successor custodian or custodians, which shall be a person
qualified to so act under the 1940 Act. In the event such notice is
given by the Custodian, VCA-7 shall, on or before the termination date,
deliver to the Custodian a certified resolution of VCA-7's Committee,
designating a successor custodian or custodians. In the absence of such
designation by VCA-7, the Custodian may designate a successor custodian,
which shall be a person qualified to so act under the 1940 Act. If VCA-
7 fails to designate a successor custodian, VCA-7 shall upon the date
specified in the notice of termination of this Agreement and upon the
delivery by the Custodian of all Securities (other than Securities held
in the Book-Entry system which cannot be delivered to VCA-7) and cash
then owned by VCA-7, be deemed to be its own custodian and the Custodian
shall thereby be relieved of all duties and responsibilities pursuant to
this Agreement, other than the duty with respect to Securities held in
the Depository or Book-Entry System which cannot be delivered to VCA-7.
(c) Upon the date set forth in such notice under paragraph (b) of
this Section 9, this Agreement shall terminate to the extent specified
in such notice, and the Custodian shall upon receipt of a notice of
acceptance by the successor custodian on that date deliver to the
successor custodian all Securities and cash then held by the Custodian.
Upon termination, MBL Life shall pay to the Custodian such compensation
as may be due as of the date of such termination and shall reimburse the
Custodian for its reasonable costs, expenses and disbursements
authorized by this Agreement. If, 15 days prior to the date set forth
in such notice of termination as specified in 9(b) above ("Termination
Date"), any compensation, costs, fees, expenses and disbursements
("Compensation") due the Custodian authorized by this Agreement remain
unpaid, Custodian shall provide reasonable notice to MBL Life of such
nonpayment, together with a demand for payment. Upon receipt of such
notice, MBL Life shall pay, by 5 days prior to the Termination Date,
such Compensation which remains unpaid. If, by 5 days prior to the
Termination Date, MBL Life has not so paid such Compensation, Custodian
shall have all rights and privileges to obtain such payment in
accordance with the provisions of Section 5(e) of this Agreement.
10. MISCELLANEOUS
(a) Annexed hereto as APPENDIX A and APPENDIX B are
certifications signed by two (2) of the present officers of VCA-7
setting forth the names and signatures of the present Authorized Persons
of VCA-7 authorized to perform on behalf of VCA-7 the duties specified.
VCA-7 agrees to furnish to the Custodian new certification in similar
form in the event that any such present Authorized Person of VCA-7
ceases to be an Authorized Person of VCA-7 or in the event that other or
additional Authorized Persons of VCA-7 are elected or appointed. Until
such new certification shall be received, the Custodian shall be fully
protected in acting under the provisions of this Agreement and
modifications hereto, executed upon Instructions given by the present
Authorized Persons of VCA-7 as set forth in the last delivered
certification.
Annexed hereto as APPENDIX C is a certification signed by two (2)
authorized officers of the Custodian setting forth the names and
signatures of the present Authorized Persons of the Custodian authorized
by the Custodian to execute and modify agreements and fee schedules on
behalf of the Custodian. The Custodian agrees to furnish to VCA-7 new
certification in similar form in the event that any such present
Authorized Person of the Custodian ceases to be an Authorized Person of
the Custodian or in the event that other or additional Authorized
Persons of the Custodian are elected or appointed. Until such new
certification shall be received, VCA-7 shall be fully protected in
acting under the provisions of this Agreement and modifications hereto
executed by the present Authorized Persons of the Custodian as set forth
in the last delivered certification.
(b) Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Custodian, shall be
sufficiently given if addressed to the Custodian and mailed or delivered
to it at its offices at 34 Exchange Place, Jersey City, New Jersey
07302, Attention: Insurance Administration, or at such other place as
the Custodian may from time to time designate in writing.
(c) Any notice or other instrument in writing, authorized or
required by this Agreement to be given to MBL Life or to VCA-7, shall be
sufficiently given if addressed to VCA-7 and mailed or delivered to MBL
Life at its offices at 520 Broad Street, Newark, New Jersey 07102-3111
or at such other places as VCA-7 may from time to time designate in
writing.
(d) This Agreement may not be amended or modified in any manner
except by a written agreement executed by both parties with the same
formality as this Agreement, and as may be permitted or required by the
1940 Act.
(e) This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by VCA-7 without
the written consent of the Custodian, or by the Custodian without the
written consent of VCA-7 authorized or approved by a resolution of the
Committee, and any attempted assignment without such written consent
shall be null and void.
(f) This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey, without reference
to principles of conflicts of law.
(g) It is expressly agreed that the obligations of VCA-7
hereunder shall not be binding personally upon any of the Committee
members, nominees, officers, agents, or employees of VCA-7, but shall
bind only the property of VCA-7 as provided in the VCA-7 Documents. The
execution and delivery of this Agreement have been authorized by the
Committee of VCA-7 and such authorization by a member of the Committee
shall not be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the
property of VCA-7 as provided in the VCA-7 Documents.
(h) The captions of this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
(i) This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts
shall, together, constitute only one instrument.
(j) The Custodian hereby represents and warrants:
(i) That this Agreement is legal, valid and binding,
and enforceable in accordance with its terms, and
(ii) That the Custodian is qualified as a custodian
under Section 26(a) of the 1940 Act, and covenants
that it will remain so qualified, or, upon ceasing
to be so qualified, shall designate a successor
Custodian that is so qualified.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunder duly authorized
as of the day and year first above written.
MBL VARIABLE CONTRACT ACCOUNT-7
ATTEST:
________________________ By: ______________________
Judith C. Keilp David A. James
Secretary Chairman
MBL LIFE ASSURANCE CORPORATION
ATTEST:
________________________ By: _______________________
Christine M. Dempsey Albert W. Leier
Director Financial Reporting Vice President and Controller
BANKERS TRUST COMPANY NEW JERSEY
ATTEST: LIMITED as Custodian
________________________ By: ________________________
Exhibit (11)
[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-7 on Form N-3 (File No. 333-01151 and 811-3853) of our report
dated February 10, 1998, on our audit of the financial statements and
financial highlights of MBL Variable Contract Account-7 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
Exhibit (11)
[Arthur Andersen LLP Letterhead]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Management Committee and Contract Holders
Mutual Benefit Variable Contract Account-7:
We have audited the accompanying financial highlights of Mutual Benefit
Variable Contract Account-7 (the "Account") for each of the two years in
the period ended December 31, 1993. The financial highlights are the
responsibility of the Account's management. Our responsibility is to
express an opinion on these financial highlights based on our audits.
The financial highlights for each of the 6 years in the period ended
December 31, 1991 were audited by other auditors whose reported dated
February 21, 1992 included explanatory comments on the matter described
below.
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 highlights
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial highlights. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial highlight presentation. We believe
that our audits provide a reasonable basis for our opinion.
On July 16, 1991, the Superior Court of New Jersey entered an order (the
"Order") appointing the New Jersey Insurance Commissioner as
Rehabilitator of The Mutual Benefit Life Insurance Company.
In our opinion, the financial highlights referred to above present
fairly, in all material respects, the financial highlights of Mutual
Benefit Variable Contract Account-7 for each of the two years in the
period then ended December 31, 1993 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN, LLP
Roseland, New Jersey
February 7, 1994
Exhibit (11)
[Arthur Andersen LLP Letterhead]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To MBL Variable Contract Account-7
As independent public accountants, we hereby consent to the use of our
report dated February 7, 1994 on the financial highlights of MBL
Variable Contract Account-7 and to all references to our firm included
in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
April 28, 1998
Exhibit (12)
[MBL Life Assurance Corporation Letterhead]
April 22, 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. 333-01151 of MBL Variable Contract Account-7 (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 Variable Annuity
Contracts (the "Contracts") assumed by MBL Life Assurance Corporation
("MBL Life"). The Contracts are designed to provide retirement and
other benefits for persons covered under plans qualified for Federal
income tax advantages under certain sections of the Internal Revenue
Code of 1986, as amended. 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 ad 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.
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
Exhibits (16)(A) & (B)
MBL Variable Contract Account-7
ITEM: 28(b)(16)(A) SCHEDULE OF COMPUTATION FOR YIELD QUOTATION
Unit Unit Unit Base
Value - Value = Net Value = Period X 365/7 = 7-Day
12/31/97 12/24/97 Change / 12/24/97 Return Yield
$19.658 $19.639 = .019 / $19.639 = .0009675 = 5.04%
ITEM: 28(b)(16)(B) SCHEDULE OF COMPUTATION FOR EFFECTIVE
YIELD QUOTATION
Effective Yield = [(Base Period Return + 1)365/7] - 1
= [(.0009675 + 1)365/7] - 1
= 5.17%
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-7 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-7 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-7 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
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE ANNUAL REPORT OF MBL VARIABLE CONTRACT ACCOUNT-7 DATED DECEMBER
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000728568
<NAME> MBL VARIABLE CONTRACT ACCOUNT-7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1898
<INVESTMENTS-AT-VALUE> 1898
<RECEIVABLES> 0
<ASSETS-OTHER> 20
<OTHER-ITEMS-ASSETS> 0
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<NET-CHANGE-IN-ASSETS> (82)
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 15
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<PER-SHARE-NAV-BEGIN> 18.706
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<PER-SHARE-NAV-END> 19.658
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<AVG-DEBT-PER-SHARE> 0
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