<PAGE>
MBL VARIABLE CONTRACT ACCOUNT -- 7
To Contract Holders and Participants:
During the course of 1997, the Federal Reserve Board altered short term interest
rates just one time. In March, the Board tightened monetary policy, the result
of which was to increase the target Federal Funds rate 25 basis points (i.e.,
0.25%) to its current level of 5.50%. The Federal Discount rate was left
unchanged at 5.00%. The 90-day Treasury Bill currently (as of January, 1998) is
yielding approximately 5.17%.
Gross Domestic Product ("GDP") for the fourth quarter was 4.3%, indicative of
strong economic growth in the quarter. Unemployment, which reached a 27-year low
of 4.6% in November, rose slightly in December, to 4.7%. We believe these were
compelling reasons for the Federal Reserve to hike interest rates. Many
investors expected an increase in short term interest rates at the December
Federal Open Market Committee meeting. However, the economic problems that
developed in Asia left the financial markets in a very vulnerable state,
prompting the Federal Reserve to refrain from monetary policy change.
Recent economic data, however, have shown some signs of a slowing economy. The
Consumer Price Index ("CPI") and The Producer Price Index ("PPI") for December
were benign. CPI rose a slight 0.1% and PPI was down 0.2%. This indicates that
there is no significant upward pressure on prices and that inflation is almost
non-existent. Durable goods orders slipped 0.2% (excluding the volatile
transportation sector). The National Association of Purchasing Managers ("NAPM")
monthly index decreased from 54.5 in November to 53.1 in December. The NAPM
index measures manufacturing growth. However, retail sales in December increased
by 0.7%.
We thank you for your continued confidence in MBL Variable Contract
Account -- 7. We remain committed to providing you with quality investment
management and superior customer service. Following are the audited financial
statements of the Account as of, and for the period ended, December 31, 1997.
Sincerely,
<TABLE>
<S> <C>
[SIG] [SIG]
William G. Clark David A. James
Senior Vice President Senior Vice President, Securities
MBL Life Assurance Corporation MBL Life Assurance Corporation
FOR FIRST PRIORITY INVESTMENT
CORPORATION
</TABLE>
January 31, 1998
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Management Committee and Contract Holders
MBL Variable Contract Account -- 7
We have audited the accompanying statement of assets and liabilities of MBL
Variable Contract Account -- 7 (the "Account") as of December 31, 1997, the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the four years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Account's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for the year ended December 31, 1993 were audited by other auditors
whose report dated February 7, 1994 expressed an unqualified opinion on that
statement, with an explanatory paragraph relating to Mutual Benefit Life
Insurance Company in Rehabilitation.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MBL
Variable Contract Account -- 7 as of December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the four years in the period then ended, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
February 10, 1998
2
<PAGE>
MBL VARIABLE CONTRACT ACCOUNT -- 7
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments (99.0%):
U.S. Treasury Bill, principal amount $1,900,000, 5.12%, due January 8,
1998................................................................... $1,898,108
Cash....................................................................... 20,124
----------
Total assets............................................................... 1,918,232
LIABILITIES -- NOTE C...................................................... --
----------
NET ASSETS................................................................. $1,918,232
----------
----------
NET ASSETS ATTRIBUTABLE TO VARIABLE ANNUITY CONTRACT HOLDERS
97,578 accumulation units at $19.658 per unit............................ $1,918,232
----------
----------
</TABLE>
See notes to financial statements.
3
<PAGE>
MBL VARIABLE CONTRACT ACCOUNT -- 7
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
Investment income:
Interest................................................... $ 96,251
Expenses -- Notes C and D:
Investment advisory fee.................................... $ 7,741
Expense and expense risk charge............................ 7,170
-----------
14,911
Less expenses waived and assumed by MBL Life -- Note C..... (14,911) --
----------- -----------
Net investment income...................................... 96,251
Net realized loss from investment transactions............. (15)
-----------
Net increase in net assets resulting from operations..... $ 96,236
-----------
-----------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS
Net investment income........................................................ $ 96,251 $ 101,352
Net realized gain (loss) from investment transactions........................ (15) 70
------------ ------------
Net increase in net assets resulting from operations....................... 96,236 101,422
FROM CONTRACT HOLDERS' TRANSACTIONS -- NOTES B AND E
Accumulation units surrendered............................................... (177,865) (151,330)
------------ ------------
Decrease in net assets resulting from Contract Holders' transactions....... (177,865) (151,330)
------------ ------------
Net decrease in net assets................................................. (81,629) (49,908)
NET ASSETS
Beginning of year............................................................ 1,999,861 2,049,769
------------ ------------
End of year.................................................................. $ 1,918,232 $ 1,999,861
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
4
<PAGE>
MBL VARIABLE CONTRACT ACCOUNT -- 7
NOTES TO FINANCIAL STATEMENTS
NOTE A -- ACCOUNTING POLICIES
MBL Variable Contract Account -- 7 (the "Account") is a diversified open-end
management investment company registered under the Investment Company Act of
1940, as amended, and a separate account of the MBL Life Assurance Corporation
("MBL Life") established under the Insurance Laws of New Jersey. MBL Life
provides for variable accumulation and benefits under the Account's contract by
crediting annuity considerations to the Account or fixed accumulation and
benefits to the Companion Contract, as elected by the Participant (see Note B).
Significant accounting policies of the Account are as follows:
INVESTMENTS -- Investments in short-term securities which mature in 60 days or
less are valued at amortized cost, which approximates market value. Short-term
securities which mature in more than 60 days are valued at market values based
on quoted bid and asked prices or yield equivalent. Investment transactions are
recorded on trade date. Interest is recorded as earned on an accrual basis.
FEDERAL INCOME TAXES -- The Account does not provide for Federal income taxes
since the operations of the Account form a part of, and are taxed with, those of
MBL Life which is taxed as a "life insurance company" under the Internal Revenue
Code. Income and capital gains, if any, of the Account attributable to the
Contract Holders are excluded in the determination of the Federal income tax
liability of MBL Life.
REALIZED GAINS -- The net realized gain (loss) on investment transactions is
determined on the basis of identified cost.
ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from these estimates.
NOTE B -- REHABILITATION
On April 29, 1994, the Third Amended Plan of Rehabilitation (the "Plan") of
Mutual Benefit Life Insurance Company in Rehabilitation ("Mutual Benefit Life")
was implemented. The Plan, as confirmed by the Superior Court of New Jersey (the
"Court"), reaffirmed the status of the Account as a separate account. Pursuant
to the terms of the Plan, substantially all of the assets and liabilities of
Mutual Benefit Life were transferred to MBL Life. In addition, the assets and
liabilities of the Account were transferred to a new separate account of MBL
Life. Also, as of April 29, 1994, the ownership of the stock of MBL Life was
transferred to a Trust, of which the New Jersey Commissioner of Banking and
Insurance ("Commissioner") is the sole Trustee. On January 9, 1997, the Court
entered an order approving a Settlement Agreement among the Commissioner in her
capacity as Rehabilitator and Trustee, MBL Life and the Class Four Creditors, as
identified in the Plan. Class Four Creditors and eligible Policyholders/Contract
Holders who remain with MBL Life after the end of the Rehabilitation Period
(December 31, 1999) will share in the future value of MBL Life. The sharing will
be based on a ratio of 70% to the Class Four Creditors and 30% to eligible
Policyholders/Contract Holders. If MBL Life does not meet its capital growth
projections, the Policyholder/Contract Holder share may be reduced below 30%.
5
<PAGE>
NOTE B -- REHABILITATION -- (CONTINUED)
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 MBL
Life before the end of the Rehabilitation Period. Any resulting transaction must
go through an extensive approval process including reviews by the New Jersey
Department of Banking and Insurance, the Superior Court of New Jersey, and the
then existing Class Four Creditors.
The Plan permits redemptions of amounts from the Account to continue, as
requested, and transfers to MBL Variable Contract Account -- 2 for the purchase
of variable annuities. Annuity payments which commenced prior to July 16, 1991
and any death benefits payable, both before and after July 16, 1991, are
unaffected and will continue to be paid under the terms of the Plan. While
deposits may be made to the Account by participants under existing contracts,
applications for new contracts are not being accepted. The terms of the Plan
currently prohibit or limit redemptions from the Companion Contract and
transfers between the Account and the Companion Contract.
Approximately 52% of the Accounts outstanding units are owned by four separate
Contract Holders.
NOTE C -- EXPENSE AND EXPENSE RISK CHARGES
The contracts offered by the Account provide that a charge, at the annual rate
of .37%, be made daily against Account assets for expenses and expense risks
assumed by MBL Life. MBL Life has informed the Account that it would not assess
the expense and expense risk charges against the Account's assets and would
assume payment of the investment advisory fee (see Note D). This waiver of
charges to the Account is for one year periods ending on May 1. Each year
hereafter the waiver may be extended for additional one year periods. MBL Life
reserves the right to reinstate the expense and expense risk charges and to
cease assumption of payment of the investment advisory fee at the expiration of
any waiver period.
NOTE D -- INVESTMENT ADVISORY AND SERVICE AGREEMENTS
The Account has an investment advisory, a service and a distribution agreement
with First Priority Investment Corporation ("FPIC"). FPIC is a wholly-owned
subsidiary of MBLLAC Holding Corporation, a wholly-owned subsidiary of MBL Life.
Under the investment advisory and service agreement, FPIC receives a periodic
fee at the annual rate of .40% of the first $300,000,000 of the Account's
average daily net assets, .35% of the next $400,000,000 of such value, and .30%
of all such value in excess of $700,000,000. (See Note C).
The compensation of each "disinterested" member of the Management Committee is
included in those expenses and expense risks assumed by MBL Life as described in
Note C. Such fees are paid at the rate of $400 per meeting attended plus an
annual retainer of $1,200. No remuneration has been paid to any other member or
officer. Aggregate fees paid during the year ended December 31, 1997 to the
Account's "disinterested" members amounted to $8,000.
6
<PAGE>
NOTE E -- ACCUMULATION UNIT TRANSACTIONS
The change in the number of accumulation units outstanding was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Balance at beginning of year.......................................... 106,910 115,163
Accumulation units surrendered........................................ (9,332) (8,253)
--------- ---------
Balance at end of year................................................ 97,578 106,910
--------- ---------
--------- ---------
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for each accumulation unit outstanding throughout the years
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1996 1995 1994 1993
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value,
Beginning of Year......... $ 18.706 $ 17.799 $ 16.864 $ 16.238 $ 15.772
---------- -------- -------- -------- --------
Net investment income....... 0.952 0.907 0.935 0.626 0.466
Net gain from investment
transactions.............. -- -- -- -- --
---------- -------- -------- -------- --------
Net increase in net assets
resulting from
operations................ 0.952 0.907 0.935 0.626 0.466
---------- -------- -------- -------- --------
Accumulation Unit Value, End
of Year................... $ 19.658 $ 18.706 $ 17.799 $ 16.864 $ 16.238
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
Total Return................ 5.09% 5.10% 5.54% 3.86% 2.95%
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year
(thousands)............... $ 1,918 $ 2,000 $ 2,050 $ 2,221 $ 2,519
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
Ratio of Expenses(1) to
Average Net Assets........ 0.00% 0.00% 0.00% 0.00% 0.00%
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
Ratio of Net Investment
Income(1) to Average Net
Assets.................... 5.0% 5.0% 5.4% 3.8% 2.9%
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
</TABLE>
- --------------------------------
(1) Without waiver and assumption of expenses by MBL Life, the ratio of expenses
to average net assets would have been 0.77% 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.)
7
<PAGE>
- ---------------------------------------------
MBL VARIABLE CONTRACT ACCOUNT -- 7
MBL Life Assurance Corporation
520 Broad Street - Newark, New Jersey 07102
- ---------------------------------------------
THIS REPORT HAS BEEN PREPARED FOR CONTRACT HOLDERS AND PARTICIPANTS IN MBL
VARIABLE CONTRACT ACCOUNT -- 7. IT IS NOT AUTHORIZED FOR OTHER DISTRIBUTION
UNLESS PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS WHICH INCLUDES
INFORMATION CONCERNING THE ACCOUNT AND THE APPLICABLE SALES COMMISSIONS.
FS-634 (2-98)
Annual Report
December 31, 1997
MBL VARIABLE
CONTRACT ACCOUNT -- 7
Group Variable Annuity Contracts
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